PREMIUM TRAFFIC MONITOR SEPTEMBER 2012 KEY POINTS

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1 Premium Pax, Million Economy Pax, Million PREMIUM TRAFFIC MONITOR SEPTEMBER 212 KEY POINTS The number of passengers travelling in premium seats was 3.8% higher in September compared to a year ago. This is down on the August result, when premium markets were up 8.% on a year ago. Economy class travel numbers were.% higher in September compared to a year ago, slightly down on the August year-on-year growth of 6.2%. The first chart below shows the seasonally adjusted levels of passenger numbers by seat class, providing an indication of the underlying trend. Over the last 6 months, premium travel had been growing at a 4% annualized rate, which is in line with the September year-on-year growth result. This recent trend, although solid, is showing a slowdown compared the growth seen over an earlier period. Premium travel grew at a stronger 7% annualized rate over the 6 months during Q4 211 and Q Economy class travel has progressed in a similar way, trending at a % annualized growth rate over Q2 and Q3, compared to an 8% pace over the 6 months before that. The trend uptick in economy travel between August and September is likely reflecting volatility in the data rather than acceleration in the growth trend. There is little in the demand environment to support such an improvement. The growth in air travel has moderated in line with the state of the business environment. Business travel drivers remain subdued, with world trade growth slowing to a halt compared to a year ago and business confidence remaining weak. Premium travel markets within Europe and across the North Atlantic are the two main regions of slower growth. For the year to date period, premium passenger numbers within Europe have increased just.6%, after growing 3.7% during 211. Premium travel across the North Atlantic was robust in Q1 212, as the US economy showed signs of improvement, but over recent months passenger growth on this market has slowed. In September, the market was just.8% higher than a year ago. Part of the slower growth on this route would be due to the recessionary economic environment in Europe, but it is also likely a result of capacity reductions by North American airlines. By contrast, emerging economies continue to experience solid economic growth and the associated air travel markets are seeing robust expansion as a result. Throughout the year, premium travel between Africa Middle East and Europe Far East have been growing solidly, and in September the markets expanded 12.4% and 4.1% compared to a year ago. The weakness in business confidence and the slowdown of world trade growth have kept air travel demand from expanding at the solid rates seen during earlier periods. The measure of overall business confidence did improve modestly in the last two months, but it is still indicating a contraction in manufacturing activity, now for five consecutive months. Consequently, we expect the pace of growth in air travel, particularly in premium markets, to remain modest over the coming months International air passengers by seat class (seasonally adjusted) Economy 8 8.% 9.% Premium passengers as a % of total (seasonally adjusted) % Premium % 8.%. 7.%. 7.% IATA Economics: 1

2 % Growth, Year-on-Year % change over year % Change over Year Confidence Index Premium Traffic Monitor Premium traffic is largely driven by business travel, whose environment has been weakening for several months now. World trade by developed economies is a good proxy for business travel associated with internationally trading industries but also for services like banking and consultancy. The first chart shows the close movement in premium travel growth and world trade growth. The growth momentum in world trade has slowed over recent months, and in August volumes showed virtually no increase on a year ago. The indication for the months ahead is not promising for world trade growth. New export orders are a good leading indicator for world trade momentum, and the Global PMI for new export orders has now been declining for six consecutive months. This suggests that world trade growth could continue to weaken in the coming months. Business confidence is a good leading indicator of premium travel growth. The second chart below shows the JP Morgan/Markit measure of confidence in the manufacturing industry. The Index has improved slightly in the last two months, but still remains in contraction territory, where it has been for the past six months. This indicates that manufacturing activity is still in decline overall, but the rate of Predict future demand and minimize investment risk. Airline Industry Forecast now available contraction is easing. As long as business activity shows contraction, however, we would expect slower growth in premium travel markets Premium passengers and world trade growth Developed countries trade in goods Premium travel growth Premium Travel and Business Confidence, PMI Business Confidence Premium travel growth % 2% Premium ticket volume and revenue growth Premium revenues Traffic Growth by Route - % % -% -2% -3% Premium volumes -4% -% First / Business Economy Total Within Europe North Atlantic Within Far East Europe-Far East North and Mid Pacific TRAFFIC GROWTH BY MAJOR ROUTE After a sharp spike in year-on-year growth of premium travel in August - which was largely a result of events that depressed passenger numbers in the previous year September results showed a moderate increase on a year ago. Although premium travel continues to expand at a solid rate, the pace of growth appears to have slowed compared to earlier periods. The slower growth is resulting from a softening in air travel demand on some routes linked to Europe, where many economies are in recession. Premium travel within Europe and across the North Atlantic increased 2.6% IATA Economics: 2

