PREMIUM TRAFFIC MONITOR
Growth in the number of passengers traveling in premium seats on international markets accelerated in May, rising 6.5% compared to a year ago, significantly stronger than April growth of 3.8%. Demand conditions appear to be picking up again, after signs of wavering during recent past months.
Developments during the first quarter of 2014 were marked by a slowdown in improvements in the demand environment seen throughout the latter months of 2013. The weakness was primarily driven by emerging markets. But continued improvements in advanced economies helped to negate some of the slowdown in markets like China, sustaining continued growth in air travel demand.
Most recent data shows that downward pressure on demand drivers from emerging markets is easing. Manufacturing business activity in China is expanding once again, for the first time since December 2013. But indicators of trade for China, and hence the region overall, are mixed, with export order measures showing considerable volatility over recent months.
Route-level growth rates for the within Far East market remain subdued overall with a weak 2.5% increase in May year-on-year. A slowdown in the Chinese economy earlier this year restricted growth in premium travel within the region during previous months. Recent data, as mentioned above, suggest that further slowdown is likely to be limited and that there has been some reversal in prior declines in business activity, but the outlook for this market remains uncertain.
Other markets, however, experienced solid growth. The North Atlantic route increased by a strong 10.3% in May compared to a year ago. Latest indicators of business activity in the US show acceleration and suggest a significant reversal in Q2 economic performance, compared to the weather-impacted weakness in Q1. Much like in previous months, most markets connected to the Middle East also performed strongly in May. Economies in the Middle East, particularly in Gulf nations, are recording strong growth in non-oil producing sectors and near record high levels of business activity. This supports growth on markets such as Far East – Middle East (11.6%) and Europe – Middle East (12.4%).
The outlook for air travel is positive. Global business activity (manufacturing and services) is now growing at the fastest rate for the past three years, suggesting a pick-up in global economic growth in Q2. But growth in manufacturing and export orders, specifically, has yet to recover to 2013 year-end rates, which raises some doubts whether strong acceleration in trade and business-related demand will occur in the near-term.