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IATA Premium Traffic Monitor - March 2014

IATA Premium Traffic Monitor - March 2014

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Published by TravelDailyNews
IATA Premium Traffic Monitor - March 2014
IATA Premium Traffic Monitor - March 2014

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Published by: TravelDailyNews on May 22, 2014
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07/06/2015

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 1
PREMIUM TRAFFIC MONITOR
MARCH 2014
KEY POINTS
 Growth in the number of passengers traveling in premium seats on international markets slowed in March, rising 1.9% compared to a year ago, down on the February rise of 4.1%. Although the demand backdrop for premium travel remains positive on balance, rates of improvement in business conditions have slowed.
 The first chart below shows that premium traffic volumes have experienced some decline over recent months. There was a solid acceleration in premium travel demand during the last quarter of 2013, consistent with a pick-up in global economic growth. But that trend has now paused, reflecting recent developments in demand drivers.
 The JP Morgan/Markit indicator of global business activity shows continued expansion throughout Q1 2014, but the rate in April was the slowest for the last 5 months. Several major economies experienced some weakening in this indicator in April. In the US, economic growth in Q1 was dampened by difficult weather conditions, which is a temporary factor. In China, however, (manufacturing) business activity has been contracting since January, and points to a potentially more pronounced and extended economic slowdown.
  Almost all routes saw a slowdown in March relative to the February year-on-year comparison. But some markets still recorded solid growth in premium travel in March, including those linked to the US, where economic conditions continue to improve steadily. North America to South and Central America markets saw premium passenger numbers rise 5.9% and 7.9% respectively. The North Atlantic route also expanded compared to a year ago, rising 2.0%, but this is down on growth so far this year (3.6%).
 Weakness in the within Far East market continued in March, with a 2.2% contraction compared to a year ago. This is a significant slowdown on both February (1.0%) and January growth (7.2%). The weakness in premium travel demand is likely reflecting slowdown in the Chinese economy.
 The outlook for premium travel markets remains broadly positive, but improvements in the demand environment seen in late 2013 have shown some reversal. Global business confidence continues to signal economic growth, but  April data shows yet another slowdown in the rate of growth. Expansion in world trade has also slowed. Improvements in advanced economies should sustain growth in premium travel ahead, but downward pressure from weakness in some emerging markets is likely.
50 55 60 65 70 75 80 85 5.0 5.5 6.0 6.5 7.0 7.5 8.0
   E  c  o  n  o  m  y   P  a  x ,   M   i   l   l   i  o  n   P  r  e  m   i  u  m   P  a  x ,   M   i   l   l   i  o  n
International air passengers by seat class
(
seasonally adjusted)Source: IATA
PremiumEconomy
7.0%7.5%8.0%8.5%9.0%9.5%10.0%
Premium passengers as a % of total
(seasonally adjusted)
 
 2 Premium Traffic Monitor March 2014
 Growth in international trade is a good indicator of business travel. This is not only because of the obvious link to the manufacturing sector, but also because international trade is a good proxy for the drivers of business travel in other key sectors, such as finance and consulting. Toward the end of 2013, there was acceleration in world trade growth, driven mostly by emerging Asia and improvements in advanced economies. In 2014, however, that acceleration has slowed and latest data are showing declines in world trade volumes. Looking ahead, however, increases in export orders suggest that the slowdown in trade growth could be temporary.
 The second chart below shows business confidence (measured here by the JP Morgan/Markit purchasing managers’ index), indicating a pick-up in growth in business activity since mid-2013. The acceleration in global business conditions over the past several quarters reflects better performance of advanced economies. Over recent months, however, the improvement in business conditions has slowed. While the deceleration in growth has occurred in several major economies, the most significant area of weakness has been China.
 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 2014 compared to late 2013. Much of the decline is due to the emerging market asset sell-off as the US tapers its quantitative easing program. So far there are some signs of weakening in emerging economies as they adjust the outflow of funds, but the duration of these impacts as well as the impact on premium travel remains to be seen.
-30-25-20-15-10-50510152025
   %  c   h  a  n  g  e  o  v  e  r  y  e  a  r
Premium passengers and world trade growth
Premium Travel GrowthWorld Trade in Goods Growth
Source:Netherlands CPB, IATA
30354045505560-30-25-20-15-10-505101520
   C  o  n   f   i   d  e  n  c  e   I  n   d  e  x   %   C   h  a  n  g  e  o  v  e  r   Y  e  a  r
Premium Travel and Business Confidence
Source: IATA, Markit/JP Morgan
Premiux PaxPMI Index (manufacturing)
-30-20-100102030-60-40-200204060
   P  r  e  m   i  u  m   P  a  x ,   Y  o   Y   %  g  r  o  w   t   h   M   S   C   I   W  o  r   l   d   i  n   d  e  x ,   Y  o   Y   %  g  r  o  w   t   h
Premium Traffic and Global Financial Market PerformanceSource: IATA, ThomsonReuters
MSCI World IndexPremium Traffic Growth
-327
First / BusinessEconomyTotal
Traffic Growth by Route -March 2014
Source: IATA
Within EuropeNorth AtlanticWithin Far EastEurope-Far EastNorth and Mid Pacific
   %   G  r  o  w   t   h ,   Y  e  a  r  -  o  n  -   Y  e  a  r
 
 3 Premium Traffic Monitor March 2014
TRAFFIC GROWTH BY MAJOR ROUTE
  Almost all routes saw a slowdown in March relative to the February year-on-year comparison. But some markets still recorded solid growth in premium travel in March, including those linked to the US, where economic conditions continue to improve steadily. North America to South and Central America markets saw premium passenger numbers rise 5.9% and 7.9% respectively. Growth on these routes is also supported by the strength of some economies in Central and South America. Mexico’s economy has been improving over the past several months – because of stronger exports and government spending – and as global demand improves that positive trend is likely to continue. In South America, nations like Colombia, Chile and Peru continue to post GDP growth rates in excess of 5%, supported by strength in manufacturing and export sectors.
 Markets connected to the Middle East also performed robustly in March, including Africa – Middle East (7.7%), Europe – Middle East (5.2%), and Middle East – Far East (7.7%). The Gulf nations specifically are enjoying acceleration in non-oil sectors of their economies, ensuring strength in consumer demand and positive developments in sectors such as trade, transport and tourism.
 The North Atlantic route also expanded compared to a year ago, rising 2.0%, but this is down on growth so far this year (3.6%). In March, US indicators of business activity weakened slightly (consistent with the global trend and also reflecting harsh winter conditions), but growth in April remains at the highest levels since early 2013 and the outlook for the economy remains broadly positive.
 Weakness in the within Far East market continued in March, with a 2.2% contraction compared to a year ago. This is a significant slowdown on both February (1.0%) and January growth (7.2%). The weakness in premium travel demand is likely reflecting the first signs of slowdown in the Chinese economy. The February result could be the first signs of weakness on this market due to the slowdown in the Chinese economy. JP Morgan/Markit measures of business activity in China have been showing contraction since January, and the rate of decline has now accelerated.
 In the Eurozone economic activity continues to improve slowly, but economic growth in Q1 2014 has come in at 0.2%, below expectations of 0.4%. Premium travel within Europe contracted 1.6% in March compared to a year ago. Indicators of business activity and economic growth suggest that the second quarter of 2014 will be stronger than the start of the year, which in turn suggests an improvement in the demand backdrop for air travel and in particular of business-related premium travel.
IATA Economics 21
th
 April 2014
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