Pressure on airfreight expected as demand increases.

March 1, 2010 Edward

Airline confidence is improving with most indicating that the ‘worst is over’ and the continued recovery in traffic and yields will drive profitability in the right direction. However, several mention that this improvement comes over a low base which may indicate some time for airlines to shift from losses into profit in absolute terms. Concerns remain over increases in fuel prices, cost implications of regulatory changes, and rising airport charges which may temper financial recovery.

With freight volumes returning to pre-recession levels and the Airlines not increasing current capacity levels, this will inevitably force Freight Forwarders to outlay more in airfreight costs to secure the same space allocations to meet the increase demand in the general market place.

According to IATA’s Economic Briefing which released the results of January’s Airline Business Confidence report, there was a significant improvement in all the indicators of airline business confidence, measured by IATA’s quarterly survey of Airlines.

The survey indicated that the majority of Airlines were reporting, for the first time in over a year, improved traffic volumes during the recent quarter.

However whilst volumes are on the rise pressure on Airline profits continues to be a concern with IATA’s own forecast predicting that Airline net losses will only halve from US$11 billion in 2009 to $5.6 billion in 2010.

Further more, IATA indicated there was a particularly sharp improvement in volumes and demand during the previous quarter 2009, with the majority of airlines now reporting rising demands. Expectations for these general improvements in 2010 have reached those levels last seen in 2007. Over 72% of airlines expect improved cargo demand.

IATA says that stronger demand does not always lead to profits, or reduced losses. While airlines reported that unit costs remained relatively low in the previous quarter, the majority of airlines are now expecting cost pressures to intensify over the next 12 months. However, there is more optimism over yields, suggesting that an improvement in margins is expected. There was still a majority of airlines reporting lower yields in the previous quarter in 2009.

The survey uncovered significant regional variations. Three-quarters of European airline respondents and 60% of those in the Americas reported a further decline in profitability, reflecting the relatively weak economic recovery in these regions. More than three-quarters of respondents from Asia reported improvement, several citing strong traffic recovery within their region.

Source: DHL Global