Tuesday, April 03, 2012

International Air Transport Association Warns of Political Risks to Airline Sector

The Wall Street Journal

PARIS—Political risks are increasingly threatening the health of the international airline sector amid further rises in fuel prices despite the industry's better management of capacity and demand, its main trade group said Tuesday.

Global passenger capacity expanded by 7.4% on the year in February, lagging behind a 8.6% increase in demand, allowing airlines to maintain a 75.3% load factor, up from 74.4% in February 2011, the International Air Transport Association said.

"The outlook is fragile," said Tony Tyler, IATA's chief executive. "While the threat of a European financial meltdown seems more remote than it did only a few months ago, the political risks that aviation faces are growing.

"The U.K. is increasing the onerous Air Passenger Duty, [while] Europe is adding to the burden with the inclusion of international aviation in its emissions trading scheme, the extraterritorial aspects of which are creating the possibility of a trade war that nobody can afford," Mr. Tyler said.

"The exact conditions vary from country to country, but around the world we see ill-conceived policy initiatives that over-regulate, excessively tax or otherwise restrain the aviation industry."

At the same time, the business outlook remains cloudy.

"Improvements in business confidence slowed in February. This will limit the potential for business class travel growth and it implies that an uptick for cargo is not imminent," Mr. Tyler said.

"At the same time, airlines trying to recoup rising fuel costs could risk reduced volumes on price sensitive market segments," he said. "Weak economic conditions and rising fuel costs are a double-whammy that an industry anticipating a 0.5% margin can ill afford."

Last month, IATA said that though the industry is doing a better job of managing capacity and demand, another rise in fuel prices could leave it nursing a loss of more than $5 billion this year. Industry capacity is expected to rise by 3.2% in 2012 while passenger and cargo demand is seen up 3.6%, according to IATA's latest forecast.

IATA said passenger demand rose 8.6% in February, with cargo demand up 5.2% from a year ago.

For international travel, the improvement was widespread with Middle Eastern and African carriers recovering from the impact of political unrest in North Africa and the Middle East in early 2011 while the strongest growth was in Latin America, with demand up 13% against an 11% rise in capacity.

Demand rose a relatively subdued 4.9% in North America against a 4.3% rise in capacity, while demand in Europe climbed 7.6% compared with a 5% rise in capacity. In the Asia Pacific region, demand for air travel rose 5.9%, lagging behind a 6.2% rise in capacity, with airlines' load factor flat at 75.4%.

Brazil, China, and India continued to experience rapid growth in domestic travel, up 18%, 10% and 12% respectively. But while China's load factor remained a high 79.3%, increase in capacity ran ahead of demand in Brazil and India. 

Source: http://online.wsj.com

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