Monday, June 6, 2011

IATA says business travel demand holds up

Business travel demand is holding up better than price-sensitive leisure travel in a sign of business confidence and a recovery in world trade, the chief economist of the International Air Transport Association (IATA) said on Tuesday.

Airlines also expect renewed growth in air cargo demand in the second half of this year as movements of capital goods and high-value components pick up, Brian Pearce said.

Air cargo demand soared as the global economy emerged from recession last year, driven by restocking and just-in-time supply chains.

Pearce said Chinese domestic traffic, which is often regarded as a barometer of the domestic stimulus in the world's second-largest economy, had dipped temporarily as authorities moved to head off inflation but should return to a path of structural growth.

He warned that record deliveries of some 1,300 to 1,400 jet and turboprop aircraft in 2011 created a "clear risk of overcapacity" in some markets, but noted that the aviation industry outlook in Asia ex-Japan remained positive.

Japan, he said, should show a "pretty full recovery" in aviation traffic by the end of the year as the impact on global supply chains from the March 11 earthquake and tsunami tapers off.

IATA, which accounts for 93 percent of global air traffic, is forecasting about 8 percent annual growth in revenues this year to about $600 billion (366 billion pounds). Air cargo revenue is seen increasing about 9 percent to $72 billion. Profit however is forecast to plunge more than 75 percent to $4 billion as the high price of oil and increasing competition cut into margins. The March 11 earthquake and tsunami in Japan and the political eruptions in Arab nations have also affected revenue.

ASIA TO LEAD Paul Griffiths, the CEO of Dubai airport, one of the busiest in the world for international cargo and international passengers, said aviation figures bore out the pattern of growth in Asia and stagnation in Europe and the United States. "The U.S. and Europe are certainly reaching some sort of plateau in the growth of trade and therefore the aviation industry in those region is not growing as quickly," he said. "But where we see the great opportunity is the emerging markets such as China and India as being the new power houses of the world economy," he said.

Fedex Express, the airline unit of Fedex Corp , said it was upbeat on the cargo business overall and said Asia would lead the way. "The momentum we see in the air cargo sector is strong," said CEO David Bronczek. "We see it coming strong out of Asia-Pacific, of course, led by China. So I think that the momentum will continue as long as the oil issue doesn't throw a wrench in the works to throw off the economy in the United States and certainly globally. That is a very big concern."

Bruised by wild swings in oil prices in 2008, global airlines may be less inclined to ramp up hedging for fuel purchases this year despite the risk of facing billions of dollars in additional fuel bills.

IATA figures show carriers will hedge 30 percent of their fuel purchases in 2011, up from 10-20 percent last year.