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Speaker 1: Welcome to the Bloomberg Daybreak Asia podcast. I'm Charlie Paladin

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Speaker 1: for Dunk Christmer. This week, on today's episode, we'll take

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Speaker 1: a deep dive into the state of air travel in Asia.

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Speaker 1: We'll be joined by Danny Lee, Bloomberg aviation reporter out

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Speaker 1: of Hong Kong. But first, Asian markets aren't digesting Monday's

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Speaker 1: FED speak from Governor Chris Waller.

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Speaker 2: At present, I lean towards supporting a cut to the

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Speaker 2: policy rate at our December meeting. That decision will depend

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Speaker 2: on whether data that we received before then surprises to

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Speaker 2: the upside and alters my forecast for the path of inflation.

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Speaker 1: And for more, we heard from Audrey go, a head

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Speaker 1: of asset allocation at Standard Chartered Wealth Management Group, and

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Speaker 1: she spoke with Bloomberg's sharing on and Heidi Stroud Watts.

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Speaker 3: Audrey, great to have you with us. What does this

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Speaker 3: mean for the equity markets in the US, Because we

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Speaker 3: have all of these expectations of rate cuts to come,

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Speaker 3: but given the inflationary outlook as well, could we see

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Speaker 3: some pullback if those easing bets are not necessarily realized

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Speaker 3: in twenty twenty five.

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Speaker 2: Well, our expectation is we still remain quite pro risk

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Speaker 2: going into twenty twenty five. If you look at the

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Speaker 2: easing cycle by central bank, by the end of this year,

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Speaker 2: we probably get close to eighty percent of global central

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Speaker 2: bank on some major easing mode, and that's going to

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Speaker 2: provide fresh sort of impetus supporting economic growth and liquidity

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Speaker 2: and of course extending the business like and corporate earnings.

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Speaker 2: So we continue to be quite pro risk on the

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Speaker 2: back of that. With it always on US equities going

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Speaker 2: into twenty twenty five, and you.

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Speaker 3: Expect our performance by stocks instead of bonds and cash.

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Speaker 2: Yes, certainly we do expect US stocks to continue to

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Speaker 2: deliver our performance versus bonds and cash, and then bonds

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Speaker 2: of course to outperform cash as well. I think corporate

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Speaker 2: earnings is really buy key. So if you look at

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Speaker 2: the overall US earnings expectation, we're expecting around me teams

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Speaker 2: about fifteen percent there about going to next year, and

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Speaker 2: together with fat easing, that's going to provide some support

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Speaker 2: to to multiple expand multiple ex well. Obviously, the carbiate

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Speaker 2: period is that you know if we will to see

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Speaker 2: a researchers and inflation which is not on base case

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Speaker 2: for the time being, but certainly a risk for us

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Speaker 2: to monitor given that overall, you know, even with the

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Speaker 2: last couple of months of cuts, for example, inflation has

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Speaker 2: been on measure downward path, but remain quite resilient. And

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Speaker 2: if you look at it, you know where qulbum faces

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Speaker 2: to above two percent, the areabouts, which is which is

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Speaker 2: clearly still some way away from Fat's targets rate.

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Speaker 4: How does the fiscal policy picture, the trade policy picture

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Speaker 4: potentially change that or endanger that outlook.

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Speaker 2: I think the sequencing of how the Trump administration will

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Speaker 2: pursue their policy will be quite key to watch, given

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Speaker 2: that he has made clear intention in terms of trade

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Speaker 2: hardists on the rest of the world and China as well.

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Speaker 2: At the same time, on the positive side, he's also

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Speaker 2: pursuing the lives of deregulations and text cards, So sequencing matters,

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Speaker 2: and our expectation is we are likely to see maybe

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Speaker 2: text cluds to be a bit more backroad loaded because

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Speaker 2: you need more congressional approver So in the meantime, you know,

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Speaker 2: the starting point of sixty percent howiff on China and

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Speaker 2: ten or twenty percent on the rest of the world,

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Speaker 2: it's probably a starting point for a negotiation with lightly

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Speaker 2: our base cases. We're likely to see more faced approach

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Speaker 2: now now that Scott Besont has been nominated to be

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Speaker 2: the Treasury Secretary as well, So on the back of that,

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Speaker 2: I think, which is why we continue to be quite

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Speaker 2: a bit of a pro risk in terms of a

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Speaker 2: risk upetite going to twenty twenty five. But obviously the

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Speaker 2: key wait still remains the US.

