International Passenger Traffic

· By February 2011, air travel volumes were 16% higher compared to the low point reached in early 2009 and some 5% above the pre-recession peak of early 2008.

· Africa saw traffic fall by 1.3% compared to February 2010. Against a capacity expansion of 6.9%, load factors fell to 60.4%. Egypt and Tunisia account for 18% of the African market and 0.6% of worldwide capacity. Libya is a further 3% of the African market and 0.1% of global capacity. The impact of political unrest has been severe with absolute traffic (measured by RPKs) falling by 13.1% compared to January levels.

· Middle East airlines saw demand growth fall from 12.0% in January to 8.4% in February. A capacity increase of 11.0% resulted in a load factor of 72.2%. Political unrest in Bahrain, Yemen and Syria is expected to have an impact on the region’s markets in March. These three countries represent about 6% of Middle Eastern traffic and 0.3% of global capacity.

· Europe’s carriers recorded 7.4% growth compared to February 2010 against a 9.8% increase in capacity. This was slower than the 7.9% demand growth reported for January showing the impact of fall off in trans-Mediterranean traffic to North Africa due to the unrest in the region.

· North American airlines reported 6.7% year-on-year growth for February and a capacity expansion of 11.9%. In recent months, the region’s airlines have seen dampened demand due to several factors starting with disruptive winter conditions in December and January, followed by political unrest last month in the Middle East and North Africa. As a result, there is a widening gap between supply and demand pushing the load factor down to 71.7%, significantly below the 82.2% recorded for the full year in 2010.

· Asia-Pacific airlines reported a major slowdown to 3.0% growth, half of the 6.3% recorded for January. A capacity increase of 6.6% pushed the load factor down to 75.4%. Chinese New Year fell at the beginning of February, pushing some of the holiday traffic into late January.

· Latin American airlines were least exposed to volatility in February. Passenger demand increased by 11.8%. This was virtually matched with a capacity expansion of 12.9% allowing the region’s carriers to maintain the strongest load factor among regions at 76.4%.

Freight Demand

· February air freight volumes stood at the same level as the pre-recession cycle peak in early 2008. But it was down almost 7% on the high reached in May 2010 at the peak of business re-stocking.

· The industry’s fundamentals are strong. Business confidence, as measured by the purchasing managers’ index, reached its second highest level ever in February.

· Air freight carried by Asia-Pacific carriers fell by 4.5% in February. This reflects plant closures associated with Chinese New Year as well as the impact of inflation-fighting measures in the Chinese economy. In terms of volumes, this had the largest impact in slowing global growth to 2.3%--the weakest growth since the beginning of the third quarter in 2009 when annual growth rates turned positive again out of the recession. Compared to January, freight carried by the region’s carriers fell by 6.6%.

· On the back of unrest in Egypt and Tunisia, cargo carried by African carriers fell by 5.7%. In absolute terms, the freight carried by the region’s carriers fell by 8.4% in February compared to January.

· North American carriers saw freight expand by 11.8%, second only to the robust 12.1% expansion by Latin American carriers. European carriers showed weak growth of 6.3%, reflecting the region’s proximity and trade connections with North Africa and the continuing weakness in the European economy.

“The industry situation is volatile and we are watching higher fuel prices carefully. Capacity increases ahead of demand are bringing down load factors for both passenger and cargo operations. Demand is still supported by strong economic fundamentals. But with looser supply and demand conditions, it will be a challenge for airlines to recover the added costs of fuel. Our pathetic 1.4% expected margin for 2011 is under considerable pressure,” said Bisignani.

Based on an average oil price of $96 per barrel, IATA is forecasting fuel to account for 29% of average operating costs with a total fuel bill of $166 billion. For every dollar increase in the price of a barrel of oil, the industry must recover an additional $1.6 billion in added costs.