10/11/2017

Irma, Maria and Talim disrupt traffic growth in Q3 2017

Irma, Maria and Talim disrupt traffic growth in Q3 2017

Southern US was hit by two major Hurricanes, Irma and Maria in September 2017. The severe intensity of the disruption led to the cancellation of several thousand flights which ultimately compressed traffic growth to negative levels during the month. Separately, in Japan, Typhoon Talim interrupted the country’s robust domestic RPK growth trend during the month. As a result, Japan’s domestic traffic growth slowed to 3.6% in September 2017, down from an impressive 9.0% witnessed during August 2017. As per IATA, this was the largest month-on-month seasonally adjusted decline in domestic Japan’s RPKs since the Great Tōhoku earthquake in March 2011.

 

 

Both market segments have witnessed healthy traffic growth during 2017 and these disruptions are not likely to have a major bearing on their performance in the remaining months of the year. Airports that witnessed disruption are operating normally again and therefore growth levels are likely to recover to pre-September levels in October.

The same hurricanes, however, brought a much severe destruction to the Caribbean Islands which will take time to return to normalcy. This is likely to have some impact on leisure traffic to the islands and could negatively affect some carriers.

Elsewhere, the domestic segments of China, India, Brazil and Russia continue to record strong traffic growth. Russia and Brazil have been particularly pleasing. Russia’s domestic RPKs grew by a very attractive 10.9% in year-to-date September 2017 while Brazil by a more modest 2.5% during the same period. This is an extremely positive change compared to 2016 (year-to-date September 2016) when the two markets compressed by 0.4% and 6.3%, respectively.

 

ME continues to weaken

 

 

Although traffic growth in the Middle East is still positive and fairly reasonable, it is nowhere close to robust levels seen pre-2017. International RPKs grew by only 3.7% in September 2017, its slowest pace since February 2009. As discussed in some of Ishka’s other Insights, the combination of a now lifted ban of personal electronic devices, proposed travel bans to the US and the diplomatic row between Qatar and the four gulf nations of Saudi Arabia, UAE, Egypt and Bahrain all have had a negative impact on the region’s traffic growth.

 

Demand factors are easing?

 

 

Indications are that the strong demand stimulants in the form of low airfares are now easing. Passenger yields have started to trend upwards, albeit discreetly, and this is likely to moderate the pace of traffic growth during the remaining months of 2017 and into 2018. In such a scenario, capacity discipline becomes even more critical as a faster capacity growth can compress airline capacity utilisation levels.

 

Airlines maintain capacity discipline

 

Although there was a month-on-month decline in capacity utilisation in September 2017 due to the factors mentioned above, airlines have continued to be prudent with capacity additions. The industry-wide year-to-date load factor levels as of September 2017 was 81.7% improving from 80.7% as of June 2017. The year-to-date figure as of September 2017 also betters the year-to-date figures for the same month in the previous two years.

 

The Ishka View


The continued robust traffic growth seen worldwide during the nine months to September 2017 is encouraging. In Ishka’s view, the fact that airlines have remained disciplined and also ensured healthy capacity utilisation levels is even more promising. The negative effect of the natural disasters is likely to be temporary and not expected to meaningfully affect traffic performance during Q4.

It, however, remains to be seen to what extent traffic growth could level off, particularly in 2018, as the positive effect of lower airfares slowly starts to wane off. On the flip side though, other demand stimulants in the form of buoyant economic growth remain in place and likely to strengthen even further in some markets.
 
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