PREMIUM TRAFFIC MONITOR AUGUST 2012 KEY POINTS

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1 Premium Pax, Million Economy Pax, Million PREMIUM TRAFFIC MONITOR AUGUST 212 KEY POINTS The number of passengers flying on premium seats on international markets rebounded in August, with the market 8.% higher than a year ago, compared to being.% lower in July. Economy class travel was also up, but not to the same extent as premium passenger demand, with the market 6.2% higher in August than a year ago, versus July s 3. year-on-year comparison. The seat mix, with a higher share of premium travel, also rose markedly in August. We are cautious about extrapolating this improvement in premium travel and seat mix into the months ahead. There was a modest increase in business confidence in August, but not by enough to justify a rise of business travel on this scale. The August rise in premium travel was narrowly based, with much of the increase coming from within Europe and across the North Atlantic. Since much of the Eurozone is in recession or showing weaker economic growth, that does not look sustainable. Furthermore, part of the sharp rise in the year-on-year growth rate is a result of the comparison being made with a particularly weak August 211. Hurricane Irene caused many flight cancellations across the North Atlantic in August 211, and European air travel was suppressed by airline capacity reductions. The first chart below shows the size of the premium travel market trending higher in recent months, compared with a decline in economy travel. This reversal of the previous trends is reflected in the improved seat mix shown in the second chart. This would be a positive shift for network airlines if sustained, but it is hard to explain. Current business conditions would suggest the opposite trend, with weak business confidence undermining business travel and leading to a further shift from premium to economy seats. That is not to say that there are no robust premium travel markets. Economic growth and trade are slowing but still strong in much of Asia, Africa, the Middle East and South America. Many of the premium travel markets connecting these regions continued to grow solidly in August, in particular premium travel within the Far East, Europe-Far East, North-Mid Pacific, and within South America. But growth in these markets just remained solid. They did not contribute to the swing in overall premium travel from -.% in July to +8.% in August, at least part of which looks to be an erratic and unsustainable surge in intra Europe travel. The overall performance of premium travel, and economy markets, is being driven by the balance between the downward pressures on business travel from recession in much of Europe, and the pressures for further expansion from trade and other business flows between the emerging economies and, to some extent, the US. The decline in overall business confidence and the slowdown of world trade have placed downward pressure on air travel demand in recent months. The measure of overall business confidence did improve modestly in August. If that continues then business and premium travel should benefit. However, due to the erratic nature of the August rise in premium travel, we think it is too soon to suggest that growth in business travel will start to trend higher International air passengers by seat class (seasonally adjusted) Economy % Premium passengers as a % of total (seasonally adjusted) 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 performance 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, and in July compared to June, goods traded by developing countries contracted by.6%. This is consistent with the weaker growth trend in premium travel seen over the last several months. Looking ahead, the leading indicator for premium travel business confidence - continues to signal weakness in demand. The second chart below shows the JP Morgan/Markit measure of confidence in the manufacturing industry. The Index has stayed below the neutral mark for the fourth consecutive month, but did show improvement in the last reading. This indicates that manufacturing activity is still in decline overall, but the rate of contraction has eased. If that continues then business and premium travel should benefit. But at this point, it is too early to suggest an improvement in the trend. 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, the JP Morgan/Markit Business Confidence Premium travel growth Premium ticket volume and revenue growth Premium revenues Traffic Growth by Route Premium volumes First / Business Economy Total Within Europe North Atlantic Within Far East Europe-Far East North and Mid Pacific TRAFFIC GROWTH BY MAJOR ROUTE August experienced a rebound in premium travel demand, when comparing year-on-year growth rates this month to those seen in July. A notable part of the improvement came from routes that have been soft throughout 212. In previous months, a slowdown in premium travel growth was starting to develop as a result of weakening demand on routes linked to Europe. However, in August there was an erratic rebound on these markets. Premium travel within Europe and across the North Atlantic increased 8.2% and 4.% in August year-on-year, having contracted 3.% and 2.9% in July, respectively. Given that economic conditions in the continent are not lending support to travel markets, with both business and consumer confidence continuing to decline, this month s performance may not be sustained in the months to come. Part of the reason for the inflated growth rates is because the comparison is being made to a IATA Economics: 2

