Contributing author: Aram Karagueuzian, Senior Manager, Traffic and Economic Statistics, ACI World
The North American economy in 2018 was marked by two conflicting forces. On the one hand, uncertainty with respect to trade disputes and protectionist rhetoric by the US administration have left leading indicators of economic activity in limbo, with markets in a state of apprehension. Significant stock market volatility in 2018 and 2019 remains an important indicator of the underlying uncertainty regarding the direction of trade policies. At the same time, key macroeconomic indicators pointed to a healthy economic climate in the US, especially in 2018. The unemployment rate has fallen to 3.6%, the lowest it has been in half a century, spurring solid gains in private consumption. Notwithstanding this, despite a strong labour market, income disparity persists. Based on the Gini index, a measure of income inequality, the US has the largest disparity between rich and poor among advanced economies. Another factor weighing down on output growth is a tightening of credit conditions.
The North American aviation market has continued to ride on the coattails of a strong economy in the near term. Continental passenger traffic continues to achieve growth rates well above those typically associated with its mature-market status. There are several reasons for the passenger-traffic increases. Market potential for mid-sized hubs and smaller regional airports has improved in tandem with population increases in their catchment areas, mostly communities outside major cities. This has also increased airport competition, with smaller mid-sized airports offering lower user charges to attract carriers. Another reason is that, despite the wave of past airline consolidations, the low-cost carrier market has helped tilt the scale towards greater competition among carriers, with LCCs establishing operations at mid-sized or secondary airports. Carriers such as Allegiant, Frontier, Spirit, and JetBlue have been especially aggressive in the US market context, expanding to smaller airports, while Southwest Airlines is expanding capacity internationally. United Airlines, a US legacy carrier, has bucked its earlier trend and followed suit, expanding domestically to smaller airports in 2018. Traffic has increased significantly at these airports in a relatively short period of time. Jacksonville (JAX), San Jose (SJC), Austin (AUS), and Nashville (BNA) are among an array of smaller airports that have experienced double-digit percentage growth. These airports achieved gains of 15.6%, 14.7%, 13.9%, and 13.2%, respectively, in 2018.
Canada, a much smaller air transport market than the US, grew at a slightly faster pace than did the US in 2018, achieving 5.9% growth. Affected by the drop in oil prices in 2015 and 2016, the Canadian economy has since recovered. Although the Canadian airline market is highly concentrated, especially with respect to domestic routes (which are primarily dominated by Air Canada), Swoop —a low-cost carrier that is an in-house brand of WestJet— has entered the market and has been building its network across Canada. The airline has focused on point-to-point services to allow self-connecting passengers to take international flights from major Canadian airports. Among the fastest-growing airports where Swoop operates are Abbotsford BC (YXX) and Hamilton Ontario (YHM), each of which has traffic below 1 million passengers per annum. These airports grew by 24.3% and 21.1%, respectively, in 2018.
Over a period of almost two decades, North America’s average annual growth rates hovered around 1%, but a growth rate of 5% for 2018 indicates resurgence in and the strength of the US aviation market. The region’s growth differed from its 2017 performance, when its 3.7% growth was relatively modest compared to Europe’s and Asia-Pacific’s respective 8.8% and 10% rates. As with Europe, North America may be displaying a developing trend in which traffic growth at top airports slows down while smaller airports post significant gains. International passenger traffic increased 6.4% and domestic traffic grew 4.8%, confirming the continued US expansion in international passenger traffic. This came after a period of modest growth following the 2008 crisis, as Chart 1 shows. However, North American passenger traffic has remained on a solid upward trajectory since 2014, demonstrating growth rates well above the average annual growth trend from 2000 to 2018.
Chart 1: Evolution of annual passenger traffic in North America (2000–2018)
North American aircraft movement growth has followed a declining trend since 2000. The deep-seated recession in 2008–2009, which spread to the aviation sector, acted as a signal to airlines to correct their bottom lines and to address excess capacity. In tandem with the consolidation in North America’s aviation market, the decline in movements has resulted from concerted capacity adjustments by airlines in order to increase load factors and yields. In some cases, these adjustments meant reductions in service frequencies on —and even withdrawals from— routes that did not generate levels of demand sufficient to satisfy the legacy carriers. However, in 2017 and 2018, 1% and 1.8%, respectively, year-over-year increases in aircraft movements indicated an easing of capacity discipline. Many low-cost carriers have expanded their operations at smaller medium-sized hubs. From 2000 to 2018, aircraft movements fell 1.1% per annum on average, as Chart 2 indicates.
Chart 2: Evolution of annual aircraft movements in North America (2000–2018)
Atlanta (ATL) continues to be the world’s leading airport for passenger traffic, growing 3.3% in 2018 compared to the previous year (see Table 1). In North America, ATL has a margin of almost 20 million passengers over the second-ranked airport, Los Angeles (LAX). LAX continues to see passenger traffic grow, with a 3.5% increase in 2018. Traffic at Chicago O’Hare (ORD), the third-busiest airport in North America, grew 4.3%. As a group, North America’s top ten busiest airports grew 3.9% in terms of passenger traffic in 2018.
Table 1: Passengers—North America’s busiest airports (2018)
North America is being shaped by two forces that are moving in opposite directions in terms of growth in shipped air cargo volume. On the one hand, the tariff war between China and the US has threatened one of the largest international trade corridors in the world. On the other hand, the growth of the US domestic market for express delivery and e-commerce has circumvented a slowdown in the short term. The United States’ domestic freight market posted 5.7% growth in 2018, propelling the region’s gains, while its international freight segment grew 4.6%. However, by the fourth quarter of 2018, US international cargo volume growth slowed to 1.9%.
China and the US respectively represent the principal markets for exported and imported goods shipped by air. Headwinds to global trade and the air cargo sector persist as a result of the stand-off between the two trading giants. Their tariff walls have also affected trade flows and global supply chains, sending those flows into a tailspin and altering investment decisions with suppliers. Growth in domestic markets tells a different story and remains divergent. Strong consumer confidence and the Amazon effect —the continued growth of online retail— have permeated the airport industry despite downside risks. Amazon’s Prime Air continues to respond to pent-up demand for its services. US airports Cincinnati (CVG), Tampa (TPA), Baltimore (BWI) and Rockford (RFD) have experienced sizable gains in air cargo volume by accommodating the online retail giant as it expands its capacity and distribution networks.
Overall air cargo volume grew 5.1% in 2018, a robust rate considering the strong 7.1% growth in 2017 —one of North America’s highest growth rates in decades, other than in recoveries following recessions. The recent resurgence in air cargo volume that began in 2014 has helped the North American market to return to pre-Great Recession levels after a period of sluggishness, as Chart 3 shows.
Chart 3: Evolution of annual air cargo traffic in North America (2000–2018)
Some 60% of North American air cargo traffic is handled by the region’s 10 busiest airports (see Table 2). Memphis (MEM), the largest hub for FedEx, saw cargo traffic grow 3.1% in 2018. Louisville (SDF), the largest hub for UPS Airlines, grew only 0.8%. Cincinnati/Northern Kentucky International Airport (CVG) grew 19.1% in 2018, one of the fastest individual-airport cargo growth rates in the world. Located in the Midwest US, CVG is benefiting from the Amazon effect —Amazon establishing its air operations and distribution channels there. Even though Amazon’s air cargo facilities will not be fully operational until 2020, CVG is already among the world’s fastest-growing airports in terms of air cargo volume.
Table 2: Air cargo—North America’s busiest airports (2018)