MARKET SURVEY - Mood & Intentions: Asia Pacific Region 2019 Q2 (PART 1)

 
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Economic Mood

The pessimistic mood continued to spread in Asia Pacific, surpassing Q1 2019 and has reached the highest point since Q4 2016.

In Q2 2019, 32% of respondents believed that the economy passed its low point and will improve. This is slightly higher than the previous quarter, but the second lowest level since 2016 Q4. The number of respondents who believe the current economy is at its low point and will get better is 28%; 7% lower than the previous quarter. 40% of respondents believed that the economy hadn’t reached its low point and will continue to worsen, which is even higher than 2019 Q1’s level and becomes the highest level of pessimism since 2016 Q4.

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In Q2 2019, the optimism levels for Greater China (Mainland, Hong Kong, Macau and Taiwan) continued to be the main contributor to the overall low optimistic levels as they went down from 50% to 43% this quarter amid a rebound trend over the last two quarters. It is perhaps the ongoing US-China trade dispute which seemed to concern Chinese aviation shareholders as actions of the two countries intensified and clouded confidence in the market.

Mainland China’s economic growth hit 6.4% y-o-y in the first quarter of 2019. While the growth rate exceeded market expectations, the economy is expected to slow as the new US tariffs take effect. Both industrial production — including the notable manufacturing industry, as well as retail sales — measuring consumer demand — declined in Q1. Over the past year, the slowing economy has impacted consumer confidence. The Government has since put into effect stimulus measures to boost growth, which includes one of the largest tax-cut packages in China’s history — lower value-added tax and social security payments for companies.

The stimulus package will likely succeed in boosting China’s economy, but whether this will improve consumer confidence, particularly consumers who purchase aircraft, will only be realized in future quarters.

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Oceania also saw a decrease in the optimistic level from 72% to 65%. The largest market in Oceania — Australia — faced a slowdown in the second half of 2018 that is expected to rollover into 2019. In May 2019, Australians took to the voting polls to elect a new Prime Minister, who pledged to issue tax cuts to aid the slowing economy.

Central Asia was the only region to see positive change in its mood. This was largely impacted by India, which has in recent quarters been noted as the fastest-growing economy in the world. Indian citizens also took to the polls re-electing Narendra Modi.

In general, respondents who believed that the current economic situation has passed its low point or is at its low point can be described as optimistic. This quarter, 56% of respondents believed that our economy will improve in the future; an 8% drop since 2019 Q1.


AIRCRAFT UTILIZATION: REGIONAL DIFFERENCES

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In Q1, 29% of respondents in the surveyed area said their expected aircraft utilization had decreased, which is higher than the 27% recorded in Q1 but lower than the 31% in 2018 Q4. Additionally, 49% of respondents said their aircraft utilization had increased, which is a 4% increase compared with the previous quarter.

* An Optimistic-Pessimistic Signal Line has been added to regional aircraft usage trend analyses for Greater China, Oceania and South and East Asia regions. An optimistic mood is derived from more respondents indicating ‘higher’ aircraft utilization compared with 12 months ago, while a pessimistic mood is derived from more people indicating ‘lower’ aircraft utilization compared with 12 months ago.

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Greater China

36% of respondents indicated their aircraft utilization in Q2 2019 increased. Though the increase is higher than the last two quarters, 43% of respondents stated their aircraft utilization decreased compared with 12 months ago, which is a bigger decline compared with Q1’s result.

This could be the result of raised concerns from China’s economy outlook of 2019: The futile US-China trade talks and slowing GDP growth added uncertainty to the country’s development.

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Oceania

In this quarter, aircraft utilization remained at a similar level to the previous year. 48% of respondents reported the same level of aircraft utilization. Only 29% of respondents have indicated their aircraft utilization increased, a 16% decline from 2019 Q1. 24% of respondents indicated their aircraft utilization decreased.

Southeast and Northeast Asia

In Q2 2019, 68% of respondents recorded increased aircraft utilization, which is 8% higher compared with 2019 Q1. Only 15% of respondents believe that their aircraft utilization decreased, which is 2% lower compared with the previous quarter, indicating improved aircraft utilization.