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Asia remains the key for Australian tourism


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27 February 2012:  Significant inbound growth from the emerging economies of India and, in particular, China, and domestic demand stabilising after a prolonged period of decline, have emerged as positives for Australian tourism, according to Deloitte Access Economics’ Tourism and Hotel Market Outlook for Q1 2012.

The Outlook also confirms that a strong Australian dollar, economic uncertainty in traditional inbound markets and local skill shortages will still remain challenges for Australia’s tourism and hospitality industry.

Deloitte Access Economics’ Lachlan Smirl, said the global economic outlook had grown increasingly fragile amid concerns around the Eurozone, with the downside risks now more acute.  

“The outlook for the Australian economy remains relatively robust, provided of course that the global economy does not deteriorate significantly.  However, as far as the multi-speed economy is concerned, Australian tourism continues to be in a slower lane,” he said.

“While the outlook is good for the business side of the domestic tourism market on the back of a relatively solid domestic economy, that strength is also driving strong outbound leisure travel.”

Mr Smirl said the multi-speed analogy extended to the hotel sector: “The story remains one of stronger business demand, and strong occupancy and room rates for city hotel owners, but challenges for their counterparts in regional and rural areas.”

Tourism

Key points from the Outlook for the tourism sector include:

  • The dollar, forecast to remain strong through to the end of 2013, will continue to encourage Australians to travel overseas at the expense of domestic trips and destinations, although domestic visitor numbers have generally stabilised following the declines of the last decade.
  • International visitor numbers are forecast to grow 2.7% in 2012, 4.7% in 2013 and 4.9% in 2014
  • Arrivals from China are expected to continue to grow strongly in coming years, accounting for 35% of forecast growth in international visitor nights between 2010 and 2015, while numbers from the traditional inbound tourist markets, including the UK, Japan, US and Europe, are expected to remain subdued. New Zealand visitor numbers are expected to continue to trend higher.
  • By 2014, aggregate expenditure from Chinese visitors is forecast to exceed the UK and New Zealand combined.
  • Skill and labour shortages will remain an issue for the labour intensive industry, notwithstanding measures being introduced via the National Long Term Tourism Strategy.

“The strength of the Australian dollar has no doubt presented challenges for the tourism sector,” Mr Smirl said.

“However, our research has shown that the exchange rate is only one of a myriad of factors influencing international visitation to Australia.

“Growth in some foreign incomes is the more significant long term driver. In that context, while we are clearly experiencing the negatives of a high exchange rate, we are also seeing strong signs that the sizeable upside associated with the rapid economic growth in China and India is materialising.”

Mr Smirl said skill and labour force shortages were among the most significant challenges facing the Australian economy in the near term, and this was particularly so for the tourism industry.

“The tourism services sector is labour-intensive and, as a result, quality, profitability and success are highly sensitive to worker availability and wages,” he said

Labour force forecasts developed by Deloitte Access Economics indicate that the shortage in tourism workers will increase to 56,000 by 2015, with around half of this being in skilled positions, with demand highest for kitchen hands, waiters, cafe and restaurant managers, and chefs.    

“So the industry will continue to face a number of significant challenges, chief among these being how to maintain and grow the market in a high exchange rate environment, how to capitalise on the travel desires of the growing middle classes in China and India and how to address a skill shortage driven, among other things, by the multi-speed economy,” Mr Smirl said.

Hotels

Key points from the Outlook for the hotel sector (which covers markets in Sydney, Melbourne, Brisbane, Perth, Adelaide, Canberra, Darwin, Gold Coast and Tropical North Queensland) include:

  • Room occupancy rates, driven heavily by the forecast growth in international visitors, are projected to increase solidly over the forecast period, increasing from 65% in 2012 to 68% by the end of 2014.
  • Room rates are expected to continue to perform strongly, reaching an average $150 by year’s end and $160 by the end of 2014 – an average annual growth rate of 3.8%.
  • Projected average yield per room for 2012 is forecast to reach $100 by the end of the year (a 5.5% increase on 2011), and $110 by the end of 2014.   

“Particularly in capital city CBDs, hotels have continued to perform strongly,” Mr Smirl said. “Business travel demand is up, and the gains on that front have been sufficient to encourage operators to edge up room rates.

“The expected improvement in international visitor numbers, together with continued growth in the domestic business sector, should see occupancy rates reach their highest level for several decades.

“However the overall strength in occupancy rates masks a divergence between demand for CBD rooms, where the market is expected to become increasingly tight, and softer conditions in urban and regional Australia, reflecting, among other things, the changing composition of the tourism market.

“Sydney and Perth, in particular, are bordering on ‘capacity constrained’ territory where several nights a week the ‘full house’ signs are up. While this is good news for the hotel sector, it is less so for other parts of the tourism industry.

“With the pipeline of hotel investment looking modest, the challenge of ensuring a sustainable level of capacity while not unduly undermining returns to existing investors will be increasingly important for the industry over coming years.”   

Last Updated: 

Contacts

Name:
Simon Rushton
Company:
Deloitte
Job Title:
Corporate Affairs and Communications
Phone:
Tel: +61 2 9322 5562; M: +61 450 530 748
Email
srushton@deloitte.com.au
Name:
Lachlan Smirl
Company:
Deloitte Access Economics
Job Title:
Director
Phone:
Tel: +61 3 9671 7567
Email
lsmirl@deloitte.com.au

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