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Premium Traffic Still Has A Long Way To Go

YOY increases in premium traffic is no indicator of improvement.
FBE Aerospace analyst Saj Ahmad
FBE Aerospace analyst Saj Ahmad

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Ten-out-of-10 to the International Air Transport Association (IATA) for stating the obvious, “there is still some way to go before premium travel recovers previous highs but the decline looks to have been cyclical and we are now moving into the upturn phase of the cycle.”

But what IATA can’t tell you accurately (and neither can its members) is when profitability will come back. There’s no doubt that within certain regions (Asia, Middle East), demand is both strong, performance has improved, yield is coming back and profits are appearing. But not everywhere.

As IATA notes, demand for seating at the rear of the cabin has become much more of a hit, not least because costs on travel continue to be slashed but also because the divide between premium economy and economy is starting to widen – the price differential is much less inelastic than in contrast to the heavy discounting seen in first and business class.

All of that affects the bottom line. While the theory of chasing volume over yields will continue to be decimated by high fuel costs, decreased passenger revenue in all markets mean that price sensitivity will continue to influence passenger preference for class of travel.

Let’s face it, a AED 34,000 first class ticket paying passenger will still arrive at the same time as the guy who paid less than 10% of that despite sitting at the rear of the airplane.

Therein lies the proposition conundrum of leaching for either high yield/low quantity or high quantity and low yield.

About the only airlines immune to this scenario are the big guys in Abu Dhabi, Dubai and Doha.

This article was written by FBE Aerospace analyst Saj Ahmad.

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