[b]IATA: Challenges ahead, Asia-Pacific still the market to

The International Air Transport Association (IATA) has released its annual five-year traffic forecast, explaining that the near future will provide enhanced opportunities for passenger traffic growth, but also challenges to the global industry’s precarious health. It also further highlighted the growing importance of the Asia Pacific region for the global aviation sector.

IATA predicts that the industry will see international traffic growth post average annual gains of 5.1% over the period 2007-2011. Although respectable, this figure is down on the 7.4% annual hikes in the recently concluded 2002-2006 period, as slowing global economic growth will begin to take a bite out of demand for air transport.

The association noted that the 5.1% figure, which is actually 0.3 percentage points higher than the forecast IATA submitted for 2006-2010, owes much to the positive effects of the trend towards greater liberalisation governing international air services. This trend will help create considerable growth in the number of city pairs connected by direct services, as well as the number of frequencies and seats allowed on existing routes. Both developments are heavily correlated with traffic growth.

IATA sees better growth in the world’s domestic markets, with 5.3% added to the figures every year, up from the average rate of 4.4% that the industry recorded in 2002-2006. These rises will largely be on the back of the fast-growing India and China domestic markets, which will continue to respond to the twin thrusts of deregulation and economic growth.

The trade group sees China’s combined passenger figures recording annual increases in the order of 8.8% (up 0.7 points on its forecast for 2006-2010) and India 8.6% (also up 0.7 points on IATA’s previous predictions).

With these two countries – the fifth and sixth fastest growing worldwide, respectively – leading the way, it is no surprise that Asia Pacific is tabbed to have the second highest growth figures over the course of the forecast period.

The Middle East is expected to bring larger annual increases to the table. However, the existing traffic base in that region is less than 10% as large as that of Asia.

Global growth - Where is it coming from?
Market 2006-2010 2007-2011 Difference
Africa 5.1% 5.6% +0.5 pts
Asia-Pac 5.7% 5.9% +0.2 pts
Europe 4.4% 5.0% +0.6 pts
Latin Am/Carib 4.6% 4.4% -0.2 pts
Middle East 6.9% 6.8% -0.1 pts
North America 4.3% 4.2% -0.1 pts
Source: Centre for Asia Pacific Aviation and IATA

Looking at the major inter-regional market connections, IATA also sees an outsized role for the Asia Pacific, with Middle East-to-the-Far-East and Europe-to-the-Far-East representing the regions looking at the largest incremental traffic boosts.

With all these factors coming into play, the association sees Asia Pacific’s share of global passenger traffic increasing from the 23% it enjoys today to 27% by 2011. If the market develops as IATA anticipates, by the end of the forecast period, the 742 million passengers travelling to/from/within Asia Pacific will eclipse those in the US and will only slightly lag the total North American market.

Which intercontinental markets will grow?
Route 2006-2010 2007-2011 Difference
ME to Far East 7.9% 7.8% +0.1 pts
Europe to Far East 6.1% 6.6% +0.5 pts
Europe to ME 5.9% 6.1% +0.2 pts
Intra-Far East 5.9% 6.1% +0.2 pts
Intra-Europe 4.0% 4.8% +0.8 pts
North Atlantic 4.1% 4.3% +0.2 pts
Intra-North America 3.9% 3.6% -0.3 pts
Total international 4.8% 5.1% +0.3 pts
Source: Centre for Asia Pacific Aviation and IATA

IATA, which commended the industry’s “slower but more profitable growth” in 2006, notes that the next five years will present considerable demand growth opportunities. However, it also cautions that planned capacity increases promise to make converting those opportunities into profits a challenge.

It further notes that, even though China and India will fuel much of the increased passenger growth, the relatively immature nature of their economies (and the lower base from which their citizens’ disposable incomes will be growing) augurs for more domestic and short-haul growth in the near term.

While dampening expectations for revenues in this forecast period, such observations hint that, for airlines looking to harness the revenue-generating power of these future market juggernauts, the best is likely yet to come.