IATA's numbers also show falling business travel, usually a leading indicator of an economic downturn. And that’s just more evidence of tougher times ahead for the global economy, says airline industry consultant Judson Rollins.
June international passenger demand grew 5.4 percent versus the same period the last year, which was also an improvement from May 2019’s 4.6 percent annual gains, IATA reported last week.
All regions showed growth, led by airlines in Africa. Overall, capacity was up 3.4 percent, and load factor climbed 1.6 percentage points to 83.8 percent.
June’s positive numbers reflected the Q2 rise that U.S. airlines pointed to during recent earnings reports, as exemplified by Delta Air Lines’ record-breaking quarter with load factors coming in at a whopping 89 percent.
Could June’s high demand represent a peak?
Judson Rollins, an airline industry consultant, suggests that "this is all just part of the natural progression of the economic cycle." As Rollins emphasizes, slowing growth does not necessarily mean that a decline in bookings is at all imminent.
“Strong load factors are always a positive – as long as carriers aren't dropping yields to buy market share,” says Judson Rollins, an airline industry consultant. “Yes, it's likely that volume growth will slow as airlines yield up and marginal leisure traffic is priced out of the market. However, this indicates the US market as a whole is probably approaching a revenue-maximizing combination of yield and load factor. In turn, some carriers – especially LCCs – will look for incremental opportunities to grow capacity and stimulate new traffic by offering more seats at lower fares.”
In all, Rollins adds, "We could be approaching the top of the cycle, but maybe current events have already forced us past the top."
U.S. China Trade Impact North American Demand
The numbers also point to the potential economic troubles that have appeared to accelerate this week, as recession fears were being expressed more widely in financial markets commentary.
Slowing demand appears to be both an inevitable outcome of such historically load factors as well as the impact of geopolitical issues such as the back-and-forth of tariffs threats between the U.S. and China.
Case in point: North American carriers’ June demand was up 3.5 percent year-over-year – but that number was down sequentially from May’s 5 percent annual growth. Capacity climbed 2.0 percent, with load factor increasing 1.3 percentage points to 87.9 percent.
“What stands out to me is that U.S.-China trade tensions are already affecting North American and Asian carrier load factors,” Rollins notes. “Given that falling business travel is usually a leading indicator of an economic downturn, one has to wonder whether tougher times are ahead for the global economy. Add to this the growing protests in Hong Kong, and one has to wonder just how difficult the rest of this year is going to be for Asian airlines in particular.”
IATA’s topline findings included:
European airlines saw traffic rise 5.6 percent in June compared to June 2018, in line with 5.5 percent demand growth the month before. Capacity climbed 4.5 percent and load factor rose 1.0 percent percentage point to 87.9 percent, tied with North America as the highest among the regions. The solid growth occurred against a backdrop of slowing economic activity and declining business confidence in the Euro area and UK.
Middle Eastern carriers posted an 8.1 percent demand increase in June compared to the same month last year, which was well up on the 0.6 percent annual increase recorded in May. The timing of Ramadan which fell almost exclusively in May this year likely contributed to the strongly contrasting outcomes. Capacity rose 1.7 percent and load factor jumped 4.5 percentage points to 76.6 percent.
Asia-Pacific airlines’ June traffic rose 4.0 percent compared to the year-ago period, which was down from a 4.9 percent increase in May. US-China trade tensions have impacted demand in the broader Asia-Pacific-North America market and also within the inter-Asia market. Capacity rose 3.1 percent and load factor edged up 0.7 percentage point to 81.4 percent.
Latin American airlines experienced a 5.8 percent rise in traffic compared to the same month last year, up slightly from 5.6 percent annual growth recorded in May. Capacity increased by 2.5 percent and load factor surged 2.6 percentage points to 84.0 percent. Weakening economic conditions in a number of key countries in the region could mean a softening in demand going forward.
African airlines’ traffic soared 11.7 percent in June, up from 5.1 percent in May. Capacity rose 7.7 percent, and load factor jumped 2.6 percentage points to 70.5 percent. Demand is benefitting from a generally supportive economic backdrop, including improved economic stability in several countries, as well as increased air connectivity.
Brazil’s domestic traffic fell 5.7 percent in June, which was a worsening from the 2.7 percent decline recorded in May. The sharp drop largely reflects the collapse of the country’s fourth largest carrier, Avianca Brasil, which had around a 14 percent market share in 2018.
India’s domestic market continues to recover from the demise of Jet Airways, with demand rising 7.9 percent in June compared to the year-ago period.