The Airline Industry Reports Zero Traffic Growth in August

The travel retail community is asking the somewhat premature question as to the timing of a possible demand upturn in airline industry traffic growth.

Another question being asked which presents no immediate answer is when the downward slope in demand will level off.

The latest data received by the aviation industry gives no help whatsoever in answering the latter question which makes the future of the airline sector all the more difficult to forecast.   

A key indicator in reporting airline demand each month is the comparison of the actuals for that month with the most recent forecast.

Actual data for August is slowly massing with just 212 airports having so far declared. These airports which are predominantly European reveal a zero percentage pax increase on last year. 

The comparison indicator is a latest August forecast of 2.4% for those specific airports which account for almost a third of the expected traffic.

Neither is there comfort to be found in the fact that the zero percentage recorded for August was down on the 0.3% for July, especially when it is recalled that generally the better performing airports declare earliest in the month and as the week count rises, the numbers fade.

The Fourth Quarter Forecast

The latest forecast for the fourth quarter of 2008 makes for more unhappy reading. The expectation had been for a total traffic increase of no more than 0.7% with a slightly better outlook for internationals which could possible rise by 2.8%.
Before the latest August data is factored in, the 2009 outlook envisages an international traffic increase of 3.5% in Europe but 1.5% in Asia/Pacific and 2.4% in the USA.
The reality is that as economies worldwide continue to tumble demand will continue to weaken. 
While there is no practical and predictive relationship between quarterly changes in GDP and air passenger numbers, it is true that the continued expectation of economic well-being is an essential pre-requisite for discretionary consumer spending such as air travel.

The economic environment continues to worsen. In the USA industrial production in August showed the largest fall in seven years. Unemployment has broken through the 6% mark and consumers' expenditure in the third quarter is likely to fall for the first time in almost two decades.
China has cut interest rates indicating that the hyper growth years may be ending. The UK is on the point of slipping into technical recession and the Eurozone will follow. In Japan inflation is over 2% and the economy grew by only half a per cent in the second quarter. Tax cuts are scheduled before the end of the year.

The 2009 Latest Forecast
In the airline sector parallel policies of price cutting and capacity reduction may be helped, at least temporarily, by an easing in oil prices.
None of these factors will stop the bankruptcy speculation which is giving rise to a whole new form of travel insurance: book your $500 flight on United and bet $20 at 25 to 1 that the airline will fold.
The July based projections envisage a 2% growth in total passengers for the year as a whole and 3.2% for international travellers.
Forecast to forecast the total line has slipped by almost a full percentage point but on the international line the slippage is only a third of a point.
A three percentage point growth rate is uncomfortable for dependent sectors like travel retail but it is not catastrophic.