• Home
• /
• Business

Middle East air traffic outpaces global growth

DUBAI — Passenger traffic grew fastest at 18 per cent in the Middle East in October, far outpacing the global average growth, the International Air Transport Association, or IATA, said in its latest report.

However, the October passenger traffic was below the 23.9 per cent increase recorded in September, but far ahead of other growth markets including North America at 12.4 per cent, Europe 9.6 per cent and Asia-Pacific 7.3 per cent, it said.

The Middle East, which has a 10.7 per cent share of the international passenger market, also had the largest capacity expansion at 13.7 per cent compared to October 2009.

Globally, an economic reversal, external shock or rush to restore capacity poses the greatest threats to a rebound in in 2011, IATA Director-General and CEO Giovanni Bisignani said.

International traffic rose 10.1 per cent in October compared with a year earlier, the second straight double-digit expansion, though growth is returning to a “more normal” pattern as the end of 2010 approaches, Bisignani said in London. International passenger demand is now five per cent above the pre-crisis levels of early 2008.

The economic outlook “is anything but clear” and a gain in yields or fares that should spur airlines to an $8.9 billion profit for 2010 may be curbed if carriers add seats too quickly, he said, while a security incident or other external event could plunge carriers back into crisis. IATA says earnings will drop to $5.3 billion in 2011 as state cuts weigh on consumer demand. “We’re out of the woods, we will have two years of profit, but it’s a very fragile industry with a very weak balance sheet,” Bisignani said. “If we have an emergency, a volcano or something like this, with the financial situation of the banks completely different from five years ago, we’ll be in trouble.”

Demand has increased 8.5 per cent over the first 10 months, compared with a four per cent boost in capacity. That has pushed up the average load factor, a measure of seat occupancy, to 78.8 per cent and in the process allowed airlines to raise fares.

Bisignani said the gap between demand and capacity will narrow next year, with traffic up about six per cent and seating expanding five per cent, resulting in gains of no more than one per cent in yields, which he says could remain flat.

Mergers between carriers in different continents would help eliminate surplus seating and make it easier to borrow, said the executive, who steps down from IATA’s top job next year. Major deals have so far been limited to carriers in the same country or region, such as the British Airways Plc-Iberia Lineas Aereas de Espana SA tie-up due to be completed in the next few months.

“We have to handle capacity better and we have to be able to run this like a normal business, being able to consolidate,” Bisignani said.

The airline industry’s current profit margin of about one per cent and cost of capital of seven or eight per cent of borrowings means that it’s also “not very sexy for the investors,” he said.

Cargo traffic rose 14 per cent in October compared with a year earlier and may have reached a “turning point,” Bisignani said, with volumes ending a four-month decline.

Elsewhere, African carriers posted the next strongest growth with 13.3 per cent, followed by North America (12.4 per cent), Europe (9.6 per cent), Asia Pacific (7.3 per cent), and Latin America (4.9 per cent).

On the cargo side, the Middle East was again the best performer, with 22.7 per cent growth last month against the same period last year. Worldwide, freight demand rose by an average of 14.4 per cent.

Again, the region’s figure was slightly lower than the increase recorded in September, at 24.0 per cent.

“We are ending 2010 in much better shape than we were just 12 months ago. Airlines have turned losses into profit — albeit tiny,” Bisignani said.

issacjohn@khaleejtimes.com