A RECENT economic report issued by the International Air Transport Association (IATA) said that airlines were faring better financially this year, despite the volcanic ash that caused hardship in April. The IATA had previously estimated the six-day shutdown of much of European airspace last month to cost carriers $1.7 billion in lost revenues. In its latest financial snapshot, it indicated that even after the damage caused by the volcanic ash plume, world airline shares were still 15 per cent up so far in 2010, compared to a 6 per cent rise in the FTSE Global All Cap Index. However, European airline shares were hit by the ash plume and were the weakest. Here share prices are up just 4 per cent and only 57 per cent above 2009 lows, compared to the 76 per cent rise in the Bloomberg global airlines index. Fuel costs have moved up $10 billion from the first quarter of the year. Jet kerosene costs moved above $96 billion for the first time since October 2008, as markets revised upward their expectations for oil demand as economies continue to strength. "Already oil prices have averaged $78 billion in 2010 which is only a little below the $79 billion we are currently forecasting for 2010," stated IATA president Giovanni Besignani, in presenting the report. "If today's prices continued, average 2010 prices (and fuel costs) would be some $5 billion higher than forecast." Average air fares, adjusted for seasonality, have risen significantly since they hit a low in the middle of last year. Tighter supply-demand conditions, as load factors rise, have pulled average fares and cargo rates up. "Average economy fares are now 10 per cent above their lows, while premium fares have risen 15 per cent. However, both are only half- way to regain the levels achieved in early 2008," reported Besignani. The report also indicated that demand continued to rise strongly in Q1, with air travel up an annualised 9 per cent and freight by 26 per cent . The IATA report stated, "Current air travel and air freight growth rates are not being flattered by the weakness of transport markets at this time last year, despite that being the recession low point. During the first quarter of this year international air travel volumes were expanding at an annualised rate of 9 per cent, while air freight was expanding at a rate of 26 per cent." These growth rates are very different across markets -- weakest in Europe -- and they will also slow as the business inventory cycle comes to an end. The ash plume will also knock 4 per cent, temporarily, from volumes in April. Capacity is also returning but at a much slower rate, so load factors are still at record or near-record highs. "Airlines are bringing capacity back into international air travel and air freight markets, but still at a much slower pace than the expansion in demand. In March passenger capacity was up 2 per cent, compared to a travel expansion of over 10 per cent. Freight capacity was up over 5 per cent compared to a demand rise of 28 per cent." Schedules announced for the rest of 2010 point to a 5 per cent increase this year. Given underutilised long-haul capacity and 1,400 deliveries planned the risk is that this could be higher. On the other hand, "the January/February seasonal lull in aircraft deliveries is over and, in March, there were 116 new aircraft delivered. A further 8 were taken out of storage back into the active fleet. Only 12 were retired," with 1,400 or more aircraft due to be delivered this year, added the report. March looks likely to be a typical month for 2010. New deliveries, together with the normal 400 or so retirements, could boost the in-service fleet 4 per cent. This will bring the wide-body fleet up to the more normal average daily hours utilisation rate, which could add more to capacity than the 5 per cent currently announced in the schedules.
