Premium air traffic rise boosts trade hope

Airlines report substantial jump in business and first-class air travel in August, which could be an indicator of a recovery in world trade

PUBLISHED : Tuesday, 22 October, 2013, 3:27am
UPDATED : Tuesday, 22 October, 2013, 3:27am

The sustained recovery in premium air traffic may be a positive sign for world trade growth in the months ahead, the International Air Transport Association said yesterday.

The pickup in the volume of business and first-class traffic, also known as the front-end cabin, meant improved profit margins for airlines.

Worldwide front-end traffic shot up 8.6 per cent year on year in August, driven mainly by the intra-Europe routes and the transatlantic routes. Stripping out the impact of the timing of the Muslim fasting season Ramadan, premium traffic jumped 5 per cent, still above the year-to-date trend of 3.4 per cent, said the association that represents more than 240 airlines.

Premium traffic markets were driven largely by demand for business travel and world trade was a good proxy for business travel, the association said. This was an early positive sign for world trade growth in the months ahead, as well as for business-related premium class travel.

"It's positive news for airlines, especially for the likes of Cathay [Pacific Airways], which has a higher proportion of revenue from the front end," said Kelvin Lau, a transport analyst at Daiwa Capital Markets. "Premium traffic has been declining over the past few years while the sustained growth in premium traffic suggests a cycle recovery in airline business."

IATA projected the demand for premium traffic would continue towards the end of the year.

Business confidence improved throughout the third quarter and reached a level not seen since mid-2011, according to the JP Morgan/Markit purchasing managers' index.

The growth of premium travel within Asia rose to 7.8 per cent in August from 5.5 per cent in July, disregarding the slowdown in Chinese economy and declining trade volumes in emerging Asia.

Ramadan's timing skewed traffic to and from the Middle East as the festival fell in August last year.

Traffic between Europe and the Middle East rose 25 per cent while Middle East and Far East traffic jumped 14.7 per cent.

Across the North Atlantic, premium travel rose 5.7 per cent, above the year-to-date trend of 1.1 per cent. Within Europe, premium traffic jumped 7.2 per cent.