A good month, but IATA sounds cautionary note

The International Air Transport Association released its air freight market analysis for March 2014, showing a solid 5.9% increase in total traffic worldwide compared to March 2013. This increase was driven almost entirely by growth in international traffic (up 6.7%), while domestic traffic was up just 0.8%. For the first quarter of the year, cargo traffic worldwide was up 4.4%, led by 4.9% growth in international traffic. But despite the strong year-over gains, the overall tone of IATA’s analysis was oddly negative, pointing out that while traffic is up over the early part of 2013, it has not grown much over the latter part of last year. According to IATA: “Since the beginning of the year, air cargo volumes have been basically flat. This plateau in volumes is consistent with the recent pause in improvements to business confidence and world trade.”

The report was not all gloom, though, as IATA went on to say: “The business cycle will eventually swing upwards.” But the report added one last cautionary note: “The air cargo industry also needs to improve its value proposition if it is to attract growth when markets improve. Modernizing air cargo processes and infrastructure offers the potential to cut end-to-end shipping times by up to 48 hours. We cannot let market doldrums hold us back from this critical competitive gain.” Looking at the first quarter results by geographic region: Middle East: As has been the case for the last few years, carriers from the Middle East are reporting strong growth in their cargo business, with traffic up 13.2% y-o-y in March. The massive expansion of the long-haul fleets of the four big carriers from the Gulf Region – Emirates, Etihad, Qatar, and Saudia – combined with the strategic location of their hubs, has allowed them to take a rapidly-increasing share of the traffic flowing on all the major trade lanes connecting Europe, Asia, Africa, and the CIS. Emirates, which has become the second-largest international cargo carrier in the world, is no longer seeing the huge y-o-y increases that it once did, but the other carriers are still growing rapidly. For the first quarter of 2014, Middle East-based carriers reported their cargo traffic up 11.5%. Asia-Pacific: Airlines based in the Asia-Pacific region have long carried the greatest share of global cargo traffic (about 40%), and they continue to do so. However, in the last few years, they have faced ever-increasing competition from carriers based in the Middle East, and this, combined with the weak demand environment led to declining traffic. Beginning in January, and continuing through the first three months of 2014, Asia’s carriers have reversed this trend, and are now reporting solid growth, as shown by the 6.9% increase in cargo traffic in March, and 3.8% for the first quarter. IATA said that the continuing slowdown of Chinese GDP growth would “ultimately impact trade growth and air freight demand for local carriers.” We are not so sure about this. Europe: By mid-2013 Europe seemed to have recovered from fears of political and/or economic meltdown, and since that time the European economy has gradually improved. Not surprisingly, this has boosted air freight demand, and European carriers reported solid traffic growth in March – up 4.9% y-o-y. For the first quarter, European carriers’ cargo traffic was up 5.3%, and IATA said that measures of business activity in the Eurozone are still pointing to continued economic expansion. North America: Carriers in this region continue to report cargo traffic increases much smaller than carriers in Asia, Europe and the Middle East – up just 1.9% y-o-y in March and 0.7% for the first quarter. However, IATA points out that business fundamentals are strong in the region, and that the traffic growth would likely have been higher if it had not been for extraordinarily severe weather in the quarter. Latin America:  Trade in the Latin American region has begun to deteriorate, and this has curtailed air freight demand for the region’s carriers, which reported cargo traffic flat y-o-y in March. However, stronger performance in the first two months kept the overall first quarter positive, with traffic up 4.4%. Africa: Air freight demand in Africa remains volatile, with cargo traffic growing in one month and declining the next. In March, cargo traffic for the region’s carriers was up 5.9%, but for the first quarter traffic was up just 1.5%.