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Saturday, April 3, 2010

Air Traffic: 2009 versus 2008 - LatAm Stable and Middle East Higher = Pockets of Growth Through Crisis

We usually include air traffic data as part of our "How's the Economy Doing" series (we're behind with this update -- please stay tuned), but wanted to briefly share 2009/2008 annual (and December) data for general interest. More recent air traffic data is now available -- revealing impressive Y/Y improvements (on easy Y/Y comparisons) in February -- yet we were quite surprised the other month to see stable 2009 results for Latin America and double digit percentage growth for the Middle East ("RPK") -- per IATA, reported in January (click to enlarge):

Here is helpful information to interpret the table:
  • IATA (International Air Transport Association) represents some 230 airlines comprising 93% of scheduled international air traffic.
  • Explanation of measurement terms:
  • RPK: Revenue Passenger Kilometers measures actual passenger traffic
  • ASK: Available Seat Kilometers measures available passenger capacity
  • PLF: Passenger Load Factor is % of ASKs used. In comparison of 2009 to 2008, PLF indicates point differential between the periods compared
  • FTK: Freight Tonne Kilometers measures actual freight traffic
  • AFTK: Available Freight Tonne Kilometers measures available total freight capacity
  • FLF: Freight Load Factor is % of AFTKs used
  • IATA statistics cover international scheduled air traffic; domestic traffic is not included.
  • All figures are provisional and represent total reporting at time of publication plus estimates for missing data. Historic figures may be revised.
  • International passenger traffic market shares by region in terms of RPK are: Europe 34.7%, Asia-Pacific 29.8%, North America 17.8%, Middle East 11.5%, Latin America 4.5%, Africa 1.8%
  • International freight traffic market shares by region in terms of FTK are: Asia-Pacific 44.8%, Europe 25.3%, North America 16.6%, Middle East 10.2%, Latin America 2.2%, Africa 1.0%
Our point is similar to what we've relayed in the past: despite legitimate concerns, things aren't as bad as many persons feared and continue to fear (although some fear seems to be dissipating).

Attractively priced opportunities still remain for patient, diligent investors, including our 1-800-Flowers.com (FLWS). Also, in addition to our container shipping companies Seaspan (SSW) and Global Ship Lease (GSL), we dipped our toe into aircraft leasing in recent months by purchasing shares of Babcock and Brown Air Limited (FLY). While we still prefer asset light companies, we see Babcock and Brown as a stable, under-priced business with shareholder friendly management. On this latter point, please note Babcock and Brown's repurchase/other news from yesterday and actions over course of 2008-09.

Thus, we now hold larger exposure to cash generating pieces of the world's global transportation infrastructure (asset heavy ships and aircraft). By purchasing these companies at very low multiples of free cash flow, we sleep well with our exposure.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long SSW, GSL, FLWS, FLY.

© 2010 Jeffrey Walkenhorst
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