‘Solid growth’ in air passenger demand for Mideast carriers seen

Global air travel rose 7.1percent in August compared to a year ago, the International Air Transport Association said. (File photo: Emirates)

Global air travel rose 7.1percent in August compared to a year ago, the International Air Transport Association (IATA) said in its “Air Passenger Market Analysis” for the month of August 2015.

The previous few months data showed some distortion from holiday impacts, but the August result confirms that the trend in air travel growth remains very strong, despite weakening economies in some regions.

International air travel on Middle Eastern carriers rose 13.7percent in August year-on-year. This is a slowdown on July, but that month’s results showed a positive bias owing to the timing of Ramadan.

Major economies in the Middle East, including Saudi Arabia and the United Arab Emirates, have seen slowdowns in non-oil sectors in Q2 2015 (Markit), but the rates of growth remain robust and this should help sustain solid growth in air passenger demand for local carriers.

International travel on Asia Pacific carriers rose by a strong 7.7percent in August year-on-year. Emerging Asia has experienced notable declines in trade activity in 2015 as well as slower than expected growth in China. Neither factor appears to be impacting international air travel on the region’s carriers, so far.

According to Markit, China’s manufacturing sector has been struggling during recent months, accompanied by weakness in export orders, causing some firms to cut employment at the steepest rates since 2009.

Economic recovery in the Eurozone and expectations for stronger demand in H2 in the US are supporting demand for international travel on carriers in these regions.

Carriers in these regions saw international RPKs rise 5.7percent and 4.5percent, respectively. Growth for Latin American carriers was a robust 6.7percent in August year-on-year.

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Regional trade volumes have shown strong improvement during H1 2015, and despite recessionary conditions in Brazil and Argentina, the increase in trade activity has provided a boost to business-related international travel.

International RPK growth for African carriers was weakest among all regions again this month, with volumes up by 3.6percent in August year-on-year.

Other than the July result, the trend over recent months has been very weak, with volumes year-to-date contracting 0.9percent.

The recent weakness has likely reflected adverse economic developments in parts of the continent, not least in its largest economy, Nigeria, which is highly reliant on oil revenues.

Looking through the volatility in monthly volumes, fundamental drivers suggest the weakness year-to-date could continue.

On domestic markets, India continues to record very strong growth, up 18.3percent, largely reflecting notable increases in service frequencies but also ongoing economic strength.

Supportive monetary policy is expected to help economic growth in India surpass that of China during the next 2 years.

By contrast, air travel in Australia increased only 1.7percent in August year-on-year. There are signs of improvements in the economy with business activity increasing over recent months, but income growth remains relatively subdued.

Domestic RPKs in China were up by a strong 13.6percent in August year-on-year. Recent developments in the Chinese economy, including the nation’s stock market experiencing its largest one-day fall since 2007, have increased concerns about further slowdown in the economy.

The growth trend in Chinese domestic RPKs, however, suggests that weakness in the economy may have already impacted demand earlier in the year with a flattening of volumes in March.

Positively though, the trend in China domestic RPKs has been stable since April 2015. There was another strong increase in air travel in Russia in August, with a rise of 10.9percent compared to a year ago.

Despite the nation’s economic woes, a combination of added capacity and a weak ruble has helped boost domestic air travel.

The US domestic air travel market was up by a robust 5.1percent, which is the second month of strong performance, particularly after weakness earlier in the year.

Although there are expectations for improvement in economic growth in Q2, part of the solid growth in domestic air travel we are seeing is related to an acceleration in capacity growth.

Domestic air travel in Japan recorded another month of weakness with RPKs falling 2.1percent year-on-year. This result is well below trend for 2015, and although the economy remains fragile, the expectation is that the weak yen should help support demand for domestic travel over international trips.

There has been some softening in global economic growth, mostly in emerging markets, but there is no sign of adverse impacts on RPK volumes.

Growth in air travel, particularly the more price sensitive economy class leisure travel, has received some support from lower fares.

The first chart below (RPKs adjusted for seasonal and holiday impacts) shows that after a moderation in volumes in June, the industry expanded in July and August to resume the robust growth trend
seen earlier in the year.

International air travel growth for carriers in all major regions was strong in August. Asia Pacific, Europe and North America recorded gains of 7.7percent, 5.7percent and 4.5percent, respectively year-on-year.

Emerging Asia has experienced notable declines in trade activity in 2015 as well as slower than expected growth in China.

Neither factor appears to be impacting international air travel on the region’s carriers to date. Economic recovery in the Eurozone and stronger demand conditions in H2 in the US are supporting international air travel on carriers in these regions.
 

This article was first published in the Saudi Gazette on Oct. 4, 2015.

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Last Update: Wednesday, 20 May 2020 KSA 09:45 - GMT 06:45
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