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Airfares slashed to lift passenger numbers

Overseas arrivals/departures; Air traffic; Airfares; Wages

This report looks into the detail of the economic data that was released yesterday.

Air travel flattens: In June, there were 4.71 million passengers on regular domestic flights, down 0.2 per cent on a year ago. Passenger numbers on the Sydney-Melbourne route were down 3.3 per cent.

Domestic airfares: Airfares can be volatile on a month-to-month basis. But the smoothed measure shows that business class airfares are falling at the fastest annual rate in 6½ years.

Tourism: Tourist arrivals fell by 3.0 per cent in June with departures down by 2.3 per cent. A record 9.34 million tourists came to Australia in 2018/19 with a record 11.23 million Aussies travelling abroad.

Record migration: The annual number of permanent and long-term overseas arrivals rose to a fresh record-high of 850,770 people, up by 5.2 per cent over the year to June.

Chinese tourism: China is the largest source of tourists to Australia. Over the past year a record 1,450,000 tourists came to Australia from China, up by 1.4 per cent on the year earlier.

Wages lift: In seasonally-adjusted terms, average weekly ordinary time earnings (AWOTE) rose by 3.1 per cent in the year to May – the fastest growth in six years. The average annual wage is $85,010.

Tourism data is important for airlines, hotels and booking agents. The wage data is important for consumer-focussed industries including retailers. The airfares data provides a guide on inflationary pressures as well as giving an insight into operating conditions for airlines.

What does it all mean?

• The Australian economy slowed in the first half of 2019. One factor was the global slowdown under the influence of the US-China trade war. The other was business and consumer caution ahead of the Federal Election. Since the Election, job ads have lifted together with employment and home prices. Consumer confidence has steadied.

• Now it’s a case of seeing what momentum is generated in the remaining months of 2019 and into 2020.Certainly rates have been cut, political uncertainty has been resolved, taxes have been cut and interest rates have been reduced.

• The good news is that there are some signs of firmer wage growth, although evidence is still patchy. We are also watching indicators such as domestic air travel – especially the key Sydney-Melbourne business route. Traffic on the route has slowed over 2019. Latest data is June, so it is still early days in detecting a pick-up in passenger numbers.

• Airlines have been cutting fares in recent months to generate more traffic and the focus has been on slashing business class fares. Business class fares are falling at the fastest annual rate in over six years.

What do the figures show?
Domestic airfares

• Business class airfares fell by 13 per cent in August. Business class airfares are down 21.1 per cent on a year ago – falling at the fastest annual rate in 6½ years. In smoothed terms, business class airfares fell by 2.7 per cent in August to be down 15.6 per cent on the year.

• Discount airfares are volatile month-to-month. In August, fares fell by 4.3 per cent. Discount airfares are down 4.5 per cent over the year to August. In smoothed terms, discount airfares fell by 1.8 per cent in August and were down 7.8 per cent on the year.

• Restricted economy airfares fell by 0.2 per cent in August. In smoothed terms, restricted economy fares were flat in August to be up by 4.1 per cent on the year.
Domestic aviation

• “There were 4.92 million passengers carried on Australian domestic commercial aviation (including charter operations) in June 2019, an increase of 0.1 per cent on June 2018.

• There were 4.71 million passengers carried on regular passenger transport (RPT) flights in June 2019, a decrease of 0.2 per cent on June 2018.

• For the year ending June 2019 there were 60.95 million RPT passengers, an increase of 0.3 per cent on 2017/18.

• RPT revenue passenger kilometres (RPKs) performed were 5.50 billion for the month, virtually the same as in June 2018. Capacity, measured by available seat kilometres (ASKs), increased by 0.4 per cent compared with June 2018 to a total of 7.03 billion. The industry wide load factor (RPKs/ASKs) decreased from 78.6 per cent in June 2018 to 78.3 per cent in June 2019. Load factors on individual routes decreased on 37 of the 65 RPT for which complete data is available in both years.”

• The load factor on the key Sydney-Melbourne air route eased from 85.4 per cent to 85.3 per cent in June. While still higher than a year ago (85.0 per cent), the share of seats occupied is down from record highs of 85.6 per cent in December 2018.

• In June, passenger numbers on the Sydney-Melbourne route were down 3.3 per cent on a year earlier. The rolling annual average stands at a 7-year low of -0.6 per cent.

