Euro Crisis Could Reduce Global Air Cargo by $4 Billion

Global air cargo revenue risks shrinking by $4 billion in 2012 if Europe’s sovereign debt crisis triggers another banking meltdown, the International Air Transport Association said.

IATA expects airlines to generate cargo revenues of $66 billion in 2012, unchanged from 2011, but this will drop to $62 billion if the eurozone crisis “spirals out of control.” Freight traffic will decline by 4.7 percent under IATA’s worst-case scenario, compared with zero growth if Europe resolves its debt problems.

“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the sovereign debt crisis,” IATA chief executive Tony Tyler said.

IATA cut its forecast for industry earnings next year by 50 percent to $3.5 billion from $4.9 billion in its September forecast. But airlines could plunge $8.3 billion into the red in 2012, the largest loss since the 2008 financial crisis, if Europe’s debt woes infect the banking system and the global economy, Tyler said.

European Union leaders are scheduled to meet in Brussels Dec. 8-9 in the latest summit aimed at preventing sovereign debt defaults by some governments in the 17-nation eurozone. IATA maintained its forecast of a $6.9 billion industry-wide profit in 2011, down from $15.8 billion in 2010.

Cargo has been retreating since mid-year with traffic forecast to decline by 0.5 percent in 2011 from 2010, amid declining business confidence that has prompted a shift to cheaper transport, including ocean shipping.

“Month by month we have seen cargo markets shrink. By October, the cargo sector had contracted by 5 percent compared to mid-year,” Tyler said in Geneva at the presentation of IATA’s forecast.

Exporters in Asia suffered from lower demand in the U.S. and Europe, with Hong Kong, Shanghai, and Incheon, South Korea, suffering traffic declines in October of 8.2 percent, 9.8 percent and 8 percent, respectively, said Rafael Echevarne, the Airports Council International's economic director.

In the U.S., major hubs also struggled in October, with Memphis traffic down 1.5 percent and both Anchorage and Louisville losing over 5 percent in cargo througput.

“The scenario is similar for Europe, where air freight declined by 4.4 percent,” said ACI. “Among the major airports in the region, declines were observed in Frankfurt (9.5 percent), Amsterdam (3.8 percent) and London (7.2 percent).”

-- Contact Bruce Barnard at brucebarnard47@hotmail.com and Mike King at michael@borderline.eu.com.