Premium Pax, Million Economy Pax, Million PREMIUM TRAFFIC MONITOR JANUARY 14 KEY POINTS The number of passengers traveling in premium seats on international markets expanded by a solid 6.1% in January compared to a year ago. This is a strong start to the year, with the rise in volumes above the trend for 13 (4.2%), reflecting improvements in the business environment. Growth in premium travel has been supported by positive developments in the business environment, which commenced in the second half of 13. Improvements in the Eurozone and US economies have been the key driver to the pick-up in global business conditions. In fact, momentum in advanced economies has helped negate some of the slowdown in emerging market growth seen over recent months. Recent improvements in premium travel across the North Atlantic have continued into 14, with a strong.% increase in January year-on-year. This market contributes most to total international premium revenues, and current growth rates (which are double 13 expansion of 2.4%), should help support airline financial performance. The performance of this market is consistent with improving business conditions in the US and in Europe, with economic activity expanding at the fastest pace since mid-11 in the Eurozone. Business travel was also strong within Europe in January, rising 4.6%, also well above 13 growth (2.%). However, as was the trend throughout much of 13, the largest contributor to the strong rise in premium passenger numbers in January was the within Far East market. This market was up 7.2% in January, in line with performance in 13, supported by regional trade growth in the second half of the year. The timing of the Chinese New Year holiday, occurring at the end of, does not appear to have affected January figures. The outlook for premium travel markets is broadly positive, but improvements in the business environment seen throughout H2 13 appear to have slowed in Q1 14. Global business confidence continues to signal economic growth; levels are the highest they have been since Q1 11, but there has been little increase over recent months. The outlook for world trade growth remains positive, but while export orders are still growing, the rate of increase has also slowed so far this year. The weakness is coming from some emerging market economies, who have responded negatively to US monetary policy tapering. Nonetheless, improvement in advanced economies should help sustain growth in premium travel in the months ahead. 8. International air passengers by seat class (seasonally adjusted) 8 1.% Premium passengers as a % of total (seasonally adjusted) 7. 8 9.% 7. 7 9.% 6. 6.. Premium Economy 7 6 6 8.% 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 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. World trade growth has been growing slowly since early 12, which has placed downward pressure on growth in premium travel. During recent months, there have been some signs of improvement in trade growth in regions like Europe, the US, and Asia. This has helped support the stronger growth we are seeing in business-related premium travel over recent months. But beyond this cyclical improvement in the global economy and world trade growth, recent developments suggest that increases in protectionist measures could be resulting in a similar pace of trade expansion as domestic industrial production. Previously, trade expanded at twice the pace of domestic growth. If this past relationship is not restored, rates of expansion in trade could be limited, as could growth in business-related air travel. Business confidence has been steady over recent months, but remains at highs not seen since Q1 11. The second chart below shows business confidence (measured here by the JP Morgan/Markit purchasing managers index), indicating growth in business activity since mid-13. The pick-up in global business conditions over the past several quarters reflects better performance of advanced economies. 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, shows a fall in share values in the New Year. Much of the decline is due to the emerging market asset sell-off as the US tapers its quantitative easing program. The full impacts on businesses and economic activity is yet to be seen, and as a result the affect it could have on business-related premium travel is not yet clear. 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, ThomsonReuters 3 12 Traffic Growth by Route - 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 Recent improvements in premium travel across the North Atlantic have continued into 14, with a strong.