Tourism

• Tourist arrivals fell by 3.0 per cent in June after rising by 6.3 per cent in May (the latter being biggest monthly lift in international visitors in two years). Arrivals are up 2.7 per cent on the year.

• Aussie tourist departures fell by 2.3 per cent in June after rising 5.8 per cent in May (the latter being the largest monthly increase in eight years). Departures are up 4.0 per cent on the year.

• In June, tourists from Greater China (China and Hong Kong) totalled 148,800 (mainland China 122,000; Hong Kong 26,800), ahead of New Zealand (117,200).

• China is the largest source of tourists to Australia. Over the past year 1,450,000 tourists came to Australia from China, up by 1.4 per cent on the year earlier.

• A record 371,700 Indian tourists travelled to Australia over the year to June, up by 11.0 per cent on a year ago.

• In June, there were record tourist inflows from the Netherlands, Vietnam, the Philippines, Singapore and India.

• And in the month of June a record number of Aussies travelled to Indonesia, Japan and Bangladesh,

Migration

• In June, there were 59,840 permanent and long-term arrivals in Australia. The annual number of permanent and long-term overseas arrivals rose to a fresh record-high of 850,770 people, up by 5.2 per cent over the year.

• In net terms (arrivals less departures) permanent and long-term overseas arrivals totalled 298,200 over the year to June, still below the record high of 353,480 in the year to April 2009.

Average weekly earnings

• In seasonally-adjusted terms, average weekly ordinary time earnings (AWOTE) rose by 3.1 per cent in the year to May, up from 2.3 per cent in the year to November.

• Ordinary time wages for full-time female workers rose by 3.6 per cent over the year with male wages up 3.0 per cent.

• Across States & Territories over the year to May: NSW (up 3.6 per cent); Victoria (up 4.1 per cent); Queensland (up 2.3 per cent); South Australia (up 1.8 per cent); Western Australia (up 2.3 per cent); Tasmania (up 3.0 per cent); Northern Territory (down 1.3 per cent); ACT (flat).

• The average wage in May 2019 was $85,010.

• Across states & territories, we have calculated average annual wages as follows: NSW $86,533, Victoria $83,803, Queensland $82,191, South Australia $76,721, Western Australia $92,602, Tasmania $73,824, Northern Territory $87,896 and ACT $94,193

• Wages rose most over the year in Administrative and Support Services (up 7.0 per cent), Professional, Scientific and Technical Services (up 5.3 per cent); and Financial and Insurance Services (up 5.0 per cent).

• Wages were weakest over the past year in Rental, Hiring and Real Estate Services (down 2.6 per cent); Transport, Postal and Warehousing (down 0.8 per cent) and Mining (down 0.7 per cent).

• The highest average annual wage can still be found in the Mining sector at $135,796 per year. Next highest is Information Media & Telecommunications ($103,553), and Finance & Insurance services ($103,267).

• The lowest average annual wage is obtained by workers in the Accommodation and food services sector ($60,445), followed by Retail trade ($62,405), “Other services” ($65,915) and Rental, Hiring and Real Estate Services ($73,720).

What is the importance of the economic data?

• The Australian Bureau of Statistics releases data on overseas arrivals and departures, produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.

• The ABS publishes the Average Weekly Earnings (AWE) series on a six-monthly basis. While the Wage Cost Index allows analysis of wage movements from quarter-to-quarter, the AWE series is best seen as a measure of actual dollar figures for wages. But average weekly earnings figures can be distorted by changes such as the relative growth of high-paid to low-paid jobs and the cashing out of bonuses in ordinary earnings.

• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases data on domestic and international aviation each month. The data is useful in tracking consumer spending and airline performance as well as broader economic activity.

What are the implications for interest rates and investors?

• There are a raft of indicators that can be used to assess the momentum of the Australian economy. Reserve Bank Governor Lowe thinks we have reached a gentle turning point. It is important to validate that assumption with each piece of new economic data.

• The record inflow of long-term arrivals to Australia will support activity and spending.

• Rate cuts remain on the agenda. The Commonwealth Bank Group tip quarter per cent rate cuts in November and February 2020.

Published by Craig James, Chief Economist, CommSec