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Speaker 4: When it comes to age. Where do you see the

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Speaker 4: opportunity is there? Particularly it seems like the Chinese recovery

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Speaker 4: could really kind of be a longhold story, particularly if

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Speaker 4: there's more pressure coming from external sources like the US

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Speaker 4: on the trade front.

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Speaker 2: So we are a bit more selective where the Chinese

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Speaker 2: stock markets are concerned. I think here we prefer to

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Speaker 2: take a barber approach, focusing on high quality stocks, non

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Speaker 2: financial so is that pays dividends, but it really pays

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Speaker 2: you to weigh out for eventric growth recovery, which we

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Speaker 2: expect to come true, but potentially a bit more gradually

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Speaker 2: since we've been seeing sort of bite size stimulus being

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Speaker 2: released in trips by the Chinese authorities as well, and

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Speaker 2: the same time we will pair that with maybe a

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Speaker 2: sector which is a bit more high beta, for example,

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Speaker 2: in the technology sector, which we continue to expect China

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Speaker 2: to focus their attention on given their need and wish

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Speaker 2: for self sufficiency, especially with regards to advanced manufacturing.

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Speaker 3: Given the challenges for China and sort of US exceptionalism

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Speaker 3: when it comes to market performance economic performance, are we

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Speaker 3: expecting more pressure on the Chinese yuan and what would

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Speaker 3: it mean also for other Asian currencies like the Japanese yen.

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Speaker 2: So that's clearly a key risk factor to be watching

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Speaker 2: out for, because if you look at the previous episode

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Speaker 2: in back in twenty eighteen and twenty nineteen when terrorist

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Speaker 2: was first imposed on China, we did see a almost

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Speaker 2: ten percent depreciation when it comes to the remedy, and

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Speaker 2: clearly with one use no recturing to record lows in

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Speaker 2: the Chinese Chinese government bond space. That is also less

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Speaker 2: of a supportive factor where it comes to bean strength.

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Speaker 2: So going to next year, I think we do see

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Speaker 2: downside risk where it comes to our Chinese run and

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Speaker 2: as and when the tariff rhetorics get reached up, I

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Speaker 2: think we probably see you know, the un maybe weakening

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Speaker 2: at the margin as well. I think if you think

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Speaker 2: about yen for that matter, I think Yen is probably

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Speaker 2: the other spectrum where you know, the BILJ is one

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Speaker 2: of the only major central bank expected to high interest

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Speaker 2: rate for the maybe potentially in the upcoming A century meeting,

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Speaker 2: as well as over the coast of twenty twenty five

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Speaker 2: as well. So our expectation is if you look at

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Speaker 2: the inflation witch growth picture in Japan, for example, the

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Speaker 2: appropriate at a stage where it is proven to continue

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Speaker 2: normalizing policy because among the major economies, the Japan still

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Speaker 2: has one of the lowest real interest rate across the board.

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Speaker 2: And that's and that's against the context of only which

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Speaker 2: has been having inflation running up of two percent for

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Speaker 2: the last one and a half years.

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Speaker 4: Pudrick ahead of asset allocation. As Dana chatted Wealth Management Group.

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Speaker 4: Really great to have you with us.

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Speaker 1: Welcome back to the Bloomberg Daybreak Asia podcast. I'm Charlie

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Speaker 1: Palette filling in for Doug Crismer. This week, we wanted

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Speaker 1: to explore the state of air travel in the Asia

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Speaker 1: Pacific region and joining us for a closer look now

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Speaker 1: Danny Lee, who is Bloomberg Aviation reporter in Hong Kong.

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Speaker 1: First of all, what is the outlook for airfares in

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Speaker 1: the Asia Pacific region as we head into the new year.

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Speaker 5: So Asia, we'll see some of the biggest fare increases

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Speaker 5: across the world, very much above inflationary. We're seeing up

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Speaker 5: to twelve percent being estimated by an EXGBT between Asia

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Speaker 5: and the rest of the world, particularly an economy class,

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Speaker 5: and that's a big jump around six percent increase in

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Speaker 5: business class either way, no matter how you look, it's

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Speaker 5: going to be substantial. And if you look at travel

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Speaker 5: within Asia, says will fall slightly, so it's a small

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Speaker 5: piece of comfort, but those fares are going to be

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Speaker 5: a lot higher than anywhere else in the world. And

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Speaker 5: the reason why that is it's because airfares the travel

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Speaker 5: recovery has been a lot slower than anywhere else post COVID.

