The International Air Transport Association has downgraded its 2012 forecast for airline profits from $4.9 billion to $3.5 billion. The biggest reason for the downgrade appears to be the economic unease permeating the eurozone.
Almost reinforcing IATA’s concern about the eurozone economy, the European Central Bank Thursday cut its key interest rate back another 0.25 percent, a move seen as a shoring up against a possible recession. The move mirrors the bank’s action in early November, when it reduced the main interest rate from 1.5 percent to 1.25 percent.
But recent numbers from a few European carriers send mixed messages, showing cargo and passenger traffic are being affected differently by the crisis. While Air France-KLM saw a 2.5 percent rise in passenger traffic in November, cargo traffic fell 8.1 percent. In October, Lufthansa saw a year-over-year passenger traffic bump of 2.8 percent, but load factor declined by 3.9 percent. Traffic handled by Lufthansa Cargo declined modestly at 1.2 percent.
The disconnect between increasing airline passenger numbers and the fall in cargo volumes has unpleasant echoes of the deepening economic crisis in late 2008 for Des Vertannes, global head of cargo at IATA.
If the speed of air cargo’s recovery from the first phase of the crisis in 2010 had shown anything, it was that when cargo has a good year, it provides a massive boost to airlines’
bottom lines, Vertannes told a cargo media briefing at IATA’s headquarters in Geneva. This may have served to increase airline CEOs’ awareness of the importance of cargo to their overall fortunes. He cited Thai Airways’ formation of a separate cargo business unit and the fact that it is now keen to acquire freighters.
However, the unprecedented series of events outside the industry’s control in 2011 — from the Arab Spring to continuing oil price rises, the Japanese earthquake, the Thai floods and and the uncertain future of the euro — has hurt carriers badly.
Brian Pearce, chief economist at IATA, underlined that passenger load factors remain close to all-time highs, consistently in the 78-79 percent range through 2011. Good asset utilization is one of the key reasons why airlines have managed to prevent cash flow and profitability from spiraling downward. Aircraft daily hours recovered in mid-2010 and have maintained levels of more than eight hours per day.
Yet cargo volumes have been shrinking since mid-year. This was “the canary in the coalmine,” as both governments and private households cut back on their budgets, Pearce said. Global freight transport-kilometers were 5 percent lower in October than in May.
Intra-Asia airfreight traffic was more than 12 percent down in the first three quarters of the year while passenger numbers rose 4 percent. The imbalance is just as marked on the key trans-Pacific lane (5 percent down) and Asia-Europe (2 percent down). Only trans-Atlantic freight traffic was noticeably stronger, with German auto parts still shifting to U.S. assembly lines and other goods continuing to flow.
The weakness in Asia reflected a falloff in garments and most markedly in electronic goods. Semiconductor shipments are falling and remain an accurate marker of airfreight’s wider fortunes, with the two graphs currently in perfect lockstep.
Pearce said the precipitous collapse in the market seen in 2008, when inventory soared relative to sales, was not evident this time around. Sliding cargo load factors had put yields under severe pressure, however, and new wide-body capacity exacerbated the problem.
“World trade has essentially stopped growing,” Pearce said. He foresaw more weakness ahead. Express traffic was holding up better than general freight volumes, but the confidence of manufacturers’ purchasing managers remains low. “Airfreight is the first thing they’ll cut,” he said.
Maritime trade has out-performed air in the last 18 months, with a shift to ocean evident as products mature and the value-to-weight argument no longer justifies airfreight rates.
IATA predicts the global airline passenger market will slow from six percent growth this year to four percent next, but that the cargo market will stay broadly flat through 2012. Even that looks optimistic set against the OECD’s prediction of doom if Europe cannot find a way through its financial troubles. Should the Eurozone crisis deteriorate into a full-blown banking crisis, OECD estimates the EU will descend into a deep recession and the U.S. into a small one, pulling down growth in China and other emerging economies.
Air Cargo World correspondent Martin Roebuck has been on the scene in Geneva, reporting IATA’s cargo moves.