IATA WCS: Low oil prices a double edged sword

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IATA senior economist, George Anjaparidze

The fall in oil prices is a double edged sword for the industry, because though it encourages the use of older freighters, this increases overcapacity, International Air Transport Association (IATA) senior economist George Anjaparidze says.

Anjaparidze spoke at the IATA World Cargo Symposium on 15 March during the plenary titled ‘Economic Outlook: When Will Growth Return?’. He told visitors that older freighters, which were in storage due to high fuel prices making them uneconomical, are returning to service, but this is putting more pressure on the industry, which is already suffering overcapacity.

He says: “Fuel prices have fallen, which has significant short term benefits to the industry. It is a double edged sword as the reduction makes it cheaper to operate older freighters …. Capacity has been rising both by entry of bellyhold capacity and older aircraft coming back, if this persists this will create a downward pressure on yields.”

Anjaparidze says this, and the increasing bellyhold capacity on passenger aircraft is putting increasing pressure on yields. “Yields have been stable over the last few months. The impact on yields has not been in excess given fuel prices but with capacity in the market, if continued there will be further downward pressure on yields.”

He also cited the International Monetary Fund (IMF), which says mediocre growth is the new reality. The IMF has been downgrading its forecasts and has said that advanced economies are slowing, emerging economies are not growing as much as to be expected, China is decelerating and Latin America is struggling mainly because Brazil is suffering from recession.

There are some bright spots, he says, such as the Eurozone beginning to grow, and though US wages are not growing, this is because the ‘baby boomer’ generation are retiring and their younger replacements are generally not being paid as much, so is not as concerning as it looks.