3 Premium Traffic Monitor particularly weak August 211. Hurricane Irene affected travel across the North Atlantic, with many flight cancellations causing a significant decline in air travel on that route in August 211. At the same time, European air travel was suppressed by airline capacity reductions. Seasonal impacts are likely to be inflating growth on routes connected to the Middle East. Premium and economy travel within the Middle East showed highly inflated year-on-year growth rates in August, 24.3% and 2.6%, respectively. Furthermore, markets connecting to the Middle East also showed exaggerated performance. Premium and economy markets on the Europe-Middle East route appear to have expanded by 26.3% and 17.1%, respectively. These growth rates are distorted by the timing of Ramadan, which dampened air travel demand for the entire calendar month of August 211 but affected a portion of. Nevertheless, despite seasonal impacts affecting these August results, over recent months traffic within and to/from the region has been solid. Premium travel across the North-Mid Pacific and within Far East showed solid performance in August. These routes did not experience a significant drop in demand between July and August 211, implying that this month s year-onyear results are likely a good reflection of actual performance. Premium passenger numbers on the North-Mid Pacific route increased by 4.% in August, up on the 2.9% July result. Continued improvement in the US economy, the world s largest importer, helps to support major exporters in Asia, stimulating business travel across the North-Mid Pacific. Furthermore, continued growth of emerging economies in Asia has also supported robust growth of business travel within Far East, with premium markets expanding 8.% in August compared to a year ago. The coming months will reveal how resistant emerging economies and the US can continue to be to the recessionary state of much of Europe, and whether improvements in business confidence and manufacturing activity can be maintained. IATA Economics 18 th October 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 Aug 12 vs. Aug 11 YTD 212 vs. YTD 211 Aug 12 vs. Aug 11 YTD 212 vs. YTD 211 Africa - Middle East 1.7% % 2.9% 18.9% 23.6% % % 13. C America-S America.3%.2% % % Europe - Far East 8.8% 14.9% 7.6% 6.4% 6.4% 8.3% Europe Middle East..4% 26.3%.2% 17.1% 12.3% Europe - SW Pacific.1%.2% 6.6% -11.7% 17.8%.% Africa - Far East.2%.4% 2.9%.9% % Within Africa.6%.3% 6.7% % 18.2% Within Central America % -7.6% -2.% -11.4% Within Far East 11.4% 7.% 8.% 9.3%.1%.4% Within Middle East 1.9%.7% 24.3%.4% 2.6%.9% Within North America 1.3%.3% 18.1% 11.4% 8.4% 4. Within SW Pacific.1% % -14.4%.2% -1.2% Within South America 1..3%.3% % 12.7% Mid Atlantic 1.1% 1.2% % -1..4% Middle East - Far East % 23.6%.9%.4% 8.2% Middle East-SW Pacific.4%.8% 9.9% % 23.9% North Atlantic 18.6% 28.2% 4.8%.7% 1.% 1.4% N America-C America.7% 2.1%. 1.8% 1.1% -.4% Europe Africa 3.6% % 4.3% 9.1% 8.4% N America - S America 2.8% 3.1% 4.2%.6% 6.2% 7. Far East - SW Pacific 1.8% 2.6% 2.% 3.3% 1.8%.2% North and Mid Pacific 6.%.4% 4.3% 7.7% 1.9%.7% South Pacific.3%.7% -3.3% -6.6% 8.3% -.6% South Atlantic 2.6% 3.2% 4.4% 4.8% 2.7%.8% Within Europe 21.1%.7% 8.2%.3% 4.4%.% Total International.. 8.% 4.7% 6.2% 6.7% IATA Economics: 4

5 C America-S America Within Middle East Middle East-SW Pacific Africa - Middle East Europe - Middle East Europe - SW Pacific Within South America Middle East - Far East Within Far East Europe - Africa Within North America Africa - Far East Europe - Far East South Pacific Total N America - S America Within Africa Within Europe South Atlantic North and Mid Pacific North Atlantic Far East - SW Pacific N America-C America Within SW Pacific Mid Atlantic Within Central America % Growth Africa - Middle East Europe - Middle East C America-S America Within Middle East Middle East - Far East Within North America Europe - Africa Within South America Middle East-SW Pacific Total Within Far East Within Europe Europe - Far East Within Africa Europe - SW Pacific N America-C America North Atlantic South Atlantic North and Mid Pacific N America - S America Africa - Far East Far East - SW Pacific South Pacific Mid Atlantic Within SW Pacific Within Central America % Growth Premium Traffic Monitor International Premium Traffic Growth by Route International Passenger Growth by Route NEW RELEASE ALERTS To receive notification of new analysis from IATA Economics, select Economic Briefings from: IATA Economics: