Analysis: Travel growth hindered as uncertainty persists

The Hokey Cokey dance over the Strait of Hormuz that the US-Iran ‘peace talks’ have become might be entertaining were the situation not so serious. 

The latest turn of events, which saw President Trump rein in Israel’s assault on Lebanon after Iran threatened to end all talks through intermediaries, at least showed a willingness not to make things worse after the US and Iran traded strikes on Monday and sent oil prices rising again. 

This came after a White House meeting supposedly to sign off on a ceasefire extension and basis for further talks failed to agree anything. Trump’s subsequent exhortation to “just sit back and relax, it will all work out well in the end” did not suggest a President with a grip on events or grasp of the situation.

As we entered the fourth month of the confrontation and ninth week of a ‘ceasefire’ with the Strait of Hormuz still closed, the evidence suggests travel and consumer demand for it remain resilient but hardly robust.

Iata data for April showed a mere 3.4% fall in global air passenger traffic year on year and 5.3% fall in international traffic, but with international demand up almost 2% excluding the Middle East which saw a 48% decline.

The halving of traffic via the region is striking given Emirates resumed services on most of its network from April and the ceasefire from April 8 saw Qatar Airways and Etihad also substantially restore their flying. 

The Iata figures show the Gulf carriers’ recovery remained limited in April and only 12 percentage points better than in March when for a time the airlines were wholly shutdown.

European carriers recorded a 0.9% rise in international traffic in April, ahead of a 0.4% increase in capacity. However, growth has stalled. Looking to May, Iata noted: “The May recovery anticipated in our March analysis has not materialised.” 

The strong growth in direct routes to Asia in March, spurred by the Middle East shutdown, has also moderated. Iata reported “strong double-digit growth” of 15% year on year in Europe-Asia traffic, but this was down from 29% in March.

The association now expects just 0.2% capacity growth year on year in June, with director general Willie Walsh noting: “Forward schedule data is showing a reduced offering in the coming months, indicating airlines are balancing high fuel costs and weaker demand.”

The economic outlook appears similarly pallid. Deloitte UK’s new chief economist Debapratim De noted the full impact on inflation of the war “is yet to be felt” and warned: “Inflation will rise as UK consumers are gradually exposed to the effects of [the] energy shock.” 

Yet the impact of this energy shock should be different from that of 2022, De suggested, because “underlying momentum remains weak [and] consumer confidence and demand remain subdued”.

In other words, things are not great but they could be worse.