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Speaker 1: What about delays in getting new planes from either Boeing

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Speaker 1: or Airbus, How is that playing into Asian carriers' ability

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Speaker 1: to keep flying people and ultimately hold fares down.

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Speaker 5: Yeah, I think the plane delays is a new plane

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Speaker 5: delays is a big frustration for any airline CEO you

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Speaker 5: speak to, and it's whether you are a Cafe Pacific

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Speaker 5: or of your Southwest Airlines or United even to a rhine.

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Speaker 5: There's been little discrimination in where these delays have impacted

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Speaker 5: any airline in all corners of the globe, and so

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Speaker 5: it's significant because airlines are really keen to keep growing

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Speaker 5: and respond to the demand and the appetite out there

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Speaker 5: to travel, which has really not slowed down post COVID.

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Speaker 5: So there is a frustration there that airlines who have

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Speaker 5: been betting on on fulfilling that demand and obviously to

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Speaker 5: increase their profitability, are not able to do so, and

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Speaker 5: so therefore it is hampering growth wherever you look around

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Speaker 5: the world, and that has a knock on effect, particularly

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Speaker 5: as airlines try to retire older planes. They can't do that,

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Speaker 5: They sticking to keeping those older, more fuel hungry planes

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Speaker 5: for a lot longer now because of the uncertainty in

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Speaker 5: planes being delivered by both Boeing and Airbus.

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Speaker 1: Danny, is there any estimate from either analysts that you

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Speaker 1: talk to, or airline executives or other people in the

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Speaker 1: industry when we might see a full return to the

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Speaker 1: Asian airline market that we saw pre COVID.

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Speaker 5: We are just about seeing a recovery, a full recovery

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Speaker 5: in Asia of the travel market. It has taken a

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Speaker 5: while because of the slow reopening of Asia being much

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Speaker 5: more cautious post COVID. So it is a good sign

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Speaker 5: that we are seeing that full recovery come into play,

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Speaker 5: But are people feeling the necessarily the fall in airfares.

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Speaker 5: Airfares are still quite high, and given what we have

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Speaker 5: seen around the world, airlines have started to adjust for

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Speaker 5: that slower and lower levels of profitability. But then there

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Speaker 5: is still to complaint from consumers that fares are still

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Speaker 5: quite high. So, no matter how you look about full recovery,

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Speaker 5: if people are still feeling like they're paying more, it's

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Speaker 5: still a frustration. But it's not necessarily to bring anyone

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Speaker 5: from traveling right now.

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Speaker 1: Globally, then what is the outlook for pricing, either business

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Speaker 1: or leisure?

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Speaker 5: I think for the rest of the world for pricing

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Speaker 5: it's actually rather better outlook. If you're in North America

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Speaker 5: in Europe, for example, are some of the biggest mature

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Speaker 5: travel markets where you can fly short distances. In particular,

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Speaker 5: they are going to see we're going to see increases

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Speaker 5: of around two percent in some cases on average in

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Speaker 5: both North America and Europe. Where you're traveling domestically, or

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Speaker 5: if you're traveling just across the border. That's broadly in

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Speaker 5: line with the inflation trend. However, when you still look

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Speaker 5: at individual prices and what people are having to pay

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Speaker 5: when they book their flights, it still feels quite expensive.

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Speaker 5: And we have seen that trend of where people are

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Speaker 5: booking their flights. We've seen this in the Bureau of

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Speaker 5: Labor Statistics. Prices still feel very high, substantially higher than

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Speaker 5: pre COVID levels. And so even if these increases we

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Speaker 5: are going to see of seeing small single digits, it

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Speaker 5: will be a small crumb of comfort where increases have

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Speaker 5: really taken effect in a substantial way over the past

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Speaker 5: several months.

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Speaker 1: Now, where does this leave companies then, who are trying

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Speaker 1: to negotiate travel deals with the airlines, Because ultimately, isn't

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Speaker 1: this a game of chicken, Because there's a four letter

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Speaker 1: word and that is zoom. At what point do corporations

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Speaker 1: start to balk.

