'Alarming' air traffic decline due to global financial crisis

KAREN FLORES, abs-cbnNEWS.com | 10/26/2008 10:51 AM

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Airlines and exporters may be experiencing difficult strains as air cargo and passenger traffic fell sharply by September. This was the same month when the US government provided $72.3 billion to the American International Group (AIG), saving it from bankruptcy.

Fewer people were said to fly internationally as the financial crisis dominated headlines worldwide. And since most banks have scaled back from extending credit facilities to the airline industry, many carriers could have difficulty in finding financing for planes in the year ahead.

In a statement released Friday, the International Air Transport Association (IATA) said that passenger and cargo traffic dropped by an ‘alarming’ percentage of 2.9 and 7.7, respectively, as compared to 2007.

IATA’s Director-General and Chief Executive Officer (CEO) Giovanni Bisignani said that the huge decline in oil prices is seemingly not enough to offset the drop in demand, as all major regions reported a decrease in global passenger traffic except Latin America, which saw an increase of 1.7 percent.

The 2.9 percent year-on-year drop was said to be the first decline recorded since the severe acute respiratory syndrome (SARS) epidemic. In 2003, the said ailment spread through air travel worldwide.

"The deterioration in traffic is alarmingly fast-paced and widespread. We have not seen such a decline in passenger traffic since the severe acute respiratory syndrome (SARS) in 2003…At this rate, losses may be even deeper than our forecast US$5.2 billion for this year," he said in a statement.

Up until August, the drop in international passenger traffic was said to be isolated to carriers in the Asia Pacific region. The sharp downturn in world trade disproportionately impacted Asia-Pacific carriers with a 6.8 percent drop in traffic.

North America had a 0.9 percent contraction from its steady international growth of 5 percent, while European carriers dropped by 0.5 percent as a result of its economies heading for recession.

Middle Eastern carriers, meanwhile, experienced passenger traffic of negative 2.8 percent. While its oil-based economy remains strong, the region’s large portion of transit traffic exposes carriers to global economic weakness.

Africa posed the largest decline in traffic with negative 7.8 percent, a continuation of its trend last August.

Sharp drop in air cargo traffic

IATA said that air cargo traffic of Asia Pacific carriers, the largest players in the market, were seen to have dropped by 10.6 percent, what IATA considered as the “most alarming.”

With all regions except Africa and the Middle East which reported negative results, declines in air cargo traffic have slowed year-to-date growth by 0.1 percent. North America and Europe, on the other hand, saw a drop by 6.0 and 6.8 percent, respectively.

Air cargo, as an indicator of world trading activities, has a dynamic role in the interdependent global economy. It facilitates movement of goods among nations, bringing efficiency and cost savings in the production process.

This rapid movement of product assembly by means of air cargo matches supply to demand in order to minimize inventory costs. It usually involves the use of raw materials and labor in low-cost countries such as China, and then its transport to export destinations such as the US.

A drastic decline in air cargo traffic may mean a decrease in the manufacture of products, with finished goods exported in quantities less than usual. Fewer exports may indicate that there is reduced consumption on the part of the export destination country.

The US, as a major destination of finished products, may be receiving less volume of goods as a result of less confidence in their economy, given the financial crisis.

as of 10/26/2008 11:42 AM