Premium traffic growth continues; expected to slow following rebound
IATA, in its Premium Traffic Monitor for Jun-2010, stated there was "another rise" in international passengers in Jun-2010, with the numbers travelling in premium seats 16.6% higher on a year-on-year basis, while economy traffic increased 9.5%. Despite this upward trend, which correlates with improved economic conditions, IATA warned that the pace of growth now appears to be slowing, following a “very strong” post-recession rebound in travel.
IATA total premium traffic growth: Jun-08 to Jun-2010
Growth rates weaker than in May-2010
These growth rates were a little weaker than in May-2010, in a month that contained a number of trips that had been postponed from April due to the European airspace closures.
Adjusting for the temporary impact of the European airspace closures shows that premium travel was expanding at an annualised rate of 9% in 2Q2010, while economy travel expanded at 6%.
Double-digit premium travel growth in 1H2010
During 1H210 – even with the losses due to airspace closures in Apr-2010 – premium travel increased 11.9% (removing the Apr-2010 distortion, the expansion is estimated at 17%), with a 6.3% gain in economy travel and total international passenger travel increasing 6.8%.
IATA commented that the strength of premium traffic demand compared with economy travel growth is a “sign that the travel market is continuing to be driven by business passengers”, with the industry association adding that “economy travel is now expanding in line with the trend growth rate seen before the recession”.
This pace of growth is slower than the first quarter and the second half of 2009, when air travel was “rebounding from the depth of the ‘Great Recession’”, although IATA added that they are “still very healthy rates of expansion at or above the pre-recession trends”.
Premium traffic growth by ticket type: Jan-2007 to Jun-2010
Premium revenue increasing at fastest pace in three years
IATA estimated premium revenue in Jun-2010 increased by just over 40% year-on-year, for the highest growth in more than three years, due to the improvement in the number of passengers, a strong rise in the average fare and yield supported by tighter supply-demand conditions.
Premium ticket volume and revenue growth: Jul-2007 to Jun-2010
Premium recovery dependent on economic situation
IATA commented that the “strong” business travel is “driving both market segments during this upswing”, with the demand being supported by coincident indicators like the strong of world trade (which increased 18% in May-2010).
Premium passenger and world trade growth: Jan-2006 to Jun-2010
IATA said: “Forward-looking indicators such as business confidence have been similarly positive”.
“There has been some slippage in recent months which is consistent with expecting some deceleration in year-on-year travel growth rates in the second half of this year. Still weak consumer confidence suggests leisure travel will remain soft."
For more information on recent Economic Indicators, see the CAPA Economy Hot Issue.
Economy Passengers, Business and Consumer Confidence: 2006-2010
Regional differences remain
IATA added that regional differences remain in the premium demand recovery, largely reflecting differing economic conditions.
International premium traffic growth by route: Jun-2010
Asian and Middle East markets continue to show strong growth and rebound in premium passenger numbers, as do markets in South and Central America, while trans-Pacific and Europe-Far East continue to show strength on the back of business travel generated by strong Asian economic growth. However, trans-Atlantic travel, with the weak European economies at one end, continues to underperform and remain “sluggish”.
IATA passenger and freight growth analysis by region: Jun-2010
African routes have been positively affected in Jun-2010 by activities surrounding the FIFA World Cup hosted by South Africa. The total number of passengers travelling from Europe to Africa rose by 10.3%.
According to IATA, the unexpected result in Jun-2010 was for travel within Europe, where the number of passengers travelling on premium class grew by 24.2%. IATA stated: “This short/medium-haul market has been structurally weak in recent years as business travellers increasingly move to economy seats in this region. The growth is to a large part a one-off rebound from the exceptional lows at this time last year. It may also represent some business traffic connecting through the region to destinations in more economically buoyant parts of the world”. However, Europe's external trade is strong and European companies have generated strong profits during 1H2010, with IATA stating that “this may have stimulated business and premium travel for this region”. However, IATA cautioned: “We would not expect these growth rates to persist."
Routes linked to Asian markets, which represent more than 30% of premium revenues continued to show the strongest development despite a deceleration of economic activity in some countries in the region. There are concerns that China is slowing as the government acts to moderate very strong bank lending and potential inflation pressures. However, the expectation is that economic growth in this region will remain strong, albeit with a slower pace of expansion.
In Jun-2010, Middle East markets showed solid growth rates in premium passenger numbers. Economic conditions in this region are forecast to pick up in 2010, as GDP is expected to reach 4.3%, supported by high oil prices and supportive domestic policy conditions. Connecting traffic through the region is also expected to continue to expand at a strong pace.
The North Atlantic, which represents about 30% of revenue, remained sluggish in Jun-2010, suffering from weak economic conditions in Europe in particular. On this market, the number of passengers, premium and economy travellers combined, rose by just 0.1% during 1H2010.
Meanwhile, the Far East market witnessed the highest growth in first/business and economy traffic growth in the month, although premium revenue and traffic shares have slumped throughout the year.
Traffic Growth by Route – Jun-2010
IATA Middle East premium revenue share vs premium traffic share Jan-08 to Jun-2010
Cautious optimism but expect 'slowing' in months ahead
IATA has continually stated that it remains “cautiously optimistic” looking ahead, as business confidence improves. However, growth following an initial surge, is expected to slow in the month ahead, with the industry unlikely to be able sustain the strong momentum.