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Speaker 5: We have seen corporations become much more disciplined around how

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Speaker 5: much they are willing to spend on what they see

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Speaker 5: is discretionary items such as travel such as business travel.

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Speaker 5: I still think for airlines who have been waiting to

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Speaker 5: see if there will be a full recovery post COVID

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Speaker 5: of the corporate travel sector, something that's very important to profitability.

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Speaker 5: It's probably still not likely to come back anytime soon.

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Speaker 5: And we have seen over the increasing months many multinational

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Speaker 5: companies talk about traveling less, increasing their number of meetings

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Speaker 5: over zoom do not spend anything unnecessarily that you wouldn't

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Speaker 5: have to, So there is that belt tightening in effect.

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Speaker 5: And given the uncertainty in twenty twenty five, whether it

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Speaker 5: be geopolitics, tariffs, you know, all these different uncertainties in

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Speaker 5: the world, and airlines of companies generally are being more

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Speaker 5: prudent about how much they're willing to allocate and spending

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Speaker 5: and we are seeing that likely to come into effect

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Speaker 5: when they negotiate deals of airlines for twenty twenty five.

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Speaker 1: And what does the MXGBT survey tell us about pricing

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Speaker 1: in the United States.

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Speaker 5: The survey by x GBT does show that in North

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Speaker 5: America we will see increases largely in line with inflation

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Speaker 5: of around two point eight percent and economy class two

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Speaker 5: point seven percent. In business class, it's still you know,

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Speaker 5: running towards a higher end of what we see as

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Speaker 5: an inflation target, closer to more two percent, which is

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Speaker 5: more ideal, even though for North America and South America

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Speaker 5: that's going to see a bigger fall in pricing, is

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Speaker 5: what MXGBT ISS four. I think, particularly in the economy

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Speaker 5: class eight percent lower in twenty twenty five. Again, will

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Speaker 5: consumers feel that and see that in their ticket pricing.

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Speaker 5: That remains to be seen, but clearly there is going

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Speaker 5: to be a subdued increase in pricing overall, and particularly

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Speaker 5: between North America and Europe that's going to be seeing

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Speaker 5: a very small increase overall in pricing. So it's a

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Speaker 5: broadly a good news story. If you're living in North America,

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Speaker 5: you know in some of the biggest markets where consumers

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Speaker 5: US consumers particularly are traveling, it will be small increases

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Speaker 5: across the board rather than no increases or a decrease.

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Speaker 1: And then finally, are there any other surprises that come

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Speaker 1: from the AMC survey.

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Speaker 5: I think when you look at the survey in isolation,

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Speaker 5: these small increase in some of the major markets is

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Speaker 5: broadly good news. But when you look in the totality

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Speaker 5: over the recent years, I think there will still be

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Speaker 5: a bit of a shock for consumers for flyers out

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Speaker 5: there that when you add up all the increases going

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Speaker 5: back to twenty twenty two twenty twenty three, we are

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Speaker 5: probably back at post COVID highs when it comes to

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Speaker 5: the benchmarking of airfare pricing. So even if we did

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Speaker 5: see decreases across the board last year, or even rather

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Speaker 5: this year, those prices have crept back up again and

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Speaker 5: erased those those decreases we've seen previously. So even if

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Speaker 5: this is a people are thinking about booking for twenty

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Speaker 5: twenty five and thinking great smaller increases across the board,

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Speaker 5: we are creeping back up to certainly high levels of

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Speaker 5: airfares once again.

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Speaker 1: Danny, we thank you so much for your time, and

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Speaker 1: that is Danny Lee, Bloomberg Aviation Reporter, joining us from

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Speaker 1: Hong Kong. Thanks for listening to today's episode of the

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Speaker 1: Bloomberg day Break Asia Edition podcast. Each weekday we look

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Speaker 1: at the story shaping markets, finance, and geopolitics in the

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Speaker 1: Asia Pacific. You can find us on Apple, Spotify, the

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Speaker 1: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

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Speaker 1: us again tomorrow for insight on the market moves from

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Speaker 1: Hong Kong to Singapore and Australia. I'm Doug Chrisner, and

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Speaker 1: this is Bloomberg.