PREMIUM TRAFFIC MONITOR DECEMBER 2014 KEY POINTS International air travel recorded another moderate rise to end 2014, up 3.6% in December compared to a year ago. The annual expansion was in line with the December result growth in 2014 overall was 3.6% compared to 2013; There was little difference in performance of premium and economy seat classes, with annual growth of 3.4% and 3.7%, respectively. This near equalization of growth rates has limited improvement in premium s share of total travel; The growth trend in international passenger travel has flattened over the past several months. International air travel volumes, as shown in the first chart below, have increased only slightly in both seat classes since mid-2014; This development reflects a gradual slowdown in improvements in business confidence throughout H2 2014, with economic conditions in the Eurozone and China deteriorating; Nonetheless, travel within Europe itself performed well overall in 2014, expanding 3.9%, facilitated by expansion in capacity and routes, as well as declines in airfares; But markets like within Far East weakened considerably, up just 1.4% in 2014 overall, with travel declines in Thailand and Malaysia as well as some slowdown in the Chinese economy; Longer-haul markets have been performing relatively more strongly, including the Middle East to the Far East and Europe, which explains why international RPKs expanded at a much faster pace than passenger numbers. Looking at international air passenger volumes (first chart above) reveals a flattening in the growth trend in both economy and premium passenger numbers over the recent past. There were signs of stronger growth earlier in Q3, after a period of notable weakness mid-year, but that positive momentum has slowed again. Although the global economy continues to expand, latest data show a widespread slowdown in key economies at the start of Q4. The US economy appears to be set for steady growth, but at a slower pace in Q4 than was seen in earlier months, according to Markit s indicators of business activity. Industrial production in the Eurozone and China are pointing towards deterioration in those economies. These recent adverse developments has limited growth potential for international markets, and kept the annual increase moderate (3.6%). The slowdown has been more significant in the premium travel class, which was expanding at a faster pace than economy class, in previous years.
There was little difference in performance of premium and economy seat classes, with annual growth of 3.4% and 3.7%, respectively. In 2013, annual growth was 4.2% for premium international air travel, and 3.5% for economy class. In 2013 and during earlier parts of 2014, when premium travel was expanding at a faster pace than economy travel, there was a boost to the share of premium travel from total travel. This was positive for yields growth and revenues. This year, the near equalization of growth rates has kept the share of premium seats from the total steady. The trend in the share of premium travel from total travel can be seen in the chart second chart above. Even though there has been no further gain in premium s share of total traffic, growth on longer-haul markets has been robust. This has helped support premium yields, as longer-haul markets drive the greatest share of premium revenues. In addition, this has helped the financial performance of the longer-haul network airlines, compared to shorter-haul mainly leisure travel focused airlines in some, though not all, regions. The profile of air travel growth, with a strong second half in 2013 and relatively slower growth during the earlier months of 2014, has been driven by wider economic developments. World trade and industrial production accelerated during the second half of 2013, but that trend failed to continue in 2014, with growth slowing for both measures in Q1. During the course of the second half of the year, however, there has been another pick-up in world trade activity, mainly in Emerging Asia. But the outlook for world trade activity contains some downside risks. Business confidence, a good leading indicator of trade activity and demand for business-related air travel, has not seen any improvement since mid- 2014. In fact, there has been a gradual easing in business confidence over the past 6 months. With respect to air travel growth, the outlook for international air travel remains positive overall, but further acceleration particularly on some markets is now unlikely. Traffic Growth by Route - % Change over year 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% First / Business Economy Total Within Europe North Atlantic Within Far East Europe-Far East North and Mid Pacific Source: IATA 2
