Contents Key developments The macroeconomic context The outlook for Australia’s tourism sector Hotel market outlook 12411 b Key developments Mixed economic signals for the tourism sector Concerns over the ability of the Australian economy to maintain growth as the mining construction boom peaks have combined with weaker economic news from overseas to generate a degree of economic uncertainty for tourism operators.
However, the easing of the Australian dollar has been a welcome development. The latest Mastered-OTF sentiment survey indicates that international industry sentiment remains relatively stable. Notably, however, 50% of those surveyed saw the Australian dollar as having a high impact on their business, highlighting the potential upside of the local currency easing. Growth in international visitor arrivals continues to impress International visitor arrivals grew 4. 9% over the year to March while international visitor nights grew 7. 2%, significantly outpacing average growth of the last decade. While this growth has been largely led by the emerging Aslant economies, particularly china which accounted for more than a third of total growth in visitor arrivals, there has also been a sustained pick up in visitor arrivals from the US. ; Increasing length of stay by Japanese visitors was also a key contributor to visitor night growth. The outlook for International visitors remains robust ; Despite a marginally weaker economic outlook, Dolomite Access Economics continues to project solid growth In International visitor arrivals and nights over the next three years, with arrivals forecast to grow by 4. 5% p. A. ND nights by 4. 9% p. A. ; While the outlook for growth in Chinese visitors has moderated slightly, China is expected to remain the single largest contributor to growth, with visitor nights forecast to grow by 6. 7% p. A. Over the next three years. Overall, Asia is projected to account for two thirds of forecast growth in International visitor nights. ; In an encouraging sign for the nation’s larger regional tourism destinations, recent trends have revealed Chinese travelers Tropical North Queensland are now frequented more commonly by Chinese leisure visitors than by international leisure travelers generally.
The domestic visitor market entities to expand After a decade of weak or negative growth, the domestic tourism market rebounded strongly in the first half of 2012. While this rapid rate of growth has not been maintained, the domestic market has continued to expand, with visitor nights increasing 2. 2% over the year to March 2013. Strengthening leisure market forecast to be the key driver of domestic growth Corporate travel has been the predominant driver of domestic tourism growth over the last decade.
However a softer domestic economic outlook and signs of a continued pick-up in holiday travel indicate the leisure segment playing a more reorient role in driving domestic tourism over the next few years – particularly if the Australian dollar continues to recede. ; Holiday visitor nights grew 1 1. 6% in the March quarter and by 3. 7% over the year to March. This represents the fastest rate of growth since before the SGF and considerably narrowed the gap with outbound leisure travel, which grew by 4. % over the same period. ; Overall, Dolomite Access Economics forecasts domestic visitor nights to grow at an average rate of 1. 6% p. A. Over the next three years. Hotel occupancy rates in Brisbane and Perth ease while mailer markets record strong growth ; In a clear sign that travel associated with the mining sector is slowing, the last two quarters saw a softening in occupancy rates in Brisbane and Perth with average occupancies for the year to May 2013 around 2% lower than the previous year. However, growth in domestic holiday travel has been good news for destinations such as the Gold Coast where occupancy rates continue to improve, while Tropical North Queensland has benefited from strong growth in international visitor nights. A softer domestic economic outlook is moderating growth recasts for several major hotel markets ; Growth in occupancies and room rates in markets associated with mining-related corporate travel, such as Brisbane and Perth, is forecast to be more subdued, as the resource-related construction boom reaches its peak.
At the same time, the weakening of the Australian dollar is forecast to provide further support for room rates and occupancies in leisure-oriented markets. ; Nevertheless, and despite a strengthening investment pipeline, demand is forecast to outstrip supply and, accordingly, occupancy rates are forecast to grow 2% and room rates by 3. % p. A. Nationally over the three years to December 2015. Tourism and Hotel Market Outlook – Half yearly update 2013 2 The macroeconomic context with the US dollar since early 2011, the Australian dollar lost significant ground in May.
