17-Aug-2011 1:37 PM

Premium traffic growth rates to moderate but upward growth trend still exists: IATA

Analysis

Worldwide premium air travel demand growth eased in June, reflecting slower world trade demand and weakening business confidence, according to airline industry association, IATA. Since these figures were assembled, global financial markets have experienced significant volatility and uncertainty, though IATA remains reasonably positive about airline prospects. It noted that premium passenger markets are expected to show further growth over the months ahead. But it warned that growth rates are likely to "run at a slower pace".

In Jun-2011, the level and growth rates for passenger numbers travelling on premium and economy seats dropped back from the levels seen in May-2011, although the growth trend was still upwards, according to IATA. Levels also improved on a year-on-year basis, with premium travel increasing 6.4% and growth of 4.8% for economy travel. Premium traffic was 11.1% higher in 1H2011 year-on-year.

IATA international air passengers (mill) by seat class (seasonally adjusted): Jan-2004 to Jun-2011

International trade and business confidence declines; likely to impact premium travel

Growth in premium air travel lags business confidence, which deteriorated in Jul-2011, by three to six months, IATA said. "Business confidence of this level is more consistent with annual premium traffic growth in the low single (percentage) figures," the association added.

Premium travel has typically grown in line with developed country international trade. The rate of growth of that trade has declined from high single-digits in 2H2010 to mid-single digits during 2011 so far, IATA said. Another key indicator for premium travel, business confidence, has also been declining over the last several months to now rest on the borderline between output expansion and contraction which will also be dampening growth.

Premium passengers and world trade growth: Jan-2006 to Jun-2011

Premium Travel and Business Confidence: Jan-2006 to Jun-2011

Premium revenues expanding at annual place in the low-teens

As in preceding months, the experience with passenger yields continues to differ significantly between markets. Still relatively tight demand-supply conditions for US airlines have allowed them to reflect higher fuel costs in passenger yields which have risen back to pre-recession levels in previous months. However yields have not been as strong in other regions. Industry wide, IATA estimates that premium revenues are expanding at an annual pace in the "low teens".

Premium ticket volume and revenue growth: Jul-2007 to Jun-2011

Economic growth declining but still 5% higher than pre-recession peak

The level of economy travel declined slightly in Jun-2011 after sharp increases in the preceding two months. Despite the declines, economy passenger numbers are now 5% higher than the high point before the recession. In Jun-2011, economy traffic was the strongest in markets linked to Europe.

First/business, economy and total traffic growth by route: Jun-2011

IATA noted that while there is volatility in the data month-to-month, the absence of a sharp downward movement in Jun-2011 following the recent rises "increases the likelihood that economy passenger numbers are now being less affected by the impacts of high fuel prices".

Regional difference continue to remain

The regional picture continues to remain mixed, with some major markets showing robust growth while others are still being affected by the aftermath of shocks or economic uncertainty.

International premium traffic growth by route: Jun-2011

Regional market traffic trends: Jun-2011 and 1H2011

Regional market	Traffic trends
North Atlantic	The North Atlantic market, which represents about 19% of traffic and 30% of revenue, has grown by 11.1% so far in 2011 boosted by robust international trade activity between Europe and North America. However concerns over wavering economic growth in the US could dampen rates of expansion in 2H2011.
Europe	Premium traffic growth within Europe slowed slightly but still expanded 9.4% in 1H2011 on a year-on-year basis. More fiscal tightening is likely within Europe and that could weigh on premium travel growth rates going forward, IATA cautioned
Within Far East	The number of passengers traveling on premium seats grew by almost 15% in Jun-2011, with growth of 9.5% in 1H2011 as economies in the region continue to expand
Middle East	The two major routes connected to the Middle East, i.e. Europe-Middle East and Middle East-Far East continued to expand at a pace of 10-11% in Jun-2011. Strong oil revenues continue to drive economic activity and the region is also benefiting from an increased share of long-haul passengers connecting through Middle Eastern hubs
Europe-Far East	Traffic increased by 7.4% in Jun-2011 with growth of 12.1% in 1H2011 making this the market strongest of the major markets
North and Mid Pacific route	So far this year premium travel on the route, which includes services between the American continent and Asia across the Pacific Ocean, has grown by just over 3%. This is still a reflection of the events in Japan and is the weakest of the major markets
Africa	Markets linked to Africa showed lower growth rates, or even declines, partly as result of lower traffic compared to that seen for the World Cup football tournament in Jun-2010
South America	Growth rates for travel within South America fell back, partly due to ash cloud related disruption in the southern cone during Jun-2011

Asia Pacific is the future for aviation: IATA Director General emeritus

IATA Director General emeritus, Giovanni Bisignani, as quoted in IATA's Airlines International, earlier this month noted that the future for aviation is not in North America or Europe but the Asia Pacific. He noted that Europe and North America played their role in building the industry but are no longer in a position to lead. Asia Pacific is the largest aviation market and it has the biggest potential for growth, he said.

APPENDIX: IATA premium traffic growth by route

IATA premium traffic growth by route: Jun-2011