Iata blames credit crunch for slower passenger traffic growth

PUBLISHED : Wednesday, 27 February, 2008, 12:00am
UPDATED : Wednesday, 27 February, 2008, 12:00am

The credit crunch in the United States has started to take its toll on air traffic.

Last month, international passenger numbers rose 4.3 per cent from January last year, down from 6.7 per cent in December and 7.4 per cent for the full year, according to the International Air Transport Association, which represents 94 per cent of international scheduled flights.

'Fasten your seat belt, turbulence is likely ahead,' Iata director general Giovanni Bisignani said yesterday at a media conference.

Figures for last month reflected quite fairly the impact of the subprime crisis on business travel, given that holiday travel had finished by then, Mr Bisignani said.

Of the various regions, Europe suffered the biggest drop, with just 0.3 per cent year-on-year growth last month, as opposed to 5.5 per cent in December. Freight increase slowed to 0.4 per cent. Iata also noted that the strong euro had weakened demand for passenger traffic and cargo volume there.

North America posted a 5 per cent growth in passenger numbers, down from 6 per cent in December. Domestic traffic shrank 3 to 4 per cent as carriers reshuffled airplanes to fly transatlantic routes. The increase in capacity would lead to a margin squeeze later this year as ticket prices would fall, Mr Bisignani said.

Traffic demand in Asia-Pacific expanded 5.7 per cent, slower than December's gain of 6.2 per cent.

The region's carriers would suffer from oversupply since capacity growth was 2.2 percentage points ahead of demand, Iata said, adding that the gap between supply and demand in the region would erode profitability.

Lower demand, high jet fuel prices and shrinking margins probably would lead to downward revisions in this year's profit forecasts for airlines next month.

Iata had forecast in October last year, before the spread of the subprime problems, that the world's airlines could make a profit of US$5 billion, or 1 per cent of US$500 billion in sales, this year, down from US$5.6 billion last year.

Given the wider impact of the credit crunch and the surge in the price of crude oil from about US$78 in October to an average of US$88 this year to date, the aviation industry's profit margin is expected to be squeezed further.

To offset the high fuel costs and traffic decline, Iata will negotiate for better deals on airport charges and co-ordinate air traffic control to save on fuel. Last year, Iata saved for the industry US$5.7 billion in airport charges and shorter flight plans.