Airline Industry Predicts More Tough Times Ahead

Business in the international aviation industry is showing a continual downward trend, with air travel growth slowing and freight activity plummeting due to the pullback in the global economy and consumer confidence.

“The industry has shifted gears downward,” said International Air Transport Association (IATA) chief executive Tony Tyler in a statement. “With business and consumer confidence continuing to slump there is not a lot of optimism for improved conditions anytime soon.”

According to the IATA, the air-freight market dropped by 3.8 percent in August compared to a year ago, as well as a drop of 1.8 percent compared with the prior month. The airline industry’s leading trade body announced that global air cargo has fallen by more than half. Concerns about U.S. and European consumer spending and the possibility of slipping back into recession continue, and the impact of the higher cost of exports from Asian manufacturers due to rising wages is exacerbating the problem.

Tyler, the former head of Hong Kong-based Cathay Pacific, also said, “The cargo trends are certainly inauspicious and if cargo is again playing the role of leading indicator, then economies—and by extension airlines—are in for a difficult time.”

Given that the Asian market accounts for more than 50 percent of the freight market, a fall in Asia of 5.4 percent in August was substantial for the industry.

“[Asia’s] cargo numbers are driven by consumption in Europe and North America, so if their numbers are weak it is because people in Europe and North America are not buying products.”

Passenger statistics appear to be stronger than freight, but still show a decline. Growth in July was around 5 percent, whereas August traffic increased by only 4.5 percent year-over-year.

The membership of IATA consists of 230 airlines, such as British Airways, Virgin Atlantic, and American Airlines. Low budget European airlines such as Ryanair and easyJet are not included, so their contributed travel growth could increase the calculated profit in air travel.

The IATA predicts projected airline industry net income to fall from an estimated $6.9 billion in 2011 to $4.9 billion in 2012.

“Airlines are bracing for tough times ahead,” Tyler said in the statement. “Economic uncertainty owing to the European sovereign debt crisis and the growing likelihood of a protracted period of slow growth in developed economies mean the industry will be even more focused on reducing costs.”