PREMIUM TRAFFIC MONITOR
NOVEMBER 2011
KEY POINTS
The number of passengers travelling on premium seats increased slightly in November, by 0.6% compared to October. Over the year, there has been cumulative growth in premium travel of 1.7% when comparing November 2011 to the same month in 2010. However, the level of premium travel has trended downwards from the high point reached earlier in 2011. Although there was some increase from October levels, the size of the international premium passenger market in November was 2.6% smaller than in May 2011. Economy class travel contracted in November, down 1.1% from October, but as the chart below indicates this is not an exceptional month-to-month change. Moreover, economy travel has generally been stronger than premium travel over the past six or more months. Compared to the same month last year, economy travel is up 3.0%. Whereas the trend in premium travel in the second half of 2011 was downwards, the opposite was the case for economy travel. Compared to the start of 2011, economy traffic has grown by 3.8%, while premium traffic contracted 0.1%. The share of premium travel in total travel has been losing ground for much of 2011, having partly regained, during 2010, the share lost in the late 2008/early 2009 downturn. The chart below indicates a minor increase in premium travel as a share of total travel for November, but the seat class mix is still considerably worse from the perspective of airline yields - than at the start of the year. On some markets, premium travel is weak because a contraction or slowdown in economic activity has reduced business travel. In other markets, business travel continues, often linked to export business, but business travellers have switched from premium to cheaper economy seats. The latter substitution appears to have been taking place on, for example, the within-Europe segment, where premium travel fell in November although economy travel growth remained relatively robust. World trade growth has slowed to a virtual halt in recent months and business confidence in the major industrial economies has fallen sharply, to the point where the survey shows industrial production is expected to grow no further over the next few months. World trade has been a good coincident or current indicator for premium travel. Business confidence has been a good leading indicator. Both suggest there will be little further growth in premium travel in the next few months.
International air passengers by seat class (seasonally adjusted)
7.3
Premium passengers as a % of total
10.5%
75
(seasonally adjusted) source: IATA
Source: IATA Economy (right scale)
10.0%
Premium Pax, Million
Economy Pax, Million
6.8
70
9.5%
9.0%
6.3
65
8.5%
5.8
60
8.0%
5.3
Premium (left scale)
55
7.5%
4.8
50
7.0% 2004
2005
2006
2007
2008
2009
2010
2011
2004
2005
2006
2007
2008
2009
2010
2011
IATA Economics: [Link]/economics
Premium Traffic Monitor November 2011
Trends in international trade have been good indicators of premium travel. Although not all business travel is trade related, world trade growth can be a good proxy for manufacturing, as well as finance and consulting industries. In November, there has been very little change from previous months with international trade growth remaining low signaling no growth in business travel.
Predict Future Demand and Minimize Investment Risk. Airline Industry Forecast 2011-2015 [Link]/forecast
Changes in business confidence can act as an early indication of changes in premium travel, giving a signal sometimes up to 6 months in advance. The Purchasing Managers Index (PMI) is an indicator of business confidence and it is telling much the same story as world trade - no growth in business activity, and therefore in business related travel.
Business confidence started to decline in May 2011, and the last 2 months of weak business travel performance could now be showing the reality of those expectations. Furthermore, the PMI is persisting just below the expansion/contraction level of 50, confirming the unlikelihood of growth in business activity and premium travel in the coming months.
