International air travel in April exceeded pre-recession peak levels.
According to a report by the International Air Transport Association, travel was 7 per cent above the highs of early 2008 and 16.5 per cent up on a year-to-year basis compared to April 2010. The association said this dramatic improvement was also due to a collapse in aviation because of the ash cloud caused by the Icelandic volcano at Eyjafjallajökull. Thousands of flights were cancelled or suspended as a result of the eruption which reduced visual navigation and could have downed aircraft due to sandblasting and melting in turbine engines.
Despite the general rise, Japan experienced a 30 per cent drop in its market due to the earthquake and tsunami. High jet fuel costs drove the United States market down by 1.2 per cent. The biggest risers were India and Brazil. The previously noted accelerated rise in China has slowed, partly due to tighter economic policies.
Passenger load factors fell sharply during February and March, but are still 2 per cent below the peak levels of early 2010.
“The rebound in seat utilisation will have improved unit revenues at the start of the second quarter, but jet kerosene prices rose $6 a barrel during April,” said the Association’s report.
“A further rebound in demand and revenues is critical for airlines to avoid a substantial further squeeze on profits in this high fuel cost environment.
The impact of recent demand shocks is easing, and with world trade and business confidence still high, a second half upturn in air travel and freight is expected. However, the other key to maintaining profitability will be asset utilization and that may be more difficult to sustain.”
Jet fuel rises
Share prices rose by 5 per cent in May but first-quarter losses came to US$2.2 billion. Jet fuel is currently $40 a barrel higher than the third quarter of 2010, and profits have been declining since then. Yields are higher than 2008 levels in the United States, although price-sensitive travel demand is falling, said the Association.
“Travel [is] rebounding after demand shocks, some markets underpinned by slower but still strong economies.
“However, load factors and aircraft hours are still significantly down, reducing asset utilisation and the ability to sustain profitability.”
According to the Association’s quarterly airline business confidence index, there has been a sharp fall in profitability expectations, with 55 per cent of those surveyed expecting a deterioration in profits. The key change is a sharp rise in expected unit costs together with a fall in the number of companies expecting yield improvement.
Although there was a decline in expected passenger and cargo market volume growth, the majority still expected further expansion, and most of the aviation professionals surveyed expected profitability challenges from a squeeze to their margins.
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