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Premium Travel Increasing But Yields Elusive

November 16, 2010 By: Staff

They have been slow in coming, but it looks as if premium travel yields are finally on the upturn, says the International Air Transport Association (IATA) in the November issue of Airlines International. Passengers travelling in first and business-class seats on international routes rose by 13.8 percent in July from the level seen the previous year, IATA says. Most airlines are also reporting improved yields.

For the first six months of 2010, including for losses due to European airspace closures in April, premium travel was up 11.9 percent. Meanwhile, the numbers for the first seven months suggest an annualized rate of 10 percent—  more than double the average 4.5 percent growth rate in premium travel seen in the years before the recession.

It would seem to be a healthy situation backed by a number of external indicators.  “World trade is strong and business confidence is high,” IATA says. “But before chief financial officers begin rubbing their hands with glee, it is worth noting that the picture is not as rosy as it looks. To begin with, 2009 figures were dramatically down on 2008. Despite the increases, yields are still 8 percent down on pre-crisis levels. And even current growth can be questioned. The latest forecast from the Organization for Economic Cooperation and Development (OECD) shows economies slowing faster than expected. Unresolved travel decisions have now been taken and depleted inventories have been replenished. There has been some slippage in the premium figures in recent months, which is consistent with expecting year on-year growth rates to decelerate in the second half of the year.”

Additionally, there is notable regional variation. United States airlines are seeing strong growth in yields and revenues but the North Atlantic market, which represents about 30 percent of revenue, remained sluggish in June, suffering from weak economic conditions in Europe in particular. The number of passengers in this sector, premium and economy travelers combined, rose by only 0.1 percent during the first half of the year, IATA reports.

The question for airlines is whether they can influence a return to higher yields. Can investment in product win out against external factors such as the state of the economy and market competition?



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