Air traffic continues to grow despite shocks: IATA
7 Jun 2015
Source: The Economic Times
MIAMI: The growing number of people from the developing world taking to air travel has injected resilience in the airline industry through a continued growth of global air traffic despite the sector being regularly subjected to unanticipated shocks from external factors, IATA has said.
The shocks experienced so far by the industry have ranged from the 9/11 terror strikes and shooting down of MH-17, to the past oil crises, volcanic eruptions and diseases like SARS.
Noting that the future growth of global air passenger traffic "will undoubtedly be subject to unanticipated shocks", the study by the International Air Transport Association (IATA) says "in the past, global air passenger traffic has always seemed to bounce back strongly from short-term upheavals".
The study has been released ahead of the IATA's 71st annual general meeting and World Air Transport Summit here. It was 70 years ago that 57 airlines from 31 countries had joined to create IATA at a meeting in Havana, Cuba, just a few hundred miles across the ocean from Miami.
The study said "part of the reason why global air traffic has proven so resilient relates to the large declines in the real cost of air travel seen over time".
"The resilience of air travel also reflects increases in living standards and disposable incomes over time. All told, it has become increasingly affordable for more and more people to fly over time," the study, authored by IATA experts David Oxley and Chaitan Jain, said.
It projected that 400 million people in emerging and developing countries would join the middle-class in the coming five years, and the long-term upward trend looks set to continue.
"In fact, global air passenger traffic is expected to more than double over the coming 20 years," it said.
It analysed the impact of four major shocks - 1979 second oil shock, 1990 Gulf War, the 9/11 attack and the Dotcom Bust and 2007 global financial crisis.
While the relative drops in passenger traffic were "deepest" following the combined 2000-2001 shock of the dotcom bust and 9/11, and the 2008 shock of the global financial crisis, but "in both cases, traffic had returned to its trend level within four years", it pointed out.
"Interestingly, in the year before each of the four shocks, global air traffic was well above the trend level, suggesting that the effects of each shock may be overstated -- part of the decline could be accounted for by a cyclical reversion to the trend," the IATA experts said, adding "however, each shock is different."
It said that relative to the trend level, the 1979 oil shock "saw the shallowest, but longest-lasting downturn, with the global recession of the early 1980s accounting for the persistence of a negative passenger gap until 1987".
The study said since recovery from the last shock, global air passenger traffic has been growing more or less in line with the long-term trend.
"While the industry has historically been able to constantly adapt its operations and business models to new challenges and external shocks, it should not be taken for granted that resilience will be always automatic," it said.
The industry's ability to bounce back from future unanticipated shocks "will be influenced by factors outside its control, most notably the regulatory environment", the IATA experts said.
Maintaining that a "smarter regulatory approach" was the key to enabling the industry to get back on its feet as quickly as possible, it said regulations should be frequently reviewed to check if they were meeting the stated objective.
"Policy design principles such as consistency with international conventions and proportionality would also facilitate a smarter regulation approach - and allow air passenger markets to better cope with turbulence," the study suggested.