Air freight weakness persists as fuel costs bite

May 08, 2019
Photo: Wikicommons

Weak global air freight conditions are persisting as world economic activity wanes and higher fuel prices are again set to hit airline profits

Global air freight demand increased just 0.1 percent in March compared to the same period in 2018 and was down in seasonally adjusted terms by 1.5 percent over the past year.

The key Asia-pacific region, which accounts for more than 36 percent of the total market, was down by 3.4 percent compared to March 2018.

However, this was up from the 12 percent decline the previous month and all other regions showed growth.

The International Air Transport Association described the March result as a significant improvement over the 4.9 percent contraction in February but noted capacity growth had outstripped demand for 11 of the past 12 months.
It said significant headwinds for air cargo included a 1 percent fall in global trade volumes over the past year, weakening economic activity and consumer confidence as well as falling global export orders since September.

“Year-on-year demand for air freight edged back into positive territory in March with 0.1% growth,” said IATA director general Alexandre de Juniac.

“After four consecutive months of contraction, this is an encouraging development,’’

“But the headwinds from weakening global trade, growing trade tensions and shrinking order books have not gone away.”

The lack-luster air freight figures come after another IATA report predicted higher oil prices meant global airline profits would be up to 1 percentage point lower than its $US35.5bn forecast in December.

The airline group said the US decision to end waivers to countries wanting to import oil from Iran was causing more uncertainty than usual in global oil prices.

IATA said its December forecast that industry profitability would stabilize at close to 2018 levels was based on Brent crude oil prices averaging $US65 per barrel in 2019.

They were currently $US5 per barrel higher and had been up to $US10 more.

“The impact in 2019 of higher crude oil spot prices will depend on the crack spread, fuel hedging, the extent cost increases can be passed through to consumers and mitigating measures by airlines,’’ the report said.

“We’ve assumed no change in the crack spread and that 50 percent of fuel consumption is hedged.

“With no pass-through to consumers or mitigating measures, each $US5/b increase in the price of jet fuel reduces industry net profit margins by around 0.5 percentage points.”

The report said that if fuel prices stayed above the December expectation — and this was dependent on the response from other oil producers — there would be a reduction in forecast industry profitability of up to 1 percentage point.