Oil prices hurting demand

IATA reports that global traffic results for March show that total passenger demand grew by 7.6% compared to the same month in 2011. However, the airline industry association points out that comparisons with March last year are affected by events that depressed passenger demand in 2011, including the Arab Spring, which disrupted travel in the Middle East and North Africa beginning in February 2011 and the earthquake and tsunami in Japan in March 2011 that impacted air travel across the Asia-Pacific region. IATA estimates that the year-on-year rise in air travel in March was about two percentage points higher than it would otherwise have been in the absence of these events. As IATA’s director general and CEO, Tony Tyler sees it: “If we discount the industry’s growth by two percentage points as a result of the extraordinary events in 2011, airlines still managed an expansion in the range of 5% to 6%. Given the prevailing economic conditions with some European states returning to recession, passenger demand is holding up well. But this is bringing little relief to the bottom line because yields are not keeping pace with the continued very high price of oil.” Oil prices have remained stubbornly above $100 a barrel (Brent crude) for the past 14 months. In 2008, oil prices rose from $90 a barrel in January to a peak of $147 a barrel in late July. But by November, they had fallen back to less than $50 a barrel. Tyler points out: “We have not seen such sustained high oil prices previously. Jet fuel prices have risen 8% since January. Considering that fuel now accounts for 34% of average operating costs, it’s an increase that hurts.” Go to for more.

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