By the end of May, the Australian dollar had fallen to IIS$O. 96, while the Trade Weighted Index (TWIT), which measures the strength of Australia’s currency against its trading partners, fell from 78. 2 on the 1st of May to 74. 0 by the end of the month. At the time of writing the Australian dollar had fallen to IIS$O. 92 and the TWIT had fallen to 71. 2. The decline in the Australian dollar against its major trading partners was partly precipitated by the Reserve Banks decision in May to reduce the official cash rate to 2. 5%, while an announcement by the Federal Reserve of a possible tapering’ of its quantitative easing strategy has caused a more recent drop against the US dollar. The decline in the Australian dollar is good news for local tourism operators. Previous Dolomite Access Economics research for Tourism Australia found that the value of the Australian dollar has a relatively modest impact on the decision to visit Australia. However, it has a more pronounced impact on the level of spending undertaken by visitors once they arrive, which is likely to be of greater importance for many tourism operators.
The moderation of the Australian dollar is also likely to further slow growth in outbound travel by Australians as the overcompensation’s of local destinations improves. Despite the pace of the recent moderation, the longer term outlook for the local currency remains relatively unchanged with the Australian dollar projected to remain at IIS$O. 80 from 2018-19. The global outlook The moderation of the Australian currency relative to the US dollar as been driven in part by an improved outlook for the US economy.
The most recent figures from the US show that real GAP grew by 0. 6% in the March quarter up from the 0. 1% recorded in the December quarter. Over the year to March, US real GAP grew by 1. 8%. Moreover, the US housing market continues to strengthen, with the S Case Sheller 20-City Composite Home Price Index rising by 10. 9% over the year to March 2013 and housing approvals rising almost 21% since May 2012. Encouraging figures have also appeared from the US labor market, with the unemployment rate falling to 7. % in April (though it edged up to 7. % in May). However, looking beyond the headline data reveals a labor market which remains soft. This is especially evident in the employment to population ratio (capturing both unemployment and workforce participation), which remains essentially unchanged from the depths reached in late 2009. This data suggests that the falling unemployment rate has mainly been due to individuals dropping out of the labor force rather than strong employment growth.
These emerging signs of recovery – along with recent improvements in consumer confidence – suggest that, although fiscal consolidation ill limit the speed of the nation’s economic recovery, the US is better placed than previously to handle the impact of $85 billion in budget cuts associated with the ‘sequester’ and a 2% increase in payroll tax. By comparison, the outlook for Chinese growth is slightly weaker than forecast six months ago with growth falling from 7. 9% over the year to December 2012 to 7. 7% over the year to March 2013.
Growth continues to be supported by infrastructure spending and housing construction with recent growth in real estate prices prompting renewed concerns about the potential or a housing price bubble in China. Growth in both consumer spending and the longer term, China will need to rebalanced its growth towards higher wages and increased consumer spending, which is likely to imply a slower but more balanced growth trajectory. The COED Economic Outlook forecasts Chinese growth to remain at 7. 8% in 2013, before rising to 8. 4% in 2014 on the back of an acceleration of global trade.
In Europe, fiscal austerity has continued to hamper growth with unemployment in the region climbing further. While austerity measures have increased the level of lattice instability in some member states, the European Central Banks actions in purchasing government bonds has reduced the risk of a severe collapse over the last eighteen months. The COED expects growth in the Euro area of in 2013 before recovering to 1 . 1% in 2014. By comparison, the outlook is slightly stronger for Japan as monetary easing has led to a depreciation of the yen since November 2012, although the COED is forecasting growth of only 1. % in 2013. On the whole, the global outlook remains broadly similar to six months ago, with more promising signs f recovery in the US being counterbalanced by a slightly softer outlook for China’s economy and continued weakness in the Rezone. The domestic outlook In Australia, concerns have been growing about the capacity of the non-mining sectors to sustain growth once the resource-related construction boom peaks. The economy grew by 0. 6% in the March quarter to be up by 2. 5% over the year, but growth was largely driven by an improvement in net exports.
A decline in new engineering construction in the quarter has prompted increasing concerns that the mining construction boom has begun to peak. While Dolomite Access Economics expects resource-related construction to plateau for some time before receding, alternative sources of growth must be forthcoming if an economic slowdown is to be avoided. While there is evidence that housing construction and the retail sector are beginning to grow, the recovery in both sectors has been relatively mild to date. Residential construction activity grew by only 2. % over the year to March, while retail expenditure grew by 3. 1% over the year to April. The decision by the Reserve Bank to cut interest rates to a record low of 2. 75% in May should act to rather stimulate the housing and retail sectors. At the same time, while the decision by the Federal government to delay a return to budget surplus to 2015-16 has been welcomed, indicators suggest business confidence has weakened in recent months due to concerns about the impending peak in construction activity in the resources sector. The COED Economic Outlook is projecting Australian GAP growth to remain moderate at 2. % in 2013, in line with the Reserve Bank forecasts, before picking up to 3. 2% in 2014. Dolomite Access Economics’ latest macroeconomic forecasts will be leased as part of the Business Outlook publication in mid-July. 3 The outlook for Australia’s tourism sector Overview ; After a sharp rebound in the first half of 2012, domestic visitor nights continued to expand in the December and March quarters, albeit at a more modest pace. Domestic visitor trips grew by 1. 8% and domestic visitor nights by 2. 2% over the year to March 2013.
This was largely driven by strong performance in the holiday and business segments which recorded growth of 3. 7% and 6. 4% respectively. The strength of the domestic holiday market has been most evident in Melbourne, Hobart, the Gold Coast and the Sunshine Coast, as well as Brisbane and Perth where it has helped to offset a softening in corporate travel over the last twelve months. ; Dolomite Access Economics’ forecasts point to the international market continuing to grow strongly, although the rate of growth in visitor nights is projected to return closer to trend.
International visitor nights are projected to grow at an average annual rate of 4. 9% p. A. Over the next three years. This growth will continue to be driven by the emerging economies of Asia with growth in visitor nights forecast to average 8. 6% for India and 6. % for China over the next three years. The forecast for China is a slight moderation on last quarter reflecting a more uncertain outlook for Chinese growth going forward. The growth in Chinese visitor arrivals over the next three years is forecast to continue to be driven by leisure visitors.
While Chinese leisure travelers stay in Australia for relatively short periods of time, they have high daily expenditure levels and are more likely to visit regional leisure destinations such as the Gold Coast and Tropical North Queensland. ; Mixed economic conditions are projected to moderate the rate of growth in mommies visitor activity over the outlook period. The weaker economic outlook will see a slowing in the growth of corporate travel. At the same time, the decline in the value of the Australian dollar will contribute to leisure travel playing a more prominent role in driving growth in the domestic market.
Dolomite Access Economics forecasts domestic visitor nights to grow at an average rate of 1. 6% p. A. Over the next three years. Domestic visitors After the sharp rebound in domestic visitor activity in the first half of 2012, visitor activity continued to grow in the December and March quarters, albeit t a more moderate rate. Over the year to March 2013, domestic visitor trips grew by 1. 8% while domestic visitor nights grew by 2. 2%, to be broadly in line with our longer term forecasts. In the March quarter, visitor nights grew by 4. % compared to the time, growth in domestic visitor nights was supported by solid growth in corporate travel. However, in an encouraging sign for the sector, the holiday sector also grew strongly in the December and March quarters. Holiday visitor nights grew 6. 7% in the December quarter and 1 1. 6% in March relative to the December and March quarters f 2012. The growth in domestic holiday visitor nights has led to a substantial increase in demand for key leisure destinations. Chart 3. 1 shows the six major tourist destinations that experienced the highest growth in domestic holiday visitor nights in the year to March 2013.
The light blue column shows the growth in visitor nights for each destination while the light green column illustrates the growth in visitor trips. ; The weakening of the Australian dollar is also forecast to augment a further slowing in the growth of outbound travel by Australians, which by end-2015 is projected to eave eased to 3% p. A. ; Growth in international visitor arrivals has continued to outpace its average of the last decade. International visitor arrivals grew by 4. 9% over the year to March 2013, while international visitor nights grew by 7. 2%.
Growth continues to be driven by the emerging Asian economies, although visitor arrivals from the US have also picked up. While arrivals from Japan and the UK have been flat, those who came to Australia chose to stay longer. 4 Growth in business visitor nights While holiday visitor nights grew exceptionally strongly in Melbourne, this was largely river by an increase in average length of stay – the number of holiday visitor trips in fact grew only 2. 1%. By comparison, growth in holiday visitor nights was accompanied by solid growth in visitor trips for the Gold Coast, Sunshine Coast, Hobart and Perth.
In the case of Hobart the growth in visitor trips substantially exceeded growth in visitor nights. Chart 3. 1: Destinations with highest growth in domestic holiday nights* 35% Growth in holiday visitor nights 25% Melbourne Gold Coast Visitor nights Brisbane Sunshine Coast Hobart Perth Visitor trips Chart 3. : Year-on-year growth in domestic business visitor nights in Perth and Brisbane* -60% Mar-10 seep-10 Brisbane Mar-11 seep-al Perth Mar-12 seep-12 Mar-13 year. Source: TRAP, Dolomite Access Economics.
Overall, these figures suggest a significant cooling in demand for business travel, consistent with resourcefulness construction reaching its peak. However, from a historical perspective, business travel to both Perth and Brisbane remains at relatively elevated levels. As shown in Chart 3. 3, business visitor nights in both markets are still above the prevailing level of three years ago. Chart 3. 3: Rolling annual business visitor nights over time for Perth and Brisbane 4 Business visitor nights (million) *Growth over the year to March 2013. Source: TRAP, Dolomite Access Economics. The growth in holiday nights was not evident in all locations.
Domestic holiday visitor nights were relatively unchanged over the year to March in Sydney, Canberra and Tropical North Queensland (although the latter received a sharp influx in international visitors over the year to March) and holiday visitor nights declined by more than 10% in both Adelaide and Darwin. Business nights grew by 6. % over the year to March nationally, but declined by more than 20% in Brisbane and Perth. While business visitor nights are by far the most volatile segment of the domestic market, business visitor nights in Brisbane and Perth have fallen consistently in recent quarters.
Chart 3. 2 shows the growth in business visitor nights in Perth and Brisbane by quarter. Although the figures indicate that business visitor nights are highly volatile, growth in business visitor nights was negative between March and December 2012 and in Perth between June 2012 and March 2013. O Mar-05 Mar-07 Brisbane Mar-09 Perth Mar-11 Mar-13 Source: TRAP Dolomite Access Economics. 5 Dolomite Access Economics forecasts domestic visitor nights to grow by an average of 1. 6% p. A. And domestic visitor trips to grow by 1 . 7% p. A. Ever the next three years The other major development in the domestic tourism market has been a decline in growth in domestic day trips in the March quarter. Having grown rapidly in the first three quarters of 2012, domestic day trips were flat in the December quarter and fell by 7. 6% in the March quarter 2013 relative to the March quarter 2012. Nevertheless, he strength of growth in previous quarters has meant that domestic day trips still grew by 2. 5% over the year to March 2013 with the annelids level of domestic day trips remaining close to record highs.
Looking forward, Dolomite Access Economics forecasts domestic visitor nights to grow by an average of 1. 6% p. A. And domestic visitor trips to grow by 1 . 7% p. A. Over the next three years. This is moderately lower than the growth rate recorded over the year to March, reflecting a softening domestic economic outlook and its impact on domestic corporate travel. Coupled with the depreciation of the Australian dollar, iterating local economic conditions are expected to see the composition of this growth shift gradually toward the leisure segment. Outbound travel by Australians The latest figures for outbound departures show them growing by 5. % over the 12 months to April 2013. Overall, the growth in outbound departures appears to have stabilized at around 5%, well below the double digit growth rates recorded in 2010 and 2011 but still indicating a relatively healthy rate of growth. Outbound holiday trips grew by 5. 7% while international trips to visit friends and relatives grew by 6. 9%. Business trips fell by 0. 1% over the 12 months to April 2013. The gap in growth rates between the outbound leisure market and the domestic leisure market has fallen over the last twelve months. Over the year to March 2012, outbound holiday trips increased by 14. % while domestic holiday trips grew by Just 2%. By comparison over the year to March 2013 outbound holiday trips grew by 4. 6% and domestic holiday trips grew by 3. 2%. The moderation of the Australian dollar, coupled with subdued economic conditions locally, is forecast to lead to a further slowing in the pace of outbound travel by Australians. Indeed, growth in outbound travel is forecast to moderate to around 3% p. A. Over the next three years. As evidenced over the past 12 months, at least part of this slowing is likely to be transferred across to the domestic leisure market in the form of more Australians holidaying at home.
Of course, should the Australian dollar depreciate more sharply than anticipated, so too will the pace of outbound travel. International visitors The international visitor market grew strongly over the last three quarters. International visitor arrivals increased by 4. 9% over the year to March 013 and international visitor nights increased by 7. 2%. This pace of growth is well by 2. 7% and international visitor nights grew by 5. 9%. As in previous quarters, growth has been driven predominantly by the emerging Asian economies, particularly China. Over the year to March 2013, visitors from China grew by 17. % while visitors from Malaysia and Singapore grew by 12. 4% and 12. 5% respectively. Arrivals from Hong Kong grew by 7. 8% while arrivals from India grew by 7. 3%. The strength of these figures reflects the extent of the growth in the middle class in Asia and its impact on he demand for international travel. While some of the strongest growth in arrivals has come from Asia, overall market growth has also been supported by visitors from the US. International visitors from the US grew by 6. 7% while visitor nights grew by 8. 0% over the year to March 2013 as the local economy gathers momentum.
Visitor arrivals from Japan grew by a more moderate 2. 5% while arrivals from the I-J fell by 3. 5%. However, visitors from both these markets opted to extend their length of stay, with Japanese visitor nights growing by 25. 4% and I-J visitor nights growing by 10. 4%. The increased length of stay occurred across all Japanese visitor segments, while in the I-J it was more pronounced among those visiting friends and relatives. 6 Looking forward, Dolomite Access Economics forecasts international arrivals continuing to grow over time on the back of growth in Sais’s middle class.
Current forecasts indicate international visitor arrivals growing by 4. 5% p. A. On average over the next three years and international visitor nights by 4. 9% p. A. These forecasts are broadly similar to those of our IQ release, with the strength of recent visitor demand being counterbalanced by increased uncertainty about the ace of economic growth in the Chinese economy. The largest contributor to the growth in visitor nights over the next three years is forecast to be China followed by India and the I-J. Visitor nights from India are projected to grow by 8. % p. A. On average over the next three years, while visitor nights from China are projected to grow, on average, by 6. 7% p. A. Average growth in visitor nights in excess of 7% p. A. Is also forecast for Indonesia and Thailand, albeit from a lower base. Other countries with forecast average growth rates between 4% and 6% include Korea, Singapore, Taiwan, Hong Kong and Malaysia. Asia is once again anticipated to provide the primary source of growth in visitor nights, accounting for close to two thirds of the growth in visitor nights over the next three years.
Outside of Asia, growth from the US and I-J is more modest at 3. 4% p. A. , although this remains significant given the I-J market accounts for 7. 4% of total growth in total visitor nights to Australia. Chart 3. 4 below shows the forecast growth in visitor nights over the next three years for Australia’s seven largest source countries for international visitor nights. Chart 3. 4: Growth in visitor nights from major source countries 40 International visitor nights (millions) The moderation of the Australian dollar will also have an impact on international visitor expenditure.
As international trips are often planned some time in advance, research by Dolomite Access Economics shows that currency fluctuations tend to have international visitor expenditure per trip for Australia’s five largest tourism markets in terms of visitor nights and for all international visitors. The blue columns show average expenditure for all tourists from a given source while the green columns indicate expenditure per trip by holiday visitors (who constitute the largest component of the international visitor market).
While Chinese visitors exhibit the largest expenditure per visitor of all source countries, this is largely driven by the higher expenditure of international students. By comparison, Chinese holiday visitors spend slightly less than the international holiday visitors as a whole. Holiday visitors from the I-J and South Korea had the highest per-visitor expenditure of Australia’s five largest tourism markets, reflecting their longer average length of stay. South
