Speaker 1: Welcome to the Bloomberg Daybreak Asia podcast. I'm Charlie Paladin
Speaker 1: for Dunk Christmer. This week, on today's episode, we'll take
Speaker 1: a deep dive into the state of air travel in Asia.
Speaker 1: We'll be joined by Danny Lee, Bloomberg aviation reporter out
Speaker 1: of Hong Kong. But first, Asian markets aren't digesting Monday's
Speaker 1: FED speak from Governor Chris Waller.
Speaker 2: At present, I lean towards supporting a cut to the
Speaker 2: policy rate at our December meeting. That decision will depend
Speaker 2: on whether data that we received before then surprises to
Speaker 2: the upside and alters my forecast for the path of inflation.
Speaker 1: And for more, we heard from Audrey go, a head
Speaker 1: of asset allocation at Standard Chartered Wealth Management Group, and
Speaker 1: she spoke with Bloomberg's sharing on and Heidi Stroud Watts.
Speaker 3: Audrey, great to have you with us. What does this
Speaker 3: mean for the equity markets in the US, Because we
Speaker 3: have all of these expectations of rate cuts to come,
Speaker 3: but given the inflationary outlook as well, could we see
Speaker 3: some pullback if those easing bets are not necessarily realized
Speaker 3: in twenty twenty five.
Speaker 2: Well, our expectation is we still remain quite pro risk
Speaker 2: going into twenty twenty five. If you look at the
Speaker 2: easing cycle by central bank, by the end of this year,
Speaker 2: we probably get close to eighty percent of global central
Speaker 2: bank on some major easing mode, and that's going to
Speaker 2: provide fresh sort of impetus supporting economic growth and liquidity
Speaker 2: and of course extending the business like and corporate earnings.
Speaker 2: So we continue to be quite pro risk on the
Speaker 2: back of that. With it always on US equities going
Speaker 2: into twenty twenty five, and you.
Speaker 3: Expect our performance by stocks instead of bonds and cash.
Speaker 2: Yes, certainly we do expect US stocks to continue to
Speaker 2: deliver our performance versus bonds and cash, and then bonds
Speaker 2: of course to outperform cash as well. I think corporate
Speaker 2: earnings is really buy key. So if you look at
Speaker 2: the overall US earnings expectation, we're expecting around me teams
Speaker 2: about fifteen percent there about going to next year, and
Speaker 2: together with fat easing, that's going to provide some support
Speaker 2: to to multiple expand multiple ex well. Obviously, the carbiate
Speaker 2: period is that you know if we will to see
Speaker 2: a researchers and inflation which is not on base case
Speaker 2: for the time being, but certainly a risk for us
Speaker 2: to monitor given that overall, you know, even with the
Speaker 2: last couple of months of cuts, for example, inflation has
Speaker 2: been on measure downward path, but remain quite resilient. And
Speaker 2: if you look at it, you know where qulbum faces
Speaker 2: to above two percent, the areabouts, which is which is
Speaker 2: clearly still some way away from Fat's targets rate.
Speaker 4: How does the fiscal policy picture, the trade policy picture
Speaker 4: potentially change that or endanger that outlook.
Speaker 2: I think the sequencing of how the Trump administration will
Speaker 2: pursue their policy will be quite key to watch, given
Speaker 2: that he has made clear intention in terms of trade
Speaker 2: hardists on the rest of the world and China as well.
Speaker 2: At the same time, on the positive side, he's also
Speaker 2: pursuing the lives of deregulations and text cards, So sequencing matters,
Speaker 2: and our expectation is we are likely to see maybe
Speaker 2: text cluds to be a bit more backroad loaded because
Speaker 2: you need more congressional approver So in the meantime, you know,
Speaker 2: the starting point of sixty percent howiff on China and
Speaker 2: ten or twenty percent on the rest of the world,
Speaker 2: it's probably a starting point for a negotiation with lightly
Speaker 2: our base cases. We're likely to see more faced approach
Speaker 2: now now that Scott Besont has been nominated to be
Speaker 2: the Treasury Secretary as well, So on the back of that,
Speaker 2: I think, which is why we continue to be quite
Speaker 2: a bit of a pro risk in terms of a
Speaker 2: risk upetite going to twenty twenty five. But obviously the
Speaker 2: key wait still remains the US.
