Fewer premium class airline seats being bought across Europe
The rate of increase in demand for premium air travel (any seats that are not in economy class) is not growing as much as economy. Globally there around 8% of seats are in premium classes, though this was 9 – 9.5% in 2008. The demand for premium seats is not rising in Europe, and also not rising on transatlantic routes. However, in the rest of the world, especially in Asia, there is more growth in premium sales. The North Atlantic market between Europe and North America is the most lucrative premium airline market in the world – accounting for around 15% of all passengers and 22.9% of airlines’ total premium revenue. Premium demand within the Far East rose by about 9% in 2012 and now accounts for about 12% of the global premium air travel market. It appears more business flights within Europe are being made on economy flights, eg on easyJet, as European companies cut back on spending.
Demand for premium cabins falls in Europe
The rise in demand for premium air travel slowed in January due to weakness in Europe, according to the latest figures from IATA.
The association said that while global premium traffic rose by 3.3% in the first month of the year, this was down on the 4.5% growth seen in December.
IATA said: “Weakness in the growth trend is not widespread though, it is largely isolated to markets connected to Europe.
“Premium travel within Europe contracted 0.5% in January year-on-year and the North Atlantic market was flat.”
Growth for premium seats was driven by emerging markets “particularly those linked to Asia” while “current levels of business confidence point to moderate growth in the months ahead”.
However IATA warned: “With developing economies continuing to show weakness, downside risks for air travel demand remain a factor.”
Worldwide economy passengers also rose by 2.9% in January although this was down on December’s increase of 4.2%.
Sluggish growth for European premium air travel
More business travellers are downgrading to economy cabins when they fly around Europe in a bid to save money for their companies.
Latest figures on global premium air travel from IATA show that economy ticket sales for flights within Europe grew by 4.5% in 2012 compared to the previous year – easily outpacing the 1% rise in premium traffic on these short-haul flights.
“Some of the growth in economy class travel within Europe is likely a result of business travellers switching from premium seats to the economy cabin, as a means of cost reduction in the difficult economic environment,” said IATA in its Premium Traffic Monitor report.
Overall global premium travel was up by 4.5% last year compared to 2011 while economy passenger numbers rose by 5.9% over the same period.
“During 2012, expansion in economy and premium travel numbers slowed from the faster growth trend seen in late 2011 and early 2012, with the eurozone crisis affecting demand for air travel throughout the middle months of the year,” said IATA.
“Nonetheless for the year as a whole premium travel expanded 4.8 per cent, which was only slightly down on 2011 when the market grew 5.4 per cent. Among the major markets, air travel across the North Atlantic and within Europe experienced the largest decline in 2012.”
The North Atlantic market between Europe and North America is the most lucrative premium airline market in the world – accounting for 15% of all passengers and 22.9% of airlines’ total premium revenue.
But this market only grew by 0.6% during 2012 – compared to a 6.1 per cent rise during the previous year. IATA said this was down to North American carriers cutting transatlantic capacity and “spill-over effects of European economic weakness”.
The overall 4.8 per cent rise in premium travel during 2012 was powered by traffic within the Far East which was up by 9 per cent in 2012 and now accounts for 12.2% of the global premium air travel market.
IATA said that the premium travel market should benefit over the next few months from improving business confidence.
“Looking ahead, there are some promising signs for world trade growth,” added the report. “Changes in new export orders tend to lead changes in advanced economy trade growth by three to four months, and although the global PMI (purchasing managers’ indexes) for new export orders has been in decline for many months, recent results are showing significant improvement.”
Premium seat sales hit by weak business confidence
The growth in business class air travel is continuing to weaken as the world economy slows, according to the latest data from IATA.
The association’s Premium Traffic Monitor for September found that the number of passengers travelling in premium cabins was up 3.8% in September compared to the same month in 2011. But this figure was well down on August when there was an 8.5 per cent rise in premium seats.
IATA said the slowdown in overall global premium demand was mainly down to sluggish growth in the key transatlantic and European premium markets which recorded anaemic rises of 0.7% and 0.6% respectively for the first nine months of 2012.
But there was better news for flights to “emerging economies” with strong premium growth on Europe-Far East (up 6.1 per cent for the first nine months of 2012) and Africa-Middle East routes (up 19.8 per cent over the same period).
“The growth in air travel has moderated in line with the state of the business environment,” said the report. “Business travel drivers remain subdued, with world trade growth slowing to a halt compared to a year ago and business confidence remaining weak.
“The weakness in business confidence and the slowdown of world trade growth have kept air travel demand from expanding at the solid rates seen during earlier periods.”
IATA added that the outlook for the next few months was “not promising for world trade growth” due to declining export orders which would have a knock-on effect on demand for premium air travel.
“The measure of overall business confidence did improve modestly in the last two months, but it is still indicating a contraction in manufacturing activity, now for five consecutive months,” said the report. “Consequently, we expect the pace of growth in air travel, particularly in premium markets, to remain modest over the coming months.”
Premium travel down, economy up again, says IATA
Premium travel still remains below 2008 levels despite a 5% rise in all international air travel, latest IATA figures reveal.
The figures for May show a drop in the number of premium seat sales to just over 8% of all sales, with a marked decline in Europe. The figure has remained around this level for two years, having been a constant 9-9.5% before the recession.
Despite the declining proportion, premium sales still made up 27% of airline revenue in the latest survey.
IATA said that if premium sales had continued to grow at pre-recession rates of 5%, then the total market would be 20% larger than it actually is. In its monthly Premium Traffic Monitor, IATA said the fall in numbers “has followed the slowdown in world trade and the decline of business confidence”.
The downturn in premium sales is mirrored by an upturn in economy sales, which increased by 5.4% year on year. IATA said this was not a simple switch, as the main reason was the weakness of European markets, particularly on transatlantic routes.
This decline contrasts with South America, Middle East and Africa, which the organisation says are “still showing solid growth”.
IATA provides a gloomy prediction for premium travel in the near future. It says the JP Morgan market measure of confidence in global manufacturing fell to its lowest level in June since late 2009.
“This strongly suggests that the weakness starting to appear in premium travel will intensify in the next few months, particularly in markets linked to Europe.”