Premium Overseas Air Traffic Sees Strong Growth in 2006

SINGAPORE -- Strong economic growth and buoyant demand for seats fuelled strong growth in premium air traffic on routes to and from the Middle East and the Asia-Pacific region last year.

The latest data released by the International Air Transport Association (Iata) shows that premium traffic volumes on international routes grew by 4.3 per cent in 2006, less than the 7.4 per cent growth in economy traffic volumes.

But of the five main premium traffic routes by volume (together accounting for 75 per cent of total premium traffic), Europe-Far East grew at the strongest rate in 2006, with 11 per cent growth in premium traffic and 9.5 per cent growth in economy traffic.

'Growth on this route has been boosted by strong Asian economic growth, new services and liberalisation on some routes (e.g. UK to India),' Iata economist Mark Smyth noted in a report released at the weekend.

Routes across the North Pacific and within Asia enjoyed above-average growth in premium traffic in 2006 of 5.4 per cent and 6.2 per cent respectively. Also, on both routes, as well as on Europe-Far East, premium traffic growth was higher than the rate of economy traffic growth.

'This signals that stronger trade links with, and economic growth in, Asia are not only expanding demand, but also leading to upgrades in demand towards high-yield, premium cabins on key long-haul routes,' the Iata report said.

Overall, premium traffic accounted for 10.5 per cent of all international traffic in 2006, though there was a higher proportion of traffic, 14-15 per cent, on key long-haul routes such as the North Atlantic and Europe to the Far East.

The growth rate of both premium and economy traffic picked up in the last quarter of 2006, with December's growth rate of 5.9 per cent premium volumes slightly higher than the 5.6 per cent in November. December also recorded the highest rate of growth in seven months.

'Premium traffic grew at a slower rate than economy class traffic in nine of the twelve months in 2006,' Iata noted.

'However, both saw a strong increase in growth rates in the last quarter of 2006. The US economy has also shown signs of higher growth than expected in recent months, helping to support above-average growth in premium traffic on the key long-haul routes to and from the US. Strong economic growth in Asia and the Middle East is also continuing to provide strong momentum for premium traffic growth into the start of 2007,' it said.

Premium traffic also grew strongly on routes within North America and Africa and on routes from the Far East to Australasia.

According to analysts, premium traffic accounts for more than half the revenue and earnings of leading carriers like Singapore Airlines (SIA), Cathay Pacific and British Airways.

It also tends to be a more resilient component of revenue compared to economy class, which has a substantial discretionary travel component.

Last year, SIA unveiled a US$360 million upgrade of its business and first class suite offerings.

Similarly other leading airlines around the world have spent tens of millions of dollars upgrading their premium product offerings.

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