Premium Pax, Million Economy Pax, Million PREMIUM TRAFFIC MONITOR SEPTEMBER 13 KEY POINTS Growth in premium air travel moderated in September, after a strong rise in August. International premium passenger numbers were up 3.3% in September compared to a year ago, down on the 8.6% spike in August. The downward pressure on demand for premium air travel has eased over recent months, consistent with developments in key demand drivers. Business confidence has been increasing throughout Q3 and Europe and the United States have both shown signs of improving economic conditions. Despite the moderation in volumes in September, after a strong rise in August compared to July (first chart below), there have been continued increases in premium passenger numbers since the end of Q2. Major markets like the North Atlantic have contributed to the recent increase in volumes. Premium passenger numbers rose 3.1% in September on a year ago for the North Atlantic market, following a strong rise of.7% in August. This is well above the growth seen so far this year (1.%). Given that this market generates approximately one fifth of total international premium revenues, the growth in demand is a positive development for airline financial performance, and suggests that business conditions in Europe and the US are finally starting to pick-up. Within Far East premium travel was up 8.9% in September, another month of improving growth results after a rise of 7.8% in August. The Chinese economy continues to signal positive momentum, with export orders on the rise, employment growth picking-up and overall business activity showing expansion at the fastest rates so far in 13. Year-to-date performance on the within Far East markets has improved to.2% after solid growth throughout Q3, but this is still slower than 12 when the market expanded 9.%. Growth rates on some other routes continue to show the impacts of seasonal factors. Some routes connected to the Middle East and Africa show either weak growth or contraction in September compared to a year ago. This is a result of a spike in business-related premium travel in September 12, the month following the end of Ramadan that year; in 13, Ramadan took place a month earlier. Affected routes include Africa Middle East (1.4%) and Middle East Far East (-2.3%). Otherwise, these markets have experienced solid to strong growth so far this year. The outlook for air travel markets continues to improve, alongside steady improvements in the business environment. Indicators of business confidence continue to rise, and the outlook for world trade growth is also improving with another rise in global export orders in October. The improvements have already translated to stronger demand on important markets like the North Atlantic, and have resulted in a small boost to premium travel s share of total travel, which should provide support to yields. One potential downside risk to the positive outlook is the fragility of the Eurozone recovery, with economic growth in Q3 slowing compared to Q2. 8. International air passengers by seat class (seasonally adjusted) 8 1.% 9.% Premium passengers as a % of total (seasonally adjusted) 7. 8 7. 7 9.% 7 8.% 6. 6.. Premium Economy 6 6 8.% 7.%. 7.% 1
MSCI World index, YoY % growth Premium Pax, YoY % growth % Growth, Year-on-Year % change over year % Change over Year Confidence Index Premium travel markets are driven largely by demand for business travel. September 13 World trade is a good proxy for business travel not only because of the link to manufacturing activity, but also because it is associated with international industries like banking and consultancy. The first chart below shows the close movement in premium travel growth and world trade growth. Over the last year, however, world trade growth has been expanding more slowly than premium travel growth. The weakness in developed markets has caused the international trade of advanced economies to decline overall. By contrast, international trade in emerging economies has been increasing at a stronger rate, despite recent weakness in emerging Asia trade volumes, which has helped sustain the growth we are seeing in business-related premium travel. There have been, however, recent improvements in export orders that suggest a pick-up in overall world trade in the months to come. Export orders are currently indicating the strongest rate of increase