By Jackie Thompson in London

As the books close on how passenger traffic fared in 2005, the headline figures make impressive reading. Passenger numbers broke through the two billion mark for the first time ever and traffic was just a whisker away from reaching 4,000 billion RPKs.

Carriers in the Top 200 survey posted a healthy traffic rise of 8.2% in 2005. This is a fall from the previous year's jump of 13.8% as the world recovered from a string of shocks including the war in the Gulf and SARS.


According to Adam Pilarski of aviation consulting firm Avitas: "2004 was a blip, an unreasonable number and a catch-up for the last few years. The years 2002-3 saw unusual levels, lower than those of 2000, and 2005 was a continuation of that catch-up. Growth of 8% is solid and the next few years will be more in line with a long-term growth rate in the 6% range."

The Top 200 ranking, compiled by Air Transport Intelligence, sister online service to Airline Business, shows passenger growth in Asia still at a healthy 10.1%, although down on 2004's remarkable figure of 19.6%. But Peter Harbison, chairman of the Centre for Asia Pacific Aviation, sounds a note of caution. "While growth remains robust and the environment is relatively benign this year, the clouds could be gathering," he warns.

Traffic growth in the Middle East more than halved, down to 10.4% from the previous year's 24.1%. Latin America led the pack, posting an impressive increase of 15.2%, and was the only region to exceed its growth for the previous year, during which it achieved 13.7%. In the Middle East Qatar Airways saw a gigantic 47% rise in passenger traffic, shooting up the rankings from 2004's 69 to 50 as a result. Emirates goes from strength to strength, enjoying a 21.1% rise in traffic to build on growth of 28.1% the year before.

Latin America has two clear frontrunners among its carriers, both experiencing dramatic traffic growth. The troubles at Brazil's flag carrier Varig is not unrelated to the rude health of two competitors - GOL and TAM - which saw growth in 2005 of an impressive 54.6% and 42.9% respectively.

The explosion in the Chinese economy continues, as does the consolidation in its airline industry. Traffic is growing in excess of 10% year-on-year and both China Eastern and China Southern Airlines have started incorporating figures of subsidiary airlines into their total operation. China Southern recorded growth of 66.5%, while China Eastern posted growth of 31.9%.

Indian expansion

The Indian economy too is growing apace. The introduction of long-haul services in 2005 by Jet Airways was a major factor in an increase in traffic at the carrier of 37% on the previous year, combined with domestic expansion. Domestic passenger numbers for all Indian airlines increased roughly 25% last year and while Jet's market share has been falling as new players appear on the scene, it is adding lots of domestic capacity too.

Every region except Latin America fell back slightly on the previous year, with the mature markets of Europe and North America dropping back down to still respectable single-digit figures. North America, where carriers have a substantial amount of capacity was removed, particularly in domestic markets, came in just under Africa with the slowest traffic growth, at 6.4%.

US carriers, such as Continental and Delta, have been switching capacity from their competitive home markets to more lucrative international routes. The disappearance of Independence Air has also contributed to the fall in US domestic traffic. Yields rose for US carriers as carriers cut costs and lifted fares. "Last year was a race between fuel prices and fare increases," says Susan Donofrio an analyst at New York-based Cathay Financial.

European airlines too are cashing in on the strength of the long-haul business market, with network carriers chasing the lucrative premium passengers. "Longer-haul routes are showing the strongest growth as international trade is strong," says IATA chief economist Brian Pearce.

Last year's figures show the low-cost and regional markets surging ahead, with regionals winning by a short head with 24.7% growth compared with low-cost's 22.6%. These results compare sharply with the mainline market's less impressive 6.6%, although it is still by far the largest market, flying more than 3,000 billion RPKs.

The strength of the regional market is especially noticeable in the USA. Here regional carriers are inheriting routes previously operated by mainline parents as pilot scope clause amendments see more large regional jets entering the market. US regional traffic grew by a healthy 28.4% in 2005 as its mainline partners added a mere 2.9%.

The low-cost market shows no sign of slowing down. The daddy of them all, Southwest Airlines, saw growth of 12.7%, and European counterparts Ryanair and easyJet posted figures of 38.4% and 27.3% respectively.

Leisure feels the heat

The leisure market is under some pressure, with growth of just 3% compared with 10.5% the previous year. This is graphically illustrated by the UK's MyTravel Airways, where traffic fell by more than a quarter.

Load factors were up by 1.2% on average with an increase in every market except leisure, where they fell by 1.9%. Leisure load factors still stand at 82.7% however - the highest of any market.

Looking forward, ICAO forecasts growth of 6.1% this year, which is slightly more optimistic than IATA's prediction of 4.5%. Energy costs continue to cast a long shadow over the prospect for sustained growth.

"Jet fuel prices are rising much faster than those of crude oil," says IATA's Pearce, "and there has been a big rise in refinery margins. Hedging is very expensive, with 45% of this year's fuel bill hedged at 2005 prices. This stands at $113 billion, up from $91 billion last year. It is remarkable that airlines have even been able to keep their heads above water."

Volatility in the Middle East is an increasing cause for concern - not least because over half of the world's oil reserves are in the region. Needless to say, it is not just the airline industry that is watching events there unfold with unease. ■

Source: Airline Business