Uptrend in premium travel demand weakening: Iata

For the better part of the past year as coach class yields came under pressure due to cut-throat competition and high fuel price, airlines were counting on high-ticket front cabin demand to provide the meat to their bottomlines.

But the latest data suggests that this other "shoe", while not about to drop, could be coming loose. According to the International Air Transport Association (Iata), the uptrend in premium-class ticket demand during the first quarter has started weakening at the beginning of the second quarter of this year.

Compared to a year ago premium travel in April was up by 5.8 per cent, while economy travel increased 7.3 per cent.

"The data for April, after a strong first quarter, showed signs of weakness in passenger markets," Iata said. "Both premium and economy traffic fell, compared to March; the earlier improvement in the share of premium class passengers appears to have stopped; and key business travel drivers, such as world trade and business confidence, have fallen."

This is not good news for an industry whose net margin will be a mere 0.5 per cent this year, and largely dependent on premium travel.

Carriers like Singapore Airlines get almost half their income from the "front cabins".

The picture is made all the worse as this year's April year-on-year growth rates were exaggerated, as in previous months, by the impact of the Japan earthquake and the Arab Spring that occurred a year ago.

"We estimate that premium travel was 3-4 percentage points higher this April than it would have been in the absence these events, in particular the Japan earthquake, implying the market expanded by only 2 per cent in April," the Geneva-based organisation said.

"Although the growth trend remains upward, the rate of increase since the start of the year has slowed, with premium travel now expanding at an annualised rate of under 5 per cent since the start of the year, below the 2011 growth rate of 5.5 per cent."

The picture is not all that pretty on the coach class side either, with underlying growth closer to about 5 per cent in April year-on-year after discounting for last year's events.

April's weakness was concentrated largely in the North Atlantic - which contracted by 0.3 per cent, weakened by the eurozone crisis.

Markets in Asia and the Pacific remain relatively robust.

But travel within the Far East continues to show exaggerated year-on-year growth rates as a result of the Japanese earthquake, expanding by 17.9 per cent for premium travel and 19.6 per cent for economy travel, in April.

"Although it is difficult to tell the underlying growth rate due to these distortions, we expect the true growth in travel in the region to be significantly lower than these reported rates," Iata said.

"China's indicators of business confidence continue to signal slowing momentum, and major exporters such as Korea are suffering significant and persistent declines in export shipments. These conditions do not bode well for business-related premium class travel in the region."

But China's exports to nations within Asia continue to expand, and this will offer support to business travel within the region.

Business confidence, typically a leading indicator of premium travel, has softened recently compared to previous months, Iata added.

"The current levels of business confidence should continue to provide support for business related travel, but since a majority of the indicator's performance is being driven by US rather than European or Chinese activity, diverging trends in demand for premium travel could develop across regions in the coming months."

This article was first published in The Business Times.

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