Air travel demand slows on security, fragile economies

BERLIN: Air passenger demand in April rose at its slowest rate since January 2015, weighed by the March attacks on Brussels airport and highlighting safety as one of the main challenges facing top airline executives meeting this week.

While airlines are enjoying a boost from lower oil prices, weakening economies and falling ticket prices are also posing problems for a sector which operates on thin profit margins.

The International Air Transport Association's (IATA) latest air passenger figures, released on Monday, showed demand rose by 4.6 percent in April, following the suicide bomb attacks in Brussels that killed 16 people at the end of March.

How to improve security following other attacks on popular travel destinations is likely to feature high on the agenda at the annual IATA meeting from June 1 to June 3 in Dublin.

Airlines are also under pressure to reduce carbon dioxide emissions and CEOs will discuss proposals by U.N. agency ICAO for a global market-based measure to offset emissions.

The industry favours a global scheme, rather than a patchwork across the world, IATA Director General Tony Tyler told journalists ahead of the meeting.

A possible British exit from the European Union and the U.S. elections are also areas of concern, with European carriers already warning a "Brexit" could dampen travel demand.

While airlines' cost bases benefited from the lower price of fuel, oil has been creeping back up to under $50 per barrel and the low oil price is hurting economies in Latin America, the Middle East and Russia, and oil firms cutting back on corporate travel has led to lower demand for seats in premium cabins.

"It's still set reasonably fair for the airlines' financial performance, but the bigger worry is the fragility of the global economy," IATA chief economist Brian Pearce said on Monday.

Air fares fell around 4 percent in early 2016 and are expected to decline further, says IATA, which represents around 260 airlines accounting for 83 percent of global air traffic.

"There's quite a lot of capacity growth despite the weaker pricing environment, especially from the European legacy carriers, and I would have expected to see more discipline on that," aviation consultant John Strickland said.

Delta Air Lines, British Airways-owner IAG and Lufthansa are among major carriers to have trimmed growth plans to protect prices.

Tyler, attending his last meeting as director general before handing over to Alexandre de Juniac, the outgoing CEO of Air France-KLM, will give an industry profit outlook on Thursday.

IATA has previously forecast net profits will reach record levels of $36.3 billion in 2016, for a net profit margin of 5.1 percent, with North American carriers accounting for over half of the total.

Jonathan Wober, chief financial analyst at CAPA-Centre for Aviation, still expects industry margins to rise this year thanks to the low price of oil.

"Demand is still broadly healthy, but there is also growing uncertainty at the macro level with cuts to world GDP forecasts and geopolitical tensions," he said.