The International Air Transport Association (IATA) is reporting that the second half of 2012 began with further signs of weakness in air travel markets. The number of passengers buying premium seats on international markets has contracted, decreasing by 0.5 percent in July compared to the same month last year, after expanding by 4.3 percent in June. The size of the economy class market was 3 percent larger in July compared to a year ago, but significantly down from June’s growth of 6.2 percent.

IATA said these growth rates were likely affected by the start of Ramadan in late July, which commenced a month earlier than in 2011. It said it expects air travel growth would have been about a percentage point higher in July without the impact of the holiday. Nevertheless, after signs of faster growth early in 2012, the expansion in premium travel has now clearly flattened out, according to IATA. The premium market made no progress in July compared to June, with growth in passenger numbers staying flat over the month. Moreover, the number of premium passengers in July is only 1 percent higher than it was in January.

IATA said a decline in business confidence and the slowdown of world trade are likely to have reduced premium class travel in recent months. Business confidence has reversed the upward movement seen earlier in the year, declining for the past four months. Growth in world trade has also slowed, with declines in both European imports and exports standing out in the second quarter. In fact, the primary source of the slowing growth trend is weakness in European markets. The trend seen over the last several months continues in July, with premium travel within Europe and across the North Atlantic showing persistent weakness, contracting 3.5 percent and 2.4 percent, respectively, compared to a year ago. Premium travel on the Europe-Far East route, which had been showing solid growth over recent months, has recorded particularly weak growth in July, increasing only 1 percent compared to a year ago.

Air travel markets elsewhere expanded overall, but there was slower growth on some routes in July compared to June. The weight of the economic problems in Europe is starting to dampen demand in other regions, with U.S. and Chinese consumer confidence weakening in recent months. Premium travel across the North and mid-Pacific, which had been averaging near double-digit growth throughout the first half of 2012, increased just 2.9 percent in July.

In the coming months, the degree of weakness in air travel, particularly in premium markets, is likely to intensify as business confidence signals decline and conditions in Europe remain bleak. There is also the possibility that weakness in Europe could spread to other markets, given early signs of softness in July on some air routes.