Although Asia-Pacific traffic continues to grow, intense competition is keeping airline profit levels in check as carriers flood the market with excess capacity, according to the Association of Asia Pacific Airlines (AAPA).

Preliminary figures for July show continued growth in both international passenger and air freight demand, with the region’s top 30 airlines carrying a total of 22.1 million international passengers. This represents an increase of 4.3% compared to the same month last year, boosted by strong regional demand.

However, the AAPA July traffic report cautions that available seat capacity expanded 5.7% in July, resulting in a 1.2 percentage point decline in the average international passenger load factor to 78.8% for the month. The growth in RPKs failed to keep pace with the capacity increase, but was still up 4% year-on-year.

AAPA DG Andrew Herdman said: “The sustained upward trend in both international passenger and cargo demand is very positive, and reflects continued growth in the emerging markets and a relatively stable global economic outlook. Nevertheless, Asia-Pacific airlines are still facing very challenging business conditions, with additional capacity placing further downward pressure on fares and yields. As a result, revenue growth has been lackluster, and profitability remains elusive for many of the region’s carriers.”

In the freight sector, however, expansion in capacity lagged growth in demand for the third consecutive month. Air freight growth was up 6.4% in July compared to July 2013, while capacity increased just 3.2%, leading to a 2.0 percentage point increase in the average international freight load factor to 65.3%. Herdman said the sustained growth in air freight demand during the first seven months of this year marked “a long overdue recovery in trade volumes after several years of weak global demand.”