% increase in January year-on-year. This market contributes most to total international premium revenues, and current growth rates (which are double 13 expansion of 2.4%), should help support airline financial performance. The performance of this market is consistent with improving business conditions in the US and in Europe. In the US, indicators continue to show steady improvement and suggest that despite weather disruption in January, business activity recorded the strongest level of growth since May 1, according to JPMorgan/Markit s Purchasing Managers Index. Similarly, in the Eurozone economic activity expanded at the fastest pace since mid-1. Business travel was also strong within Europe in January, rising 4.6%; well above 13 growth (2.%). And on markets connected to the region, there was solid expansion in premium passenger numbers: Europe Far East (.2%) and Europe Middle East (9.8%). Improvements in the US economy combined with strong growth of some emerging markets in Central and South America continue to support strong growth on these connecting markets. Mexico s economy showed a pick-up in H2 13 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 8.8% in 13, and.9% for North America Central America. However, as was the trend throughout much of 13, the largest contributor to the strong rise in premium passenger numbers in January was the within Far East market. This market was up 7.2% in January, in line with performance in 13, supported by regional trade growth in the second half of the year. The outlook for this market, however, remains slightly doubtful, with recent developments in the Chinese economy suggestion signs of further slowdown. According to JPMorgan/Markit, business conditions in China deteriorated for a second successive month in February, with the rate of decline reaching the strongest pace since mid-13. The timing of the Chinese New Year holiday, occurring at the end of, does not appear to have affected January figures. IATA Economics 19 th March 14 E-Mail: economics@iata.org 3
TRAFFIC GROWTH BY ROUTE Premium Traffic Growth Economy Traffic Growth Total Traffic Growth 13 vs. 12 13 vs. 12 13 vs. 12 Africa - Far East -6.2% 2.8% 2.%.9% 1.7%.6% Africa - Middle East 1.% 9.2% 1.9%.8% 1.8% 6.1% Europe - Africa -1.2% -1.2% -1.6% -.2% -1.6% -.3% Europe - Far East.2% 4.9% 7.3%.% 7.% 4.9% Europe - Middle East 9.8% 8.9% 14.2% 1.% 13.6% 1.3% Far East - Southwest Pacific 1.7% 3.4% 3.% 1.1% 4.2% 1.3% Mid Atlantic 7.6% -1.2%.4% -2.3% 1.% -2.2% Middle East - Far East 13.4% 4.2% 13.%.9% 13.1%.8% North America - Central America 6.1%.9% 9.1% 1.8% 8.8% 2.2% North America - South America 1.2% 8.8% 3.% 9.1% 4.3% 9.1% North and Mid Pacific.8% 2.% 8.1% 2.3% 7.8% 2.3% North Atlantic.% 2.4%.4% 2.6%.3% 2.% Other routes 11.2% 1.% 9.1% 7.7% 9.2% 7.9% South Atlantic -1.% -.3% -1.4% -.3% -1.4% -.3% South Pacific 7.6% 3.3% 4.2% 3.7% 4.7% 3.7% Within Africa -4.% -4.1%.6%.4%.2%.% Within Europe 4.6% 2.% 4.9% 2.4% 4.9% 2.4% Within Far East 7.2% 7.2% 3.8% 4.3% 4.% 4.% Within North America 8.9% 3.7% 1.7% -.4% 1.% -.1% Within South America -.4% 3.9% -1.4% 4.4% -1.3% 4.3% Total 6.1% 4.2%.7% 3.%.7% 3.% PREMIUM TRAFFIC GROWTH BY ROUTE Share of Premium Share of Total Traffic Revenues Traffic Revenue Africa - Far East.3%.% 8.% 27.9% Africa - Middle East 2.% 1.2% 9.7% 2.2% Europe - Africa 3.7% 4.4% 11.% 38.6% Europe - Far East 8.8% 13.4% 11.7% 38.2% Europe - Middle East.9% 7.4% 11.% 43.9% Far East - Southwest Pacific 2.3% 3.3% 9.8% 24.9% Mid Atlantic 1.3% 2.9% 9.2% 3.% Middle East - Far East 3.9% 2.6% 8.8% 16.9% North America - Central America 7.2% 3.3% 1.4% 8.8% North America - South America 3.9%.% 12.6% 33.8% North and Mid Pacific 6.4% 14.2% 14.4% 3.7% North Atlantic 14.% 22.6% 1.6%.% Other routes 4.7%.4% 8.% 26.9% South Atlantic 2.6% 4.4% 1.4% 3.7% South Pacific.6% 1.7% 13.7% 48.7% Within Africa 1.%.3% 8.6% 22.2% Within Europe 1.8% 3.8%.6% 12.8% Within Far East 13.2% 3.2% 7.4% 19.7% Within North America.6%.3% 11.9% 6.6% Within South America 1.8%.3% 6.1% 11.1% Total 1.% 1.% 9.1% 28.2% 4
Africa - Middle East Other routes North America - South America Africa - Far East Middle East - Far East Europe - Middle East Within South America Europe - Far East Europe - Africa Total Within Far East South Pacific North America - Central America North Atlantic Within Europe Mid Atlantic Within North America North and Mid Pacific Within Africa South Atlantic Far East - Southwest Pacific % Growth Africa - Middle East Europe - Middle East Middle East - Far East Within North America Other routes North America - Central America North and Mid Pacific Europe - Far East Total North Atlantic Within Europe South Pacific North America - South America Far East - Southwest Pacific Within Far East Africa - Far East Mid Atlantic Within Africa Within South America South Atlantic Europe - Africa % Growth % International Premium Traffic Growth by Route - 1% % -1% % International Passenger Growth by Route - 1% % -1%