Record number take to the air

Air Travel; Reserve Bank speech

• Domestic air travel. In the year to May a record 59.17 million passengers flew on domestic air routes, up 1.6 per cent on a year ago.
• Sydney-Melbourne route. A record 8.94 million people travelled on the Sydney-Melbourne air route over the year to May. The load factor hit a record high of 83.8 per cent
• Reserve Bank clarification. The Reserve Bank Deputy Governor has played down the importance of recent Board discussions on the “neutral cash rate”

What does it all mean?

• More people are flying but this hasn’t been matched by a lift in the number of flights. This means that airlines have improved efficiency by utilising a greater share of airline seats rather than putting on extra flights. So load factors are at record highs.
• The lift in passenger numbers is clearly positive for tourism-dependent businesses and regions. And the improved efficiency in managing the greater numbers of air travellers is positive for airlines
• The Reserve Bank Deputy Governor Guy Debelle has provided some explanation about the recent Board discussion on the “neutral cash rate”.
• Debelle noted “There was a discussion of the neutral rate at the most recent Board meeting, as detailed in the minutes of the meeting released earlier this week. No significance should be read into the fact the neutral rate was discussed at this particular meeting. Most meetings, the Board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate.”

What do the figures show?

• Domestic Passengers: The Bureau of Infrastructure, Transport and Regional Economics (BITRE) reports “There were 4.96 million passengers carried on Australian domestic commercial aviation (including charter operations) in May 2017, an increase of 1.8 per cent on May 2016. For the month of May 2017 there were 57,021 aircraft trips, an increase of 0.8 per cent compared with May 2016.”
• For the year ending May 2017 there were 59.17 million passengers on domestic routes, an increase of 1.6 per cent on the year ending May 2016.
• Load factor: In May 2017 the BITRE reported that the load factor on planes operated by domestic and regional airlines was 77.1 per cent, the highest May result for over 24 years. The moving annual average load factor in May was 78.4 per cent – the highest result in five years.
• Sydney-Melbourne route: The Sydney-Melbourne route is the third or fourth busiest air route in the world and a key measure of business activity in Australia.
• In the year to May 2017, there were 59,439 flights between Sydney and Melbourne, down 0.8 per cent on a year ago. And in the year to May, passenger numbers hit a record high of 8.94 million, up 2 per cent on a year ago but equalling the slowest growth in just over two years.
• The drop in the number of flights between Sydney and Melbourne has led to a lift in the moving annual load factor to a record high of 83.8 per cent.
• Passenger trends: “In May 2017, the greatest percentage increase in passenger numbers, compared to May 2016, was on the Brisbane – Proserpine route (up 14.2 per cent). There were large increases on a number of other routes, including Canberra – Melbourne (up 12.1 per cent), Sydney – Tamworth (up 10.5 per cent) and Brisbane – Moranbah (up 9.2 per cent). Routes with traffic decreases in May 2017 compared with May 2016 included Hamilton Island – Sydney (down 36.1 per cent), Brisbane – Gladstone (down 18.6 per cent), Brisbane – Hamilton Island (down 17.5 per cent) and Karratha – Perth (down 13.2 per cent).”
• Cargo: In the year to May a record 446,992 tonnes of cargo were carried on domestic flights, up 16 per cent on a year ago. Annual growth of cargo has been at double-digit rates in the past nine months.

Why is the data important?

• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases regular aviation data. The BITRE releases the Australian Domestic Airline Activity publication each month as well as the Domestic Air Fares publication. The data provides insights on airline activity as well as trends in the broader Australian economy. If more people are flying, then it suggests businesses are more active and/or consumers are more confident.

What are the implications?

• The latest data on domestic aviation activity is further evidence that the economy is doing well. Certainly the travel and tourism sectors have become more important over time in influencing spending trends and overall economic activity. And the record number of business people travelling between Sydney and Melbourne further highlights the good conditions being experienced by Corporate Australia.
• And it is not just passenger numbers that have been rising, annual growth rates of cargo carried on flights are also indicative of a healthy economy – especially showing the growth in online spending.
• Was there more to the recent discussion of the “neutral cash rate” by Reserve Bank Board members? There is always a softening up process to ensure that consumers and businesses are ready for future rate changes. There is also value in “jawboning”. The mere suggestion that rates could rise in the future could cause people to change behaviour without the Reserve Bank actually touching rates.
• CommSec doesn’t expect a rate change in the short term. But clearly rate cuts are off the table. Now it is a case of working out how fast the Reserve Bank can run the economy, thus creating more jobs, before the Reserve Bank has to contemplate touching rates.
• Rather than fretting about rate cuts, Aussies are starting to switch attention to future rate hikes. This is clearly positive as it shows that the time for “emergency” level cash rates is coming to an end.