since March 11. An increase in the growth of international trade activity stands to benefit demand for business-related premium class travel. Business confidence also continues to improve, which also suggests a pickup in growth of premium travel. The second chart below shows business confidence (measured here by the JP Morgan/Markit purchasing managers index), and its steady, continued increases throughout the third quarter. The improvement reflects better performance in advanced economies, particularly in Europe and the US, and subsequent easing in downward pressure on global demand. Financial market sentiment can also provide an indication of the state of the global economy, and demand for business related travel. The third chart below shows the MSCI World share price index and its movement relative to premium travel growth. The share price index tends to lead changes in premium travel demand by several months, as fluctuations in companies financial performance take time to affect business travel plans. Current financial market performance, as indicated by the MSCI World share price index, suggests demand for business-related premium air travel should receive support in the months ahead. 2 1 1 - -1-1 - -2-3 Premium passengers and world trade growth Source: Netherlands CPB, IATA Premium Travel Growth World Trade in Goods Growth 1 1 - -1-1 - -2-3 Premium Travel and Business Confidence, Markit/JP Morgan Premiux Pax PMI Index (manufacturing) 6 4 4 3 3 6 Premium Traffic and Global Financial Market Performance, Bloomberg 3 12 Traffic Growth by Route - September 13 4 1 7 - -1 2-4 -6 MSCI World Index Premium Traffic Growth - -3-3 First / Business Economy Total Within Europe North Atlantic Within Far East Europe-Far East North and Mid Pacific 2
TRAFFIC GROWTH BY MAJOR ROUTE September 13 The signs of easing downward pressure on premium air travel demand over recent months are consistent with improvement with positive developments in key demand drivers over recent past months. Business confidence has been increasing throughout Q3 and Europe and the United States have both showed signs of improving economic conditions. In fact, important routes connecting these advanced economies are starting to see some improvement. Premium passenger numbers rose 3.1% in September compared to a year ago for the North Atlantic market, following a strong rise of.7% in August. This is well above the growth seen so far this year (1.%). The Eurozone stopped contracting in Q2 and appears to be maintaining the modest economic recovery in H2 13, but only just. The third quarter of 13 saw the Eurozone continue to expand, but at a slower (.1%) pace than seen in Q2 (.3%). Nonetheless, indicators of business activity continue to suggest some growth in the region for the remainder of the year, albeit at a weak pace, and downside risks from the fragility of the patchy regional recovery remain. If the impact of the recent US government shutdown does not prove to be too damaging to business activity and the economic growth momentum seen over recent months, and the Eurozone continues to expand, than the promising pick-up in premium travel across the North Atlantic could be sustained into Q4. Solid performance of the US economy over the recent past combined with strong growth of some emerging markets in Central and South America has supported a continuation of robust expansion in premium travel connecting these markets. Mexico s economy appears to be turning up in H2 because of stronger exports and government spending after a notable slowdown in the first half of the year. In South America, nations like Colombia, Chile and Peru continue to post GDP growth rates in excess of %, supported by strength in manufacturing and export sectors. Premium air travel on the North America South America market was up 9.6% in September year-on-year, and 6.1% on the North America Central America route. Within Far East premium travel was up 8.9% in September, another month of improving growth results after a rise of 7.8% in August. The Chinese economy continues to report positive developments, with export orders on the rise, employment growth and overall business activity showing expansion at the fastest rates so far in 13. Other economies in the region, including South Korea, Taiwan and Indonesia also showed signs of business (manufacturing) activity picking up in October, which should support the current growth momentum to continue into Q4. The pick-up in growth has helped the year-to-date performance improve to.2% in September, but this is still slower than 12 when the market expanded 9.