Low crude oil, demand growth drives global airline profitability (Part 3 of 10)
Global air travel growth
Air travel traffic growth was slightly stronger in October 2014. Global passenger traffic has increased by 5.8% year-over-year (or Y-O-Y) during the first ten months of 2014. In September, traffic grew at 5.7%, higher than the 5.3% growth recorded in September. The European, Asia-Pacific, and North American regions comprise ~85% of global market share by passenger traffic.
Europe’s market share by traffic declined from 29.5% to 28.3% during the month, Asia Pacific’s market improved slightly to 30.9% from 30.2%, and the North American market share improved by 0.4% to 24.3%. In this article and the next, we will discuss the growth trend in passenger traffic in these three regions, followed by growth in other emerging markets in Part 5.
Rise in European traffic growth
Despite the slowdown in the Eurozone economy, international passenger traffic grew by 5.8%, stronger than the 3.9% recorded in September. This was due to a rise in travel on low-cost carriers. Plus, the fact that Eurozone economy expanded by 0.2% in 3Q14 reduced the fear of a recession.
Consumer confidence remains low and growth in Germany, one of Europe’s key economies, has slowed due to the Russia-Ukraine crisis. However, the pace of growth in domestic traffic in Russia improved slightly to 6.1% in October, higher than 5.6% in September but lower than the 10.2% recorded for the year.
Robust Asia-Pacific growth prospects
Strong growth was recorded in the Asia-Pacific market in September. International traffic increased by 5.5%, higher than the 4.7% recorded in September. This was due to strong growth in regional trade activity. More details on growth in the region are provided in the next article.
Slowest growth in North America
The rate of growth in international passenger traffic remained the slowest in North America compared to all other regions in the last two months. The region’s growth rate declined to 1.8% in October, lower than the 2.1% growth recorded in September and 3.2% recorded in August. However, IATA (or International Air Transport Association) reported that growth in trade volumes and business activity has been strong, which will have a positive impact on international business travel.
However, the domestic traffic in the US increased by 3.8%, slightly higher than in September. Major US carriers predominantly serving the domestic market include Delta (DAL), United (UAL), American (AAL), Alaska (ALK), Southwest (LUV), and JetBlue (JBLU). These airlines are also part of ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN).