Demand for premium airline seats waning, according to IATA report

The good news for global carriers is that the growth in international traffic on the world's airlines continued through the first half of this year, even slightly exceeding the full-year 5.9% growth rate for 2006, according to an IATA report.

The bad news is that there are warning signs that the trend may not continue.

The year-over-year increase in international traffic as measured by revenue-passenger kilometers weakened to 5.3% for June, the lowest growth rate in nine months, IATA said.

IATA's most recent report on international first- and business-class demand for May might be even more troubling to carriers.

Premium traffic in May as measured by number of passengers was 0.7% lower than in May 2006. That's the first year-over-year decline since December 2004.

The year-to-date growth through May dropped to 2.2%, compared with 4.3% over the same period in 2006.

"This general downward trend in premium-traffic growth is of concern, given the strong boost provided by premium-traffic growth to airline revenues and profitability over the last two years," IATA said.

European carriers have the biggest reason for worry. Premium traffic for routes within Europe actually fell sharply year-over-year in May, which IATA attributed in part to ongoing strong competition from no-frills airlines on short-haul routes, even for business traffic.

Routes within Europe still account for more than 28% of the world's premium traffic, so a drop there has a big impact on the worldwide numbers.

But IATA said premium traffic growth was disappointing on other key routes, such as Europe-Far East and North Atlantic.

IATA did note that the higher growth rate for premium traffic compared with economy-class traffic on transpacific routes "suggests that there may still be some boost to business-related traffic on these routes as investment and trade links increase."

IATA spokesman Steve Lott also noted that most economists were predicting a re-acceleration in economic growth in the second half of the year, which should provide a boost for premium traffic. But he cautioned that the expectation, while reasonable, "cannot be guaranteed."

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