%. Growth rates on some other routes continue to show the impacts of seasonal factors. Routes connected to the Middle East and Africa show either weak growth or contraction in September compared to a year ago. This is a result of a strong spike in business-related premium travel in September 12, the month following the end of Ramadan in 12. In 13, Ramadan took place mostly in July, so the post-holiday rebound in business travel took place in August. Some of the impact routes include Africa Middle East (1.4%), Middle East Far East (-2.3%) and Africa Far East (-3.4%). Otherwise, these markets have experienced solid to strong growth so far this year, and reflect the importance of the Middle East acting as a hub for long-haul international air travel as well as the solid performance of non-oil sectors if the economies in nations like Saudi Arabia and the United Arab Emirates. IATA Economics 19 th November 13 E-Mail: economics@iata.org 3
TRAFFIC GROWTH BY ROUTE September 13 Premium Traffic Growth Economy Traffic Growth Total Traffic Growth YTD 13 vs. YTD 12 YTD 13 vs. YTD 12 YTD 13 vs. YTD 12 Africa - Far East -3.4% 8.3% 2.1% 9.4% 1.6% 9.3% Africa - Middle East 1.4% 8.8% 1.% 7.1% 1.% 7.2% Europe - Africa -4.2% -.7% -3.% 1.2% -3.1% 1.% Europe - Far East 2.9% 3.1% 3.6% 4.3% 3.% 4.1% Europe - Middle East 7.4% 8.9% 7.4% 1.3% 7.4% 1.2% Far East - Southwest Pacific -2.% -1.%.6% -1.1%.3% -1.2% Mid Atlantic -1.9% -2.8% -1.8% -2.3% -1.8% -2.3% Middle East - Far East -2.3% 3.%.3% 6.%.%.7% North America - Central America 6.1% 6.1%.6%.8% 1.2% 1.4% North America - South America 9.6% 8.8% 7.6% 11.% 7.9% 11.1% North and Mid Pacific 1.6%.6% 2.2% 1.6% 2.1% 1.% North Atlantic 3.1% 1.% 4.1% 1.9% 3.9% 1.8% Other routes 9.% 1.2% 1.9% 9.2% 2.6% 9.3% South Atlantic -.2% -.8% -.7%.1% -.6%.% South Pacific 3.%.6% 4.%.2% 3.9%.2% Within Africa -3.1% 2.3% 3.7% 4.9% 3.% 4.6% Within Europe 1.6% 2.3% 1.7% 2.3% 1.7% 2.3% Within Far East 8.9%.2% 6.9% 2.4% 7.% 2.6% Within North America 17.3% 4.4% 7.2%.3% 7.8%.6% Within South America 6.6% 4.7% 1.2% 4.9% 1.6% 4.9% Total 3.3% 3.4% 2.9% 3.2% 2.9% 3.2% PREMIUM TRAFFIC GROWTH BY ROUTE Share of Premium Share of Total Traffic Revenues Traffic Revenue Africa - Far East.3% 1.% 8.8% 27% Africa - Middle East 1.6% 1.1% 9.3% 24% Europe - Africa 3.7%.% 11.4% 37% Europe - Far East 9.3% 1.% 13.1% 38% Europe - Middle East.% 4.8% 11.4% 42% Far East - Southwest Pacific 1.% 3.% 9.6% 27% Mid Atlantic.9% 1.9% 9.3% 31% Middle East - Far East 3.% 2.1% 9.2% 17% North America - Central America 4.2% 1.7% 1.4% 9% North America - South America 3.% 3.7% 12.3% 3% North and Mid Pacific.9% 11.9% 1.% 3% North Atlantic 17.3% 21.7% 14.7% 1% Other routes 3.9%.% 8.8% 27% South Atlantic 2.8% 3.4% 11.6% 36% South Pacific.% 2.6% 12.% 46% Within Africa 1.2%.8% 1.1% 21% Within Europe 22.4% 4.8%.7% 11% Within Far East 1.7% 9.% 7.% 16% Within North America.6%.6% 7.4% 7% Within South America 1.6%.4% 6.% 11% Total 1.% 1.% 9.% 27.8% 4
North America - South America Within North America Europe - Middle East Within Far East North Atlantic South Pacific Europe - Far East Within Africa Total Other routes North and Mid Pacific Within Europe Africa - Far East Within South America Africa - Middle East North America - Central America Far East - Southwest Pacific Middle East - Far East South Atlantic Mid Atlantic Europe - Africa % Growth Within North America North America - South America Other routes Within Far East Europe - Middle East Within South America North America - Central America Total North Atlantic South Pacific Europe - Far East North and Mid Pacific Within Europe Africa - Middle East South Atlantic Mid Atlantic Middle East - Far East Far East - Southwest Pacific Within Africa Africa - Far East Europe - Africa % Growth September 13 % International Premium Traffic Growth by Route - September 13 1% % -1% 1% International Passenger Growth by Route - September 13 % -1% FURTHER ANALYSIS AND DATA Access data related to this briefing through the Route Tracker publication: http://www.iata.org/publications/pages/car rier-tracker.aspx NEW RELEASE ALERTS To receive email notification of new analysis from IATA Economics, select Economic Briefings from: www.iata.org/optin