TRAFFIC GROWTH BY MAJOR ROUTE Despite recent weakening in the Eurozone economy, travel within Europe performed well overall in 2014, expanding 3.9%. Economic conditions in the Eurozone remain fragile and continue to threaten the outlook for air travel. Industrial production in the euro area grew more than expected in the latter months of 2014, but latest data is consistent with Markit s business surveys, which point to modest growth amid widespread malaise across much of the region. The growth in air travel seen throughout 2014 was facilitated by an increasing number of flights within the region, adding both capacity and routes, as well as declines in airfares. But markets like within Far East weakened considerably, up just 1.4% in 2014 overall, with travel declines in Thailand and Malaysia as well as some slowdown in the Chinese economy. Trade in emerging Asia has been growing solidly over recent months, but that has done little to offset weakness seen earlier in the year and in specific countries in the region. Performance of this market has been impacted by developments in China. Markit s Purchasing Managers Indices (PMI) have shown reason for concern with year-end data indicating weakness in both services and manufacturing sectors of the economy. Moreover, the slowdown has been related to notable declines in international travel for Thailand and Malaysia. The Thai economy is expected to eventually stabilize after the military coup in May, but latest data show significant falls in tourism and exports during recent months when compared to a year ago. In addition, Malaysia has experienced declining tourism activity following the MH370 and MH17 tragedies. Longer-haul markets have been performing relatively more strongly which explains why international RPKs expanded at a much faster than passenger numbers. Examples include international travel on Europe Middle East (up 7.5% in 2014 overall) and Middle East Far East (up 9.3% in 2014 overall). It is important to note, also, that growth in premium travel on these markets was also very strong (8.1% and 10.1%, respectively), which is a good sign for yields on these routes. Major economies in the Middle East, including Saudi Arabia and the United Arab Emirates, continue to show robust economic performance. Markit measures of business activity (both manufacturing and services) show sustained economic growth ahead, with the latest whole economy PMI for the United Arab Emirates surging strongly at the start of Q4 to reach the highest level since the Indices creation in 2008. Growth on the North Atlantic market was 3.4% in 2014 overall. Premium revenues comprise a significant share (up to 47% on the North Atlantic market) on these markets. In additional, total international air travel on the North and Mid Pacific market was up by 6.2% in 2014 compared to 2013. Steadily improving demand conditions in the US are likely to support both business and leisure travel growth on both these markets in the months ahead. Improving economic conditions in the US combined with strong growth of markets in Central America most notably, Mexico continue to supported strong expansion rates for air travel between these regions. In 2014, government spending efforts supported Mexico s economy as did a stronger exports demand environment. Total international air travel on the North America Central America market expanded 8.1% in 2014. IATA Economics 18 th February 2015 E-Mail: economics@iata.org 3
TRAFFIC GROWTH BY ROUTE DECEMBER 2014 Premium Traffic Growth Economy Traffic Growth Total Traffic Growth 2014 vs. 2013 YTD 2014 vs. YTD 2013 YTD 2014 vs. YTD 2013 Africa - Far East -6.4% -3.7% -11.6% -4.8% -11.7% -4.7% Africa - Middle East 13.2% 10.5% 5.7% 7.0% 6.4% 7.3% Europe - Africa -4.5% -1.0% -2.3% -0.1% -2.5% -0.2% Europe - Far East 1.4% 3.5% 2.7% 4.6% 2.5% 4.4% Europe - Middle East 8.5% 8.1% 5.9% 7.5% 6.5% 7.5% Far East - Southwest Pacific 0.6% 5.5% 0.2% -0.4% 0.6% 0.2% Mid Atlantic 10.6% 12.6% 4.9% 4.9% 5.6% 5.6% Middle East - Far East 12.1% 10.1% 6.9% 9.3% 7.3% 9.3% North America - Central America 2.7% 6.8% 7.0% 8.3% 7.0% 8.1% North America - South America -6.1% 0.1% -1.5% 0.1% -2.1% 0.1% North and Mid Pacific 0.8% 4.6% 3.2% 6.5% 3.2% 6.2% North Atlantic 2.0% 3.4% 4.2% 3.4% 3.8% 3.4% Other routes -3.7% 1.1% -1.7% 4.4% -1.8% 4.1% South Atlantic -2.6% -0.3% 0.2% 0.4% 0.4% 0.3% South Pacific -5.4% -2.3% 1.0% -1.0% 0.7% -1.1% Within Africa -8.9% -3.7% -2.9% -2.5% -3.1% -2.6% Within Europe 0.7% 3.4% 5.2% 3.9% 4.9% 3.9% Within Far East 6.1% 1.1% 4.3% 1.5% 4.2% 1.4% Within North America 2.3% 2.3% 12.3% 5.6% 11.4% 5.3% Within South America -6.2% -8.2% -2.5% -2.4% -3.0% -2.7% Total 2.0% 3.4% 3.8% 3.7% 3.7% 3.6% Source: IATA Origin-Destination Statistics PREMIUM TRAFFIC BY ROUTE PREVIOUS MONTH Share of Premium Share of Total Traffic Revenues Traffic Revenue Africa - Far East 0.7% 0.8% 8.4% 27.1% Africa - Middle East 1.5% 1.0% 7.4% 27.0% Europe - Africa 4.2% 7.8% 7.3% 37.7% Europe - Far East 10.5% 14.7% 12.0% 43.5% Europe - Middle East 5.4% 5.6% 12.5% 48.6% Far East - Southwest Pacific 2.9% 3.1% 8.0% 28.8% Mid Atlantic 1.4% 1.8% 8.2% 31.1% Middle East - Far East 2.7% 1.9% 4.6% 19.3% North America - Central America 3.1% 1.3% 4.2% 9.8% North America - South America 2.7% 3.5% 12.3% 35.2% North and Mid Pacific 6.0% 11.4% 13.4% 40.3% North Atlantic 14.3% 22.9% 16.4% 55.4% Other routes 6.0% 4.5% 7.9% 27.2% South Atlantic 2.3% 3.5% 12.9% 38.3% South Pacific 0.8% 2.0% 12.6% 41.8% Within Africa 1.5% 0.6% 7.4% 20.3% Within Europe 14.8% 4.4% 3.0% 10.6% Within Far East 17.3% 8.3% 5.6% 16.7% Within North America 0.7% 0.4% 2.1% 7.2% Within South America 1.1% 0.4% 5.6% 10.4% Total 100.0% 100.0% 6.5% 30.5% Source: Diio, IATA 4
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