If you don’t believe the world has moved to a true global economy, just examine the way the recession has spread from the U.S. to almost every foreign border.
Analogies abound.
The U.S. housing disaster moved from a subprime problem to a much deeper pain when the economy tanked, removing buyers from the market, drying up credit, and moving the foreclosure malaise to a much broader mortgage segment including prime loans.
Likewise the airline industry moved from a dire financial situation with fuel costs soaring to new heights in July, to face new global economic woes. At $150 per barrel, the airlines suffered from unsustainable lose. Airlines moved to a la carte fee structure and fuel surcharges to help recoup the loses. Routes and flights were cut deeply. Planes were parked.
But then the airlines, like housing, were hit with a second lightning bolt, otherwise known as the global recession. International airlines, suffering from a delayed economic downturn, is now following in the footsteps of U.S. airlines, bracing themselves for decreasing passenger traffic.
The International Air Transport Association, IATA, said Thursday that international air traffic fell in October, the second month in a row, and “warned the airline industry is in a dangerous condition” according to the Wall Street Journal.
International passenger traffic, which is factored by kilometers traveled, fell 1.3% from a year earlier in October, “a less-steep decline than the 2.9% drop in September.” Does this demonstrate unexpected growth, or at least fewer loses, for international carriers? According to IATA, probably not.
Speaking to the WSJ, IATA Director General Giovanni Bisignani laments, "The gloom continues and the situation of the industry remains critical." While the drop in oil prices is a relief to airlines, Mr. Bisignani said, "recession is now the biggest threat to airline profitability. The slight slowing in the decline of passenger traffic is likely only temporary."
But for now, there is some good news. International carriers so far are experiencing only slight declines in passenger traffic. European airlines are bucking the trend with traffic in positive territory, with 1.8% growth in October.
Despite both the U.S. and European economies heading into recession, trans-Atlantic traffic growth was flat for the month compared with a year earlier. Still holding strong for now, WSJ reports that IATA expects "further declines in international traffic for both regions' carriers.”
North American carriers saw international passenger traffic decline by 0.8% in October compared to last year, slightly better than the 0.9% drop reported for September.
Asian-Pacific carriers, which carries 31% of international passengers, are feeling the most pain seeing passenger traffic fall by 6.1% in October, an improvement from the 6.8% decline reported for September.
While the global passenger carriers are still holding up fairly well, IATA cautioned that the cargo market was heading for further declines. International air-freight traffic decreased 7.9% in October, the fifth consecutive month of increasingly steep drops. "The deepening slump in cargo markets is a clear indication that the worst is yet to come," Mr. Bisignani added.
Asian-Pacific exports hit local carriers where the region's international freight traffic fell 11%. (Not surprisingly the A-P region accounts for 45% of the international cargo market.) Latin American carriers saw a decline of 11.4%.
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