Geneva - Growth in premium travel slowed in January. The number of passengers traveling in premium seats on international markets was 3.3% higher in January compared to a year ago, down on the December result of 4.5%. Economy class passenger numbers were up 2.9% in January on a year ago, also slowdown on the December growth of 4.2%. There are some distortions to these January results due to the Chinese New Year holiday occurring a month later in 2013 (in February) than in 2012, particularly for markets linked to the Far East. The impacts were mixed. Premium travel on Europe-Far East was 10.6% higher in January compared to a year ago; an inflated resulted owing to business closures suppressing premium travel in January 2012. By contrast, economy class travel within the Far East was up just 2.7% in January compared to a year ago, a downward bias due to a spike in leisure travel last January. After adjusting for seasonal factors, we estimate that premium year-on-year growth in January should be reduced by a few tenths of a percentage point, while for economy travel there should be an upward adjustment by the same degree.
The growth trend in international air travel, as shown in the first chart below, weakened in January. Both travel classes saw a contraction in the seasonally adjusted level of international passenger numbers by 0.5% in January compared to December. Although this could just be a result of month-on-month volatility, the longer-term trend suggests otherwise. Over the last 6 months, premium and economy international passenger numbers has been just increasing at a slow 2-3%annualized rate.
But the weakness in the growth trend is not widespread; it is largely isolated to markets connected to Europe. Economic recession throughout the continent continues to erode demand for air travel. Premium travel within Europe, which is the largest market by passenger numbers, contracted 0.5% in January compared to a year ago, and economy travel was up just 0.6%. Travel across the North Atlantic was also weak – with no growth in premium demand in January on a year ago, and just a 0.9% rise in economy.
Emerging markets, particularly those linked to the Far East, are the source of growth in international premium travel. Positive momentum in key Asian economies – including China and South Korea – as well as growth in trade and industrial production has helped boost demand for air travel for that region. Premium travel results for emerging markets were robust in January compared to a year ago: within Far East (4.6%), Africa – Far East (10.3%), and Africa – Middle East (10.9%).
Recently there have been signs that the downward pressure on air travel markets seen throughout 2012 is starting to ease. With current levels of business confidence pointing to moderate growth in the months ahead and positive signs coming from emerging markets like Asia, that optimism could well materialize. However, with developed economies continuing to show weakness, downside risks for air travel demand remain a factor in 2013. Premium travel markets are driven largely by demand for business travel. 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 shows the close movement in premium travel growth and world trade growth. Over the last year, however, world
trade growth has been tracking at a weaker pace than premium travel growth. The weakness in developed economies, particularly in Europe, has caused international trade of developed countries to decline overall. Countering the impact of this weakness is the strength of developing markets, such as Asia, the Middle East and South America. International trade in emerging economies has been increasing at a
stronger rate, helping sustain demand for business-related premium travel.
Business confidence is a good leading indicator of premium travel growth itself. The second chart below shows the JP Morgan/Markit measure of confidence in the manufacturing industry. The Index is now above the neutral 50 mark, in expansion territory. There was a slight decline in the index in February, but most of that comes from weaker readings in China, where the timing of the Chinese New Year negatively affecting manufacturing activity that month. Nevertheless, the current level of business confidence indicates modest growth in the months ahead. This in turn should provide support to premium travel demand, and help prevent any further slowing in the growth trend.
