Are airlines weathering the impact of Brexit and terrorism?
Passenger traffic growth analysis
In my 27 July blog ‘The Summer of Hate’ I espoused that summer 2016 could be a defining moment for the aerospace industry. I questioned whether the new wave of terrorism on mainland Europe would lower our propensity to travel by air and therefore encourage more people to holiday closer to home. The IATA passenger data is now in for July so what does it show?
So far the outlook is positive. In July 2016, growth in industry-wide revenue passenger kilometers (RPKs) rose 5.9% year-on-year in July – its fastest pace in five months. Therefore RPKs have grown 5.5% year-on-year so far this year. Whilst this is lower compared to 6.3% in the same period of 2015, passenger traffic has still grown broadly in line with the average pace seen over the past decade or so. Most importantly the July data show demand was resilient at the start of the peak summer period.
Air travel has faced two major headwinds in 2016 – terrorism and economic uncertainty. As I discussed in my summer of hate blog the impact of terror attacks is normally temporary, however the frequency of attacks this year has led many in the industry to suggest the impact may last longer than normal. Air passenger volume growth usually goes hand in hand with global business confidence as the chart below shows. September’s PMI data was better than expected which bodes well for passenger growth, but the uncertainty around Britain’s exit from the European Union (EU) continues to be a risk. These headwinds have been offset though by lower fares, which are a function of lower oil prices as well as competition between airlines over the summer season.
Air passenger volume growth and global business confidence (IATA Economics)
So thus far summer 2016 does not look to be the moment when terrorism altered our propensity to fly, although it is worth nothing that many people already had their travels plans made when the attacks in France and Belgium occurred. Confirmation of the theory though will come next summer when we see if passenger growth is at its usual levels during July and August.
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