Speaker 4: When it comes to age. Where do you see the
Speaker 4: opportunity is there? Particularly it seems like the Chinese recovery
Speaker 4: could really kind of be a longhold story, particularly if
Speaker 4: there's more pressure coming from external sources like the US
Speaker 4: on the trade front.
Speaker 2: So we are a bit more selective where the Chinese
Speaker 2: stock markets are concerned. I think here we prefer to
Speaker 2: take a barber approach, focusing on high quality stocks, non
Speaker 2: financial so is that pays dividends, but it really pays
Speaker 2: you to weigh out for eventric growth recovery, which we
Speaker 2: expect to come true, but potentially a bit more gradually
Speaker 2: since we've been seeing sort of bite size stimulus being
Speaker 2: released in trips by the Chinese authorities as well, and
Speaker 2: the same time we will pair that with maybe a
Speaker 2: sector which is a bit more high beta, for example,
Speaker 2: in the technology sector, which we continue to expect China
Speaker 2: to focus their attention on given their need and wish
Speaker 2: for self sufficiency, especially with regards to advanced manufacturing.
Speaker 3: Given the challenges for China and sort of US exceptionalism
Speaker 3: when it comes to market performance economic performance, are we
Speaker 3: expecting more pressure on the Chinese yuan and what would
Speaker 3: it mean also for other Asian currencies like the Japanese yen.
Speaker 2: So that's clearly a key risk factor to be watching
Speaker 2: out for, because if you look at the previous episode
Speaker 2: in back in twenty eighteen and twenty nineteen when terrorist
Speaker 2: was first imposed on China, we did see a almost
Speaker 2: ten percent depreciation when it comes to the remedy, and
Speaker 2: clearly with one use no recturing to record lows in
Speaker 2: the Chinese Chinese government bond space. That is also less
Speaker 2: of a supportive factor where it comes to bean strength.
Speaker 2: So going to next year, I think we do see
Speaker 2: downside risk where it comes to our Chinese run and
Speaker 2: as and when the tariff rhetorics get reached up, I
Speaker 2: think we probably see you know, the un maybe weakening
Speaker 2: at the margin as well. I think if you think
Speaker 2: about yen for that matter, I think Yen is probably
Speaker 2: the other spectrum where you know, the BILJ is one
Speaker 2: of the only major central bank expected to high interest
Speaker 2: rate for the maybe potentially in the upcoming A century meeting,
Speaker 2: as well as over the coast of twenty twenty five
Speaker 2: as well. So our expectation is if you look at
Speaker 2: the inflation witch growth picture in Japan, for example, the
Speaker 2: appropriate at a stage where it is proven to continue
Speaker 2: normalizing policy because among the major economies, the Japan still
Speaker 2: has one of the lowest real interest rate across the board.
Speaker 2: And that's and that's against the context of only which
Speaker 2: has been having inflation running up of two percent for
Speaker 2: the last one and a half years.
Speaker 4: Pudrick ahead of asset allocation. As Dana chatted Wealth Management Group.
Speaker 4: Really great to have you with us.
Speaker 1: Welcome back to the Bloomberg Daybreak Asia podcast. I'm Charlie
Speaker 1: Palette filling in for Doug Crismer. This week, we wanted
Speaker 1: to explore the state of air travel in the Asia
Speaker 1: Pacific region and joining us for a closer look now
Speaker 1: Danny Lee, who is Bloomberg Aviation reporter in Hong Kong.
Speaker 1: First of all, what is the outlook for airfares in
Speaker 1: the Asia Pacific region as we head into the new year.
Speaker 5: So Asia, we'll see some of the biggest fare increases
Speaker 5: across the world, very much above inflationary. We're seeing up
Speaker 5: to twelve percent being estimated by an EXGBT between Asia
Speaker 5: and the rest of the world, particularly an economy class,
Speaker 5: and that's a big jump around six percent increase in
Speaker 5: business class either way, no matter how you look, it's
Speaker 5: going to be substantial. And if you look at travel
Speaker 5: within Asia, says will fall slightly, so it's a small
Speaker 5: piece of comfort, but those fares are going to be
Speaker 5: a lot higher than anywhere else in the world. And
Speaker 5: the reason why that is it's because airfares the travel
Speaker 5: recovery has been a lot slower than anywhere else post COVID.
