UPDATE 1-AIRSHOW-IATA says cargo is biggest worry for airlines

SINGAPORE Sun Feb 9, 2014 7:52am EST

SINGAPORE Feb 9 (Reuters) - Weakness in air cargo markets remains the biggest worry for airlines despite some evidence of recovery in 2013, the head of the International Air Transport Association said.

"The biggest worry for the airlines industry right now is probably cargo. Air cargo continues to be weak and for the big airlines in this region (Asia), it is a very important component of their revenue," IATA director general Tony Tyler told a news conference on Sunday ahead of the Singapore Airshow.

Air cargo is seen as a barometer for the economy. IATA estimates some 35 percent of world trade by value goes by air.

Led by gains in the Middle East, air freight traffic grew 1.8 percent globally in December compared with the same month of 2013, but it fell 1.1 percent in Asia, according to IATA.

"Latest numbers in cargo show that although globally cargo improved a bit, it didn't really improve in this region (Asia). It's usually been very strong in this region," Tyler said.

Asia-Pacific carriers have nearly 40 percent of the global air freight market.

Last week, Singapore Airlines said air cargo demand is expected to be relatively flat, but cargo yields are likely to remain under pressure as the cargo business still faces overcapacity. Cathay Pacific has also been hit by weakness in cargo markets.

Asia's largest aerospace event is being held amid strong demand for passenger jets, which automatically creates extra capacity for freight in the spacious cargo holds of big jets.

That in turn has put pressure on the market for dedicated freighters such as Boeing's recently introduced 747-8.

Delegates at the show will be closely watching for any signs that currency weakness in key aviation markets such as Indonesia and Thailand will threaten economic growth, which could affect confidence and undermine passenger travel demand.

Despite these short-term worries, prospects for passenger growth remain bullish in Asia, said Brian Pearce, IATA's chief economist.

"You've got some economies growing very fast. You've got some very supportive demographics. You've got liberalisation taking place in the region," Pearce told Reuters TV.

"I think all of those add up to a very good medium term outlook. Obviously in the short term with some of the foreign exchange turmoil, some of the risks facing those economies with large current account deficits there may be some hiccups."

Southeast Asia, home to Malaysia's AirAsia Bhd and Indonesia's privately held Lion Air, is driving spectacular growth in orders for Boeing and Airbus aircraft. But concerns are rising about overcapacity in some markets .

"We've seen some pressure on utilisation and load factors because of those aircraft deliveries through the last 12 months. I think we are starting to move into an improving position," Pearce said.

In December, IATA raised its 2013 and 2014 forecasts for global airline profits due to lower jet fuel costs and improved efficiency.