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Record international airline passengers

Consumer views on the economy hit 2½-year lows
International aviation; Consumer sentiment

International air traffic: International scheduled passenger traffic through Australian airports increased from 40.619 million in 2017/18 to a record-high 42.121 million in 2018/19. But the 3.7 per cent increase was the slowest annual growth rate since the 1.0 per cent lift in 2008/09.

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.1 per cent to 110.4 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.

Consumer views on current economic conditions: The measure of economic conditions over the next 12 months (‘current economic conditions’) fell by 4 per cent to -7.9 points – the lowest level in 2½ years.

Aviation activity data is important for airlines and hotels. Chinese data have implications for the currency markets and therefore exporters and importers. The consumer confidence figures have implications for retailers and other consumer-focussed businesses.

What does it all mean?

• A record 42.1 million international airline passengers passed through Aussie airport terminals over the year to June. The weaker value of the Aussie dollar against the greenback is luring ever more tourists ‘Down Under’. Australia remains a highly sought-after tourist destination and international carriers and Aussie tour operators are benefiting.

• Tourism Australia’s $10 million “UnDiscover Australia” campaign in South and South-East Asia, launched last year, has been a huge success. In fact, a record-high 211,100 Indonesian tourists ventured to Australia over the 12 months to June, according to the Bureau of Statistics. And the annual growth rate of international airline passengers heading south to Australia from Indonesian airports rose by 10.7 per cent to 3.2 million in 2018/19 – the strongest pace across all ‘discharge’ countries.

• That said, annual airline passenger growth from China to Australia slowed from 22.4 per cent in 2017/18 to 6.0 per cent in 2018/19 – putting a handbrake on overall passenger growth – the weakest since the GFC. Despite this, a still-healthy 3.6 million airline passengers reached Aussie international airports from mainland China over the year to June.

• The mood of Aussie consumers dimmed last week. The Aussie sharemarket (S&P/ASX200 index) lifted by 1.3 per cent as trade optimism and solid US earnings reports boosted risk appetite. And CoreLogic’s daily home value index for the five major capital cities lifted over the week by a further 0.3 per cent, led by a 0.6 per cent gain in Melbourne home prices. But Aussies appear to ignoring the broader so-called ‘wealth effect’ at the moment, instead choosing to focus on their own personal circumstances.

• Sentiment towards personal finances has improved following mortgage rate cuts and tax relief. But to borrow a well-used phrase: “It’s the economy stupid”. Interest rates have been cut to record lows for a reason: the Aussie economy grew at its slowest annual growth rate in close to a decade in the June quarter. Most consumers are well aware of this and are exercising some caution in their discretionary spending as a result.

What do the figures show?

International air traffic – 2018/19

• According to the Bureau of Infrastructure, Transport and Regional Economics (BITRE) international scheduled airline passenger traffic in 2018/19 was 42.121 million compared to 40.619 million in 2017/18 – an increase of 3.7 per cent, but the slowest annual growth rate since the 1.0 per cent lift in 2008/09.

• Sixty-three international scheduled airlines operated services to/from Australia during 2018/19.

• Total seats made available on international scheduled operations to/from Australia in 2018/19 were 53.863 million – an increase of 1.8 per cent from 2017/18. Overall seat utilisation increased from 79.6 per cent in 2017/18 to 80.4 per cent in 2018/19.

• Of the major Australian airports, seat utilisation in 2018/19 was highest at Melbourne at 81.7 per cent, followed by Sydney at 81.3 per cent, Gold Coast at 79.4 per cent, Perth and Brisbane at 78.8 per cent and Adelaide at 78.4 per cent.

• In 2018/19, 14.5 per cent of the passenger movements to/from Australia were either to/from or via Singapore. Auckland was the next largest hub accounting for 11.2 per cent, followed by Denpasar (6.9 per cent), Hong Kong (6.7 per cent) and Dubai (5.5 per cent).

• In 2018/19, Qantas Airways had the largest share of the market with 17.4 per cent, followed by Jetstar with 8.6 per cent, Singapore Airlines with 8.2 per cent, Emirates with 7.3 per cent and Air New Zealand with 6.8 per cent.

• The share of international passenger traffic accounted for by Australian designated airlines decreased to 32.5 per cent in 2018/19 from 32.7 per cent in 2008/09, but lifted from 29.8 per cent in 2013/14.

• Low cost carriers, AirAsia X, Cebu Pacific Air, Indonesia AirAsia, Jetstar, Jetstar Asia, Scoot Tigerair and Thai AirAsia X accounted for 14.5 per cent of total international passenger traffic in 2018/19. The low cost carriers’ share in 2017/18 was 15.9 per cent.

• The number of travellers from Indonesian airports grew by 10.7 per cent to 3,249,600 people in 2018/19 – the fastest growth rate of all ‘discharge’ countries.

Consumer Sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.1 per cent to 110.4 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points held since 1990.

• Three of the five major components of the index fell last week:

The estimate of family finances compared with a year ago was up from +7.1 points to +12.5 points;

The estimate of family finances over the next year was up from +24.0 points to +24.5 points;

Economic conditions over the next 12 months was down from -4.1 points to -7.9 points;

Economic conditions over the next 5 years was down from +2.9 points to -1.0 point;

The measure of whether it was a good time to buy a major household item was down from +28.1 points to +23.9 points.

• The measure of inflation expectations fell from 4.1 per cent to 3.9 per cent.

What is the importance of the economic data?

• 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.

• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

What are the implications for interest rates and investors?

• Aussie consumers remain wary about outlays on ‘big-ticket’ items. Online sales events in the next few weeks could encourage shoppers to part with their ‘hard-earned’ coin ahead of the Christmas-New Year holiday period. And last weekend’s heatwave may have seen increased shoppers seeking shelter at malls. But quarterly electricity and gas bills are due and unleaded petrol prices are hovering near 12-month highs. And wages growth is tepid and mortgage debt is elevated, restraining consumer spending.

• In a positive development, supermarket giant Coles announced a better-than-expected sales result for the first quarter of the new 2020 financial year. Supermarket sales lifted by 1.6 per cent over the year to $7.71 billion. Total sales were up by 1.8 per cent, but same store sales rose by just 0.1 per cent in the quarter – the weakest growth rate in 12 years. Online sales were up 23.5 per cent.

• Coles also reported that the drought gripping Australia contributed to price inflation of 1.4 per cent in the first quarter of the 2020 financial year – something to look out for in tomorrow’s September quarter Consumer Price Index release.

• Commonwealth Bank Group economists expect another interest rate cut in February 2020.

Published by Ryan Felsman, Senior Economist, CommSec