Speaker 1: What about delays in getting new planes from either Boeing
Speaker 1: or Airbus, How is that playing into Asian carriers' ability
Speaker 1: to keep flying people and ultimately hold fares down.
Speaker 5: Yeah, I think the plane delays is a new plane
Speaker 5: delays is a big frustration for any airline CEO you
Speaker 5: speak to, and it's whether you are a Cafe Pacific
Speaker 5: or of your Southwest Airlines or United even to a rhine.
Speaker 5: There's been little discrimination in where these delays have impacted
Speaker 5: any airline in all corners of the globe, and so
Speaker 5: it's significant because airlines are really keen to keep growing
Speaker 5: and respond to the demand and the appetite out there
Speaker 5: to travel, which has really not slowed down post COVID.
Speaker 5: So there is a frustration there that airlines who have
Speaker 5: been betting on on fulfilling that demand and obviously to
Speaker 5: increase their profitability, are not able to do so, and
Speaker 5: so therefore it is hampering growth wherever you look around
Speaker 5: the world, and that has a knock on effect, particularly
Speaker 5: as airlines try to retire older planes. They can't do that,
Speaker 5: They sticking to keeping those older, more fuel hungry planes
Speaker 5: for a lot longer now because of the uncertainty in
Speaker 5: planes being delivered by both Boeing and Airbus.
Speaker 1: Danny, is there any estimate from either analysts that you
Speaker 1: talk to, or airline executives or other people in the
Speaker 1: industry when we might see a full return to the
Speaker 1: Asian airline market that we saw pre COVID.
Speaker 5: We are just about seeing a recovery, a full recovery
Speaker 5: in Asia of the travel market. It has taken a
Speaker 5: while because of the slow reopening of Asia being much
Speaker 5: more cautious post COVID. So it is a good sign
Speaker 5: that we are seeing that full recovery come into play,
Speaker 5: But are people feeling the necessarily the fall in airfares.
Speaker 5: Airfares are still quite high, and given what we have
Speaker 5: seen around the world, airlines have started to adjust for
Speaker 5: that slower and lower levels of profitability. But then there
Speaker 5: is still to complaint from consumers that fares are still
Speaker 5: quite high. So, no matter how you look about full recovery,
Speaker 5: if people are still feeling like they're paying more, it's
Speaker 5: still a frustration. But it's not necessarily to bring anyone
Speaker 5: from traveling right now.
Speaker 1: Globally, then what is the outlook for pricing, either business
Speaker 1: or leisure?
Speaker 5: I think for the rest of the world for pricing
Speaker 5: it's actually rather better outlook. If you're in North America
Speaker 5: in Europe, for example, are some of the biggest mature
Speaker 5: travel markets where you can fly short distances. In particular,
Speaker 5: they are going to see we're going to see increases
Speaker 5: of around two percent in some cases on average in
Speaker 5: both North America and Europe. Where you're traveling domestically, or
Speaker 5: if you're traveling just across the border. That's broadly in
Speaker 5: line with the inflation trend. However, when you still look
Speaker 5: at individual prices and what people are having to pay
Speaker 5: when they book their flights, it still feels quite expensive.
Speaker 5: And we have seen that trend of where people are
Speaker 5: booking their flights. We've seen this in the Bureau of
Speaker 5: Labor Statistics. Prices still feel very high, substantially higher than
Speaker 5: pre COVID levels. And so even if these increases we
Speaker 5: are going to see of seeing small single digits, it
Speaker 5: will be a small crumb of comfort where increases have
Speaker 5: really taken effect in a substantial way over the past
Speaker 5: several months.
Speaker 1: Now, where does this leave companies then, who are trying
Speaker 1: to negotiate travel deals with the airlines, Because ultimately, isn't
Speaker 1: this a game of chicken, Because there's a four letter
Speaker 1: word and that is zoom. At what point do corporations
Speaker 1: start to balk.
