PREMIUM TRAFFIC MONITOR JULY 2012

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1 Premium Pax, Million Economy Pax, Million PREMIUM TRAFFIC MONITOR JULY 212 KEY POINTS The second half of 212 began with further signs of weakness in air travel markets. The number of passengers buying premium seats on international markets has contracted shrinking.% in July compared to the same month last year, after expanding by 4.3% in June. The size of the economy class market was 3. larger in July compared to a year ago, but significantly down on the June growth of 6.2%. These growth rates, however, were likely affected by the start of Ramadan in late July, which commenced a month earlier than in 211. We expect air travel growth would have been about a percentage point higher in July without the impact of Ramadan. Nevertheless, after signs of faster growth early in 212, the expansion in premium travel has now clearly flattened out. The first chart below shows the seasonally adjusted levels of premium and economy class passenger numbers. The premium market made no progress in July compared to June, with growth in passenger numbers staying flat over the month. Moreover, the number of premium passengers in July is only 1% higher than it was in January. The decline in business confidence and the slowdown of world trade are likely to have reduced premium class travel in recent months. Business confidence has reversed the upward movement seen earlier in the year, declining for the past 4 months. Growth in world trade has also slowed, with declines in both European imports and exports standing out in Q2. In fact, the primary source of the slowing growth trend is weakness in European markets. The trend seen over the last several months continues in July, with premium travel within Europe and across the North Atlantic showing persisting weakness, contracting 3.% and 2.4% compared to a year ago, respectively. Premium travel on the Europe Far East route, which had been showing solid growth over recent months, has recorded particularly weak growth in July, increasing only 1% compared to a year ago. Air travel markets elsewhere expanded overall, but there was slower growth on some routes in July compared to June. The weight of the economic problems in Europe is starting to dampen demand in other regions, with US and Chinese consumer confidence weakening in recent months. Premium travel across the North and Mid Pacific, which had been averaging near double-digit growth throughout H1 212, increased just 2.9% in July. In coming months, the degree of weakness in air travel, particularly in premium markets, is likely to intensify as business confidence signals decline and conditions in Europe remain bleak. There is also a possibility, given early signs of softness in July on some routes, that the weakness in Europe could spread to other markets International air passengers by seat class (seasonally adjusted) Economy % Premium passengers as a % of total (seasonally adjusted) source: IATA Premium % %. 7. IATA Economics: 1

2 % Growth, Year-on-Year % change over year % Change over Year Confidence Index Premium Traffic Monitor The charts below provide guidance on the factors driving the slowdown of premium travel. 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 primarily driven by business travel - and world trade growth. The growth momentum in world trade has slowed over recent months, with Q2 trade volumes increasing only.2% compared to Q1 well below the series average of 1.1%. This is consistent with the contraction seen in July s premium travel as well as the slowdown in growth seen over the last several months. The indication for the months ahead, as signaled by a measure for export orders, is not promising. The Global PMI export orders index slipped further in July, to its lowest level since April 29. This index is the leading indicator for world trade, and this recent result suggests that world trade growth will continue to weaken in the months ahead. Moreover, the leading indicator for premium travel itself, business confidence, has been signalling weakness to come. The second chart below shows the JP Morgan/Markit measure of confidence in the manufacturing industry, which had been indicating expansion from the end of 211 through the first quarter of 212. The positive trend, however, has now reversed, and business confidence has declined for the last 4 months. The interpretation is that the weakness developing in premium travel will continue and likely intensify over the next few months, particularly in markets linked to Europe. Predict future demand and minimize investment risk. Airline Industry Forecast now available 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 Premium ticket volume and revenue growth Premium revenues Traffic Growth by Route - - 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 The slowdown in premium travel growth is largely the result of weakening demand on routes linked to Europe. Economic conditions in the continent are not lending support to travel markets, with both business and consumer confidence continue to decline. Premium travel within Europe contracted further in July, by 3.% compared to a IATA Economics: 2

