Premium demand impacted by downturn, economy travel holds up

The industry body reports worldwide premium traffic rose around 1-2% in Feb-08 (factoring out the impact of the leap year), following growth of just 0.4% in Jan-08. But economy travel “seems to be less affected by the slowdown at present”, with leap-year-adjusted growth of 4-5% in Feb-08, compared with growth of 5.4% for the full year of 2007.

Looking at the Asia Pacific market, IATA stated the impact of the weak US dollar is likely to boost US exports to Asia and business travel outbound from the US across the Pacific. Meanwhile, Europe to Asia business travel markets are also “still robust”, due to growing economies at both ends of the market. Asia, outside Japan, is continuing to show strong growth, led by the Chinese economy, which expanded over 10% in 1Q08.

Overall, worldwide premium traffic is highly sensitive to the economic cycle. The weakness of debt markets, investment activity and merger/acquisition activity is putting downward pressure on business travel.

The industry body also believes a further slowdown is likely in worldwide Economy traffic, due to the impact of the US-led economic difficulties which are having an impact on jobs and consumer confidence.

Increasing price sensitivity, reflecting weaker consumer confidence, is likely to be an important driver of overall traffic growth going forward, according to IATA.

However, with Easter falling early this year, an undistorted picture of passenger travel trends will not emerge until May-08.