Rikus Grobler | Oct 18, 2017 | 0
Air traffic signals world wide slowdown except for Africa
The latest International Air Transport Association’s assessment of premium and economy travel, prepared by IATA’s Economics unit and based on September data, shows Africa to be the only region where air traffic is growing strongly.
Released only last week, the report warns of declining business confidence and stagnant economic conditions, except for Africa. IATA says its Air Traffic Assessment is a reliable leading indicator of short term economic expectations.
For Africa, the assessment notes that both Premium and Economy travel are expanding at double-figure rates. Although Africa is still a small market, it has proven to be very resilient. Overall air traffic performance for the continent was boosted by the good growth rates experienced in a number of economies. IATA’s report concludes travel within Africa is growing strongly but the traditional main lane between Europe and Africa is seeing travel decline.
Regarding the global performance of air traffic, the IATA report says the number of passengers flying on premium seats once again rebounded despite declining business confidence and economic uncertainty. In September, premium (business + first) passenger numbers rose to a level 6.7% higher than the same month last year, after slowing to 2.3% in August.
“In fact, all of this growth had occurred by May. The September rebound returns the size of the international premium travel market to the level it had reached in May. Premium travel is significantly higher than last year, but has made no further progress since May.”
“For the past few months, we have pointed to the lack of further growth in international trade and the sharp declines in business confidence as reasons for expecting a decline in business travel and premium seat sales. So far, this has not happened. However, it still looks like it is only a matter of time before the deteriorating economic conditions pull premium travel lower” the report predicts.
On cattle class, IATA is more upbeat. “The rebound in economy travel was stronger, taking this market segment to new highs in September. Compared to a year earlier, the number of passengers travelling on economy seats (including premium economy) was 5.8% higher. Although this growth rate is a little less than for premium travel, the bounce in economy travel from the lower levels in August took passenger numbers well above previous highs.”
The report says the strongest economy travel market segments in September were within-Europe and Europe-Far East. “Given the worsening economic conditions in Europe and the sharp fall in consumer confidence, this growth is unlikely to have been driven by leisure travel. More likely business travellers have been trading down from premium to economy”, it speculates.
Addressing the tight financial positions of many airlines, IATA says “Stronger premium and overall passenger numbers in September helped both airline yields and profits in the third quarter. We had not expected the strength to continue this long. An important question is whether strong travel will continue into the fourth quarter. Given deteriorating business confidence and economic conditions, we stick with our view that air travel markets will slow in the months ahead.”
The growth of international trade has proved to be a good indicator of business travel. There is an obvious link with the manufacturing sector, but trade has also been a good proxy for the drivers of business travel in other key sectors, such as finance and consulting. Currently, the signals from international trade are that business travel should slow further.
Citing other indices, the air traffic report says the same signals for a sharp slowdown in premium travel are evident in the purchasing managers’ index of business confidence, averaged across major economies. Changes in business confidence have been a good early warning indicator of changes in premium travel growth, leading changes by up to six months.
“The 2009 upturn in premium travel was signalled, by rising business confidence, six months earlier. This year, business confidence has been steadily declining for more than the last six months. Premium travel has slowed, but both trade and confidence point to very little further growth in premium travel, until economic conditions improve.”