Aviation's demand cycle continues to show solid strength but there are some headwinds on the distant horizon, argues Flightglobal's consultancy Ascend.
"Most measures of the aviation demand cycle that we track are positive, but there are one or two potential clouds forming," said Ascend head of consultancy Rob Morris during a webinar today.
He points to freight traffic, which is "once again" weakening. "The signs of recovery apparent earlier in the year are now waning, but this is no longer the leading indicator it once was," he says.
However, the "biggest cloud, potentially" is passenger yields, which have been falling since December, Morris notes.
"This is enabled by costs which are reducing as a result of lower fuel prices, which means profits aren't suffering yet," he says.
That also helps to explain "positive traffic growth indicators", with airlines using yield to stimulate traffic ahead of their growing capacity.
The worry, though, is that since the leverage between fare and demand is finite, "at some point airlines will run out of ammunition here to further stimulate traffic".
But he adds: "Overall, most measures of demand appear strong and actually somewhat contradictory to the more concerning global economic cycle."
Global passenger traffic "remains robust", with IATA's January-July figures indicating traffic growth of 6.5% from the same period in 2014.
And importantly, capacity continues to grow "more slowly than traffic", at 6%.
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Morris points out that even in regions with a perceived risk of a capacity surplus, such as Asia-Pacific, demand continues to exceed supply by almost two percentage points.
"Traffic growth remains well ahead of the long-run 5% average, and this suggests the demand cycle has some way to run to maturity yet."
Aircraft order volumes also continue to be "relatively high", albeit somewhat below the volumes seen during the past few years.
However, Morris cautions against interpreting these figures as a sign of weakening demand. "Rather, with backlogs at record high levels and limited or no slots for new aircraft available for delivery in the next few years, orders are simply at a pause while those full backlogs are hopefully delivered over the next few years," he says.
On a 12-month rolling average, order cancellations "did see some element of increase" through September 2014, but since then, the trend has continued downwards "with most being minor adjustments rather than large cancellations precipitated by customer failures".
Aircraft deferrals have also shown "some element of a positive trend".
Morris highlights a "slight uptick" in deferrals in June, when American Airlines made some future capacity adjustments and deferred some Airbus A321neos.
"But again, the adjustments observed here are minor rather than fundamental," he adds.
Source: Cirium Dashboard