Speaker 5: We have seen corporations become much more disciplined around how
Speaker 5: much they are willing to spend on what they see
Speaker 5: is discretionary items such as travel such as business travel.
Speaker 5: I still think for airlines who have been waiting to
Speaker 5: see if there will be a full recovery post COVID
Speaker 5: of the corporate travel sector, something that's very important to profitability.
Speaker 5: It's probably still not likely to come back anytime soon.
Speaker 5: And we have seen over the increasing months many multinational
Speaker 5: companies talk about traveling less, increasing their number of meetings
Speaker 5: over zoom do not spend anything unnecessarily that you wouldn't
Speaker 5: have to, So there is that belt tightening in effect.
Speaker 5: And given the uncertainty in twenty twenty five, whether it
Speaker 5: be geopolitics, tariffs, you know, all these different uncertainties in
Speaker 5: the world, and airlines of companies generally are being more
Speaker 5: prudent about how much they're willing to allocate and spending
Speaker 5: and we are seeing that likely to come into effect
Speaker 5: when they negotiate deals of airlines for twenty twenty five.
Speaker 1: And what does the MXGBT survey tell us about pricing
Speaker 1: in the United States.
Speaker 5: The survey by x GBT does show that in North
Speaker 5: America we will see increases largely in line with inflation
Speaker 5: of around two point eight percent and economy class two
Speaker 5: point seven percent. In business class, it's still you know,
Speaker 5: running towards a higher end of what we see as
Speaker 5: an inflation target, closer to more two percent, which is
Speaker 5: more ideal, even though for North America and South America
Speaker 5: that's going to see a bigger fall in pricing, is
Speaker 5: what MXGBT ISS four. I think, particularly in the economy
Speaker 5: class eight percent lower in twenty twenty five. Again, will
Speaker 5: consumers feel that and see that in their ticket pricing.
Speaker 5: That remains to be seen, but clearly there is going
Speaker 5: to be a subdued increase in pricing overall, and particularly
Speaker 5: between North America and Europe that's going to be seeing
Speaker 5: a very small increase overall in pricing. So it's a
Speaker 5: broadly a good news story. If you're living in North America,
Speaker 5: you know in some of the biggest markets where consumers
Speaker 5: US consumers particularly are traveling, it will be small increases
Speaker 5: across the board rather than no increases or a decrease.
Speaker 1: And then finally, are there any other surprises that come
Speaker 1: from the AMC survey.
Speaker 5: I think when you look at the survey in isolation,
Speaker 5: these small increase in some of the major markets is
Speaker 5: broadly good news. But when you look in the totality
Speaker 5: over the recent years, I think there will still be
Speaker 5: a bit of a shock for consumers for flyers out
Speaker 5: there that when you add up all the increases going
Speaker 5: back to twenty twenty two twenty twenty three, we are
Speaker 5: probably back at post COVID highs when it comes to
Speaker 5: the benchmarking of airfare pricing. So even if we did
Speaker 5: see decreases across the board last year, or even rather
Speaker 5: this year, those prices have crept back up again and
Speaker 5: erased those those decreases we've seen previously. So even if
Speaker 5: this is a people are thinking about booking for twenty
Speaker 5: twenty five and thinking great smaller increases across the board,
Speaker 5: we are creeping back up to certainly high levels of
Speaker 5: airfares once again.
Speaker 1: Danny, we thank you so much for your time, and
Speaker 1: that is Danny Lee, Bloomberg Aviation Reporter, joining us from
Speaker 1: Hong Kong. Thanks for listening to today's episode of the
Speaker 1: Bloomberg day Break Asia Edition podcast. Each weekday we look
Speaker 1: at the story shaping markets, finance, and geopolitics in the
Speaker 1: Asia Pacific. You can find us on Apple, Spotify, the
Speaker 1: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join
Speaker 1: us again tomorrow for insight on the market moves from
Speaker 1: Hong Kong to Singapore and Australia. I'm Doug Chrisner, and
Speaker 1: this is Bloomberg.