Airlines’ profits improve but not in cargo

To summarise Tony Tyler’s speech at the IATA annual conference in Miami yesterday (09/06/2015) “…for the first time in IATA’s records, the industry as a whole is earning its cost of capital…[but] cargo…remains in the doldrums”. Tyler, who is the airline trade association’s CEO, commented that much of the improvement in the sectors profitability was driven by the fall in the price of fuel, with US airlines benefitting most. They now account for more than half of global profits. In contrast the fall in the euro and other currencies against the dollar has muted the effect of fuel costs for airlines outside the US.

And as is so often the case, it is the passenger business that is driving profits not cargo. Where as passenger volumes have increased 5.2% over past year, cargo volumes have been becalmed for the past two quarters. Last week’s release of numbers on the market showed slowing demand in Asia in the face of rapidly growing capacity. In particular export volumes to Europe have slowed. In Europe itself volumes fell whilst in North America they grew by 0.1% year-on-year. Only in the Middle East was expansion rapid, with demand up by 14.1%. Much of the softness in Western markets may be transitory, with prospects for growth generally looking much better from the middle of the year. However, on a cautionary note Tony Tyler points out that “world trade is no longer expanding at a faster rate than domestic production”.

Stepping back from these numbers, it is all the more surprising that air freight is not growing more rapidly as e-commerce continues to prosper and must already be a major source of demand. Even in major markets such as the UK, comparatively small retailers are now huge purchasers of air freight yet this is not showing-up in the figures. This suggests that there is a degree of structural change that is not detailed in the top-line numbers.

So despite what ought to be a condition of underlying growth, the airline sector seems to be slightly depressed again. However it could be a passing condition if the global economy resumes strong growth later this year.