Airlines seen flying into economic turbulence : IATA

GENEVA (Reuters): A revival in global air travel may be about to slow sharply as economic headwinds discourage premium travel, industry body IATA said last week.

Its data for June showed a slight dip in premium and economy travel growth rates from May, although the number of passengers in both classes was higher than in June last year.

Premium travel numbers rose 6.4 per cent and economy grew by 4.8 per cent. Premium revenue is rising at an annual pace in the low teens, the IATA estimated.

However, it said two leading indicators for premium air travel – business confidence in major industrial economies and international trade in developed countries – pointed to slower growth in coming months.

“With world trade expanding, although at a slower rate, and business confidence still (just) in positive territory, premium passenger markets are expected to show further growth in the months ahead, but growth rates are likely to run at a slower pace,” the IATA said in its monthly report.

Growth in premium air travel lags business confidence – which deteriorated in July – by three to six months, it said.

“Business confidence of this level is more consistent with annual premium traffic growth in the low single (percentage) figures,” it said.

That could hit the world’s biggest air travel market, between Europe and North America, which accounts for 19 per cent of traffic and 30 per cent of revenue.

Premium traffic was 11.1 per cent higher in the first half than in year-ago period, but growth in June was off the pace, up 6.4 per cent from the same month last year.

The second-biggest market, between Europe and the Far East, saw a similar slowdown in June, the 7.9 per cent growth well below the 12.1 per cent for the first half.

The report did not give any definite forecast for economy class passenger numbers, which it said were 4 per cent higher than their peak before the global financial crisis.

Still, there could be some consolation for airlines in that passengers may have adjusted to high fuel prices.

“The absence of a sharp downward movement in June following recent rises increases the likelihood that economy passenger numbers are now less affected by the impact of high fuel prices,” it said.

The NYSE Arca Airline Index has slumped by almost a quarter since the start of July, nearly double the decline in the Thomson Reuters Global Airline Index over the same period.  Both indexes have suffered despite a slide in the price of crude oil CLc1, which should improve airline profitability.