Passenger travel increases by just 3% in June

Economy class travel grew at a stronger rate than premium international air travel, but both classes experienced a notable slowdown within the Far East region, IATA data released yesterday revealed.

Economy class travel rose 3.2 per cent in June year-on-year, a slowdown on May growth of 6.4 per cent. Growth in economy class travel – the more price sensitive travel market – has been supported by lower fares over recent months.

Premium travel was up just 1.4 per cent in June year-on-year, down from May growth of 4.1 per cent. Growth in premium travel has been reflecting continued weakness in business travel demand drivers, with global business confidence being dragged down by emerging markets.

In June, the subdued performance in both travel classes was mostly a result of slow growth within the Far East. This result could be the first sign of weakness in air travel demand following months of sluggish economic performance in some parts of Asia.

Looking ahead, although improvements in the Eurozone economy have translated into stronger demand for travel in both premium and economy classes over recent months, weakness in emerging markets could counter this positive trend. The June data suggests downside risks may already be materialising.

Increases in economy class air travel volumes have been supported by the fall in oil prices, which has led to lower fares. Economy class leisure travel is more price sensitive than business-related premium class travel. Premium passenger numbers have been growing but at a relatively slower pace due to overall weakness in business travel demand drivers. In June, volumes in both premium and economy class travel fell compared to May.

The weakness was primarily concentrated on the Within Far East market, which suggests that recent adverse economic developments in parts of Asia have finally started to place downward pressure on air travel demand. Surveys of purchasing managers by JP Morgan show that business activity in emerging economies has now dipped into contractionary territory – largely driven by developments in China.

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 airline yield growth and revenues.

That trend has reversed during the recent past, with relatively stronger growth in economy class travel placing downward pressure on the share of premium seats from the total. As noted above, economy class leisure travel, the relatively more price sensitive travel market, has been given a boost by falling fares.

Even though there has been no marked gain in premium’s share of total traffic, growth on longer-haul markets has been robust. This has helped support premium yields on some markets, which in turn has supported 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 was starting to show improvements prior to June, driven by better demand conditions in some regions. At the start of 2015, IATA was seeing the negative impacts of earlier economic developments.

World trade and industrial production accelerated during parts of 2014, but that trend failed to continue through to the end of the year the lagged impact of that weakness in late 2014 were apparent in the sluggish growth trend for premium travel at the start of 2015.

Improvements in advanced economies, particularly in Europe, started to revive the trend in international air travel (both travel classes) toward the end of Q1. Although those positive developments remain intact, June data have shown some reversal of the improvements in prior months, likely owing to the slowdown in emerging markets.