Monday 24 September 2018

Strong demand for air cargo to continue in 2018

GENEVA, October 26, 2017

Stong demand for air cargo which has prevailed for much of the year is expected to continue into 2018, according to a group of international air cargo executives.

According to a recent survey of aviation industry chief financial officers and the heads of cargo operations by the International Air Transport Association, 80 per cent of airline CFOs and Heads of Cargo indicated an improvement in year-on-year profitability in Q3 2017 compared with the same period in 2016 – the strongest outcome in 10 years.

Furthermore, 87 per cent of respondents believe that the profit outlook will be unchanged or improve over the year ahead, supported by ongoing robust demand; none of this quarter’s survey respondents expect to see a reduction in either their passenger or freight volumes over the next 12 months.

A higher share of respondents have seen their input costs increase this quarter compared with the Q2 survey, driven by gains in the world oil price. This upward trend in oil prices is broadly expected to continue to impact airline costs in the year ahead.

Matching the rise in input costs, 65 per cent of respondents indicated that passenger yields have risen in Q3 – the highest proportion in six years, further supporting the view that passenger yields have bottomed. Almost half of respondents indicated an increase in freight yields over the same period.

The outlook for industry employment over the next 12 months remains positive, with more than 40 per cent of respondents expecting to increase employment and a further 28 per cent expecting to maintain current levels.

Profitability outlook

The results of our latest survey of airline CFOs and Heads of Cargo, conducted in early-October, point to a continued strong financial performance into the second half of the year. An even 80 per cent of respondents reported that profitability increased in year-on-year terms in Q3 2017 – up from just 36 per cent in Q1, which appears to be the high point of the squeeze on industry finances. This response represents the strongest outcome in 10 years, and contributed to the modest gain in the backward-looking weighted average score this quarter.

The weighted average score for the year-ahead profitability outlook fell back this quarter but remains comfortably within expansionary territory. The number of respondents expecting to see their profit performance increase in the coming year eased to 40 per cent, down from 69 per cent last quarter. At the same time, the share of respondents expecting a decrease in profitability rose from its seven-year low of 4 per cent in Q2, to 13 per cent this quarter.

Demand growth

On the passenger side, the October survey indicates that the robust demand environment also continued into the second half of the year. A very strong 86 per cent of respondents experienced an increase in year-on-year demand in Q3 2017, up from 71 per cent in last quarter’s survey. This response took the backward-looking weighted-average score to its highest level since April 2008.

Almost three-quarters of respondents (71 per cent) expect passenger volumes to rise further over the year ahead, down from 81 per cent last quarter. However, in the latest survey none of the respondents expect their volumes to decrease over the coming 12 months. The forward-looking weighted-average score retraced some of its recent gains, but remains at an elevated level.

For freight, the October survey showed 58 per cent of respondents – unchanged from last quarter – reported a year-on-year rise in volumes in Q3 2017. Interestingly, on this occasion, just 12 per cent of respondents experienced a decrease in freight volumes, down significantly from 32 per cent last quarter. Consequently, the backward-looking weighted-average score stepped up, rising to its highest level since July 2011.

Looking ahead, 48 per cent of respondents reported that they expect a further increase in freight volumes over the year ahead, down from 58% last quarter. However, as was the case with the passenger segment, none of the respondents currently expect their volumes to decrease over the next 12 months, down from 11 per cent last quarter. The forward-looking weighted average score ticked up slightly, but remains broadly in line with its performance over the past three quarters.

Input costs

Developments in input costs divided respondents relatively evenly this quarter. Thirty one per cent saw their unit input costs decrease in Q3 2017 compared with a year ago – down from 50 per cent in Q2. Those experiencing either no change or an increase in costs were equally split at 35 per cent, with the latter up from 19 per cent last quarter.

Looking ahead, 40 per cent of respondents expect input costs to increase over the coming 12 months – a sharp turnaround from last quarter, where only 19 per cent expected input costs to rise. Numerous respondents highlighted recent developments in oil prices, and the expectation of further price increases to come, as a key input into their response. A modest 20 per cent expect input costs to ease over the year ahead, down from 35 per cent in Q2, and primarily driven by internal productivity gains and cost reduction programs.

Yield environment

Sixty-five per cent of our respondents reported higher passenger yields in Q3 2017 compared to a year ago – up from 43 per cent last quarter and the highest proportion since July 2011. This result confirms broader signs that the downward trend in passenger yields has bottomed out as input costs have increased. Looking ahead, 90 per cent of respondents expect yields to remain steady or increase over the year ahead, evenly divided between the two. The share of respondents expecting yields to rise jumped a sizeable 20pp, from 25 per cent last quarter.

Almost half (48 per cent) of respondents reported an annual increase in freight yields in Q3 2017 – the highest share since July 2011. Only 8 per cent saw a decrease in yields. For the coming year, the bulk of respondents (56 per cent) expect no change in yields (down from 72 per cent last quarter), while 32 per cent now expect yields to increase (up from 11 per cent). The weighted average score rebounded this quarter, to its highest level in four years.


Fourty-five per cent of survey respondents reported an increase in employment levels in Q3 2017 relative to the same period in 2016, slightly above the outcome for Q2. Twenty-one per cent of respondents reported a decrease in employment levels in Q3, up from 15 per cent last quarter, and enough to drive a modest dip in the backward-looking weighted-average score on this occasion.

Forty one per cent of respondents reported that they expect to increase employment levels over the year ahead, down slightly on the 44 per cent figure reported last quarter. Almost one-third of respondents indicated that they expect to decrease employment levels in the next 12 months as part of broader cost reduction programs. As such, the forwardlooking weighted-average score unwound some of its recent gains but remains firmly in expansionary territory. - TradeArabia News Service

Tags: demand | cargo | Air |

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