Increased business confidence is flowing through to improving demand for global flights but US budget cuts have emerged as a major concern for airlines.

Latest Iata statistics for January show that demand was up 2.7% year-on-year – slightly ahead of the 2.2% expansion in capacity. Load factors stood at 77.1%.

After adjusting for seasonal factors such as Chinese New Year falling in February this year against January in 2012, the association estimates that the actual growth would have been 3.5%.

European airlines were among the weaker performers, with 2.1% demand growth on a 0.4% rise in capacity.

While demand was up on a year ago, the region’s airlines have posted no growth in international markets since October. European economies are not growing and its airlines remained burdened by high taxes, onerous regulation and infrastructure constraints, according to Iata.

Director general and chief executive Tony Tyler said: “Passenger travel is growing in line with business confidence levels. Recent months have seen some positive economic signs emerge in both the US and China, and the eurozone crisis seems to have stabilised.

“Of course risks remain; the impact of US budget cuts has yet to play out and fuel prices are high. But even with those headwinds – real and potential – we still see underlying support for continued and potentially even strengthened growth.”

Iata believes there are deeper concerns over threats of reduced availability of government-provided services for airport security, border control and air traffic management in the US.

Tyler said: “That the connectivity of the world’s largest economy is being held captive to politics is not acceptable. Airlines pay for air traffic management services through fees and taxes that average 20% of the cost of a typical domestic air ticket.

“Clearly there are some difficult budget decisions for the US government to make. But compromising connectivity, which supports 9.3 million jobs and $669.5 billion in economic activity in the US, is not the right choice.”