Decline in air traffic slowed in July: IATA But ticket prices continue to drop on aggressive promotions

LONDON (MarketWatch) -- The decline in global airline traffic slowed in July, but ticket prices showed no improvement despite capacity cuts, leading a global industry body to caution that the recovery will be both "slow and volatile."

Scheduled passenger traffic fell 2.9% in July from a year earlier, the International Air Transport Association said Thursday. It was an improvement over the 7.2% drop recorded in June and the 6.8% decline seen over the first seven months of the year.

Fares, however, continued to fall, despite airlines having greatly reduced capacity in the past few months in an effort to protect their load factors and profitability.

"Demand may look better, but the bottom line has not improved. We have seen little change to the unprecedented fall in yields and revenues," IATA Chief Executive Giovanni Bisignani said in a statement.

He cautioned that the months ahead were uncertain, in particular the price of oil, which has been creeping back up along with the first signs of a global economic recovery.

Bisignani, who said the industry remains "in intensive care," still expects any recovery to be "both slow and volatile".

The comments may dampen the optimism of investors recently cheered by statements from British Airways /quotes/comstock/23s!a:bay (UK:BAY 188.40, -3.30, -1.72%) and Air France-KLM /quotes/comstock/23r!paf (FR:AF 10.85, -0.01, -0.05%) two of Europe's largest airline, suggesting demand had recovered a bit over the summer.

Looking at individual regions, July traffic fell roughly 3% in both North America and Western Europe, but IATA warned the improvement was more the result of "deep discounting" than stronger incomes or greater economic confidence.

In the Asia Pacific region passenger traffic dropped 7.6% in July, which was still a notable improvement from the 14.5% collapse witnessed in June. The recovery was helped by the return of economic growth to a larger extent than anywhere else in the world.

In Latin America traffic fell 3.5%. The Middle East remained the only region to show growth with a 13.2% increase.

The global freight market, meanwhile, fell 11.3% in July, an improvement from the 16.5% drop in June. All regions showed an improvement except Africa, as companies started replenishing their inventories.

"Once inventories are at desired levels in relation to sales, improvements in demand will level off until business and consumer confidence returns," Bisignani warned.

Aude Lagorce is a senior correspondent for MarketWatch in London.