Air cargo sector challenged by nature and energy

Despite the encouraging news from The International Air Transport Association (IATA) on improving freight volumes, there are still two key issues that may have a negative impact on a full recovery: the weather and fuel prices.

Severe weather in Europe and North America in December was a major problem, and the season so far does not appear to be improving. It is estimated that this shaved 1 percent off of total traffic demand for the month.

As a result demand dipped to 4.9 percent growth on December 2009 levels, significantly lower than the 8.2 percent growth recorded in November. Hardest hit was Europe which saw December growth slow to 3.3 percent.

But IATA says this is only half the story.

A sharp rise in oil prices, as they predicted, may mean a consecutive second year of profitability – but with industry profits falling by 40 percent to $9.1 billion.

This was based on an oil price of $84 per barrel (Brent). Fuel accounts for 27 percent of operating costs and a sustained rise in the oil price could spoil the party. With uncertainties in the Middle East, oil prices are now hovering near the $100 per barrel mark.

For every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional $1.6 billion in costs.