MIAMI — Growth in international airline passengers slowed in September, rising only 2.3 percent compared to a year ago – a weaker increase than the 4.5% achieved in August, according to IATA data. Premium and economy passenger numbers were up by the same rate, at 2.3 percent, in September.
Although the global economy continues to expand, IATA’s latest data shows a widespread slowdown in key economies at the start of the fourth quarter. “The U.S. economy appears to be set for steady growth ahead, but at a slower pace in the fourth quarter than was seen in earlier months, according to Markit’s indicators of business activity,” said the IATA report. “In the Eurozone, the French economy has started to signal contraction and growth is losing momentum in Italy. China has been struggling with weak domestic demand offsetting more positive exports growth.”
Travel on premium seats rose 2.3 percent in September compared to a year ago, the same as the rate of increase in economy passenger numbers, with current performance relatively weak for both travel classes. “During the first three quarters of 2014, the overall rate of increase was stronger for both premium and economy travel, at 3.7 percent and 3.5 percent, respectively,” said IATA. “However, the slightly faster growth on premium versus economy markets has meant that the share of premium travel still seems to be trending upwards from the low point reached at the bottom of the economic cycle in late 2012, as can be seen on the second chart above.”
The rising share of premium seats has been supported by stronger growth on longer-haul markets. This in turn has helped support premium yields, as longer-haul markets drive the greatest share of premium revenues. In addition, this has helped the financial performance of the longer-haul network airlines, compared to shorter-haul mainly leisure travel focused airlines in some, though not all, regions.
Broken down by region, premium traffic in the Far East market remains weak, with a 1.6 percent contraction in September year over year, and it expanded only 0.2 percent during the first three quarters of 2014 compared to the same period a year earlier. IATA blamed the slowdown on notable declines in international travel for Thailand and Malaysia.
“The Thai economy is expected to eventually stabilize after the military coup in May, but latest data show significant falls in tourism and exports during recent months when compared to a year ago,” said the report. “In addition, Malaysia has experienced declining tourism activity following the MH370 and MH17 tragedies. But slowdown on this market may now also be reflecting some setbacks in the Chinese economy.”
The North and South American markets have also been weak, falling 2.7 percent in September compared to the same period in 2013, with the weakness driven primarily from factors concerning the southern hemisphere. “Part of the weakness is a result of U.S. and South American carriers significantly reducing capacity to Venezuela over recent months due to challenges in repatriating funds held by the government,” said the report. “In addition, there are fundamental demand weaknesses, [with] the Brazilian economy weak and is getting weaker, according to the recent business confidence data, and the crisis in Argentina adding further downward pressure.”
The recent weakening of the Eurozone economy may be starting to have negative impacts on air travel demand, with a rise of just 2.3 percent for the within Europe market – slower than the trend so far this year, at 3.6 percent. “The Eurozone PMI was unchanged at the start of the fourth quarter, which indicated very slow growth for the end of 2014. “Premium travel for the within Europe market, however, increased by a solid 4.5 percent in September, above the trend so far this year, at 3.8 percent.
Markets connected to the Middle East have also seen solid growth over recent months. “Africa – Middle East, Europe – Middle and Middle East – Far East all increased strongly in September year-on-year, at 14.5 percent, 7.8 percent and 13.4 percent, respectively,” said the report. “Major economies in the Middle East, including Saudia Arabia and the United Arab Emirates, continue to show robust economic performance.”
Although there were signs of improvements in business confidence and international trade growth during more recent months, latest figures are showing yet another pause or flattening in positive momentum, said the report. “Although the consensus view is that the global economic recovery will continue, these recent results suggest that the strength of the upturn is still weak and fragile,” it added. “With respect to air travel growth, these developments suggest that there is still enough demand to sustain a positive trend over the coming months, but that further acceleration – particularly on some markets – is now unlikely.”