Premium passengers and world trade growth
Source: IATA, CPB Netherlands
Premium Travel and Business Confidence
25 20 15 Developed countries trade in goods
20
15 10
% Change over Year
Source: IATA, PMI Business Confidence
65 60
Confidence Index
% change over year
10 5 0 -5 -10 -15
5 0
55 50 45 40
Premium travel growth
-5
-10 -15
-20 -25 -30
-20
-25
Jul-06
Jul-07 Jul-08 Jul-09 Nov-06 Nov-07 Nov-08 Mar-07 Mar-08 Mar-09
Premium passenger numbers
35
Jul-11 Nov-11 Mar-11
Nov-09
Jul-10
May-06
May-07
May-08
May-09
Nov-09
May-10
May-11
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Nov-06
Nov-07
Nov-08
Nov-10
Nov-11
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Premium ticket volume and revenue growth
Source: IATA
30%
Traffic Growth by Route - Nov 2011
Source: IATA
10
Premium revenues
20% 10% 0% -10% -20% -30% -40%
% Growth, Year-on-Year
Premium volumes
-5
-50%
First / Business
Jan-08 Jan-09 Jan-10 Jan-11 Apr-08 Apr-09 Apr-10 Apr-11 Oct-07 Oct-08 Oct-09 Oct-10
Economy
Within Far East Europe-Far East
Nov-10
Mar-10
Mar-06
-30
30
Total
North and Mid Pacific
Jul-11
Oct-11
Jul-07
Jul-08
Jul-09
Jul-10
Within Europe
North Atlantic
TRAFFIC GROWTH BY MAJOR ROUTE
For premium and economy markets combined, the stronger of the major international routes were once again within Europe and Europe to Far East. The weak economic conditions within Europe do not support these results; however, export activity of central and northern European markets will be driving some of the travel strength on the Europe to Far East route. Premium travel grew 3.1% year on year for this sector. Premium travel markets declined over the year within Europe (0.3%), while economy class travel was very strong, growing at 6.9%. Although there could be some substitution of premium passengers to the less expensive economy class, the underlying economic environment in the continent is unlikely to support similar rates of growth in the coming months.
IATA Economics: [Link]/economics 2
Premium Traffic Monitor November 2011
The North Atlantic route, which constitutes a major share of total revenues, has now had a second month of weak year on year performance. Compared to November in 2010, the route only recorded 0.4% growth, and in October, the year on year performance declined 1.5%. A route that had previously shown strength despite a weak European economy is now starting to slow. Export momentum from German and Northern European countries across the Atlantic has been slowing for some time now, and that could now be translating to weaker premium travel performance. A surprising result this month is the notably weak performance within the Far East, which recorded year on year growth of only 0.4% in November. Year on year growth in October and September was 4.1% and 13.9% respectively. It appears the impact of the Eurozone crisis is now manifesting itself in the Far East. Credit conditions are now also starting to tighten in Asia, and policy makers are reverting from tightening policies to constrain inflation, to looser policy positions that indicate a readiness to stimulate activity if necessary.
IATA Economics th 17 January 2012 E-Mail: economics@[Link]
IATA Economics: [Link]/economics
Premium Traffic Monitor November 2011
PREMIUM TRAFFIC GROWTH BY ROUTE
Share of Total Premium: Traffic
Africa - Middle East Africa - SW Pacific C America-S America Europe - Far East Europe Middle East Europe - SW Pacific Africa - Far East Within Africa Within Central America Within Far East Within Middle East Within North America Within SW Pacific Within South America Mid Atlantic Middle East - Far East Middle East-SW Pacific North Atlantic N America-C America Europe Africa N America - S America Far East - SW Pacific North and Mid Pacific South Pacific South Atlantic Within Europe Total International
Premium Traffic Growth Nov 11 vs. Nov 10 6.2% 15.8% 29.2% 3.1% 5.7% -13.8% 2.6% 16.4% 2.0% 0.4% 7.1% 3.2% -8.3% -2.2% 4.1% 5.9% 9.6% 0.4% -1.3% -7.7% 6.6% 4.9% 4.6% -2.1% 6.0% -0.3% 1.7% YTD 2011 vs. YTD 2010 -3.3% 10.1% 12.9% 8.6% 8.9% 0.3% 7.1% 9.0% -48.5% 9.4% 2.9% -7.3% -18.6% 9.9% 4.1% 9.2% 5.9% 6.7% -0.1% -3.9% 12.9% 8.2% 3.8% 1.6% 13.3% 5.2% 5.9%
Revenues 0.8% 0.1% 0.3% 16.3% 6.6% 0.3% 0.4% 0.4% 0.0% 6.2% 0.6% 0.2% 0.1% 0.4% 2.5% 2.4% 1.0% 23.6% 1.9% 4.4% 4.1% 2.5% 12.5% 1.5% 4.6% 6.4% 100.0%
1.3% 0.0% 0.5% 9.8% 5.6% 0.1% 0.2% 1.1% 0.0% 11.2% 2.2% 0.9% 0.3% 1.3% 1.2% 3.5% 0.5% 15.6% 5.2% 4.0% 3.1% 1.9% 6.1% 0.5% 3.0% 20.8% 100.0%
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