British Airways' premium traffic - a barometer of health in the underlying economy - fell a further 17.2% last month. At first glance, it appears BA's premium volumes may have bottomed earlier this year, but a closer analysis of the data suggests that the trend line is actually deteriorating further.
British Airways' premium vs non-premium traffic volume growth (% change year-on-year): May-07 to May-09
This is because premium volumes started to become volatile this time last year, with a 0.9% decrease in May-2008. Apr-2008 premium traffic growth was actually still positive, so the Apr-2009 fall of 17.7% is somewhat softened (even allowing for the Easter effect).
But, where the starting point for year-on-year comparison is off a negative base (May-2008's -0.9%), then the May-2009 fall is compounded to -18.1%. (Note: May-2007 premium demand was negative 2.1% year-on-year too). A 12-month moving average also shows the longer term deterioration of premium demand and reinforces CEO Willie Walsh's comments that the airline is in a "fight for its survival" (see below).
Compound falls: Two-year sum of British Airways’ premium traffic volume
growth (% change) and 12-month moving average: May-08 to May-09
And discounting is masking even larger yield falls
The graph above, with the monthly moving average, clearly illustrates the remorseless downward trend since last August - with no sign of any levelling out.
It is important to stress that BA's figures reflect premium volumes - not yields, which, by all accounts, are likely to be much worse. Recent discounting of Business and First class travel, including 2-for-1 offers, has artificially stimulated premium traffic passenger numbers, which would otherwise be worse still. Across the Atlantic, Continental Airlines' poor yield performance in May-2009 suggests the signs of a recovery may be no more than a mirage.
Last June, BA's premium demand was down 3.1%. If figures this month are any worse than -15% year-on-year, the ‘green shoots’ theory will be seriously challenged – and BA (and many of its premium focused rivals) will be looking down the barrel.
When CEO, Willie Walsh told staff this week that the airline was in a fight for its survival, he was not joking. His comments have been veiled by the context of union discussions, but they are real and sobering. This is a carrier that is not only fighting for its position as one of the big three European network airlines; it is now struggling to find an image of how it will look in two years' time.
It desperately needs to reduce costs, redirect its vision and - essentially - establish solid operating partnerships. With would-be partner Iberia now renegotiating publicly and the US Department of Transportation dragging its heels on trans-Atlantic antitrust immunity with American Airlines, the platform is looking rocky.
Whatever BA's vision of its future, as Willie Walsh's ancestors might have said: "if you want to get there, I wouldn't start from here".
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