Air cargo demand compromised by high oil prices

The International Air Transport Association announced global traffic results for March showing that total freight demand climbed 0.3 percent compared to the same month last year

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The International Air Transport Association (IATA) announced global traffic results for March showing that total freight demand climbed 0.3 percent compared to the same month last year.

Comparisons with March last year are affected by events that depressed passenger demand in 2011, including the Arab Spring, which disrupted travel in the Middle East and North Africa beginning in February 2011 and the earthquake and tsunami in Japan in March 2011 that impacted air travel across the Asia-Pacific region. IATA estimates that the year-on-year rise in air travel in March was about two percentage points higher than it would otherwise have been in the absence of these events.

Cargo demand, meanwhile, was affected by the timing of the Chinese New Year, which occurred in January this year—leading to stronger February shipments—but took place in February 2011—leading to stronger March 2011 shipments and weaker year-to-year comparisons. Compared to February 2012, March air cargo demand was significantly stronger by 2.2 percent.

“If we discount the industry’s growth by two percentage points as a result of the extraordinary events in 2011, airlines still managed an expansion in the range of 5-6 percent.  But yields are not keeping pace with the continued very high price of oil,” said Tony Tyler, IATA’s Director General and CEO.

Oil prices have remained stubbornly above $100/barrel (Brent crude) for the past 14 months. In 2008, oil prices rose from $90/barrel in January to a peak of $147/barrel in late July. But by November, they had fallen back to less than $50/barrel. “We have not seen such sustained high oil prices previously. Jet fuel prices have risen 8 percent since January. Considering that fuel now accounts for 34 percent of average operating costs, it’s an increase that hurts,” said Tyler.

Meanwhile, air freight markets are now showing signs of renewed expansion. Freight Ton Kilometers (FTKs) were over 4 percent higher in March than they were in the fourth quarter of 2011. However, compared with March last year the size of the market was up just 0.3 percent. This is because the Chinese New Year occurred in February 2011, resulting in strong March 2011 shipments as factories reopened following the holiday period.

Asia-Pacific and European airlines saw their freight traffic decline 3.1 percent and 1.9 percent, respectively, compared to a year ago.

Middle Eastern carriers had a 15.1 percent rise in demand, the healthiest performance among the regions, with about four percentage points of that rise attributable to Arab Spring-related traffic suppression last year.

Latin American carriers’ traffic climbed 4.9 percent, while African carriers saw a 3.9 percent rise compared to the year-ago period. North American airlines’ demand rose 1.6 percent year-on-year.

Richard Fisher, president of the airfreight forwarding company, Falcon Global Edge in Boston, told LM that Brazil is becoming increasingly important.
“Latin America has been booming lately,” he said. “We see it as a target for growth.”

At the same time, however, both Spain and the UK have slipped into a double dip recession in recent weeks.

“The goose that lays the golden eggs can only take so many knocks before she fails to produce. Even in the best of times, increasing the cost of connectivity dents competitiveness. When the economy is weak it puts at risk aviation’s ability to create jobs and growth. And in a recession it is economic nonsense,” said Tyler.


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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