3 Premium Traffic Monitor year ago. Some of the decline in premium travel within Europe could be business travelers switching to cheaper economy class seats which continue to increase, expanding 3.3% in July compared to a year ago. The recessionary state of the Eurozone economies is also affecting travel across the North Atlantic. For this route, which is the largest by share of premium revenue, passenger numbers contracted 2.4% in July compared to a year ago. Moreover, there was also a.4% decline in economy class travel in July year-on-year. Markets not connected to Europe showed expansion overall in July, but at a slower rate in some cases than in June. There are signs that economic problems in the Eurozone are taking a toll on other regions. Continued improvement in the US economy, the world s largest importer, had started to offer support to major exporters including those nations of the Pacific-rim - in turn stimulating business travel across the North and Mid Pacific. Throughout H1 212, premium travel on this route had averaged near double-digit growth rates. In July, the market expanded just 2.9%. A similar case is premium travel within Far East. This market has been performing strongly throughout 212. Despite distortions to growth rates earlier in the year due to Chinese New Year and the Japan earthquake, growth over recent months was strong. In June, premium travel increase by a solid 8.8% year-on-year, but in July, the market was up only 3. compared to a year ago. Part of this slowdown, however, was thought to be due to the start of Ramadan in late July. Some developing markets also weakened in July, but part of the slowdown on particular routes is connected to the start of Ramadan a month earlier this year than in 211. After showing months of strong growth, in both premium and economy travel, markets such as within Middle East and routes which connect to it showed the first signs of weakness in July. Premium travel within the Middle East contracted 6.4% on a year ago, and economy class passenger numbers were down 3.%. Moreover, markets connecting to the Middle East also weakened. Long haul flights from Africa, for example, using the Middle East as a connecting hub, saw premium passenger demand expand by 3. in July on a year ago, a significant drop on June when the market increased by 17.% year-onyear. IATA Economics 17 th September 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 Jul 12 vs. Jul 11 YTD 212 vs. YTD 211 Jul 12 vs. Jul 11 YTD 212 vs. YTD 211 Africa - Middle East 1.% % 9.4% 24.4% Africa - SW Pacific %.6% 4.8% 1. C America-S America.3%.2% 2.6% 2.4% 22.7% 37.1% Europe - Far East 9.4% 1.1% %.3% 8.6% Europe Middle East.3%.6%. 8.1% 6.%.9% Europe - SW Pacific.1%.1% -12.6% -13.8% 6.4% -2. Africa - Far East.2%.3% 1.2% 6.4% 6.6% 8. Within Africa.6%.3%.% 21..% 2.7% Within Central America % -2.2% -2.6% -8.1% Within Far East.% %.8%.% Within Middle East 1.9%.7% -6.4% 8.8% -3.% 8.9% Within North America 1.1%.3% 6.3%.3% -1.7% 3.2% Within SW Pacific.1% % -14.1% -4.7% -1.1% Within South America.9%.4% -1.% 3.% 4.4% 9.3% Mid Atlantic % -3.%.1% 2.6% 6.4% Middle East - Far East 3.2% 2. 2.% % 7.8% Middle East-SW Pacific.%.8% 9.3% 14.% 17.6% 24. North Atlantic 18.2% 27.8% -2.4%.1% -.4% 1.3% N America-C America.% 2.3% 2.4% 1.4% -.9% -.6% Europe Africa 3.% 4.2% -2.6% 3.8% % N America - S America 2.6% 3..6%.9% 2.2% 7. Far East - SW Pacific 1.7% 2.% -1.% 3.6% -1.%.6% North and Mid Pacific 6.2% 13.8% 2.9% 8.%.7% 6.2% South Pacific.3%.6% -.4% -7.2% 1.1% -2.3% South Atlantic 2.8% 3.4% 1.8% 4.9% 2.7%.7% Within Europe 22.% 7.% -3.% -1.2% 3.3%.2% Total International.. -.% 4.1% 3. 6.% IATA Economics: 4

5 C America-S America Middle East-SW Pacific Africa - Middle East Africa - Far East Europe - Middle East Europe - SW Pacific Within Far East Within Africa Europe - Far East Africa - SW Pacific Within South America Middle East - Far East Within Europe Total South Atlantic Mid Atlantic N America - S America Europe - Africa South Pacific North and Mid Pacific North Atlantic N America-C America Far East - SW Pacific Within North America Within Middle East Within SW Pacific Within Central America % Growth C America-S America Middle East-SW Pacific Within North America Within Africa Africa - Middle East Within Far East North and Mid Pacific Middle East - Far East N America-C America South Atlantic Africa - Far East Europe - Far East N America - S America Europe - Middle East Total Far East - SW Pacific Within South America North Atlantic Europe - Africa Mid Atlantic Within Europe Within Middle East South Pacific Europe - SW Pacific Within SW Pacific Africa - SW Pacific Within Central America % Growth Premium Traffic Monitor International Premium Traffic Growth by Route - International Economy Traffic Growth by Route FURTHER ANALYSIS AND DATA Access data related to this briefing through the Route Tracker publication: route-tracker NEW RELEASE ALERTS To receive notification of new analysis from IATA Economics, select Economic Briefings from: IATA Economics: