While everyone has had the oil price crystal ball out over the past few months the interest rate question has taken a bit of a back seat, but no longer. The US Federal Reserve policy committee has become more and more vocal about increasing interest rates during 2015 over the past few months as US economic and employment data continue to strengthen. Next month will see the Fed decide on whether to remove the patient wording in the Fed’s policy statement post-2008 that effectively limited the Fed to at least two full policy meetings before any rate rise could take place – so as to give markets fair warning. We are entering a period that we all knew was coming but has taken somewhat longer than expected, where the US Federal Reserve is now worried that if it leaves moving on interest rates too long it will have to raise them substantially from the get-go and catch a great many people out. Conditions now give rise to the logic that some small rate moves in 2015 will be best for everyone with the Fed then in the clear to move rates at any time based on economic data as was the norm pre 2008.
Meanwhile, 35 airlines now operate into Harbin Taiping International Airport, the capital of Northeast China's Heilongjiang Province, with 157 domestic and international routes between them. That is astonishing growth out of almost nothing in 15 years and the trend is gathering pace with another three airlines adding to the list over the next 12 months. During the past six months alone five airlines have started operating from Harbin and among them is start-up low-cost carrier 9 Air, which made its first scheduled flight on the Guangzhou-Wenzhou-Harbin route in mid-January. The key route for many airlines operating out of Harbin is the Guangzhou route and one wonders when, indeed if passenger number growth on this route will ever slow. That brings to mind a consideration – as mentioned in Airline Economics Issue 2 – the Chinese population pyramid is alarmingly stable and it points to a dramatic increase in working age population numbers over the next 15 years and both Harbin and Guangzhou are at the center of this population growth. Current load factors suggest the Harbin Guangzhou route alone could do with many more aircraft in the here and now and given that slots are getting tight one must begin to wonder: Should the low costs in China be looking at far larger aircraft to operate on these long distance routes? It is becoming clear that 9-Air and the like will need to start thinking about up-scaling dramatically within a few years. Older 777 and A330 aircraft that have spent their life registered in China are looking like gold dust at the moment, it is conceivable that a Chinese airline could take these older aircraft and run an up-scaled Allegiant ULCC model at any time and make a fortune.