As Asia Weakens, Transatlantic Airline Routes Become Even More Important

IATA’s latest Premium Traffic Monitor reporting on airline performance through November of 2015, reveals ongoing strength in transatlantic routes but warn of a “notable deceleration” in First and Business class passenger demand, in large part driven by poor performance on routes to the Far East due to negative economic conditions in China.

“The lagged impact of weakness in world trade and industrial production in late 2014 was apparent in the sluggish growth trend for premium travel at the start of 2015,” IATA states. “Improvements in advanced economies, particularly in Europe, started to revive the trend in international air travel (both travel classes) toward the end of Q1 2015.

“These positive developments remain intact, but the deepening weakness in the Chinese economy is now raising concerns that the positive trend may be coming to a halt.”

IATA Premium Traffic Monitor Through Nov 2015/IATA

Transatlantic routes have long enjoyed strong demand for Premium passengers and economy passengers alike, but projections for growth over the next twenty years of have been focused on Asia, and China in particular which is projected to rise in rank above the U.S. in overall traffic by 2034.

IATA 20-Year Market Forecast, a/o Nov 2014/IATA

“The outlook for international passenger growth remains mixed because growth during the recent past has been narrowly based and supported by the Within Europe and North Atlantic markets. Weakness in other regions, like Asia, has become more of a concern with the November data showing signs of a downtrend developing,” IATA states in its report.

Recent economic conditions have slowed in growth for all classes of service, but Premium economy demand slowed down more dramatically.

“Economy class travel was up 3.4% year-on-year, while premium travel was only 0.7% higher in November,” says the airline association.

International Air Passengers by Seat Class/IATA

Some of this slow down can be attributed to temporary set-backs in the air travel markets, but IATA expresses concern over the long-term impact of Asian economies, particularly China.

Premium Travel & Global Financial Market Performance through Nov 2015/IATA

“Over the past few months, we have seen weakness on the Within Far East market, which suggests that adverse economic developments in parts of Asia have started to place downward pressure on air travel demand,” says IATA.

Premium Travel and Business Confidence through Nov 2015/IATA

“Premium class travel was just 0.7% higher in November, a slowdown on the October result of 3.9%. The deceleration in premium passenger growth was mostly driven by the Europe – Far East market, which fell 2.3% year-on-year. Given the strikes at Lufthansa as well as the notable volatility in monthly volumes, part of this weakness is likely a result of temporary factors. That said, GDP growth in China for 2015 overall was 6.9%, which is a further slowdown on 2014 (7.3%). The impacts on underlying demand for business-related travel could be starting to appear now, as the trend in overall international passenger growth is starting to show decline.”

Transatlantic routes and Long-Haul Remain Strong

“Even though there has been no gain in premium’s share of total traffic, growth on longer-haul markets has been robust. This has helped to support premium yields on some markets. In turn, this has supported the financial performance of the longer-haul network airlines, compared to shorter-haul, mainly leisure travel-focused, airlines in some, though not all, regions,” IATA states.

International Passenger Growth by Route, through Nov 2015/IATA

International Premium Traffic Growth by Route, through Nov 2015/IATA

“Recent improvements on the North Atlantic market were sustained in November, with total international passengers numbers up 5.7% year-on-year. Although it is not clear if the US economy has recovered adequately from the recession to tolerate an increase in interest rates, indicators continue to suggest that improvements are on track, which bodes well for air travel demand. And while economic conditions in the Eurozone remain fragile, growth has been positive and steady for several months now. Better performance of Eurozone economies has helped support business-related air travel across the North Atlantic,” IATA adds.