European economy is weak link in global aviation recovery

Passenger and freight demand are rising, but are still way off pre-crisis highs

Global air passenger and freight demand are rising, but both are still way below pre-crisis levels and Europe's weak economic recovery is pulling it behind international rivals.

Overall passenger demand rose by 2.1 per cent in November, the International Air Transport Association (Iata) said yesterday. But although international demand is now 6.4 per cent above the low point at the beginning of 2009, it is still 6 per cent down on the peak in early 2008. Similarly, demand for air freight shot up by 9.5 per cent in November, compared with the previous year. Although now a whopping 20 per cent improvement on last December's nadir, it is still 10 per cent below the peak.

Both markets are about two years behind where they would have been without the economic crisis, says Iata. "Demand continues to improve, but we still have a lot of ground still to recover," said Giovanni Bisignani, its director general.

Most worrying for European airlines is the wide disparity between different regions of the world. In terms of passenger demand, the Middle East saw growth of 16.5 per cent last month, Latin America 8.2 per cent, and Asia-Pacific 5.1 per cent. The resurgence of economic growth in Asia is fuelling not only rising demand for the region's airlines, but also for commodities from Latin America, with a knock-on effect for Middle Eastern airlines routing traffic through their hub airports, according to Iata.

But in Europe and the US, the picture is very different. Sluggish economic recovery, coupled with continued fear over jobs, dragged down passenger demand by another 3 per cent, year on year, in November.

In the air freight market, Europe's lag is even more pronounced. Asia-Pacific's freight carriers saw a 14.5 per cent jump in demand, thanks to the success of stimulus packages in boosting industrial output. Latin America's 17.5 per cent growth, the Middle East's 21.4 per cent and the 13.6 per cent rise in the US are all linked to the rise in demand in Asia. Meanwhile, Europe's carriers recorded a 5.6 per cent fall in demand.

"Freight is a leading indicator that the world is starting to trade," said a spokesman for Iata. "There is some encouragement from freight traffic, but not in Europe, partly due to local economic conditions, partly because it is not a hub for the long haul routes into and out of Asia-Pacific."

Adjusting for seasonality, the picture is even gloomier – with passenger demand falling 0.7 per cent from October to November, primarily due to continued weakness in Europe and the US. In the freight market, demand grew by 4.7 per cent from October to November, although again Europe remains weak.

Iata is predicting worldwide losses of $11bn (£6.9bn) for the global airline industry this year, and another $5.5bn of losses in 2010. So far more than 50 airlines across the world have gone bankrupt since the economic crisis hit in mid-2008. Most recently, Scotland's Flyglobespan went into administration just before Christmas, leaving 4,000 passengers stranded.

Grounded for good? Yet another JAL crisis

Shares in Japan Airlines (JAL) plunged to a record low for the second day running yesterday, amid confusion over the beleaguered flag carrier's future.

JAL has been in trouble for years – bailed out by the government four times since 2001, currently struggling under ¥1.5 trillion (£10.1bn) debts and predicting ¥63bn losses in the year to March. But although the government was dismissing the possibility of bankruptcy earlier in the year, the option was on the table at cabinet crisis talks yesterday.

The latest crisis was precipitated by statements from Hirohisa Fujii, Japan's Finance Minister, last week that the state would not longer guarantee JAL's loans. Japan's Transport Minister, Seiji Maehara, yesterday said the government is considering further loans from the state-backed Development Bank of Japan. But the group's shares plummeted by 24 per cent to just ¥67 as investors rushed for the exit. The government-backed Enterprise Turnaround Initiative Corporation is set to rule on JAL's future in January.

Bankruptcy proceedings would complicate bids for JAL from Delta and American Airlines. The Japanese media suggests JAL is erring towards the offer from Delta, which would take it out of American's Oneworld alliance and into rival SkyTeam.