Posted by- Neelam Mathews
Sept 2, 2011
The commercial transport market put up solid traffic growth in July of 5.9% and capacity growth of 5.4%, driving load factors for the month back up to 83.1%, "a level we have not seen yet during this recovery," says Wedbush Securities of the IATA report.
"Although the markets did not start their extreme bouts of volatility until the tail end of July (and we would expect a lag between any economic headwinds and commercial travel anyway), we were impressed by the results for two reasons: 1.) the results reaffirmed what we have been hearing from those companies in our universe: that they haven’t seen any slowdown in their aftermarket businesses, and 2.) traffic demand grew in excess of commercial capacity which was the first time this has occurred since November 2010.
"We remain encouraged that this pattern of capacity discipline by the airlines and their operational flexibility. We continue to believe that capacity discipline by the airlines remains a key for the long-term health for the airline sector and sustainability in this recovery and will be a key attribute for the companies in our universe."
Perhaps the largest surprise in these results is the complete stall-out in the freight markets. "We were surprised by the sector seeing its 6th straight month of traffic decline. Capacity growth in freight has not slowed to the extent that traffic has been as poor as it has on the traffic side. We attribute the slowdown to a few factors with the prevailing reason probably being the very tough comparables the sector is facing currently. Also freight tends to be both an indicator when coming out of a recession as well as entering one.
Weakness or slowdown in the freight markets indicates a potential slowdown in global trade which may be a negative sign for the sector. "We do remain optimistic, however, on this front; and we continue to believe that both the commercial OEM and aftermarket recoveries are still on track due to airline operational flexibility, capacity discipline, and a sustainment in traffic demand, " says Wedbush.
The company says it continues to like AAR, Goodrich, HEICO, and TransDigm (TDG) as ways to play the commercial aftermarket recovery. "And we like Boeing, Precision Castparts, Spirit AeroSystems and Triumph Group as ways to play the upside in the commercial OE production cycle."