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According to May results of the International Air Transport Association (IATA), Indian domestic traffic rose just 0.1 per cent year-over-year but fell 2.7 per cent compared to April.
Besides, the average passenger load factor for Indian airlines stood at 76.8 per cent.
"The airline industry is fragile. Relief in oil prices provides some good news. Unfortunately, the softness in oil markets comes on the back of fears of deterioration in the European economy," said Tony Tyler, IATA's Director General and CEO.
He said business and consumer confidence was falling and the first signs of this can be seen in slowing demand and softer load factors.
"This does not bode well for industry profitability," he said.
"Airlines are expected to return a USD 3 billion profit in 2012 on USD 631 billion in revenues. That's a razor-thin 0.5 per cent margin," he said.
The Middle East carriers showed the strongest growth at 15.8 per cent, outstripping capacity expansion of 11.9 per cent. Load factors here were the second-weakest among regions at 74 per cent. This was, however, a 0.4 per cent point improvement compared to April.
The Middle East carriers were the only ones to report aggregate accelerated demand growth compared to April, when the region's airlines reported 15.2 per cent growth.
While passenger demand was 4.5 per cent ahead of levels in May 2011, growth was virtually flat compared to April.
Capacity increased by 4 per cent and load factors stood at 77.6 per cent, below the historically high levels recorded in April. May freight demand was 1.9 per cent below previous year levels. Compared to April, the freight market contracted by 0.4 percent.
Freight markets hit a low during the fourth quarter of 2011. Since then, they have basically moved sideways with just a 1.5 percent improvement on that level by May.
The freight load factor stood at 45.3 per cent, unchanged from the previous month but 1.2 percentage points below May 2011 levels.
International passenger demand was up 5.6 per cent compared to May 2011. That is well below the 7.1 per cent growth recorded in April. All regions, except the Middle East, saw growth in passenger demand slow in May compared to April.
A 4.1 per cent capacity expansion, however, helped improve load factors from 75.9 per cent in May 2011 to 77 per cent for the current month.