Air travel is picking up as the global economy improves

Jo-Wilfried Tsonga and Gael Monfils going for a spin. Clive Brunskill/Getty Images for IPTL 2014

If recent manufacturing and services PMI’s are anything to go by, it appears that the global economy is strengthening in early 2017.

Most major economies — including the Eurozone, United States and China — are seeing activity levels continue to improve, adding to optimism that global economic conditions, as a whole, are also strengthening.

And it’s not just the PMI’s that say the global economy is on the mend. Global air travel rose strongly in 2016, especially in the second half of the year.

According to figures released by the International Air Transport Association (IATA), industry-wide revenue passenger kilometres (RPKs) increased by 8.8%, year-on-year, in December, up from 7.8% in November, leaving growth at the highest level in 10 months.

Revenue passenger kilometers (RPKs) is a measure of passenger traffic, and is calculated by multiplying the number of fare-paying passengers by the distance travelled.

Growth in international air travel jumped by 9.7% year-on-year in RPK terms, outpacing that for domestic air travel which grew at a slower 7.1%.

While total RPKs increased by 6.3% last year (or 6.0% accounting for the leap year), down from the 7.1% growth seen a year earlier, it was still well ahead of the average annual growth rate seen in the past decade of 5.5%.

And, according to IATA, had it not been for a slow start to the year, the annual growth rate in 2016 would have been significantly higher.

“The second half of the year saw an acceleration in the seasonally adjusted passenger trend, with RPKs growing at an annualised pace of nearly 9% between June and December,” it said. “This pick-up reflected a combination of passengers adjusting to the uncertain environment as well as a moderate upturn in the global economic cycle.”

Over the year, RPKs for international travel grew by 6.7% while those for domestic travel grew by a smaller 5.7%.

And, as seen in the chart below, all regions saw international passenger traffic grow last year, led by the Middle East, Asia-Pacific, Africa and Latin America.

Source: IATA

And, here’s the same chart, but only for domestic travel. The growth figures for India and China are not only phenomenal, they’re accelerating.

Source: IATA

Looking ahead, IATA says the strength of the economic cycle will play a key role in determining whether the acceleration in passenger growth in the second half of of last year will continue in 2017.

It also says that with recent strength in crude prices, the biggest stimulus to demand from lower airfares may have already passed.

Front-month Brent crude futures currently sit at $US56.74 a barrel, and have gained 110% from the lows seen in January 2016.

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