Air travel de­mand slows as air­lines con­front se­cu­rity

Arab News - - BUSINESS & ECONOMY -

BERLIN: Air pas­sen­ger de­mand in April rose at its slow­est rate since Jan­uary 2015, weighed by the March at­tacks on Brus­sels air­port and high­light­ing safety as one of the main chal­lenges fac­ing top air­line ex­ec­u­tives meet­ing this week.

While air­lines are en­joy­ing a boost from lower oil prices, weak­en­ing economies and fall­ing ticket prices are also pos­ing prob­lems for a sec­tor which op­er­ates on thin profit mar­gins.

The In­ter­na­tional Air Trans­port As­so­ci­a­tion’s (IATA) lat­est air pas­sen­ger fig­ures showed de­mand rose by 4.6 per­cent in April, fol­low­ing the suicide bomb at­tacks in Brus­sels that killed 16 peo­ple at the end of March.

How to im­prove se­cu­rity fol­low­ing other at­tacks on pop­u­lar travel des­ti­na­tions is likely to fea­ture high on the agenda at the an­nual IATA meet­ing from June 1 to June 3 in Dublin.

Air­lines are also un­der pres­sure to re­duce car­bon diox­ide emis­sions and CEOs will dis­cuss pro­pos­als by UN agency ICAO for a global mar­ket-based mea­sure to off­set emis­sions.

The in­dus­try fa­vors a global scheme, rather than a patch­work across the world, IATA Di­rec­tor Gen­eral Tony Tyler told jour­nal­ists ahead of the meet­ing.

A pos­si­ble Bri­tish exit from the Euro­pean Union and the US elec­tions are also ar­eas of con­cern, with Euro­pean car­ri­ers al­ready warn­ing a “Brexit” could dampen travel de­mand.

While air­lines’ cost bases ben­e­fited from the lower price of fuel, oil has been creep­ing back up to un­der $50 per bar­rel and the low oil price is hurt­ing economies in Latin Amer­ica, the Mid­dle East and Rus­sia, and oil firms cut­ting back on cor­po­rate travel has led to lower de­mand for seats in pre­mium cab­ins.

“It’s still set rea­son­ably fair for the air­lines’ fi­nan­cial per­for­mance, but the big­ger worry is the fragility of the global econ­omy,” IATA chief econ­o­mist Brian Pearce said on Mon­day.

Air fares fell around 4 per­cent in early 2016 and are ex­pected to de­cline fur­ther, says IATA, which rep­re­sents around 260 air­lines ac­count­ing for 83 per- cent of global air traf­fic.

“There’s quite a lot of ca­pac­ity growth de­spite the weaker pric­ing en­vi­ron­ment, es­pe­cially from the Euro­pean legacy car­ri­ers, and I would have ex­pected to see more dis­ci­pline on that,” aviation con­sul­tant John Strick­land said.

Delta Air Lines, Bri­tish Air­waysowner IAG and Lufthansa are among ma­jor car­ri­ers to have trimmed growth plans to pro­tect prices.

Tyler, at­tend­ing his last meet­ing as di­rec­tor gen­eral before hand­ing over to Alexan­dre de Ju­niac, the out­go­ing CEO of Air France-KLM, will give an in­dus­try profit out­look on Thurs­day.

IATA has pre­vi­ously fore­cast net prof­its will reach record lev­els of $36.3 bil­lion in 2016, for a net profit mar­gin of 5.1 per­cent, with North Amer­i­can car­ri­ers ac­count­ing for over half of the to­tal.

Jonathan Wober, chief fi­nan­cial an­a­lyst at CAPA- Cen­ter for Aviation, still ex­pects in­dus­try mar­gins to rise this year thanks to the low price of oil.

“De­mand is still broadly healthy, but there is also grow­ing un­cer­tainty at the macro level with cuts to world GDP fore­casts and geopo­lit­i­cal ten­sions,” he said.

Pas­sen­gers wait at Ter­mi­nal 1 at the Ger­man air­port Cologne/Bonn at the se­cu­rity area. (AP)

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