3 Premium Traffic Monitor and.8% in September year-on-year, respectively. Moreover, both markets have made little progress year to date, having grown just.6% and.7%, respectively, compared to the first nine months of 211. Economy class travel, by contrast, continues to expand robustly within Europe. In September, the number of passengers increased.2% compared to a year ago, a solid result that has been sustained throughout the year. Some of the growth in economy markets could be reflecting a shift of business travelers from premium to economy seats, with recessions and weak European consumer confidence providing little support for growth in leisure travel. In parts of the world where emerging economies are experiencing solid economic growth, air travel markets have received sustained support and experienced solid growth throughout 212. Premium travel between Africa Middle East and Europe Far East have been growing solidly, and in September the markets expanded 12.4% and 4.1% compared to a year ago, respectively. Increasing capacity and routes by Middle Eastern airlines have contributed to the significant growth on the Africa Middle East market, which has grown 19.8% between January and September 212, compared to the same period in 211. IATA Economics 19 th November economics@iata.org IATA Economics: 3

4 Premium Traffic Monitor PREMIUM TRAFFIC GROWTH BY ROUTE Share of Total Premium Premium Traffic Growth Economy Traffic Growth Traffic Revenues Sep 12 vs. Sep 11 YTD 212 vs. YTD 211 Sep 12 vs. Sep 11 YTD 212 vs. YTD 211 Africa - Middle East 1.7% 1.% 12.4% 19.8% 8.% 21.6% Europe - Far East 9.% 16.3% 4.1% 6.1% 7.2% 8.2% Europe Middle East.% 6.1% 11.%.3% 11.3% 12.2% Africa - Far East.2%.3%.6% 6.% 14.1% 8.8% Within Africa.7%.3% 23.2% 19.% 14.4% 17.8% Within Far East.3%.6% 1.6% 8.4% 4.% 9.6% Within North America.9%.3% 6.4%.8% -2.1% 3.3% Within South America.9%.3% -1.8%.6% 3.1% 8.% Mid Atlantic.9% 1.9% 1.3% -.3% 4.2%.3% Middle East - Far East 3.2% 2.% 11.% 1.3% 7.% 8.2% North Atlantic 17.9% 27.%.8%.7% 1.% 1.4% N America-C America 3.9% 1.4% 6.4% 2.1% 2.6% -.2% Europe Africa 3.9% 4.1% 9.1%.3% 9.% 8.6% N America - S America 2.6% 3.4% 3.%.4% 6.3% 6.8% Far East - SW Pacific 1.8% 2.4% 1.8% 3.6%.4%.1% North and Mid Pacific.8% 11.% 2.2% 7.1% 3.9%.% South Pacific.% 1.6% 4.% -3.7% 6.8% 2.1% South Atlantic 2.9% 4.7% 2.2% 4.% 3.%.% Within Europe 23.8% 8.1% 2.6%.6%.2%.3% Other Routes 3.1% 2.2% 6.1% 11.3% 6.6%.% Total International.%.% 3.8% 4.7%.% 6.3% IATA Economics: 4

5 Within Africa Africa - Far East Europe - Middle East Europe - Africa Africa - Middle East Middle East - Far East Europe - Far East Other Routes South Pacific N America - S America Within Europe Total Mid Atlantic Within Far East North and Mid Pacific South Atlantic N America-C America Within South America North Atlantic Far East - SW Pacific % Growth Within Africa Africa - Middle East Europe - Middle East Middle East - Far East Africa - Far East Europe - Africa N America-C America Within North America Other Routes South Pacific Europe - Far East Total N America - S America Within Europe North and Mid Pacific South Atlantic Far East - SW Pacific Within Far East Mid Atlantic North Atlantic % Growth Premium Traffic Monitor 3% International Premium Traffic Growth by Route - 2% % % 2% International Passenger Growth by Route - September212 % % IATA Economics: