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Regional Economic Outlook

​2016 overview – A year of two halves

2016 ended on a positive note for the air transport industry, with both passenger and freight volumes growing at multi-year highs. However, this strong performance was not shared equally across regions. The industry-wide momentum was carried into the new year, presenting an upside risk to our traffic forecasts for 2017.

A strong finish to 2016...

In 2016, air passenger volumes (RPKs) increased by a robust 6.3% while air freight volumes (FTKs) increased by a solid 3.8%. These outcomes compare favorably with the longer-term average growth rates of 5.5% for RPKs and 2.0% for FTKs.
The year was one of two distinct halves, with the first six months of the year seeing a moderation in traffic growth – both pax and freight – due to a combination of headwinds including terrorist attacks, political instability and subdued economic activity, trade and confidence indicators.
The latter half of 2016, however, saw traffic volumes accelerate, with growth over the 12mths to December ending on a strong note. 

…masks a disparate regional performance 

At the regional level, the story was more mixed for 2016. Figures 1 and 2 show the contributions to the respective annual pax and freight growth rates from airlines registered in each of the regions.
On the passenger side, the bulk of the contribution to global growth came from Asia Pacific carriers, incorporating very strong growth in the China and India markets. 
Although Africa and Middle East carriers contributed a smaller share, they both outperformed the industry aggregate, growing by 6.5% and a strong 11.2% in 2016, respectively. 
Traffic on routes between the Middle East and Nth America (up 20.3%) and Africa and the Middle East (up 18.1%) were the standout performers.

Fig. 1: Regional contributions to annual RPK growth

For freight, it was the European carriers which made the largest contribution to industry-wide growth in 2016. Middle East carriers grew FTKs by 7% over the year - above the industry-wide rate, but below the pace of recent years - with African carriers up 3.1%.
Routes between the Middle East and Nth America (up ~20%) and Africa and Asia (up 30%) showed the strongest FTK growth rates, albeit with the latter from a relatively small base. 

 

Fig. 2: Regional contributions to annual FTK growth

Notwithstanding the robust traffic growth for the Middle East carriers, both pax and freight load factors fell in 2016. The PLF slipped 1.6 percentage points (pp) to 74.7% (vs the 80.5% industry outcome) and the FLF was down 0.6pp to 42.8%, broadly in line with the 43.0% industry figure.
For the African carriers, pax loads were broadly unchanged in 2016, up a marginal 0.1% to 68.6%. However, the FLF fell significantly – down 4.8pp to just 22.2% on a massive 25.5% increase in AFTKs. 

Where to from here?

At the industry level, the strong performance in 2H16 has been carried into the start of 2017. This provides a firm foundation for traffic growth this year and, at present, the balance of risks around our 2017 forecasts are tilted towards the upside.
The big question, of course, is whether, and for how long, the current performance can be sustained. Particularly in an environment where, for example, the stimulus from lower oil prices is being fast eroded and protectionist rhetoric is on the rise.
The key uncertainties for the Africa and the Middle East region in 2017 continue to revolve around developments in oil and commodity prices, along with regional geopolitical tensions and instability.  
Such considerations will be incorporated into our next forecast update, to be released in early June. 

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IATA Economics    
 March 2017

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