Australia’s tourism and hotel sectors will continue to record strong growth in coming years – in fact stronger than the country’s broader economic growth – but global and local conditions will also present some challenges, according to Deloitte Access Economics’ latest Tourism and Hotel Market Outlook.
Deloitte Australia National Travel, Hospitality and Leisure leader, and Deloitte Access Economics partner Adele Labine-Romain, said: “With many key indicators and trends impacting directly on tourism and hotel market performance, we’re seeing some interesting shifts that the industry will have to understand and manage in coming years.
“Locally, Australia continues its long run of uninterrupted economic growth heading into 2019, but the strength of the economy has softened somewhat more recently with risks surrounding household finance and spending weighing on activity.
“Notwithstanding the economic headwinds, including from overseas, overall tourism and hotel sector growth will remain strong. The Australian dollar is forecast to remain low over the medium term, and this will continue to support growth of international travel into Australia and also encourage domestic travel.”
International tourism
“For the first time, inbound visitor numbers topped 9 million in 2018. In fact they reached 9.2 million, up 65%, or 3.6 million people, compared to 10 years ago, an amazing milestone for the country and for our tourism industry,” Labine-Romain said.
“But with increasing economic and political uncertainty in many of our key inbound tourism markets, growth in international arrivals moderated to 4.9% last year.”
Other key 2018 numbers:
- With the exception of India and Japan, growth in arrivals from across Australia’s top ten source markets was slower
- China remained the largest contributor to new arrivals in terms of visitor numbers, but growth slowed significantly, up only 5.5% compared to an average 14.7% over each of the previous five years
- Arrivals from India again grew strongly, up 18.2% over 2018, the second highest increase in visitor numbers (55,000) behind China (75,000)
- Japan arrivals grew 7.9%, lower than over the past three years, but showing that the Japanese market is still prepared to spend on international travel despite sluggish economic growth at home
- Arrivals from both the UK and US were sluggish, up 0.1% and 0.9% respectively.
Domestic tourism
“Australians took more than 100 million domestic overnight trips in the year to September 2018 – an average of five trips for each of us, up 7% over the previous year,” Labine-Romain said. “Importantly, this is the first time in quite a while that domestic overnight trips have been increasing at a faster pace than international trips.
“This indicator continues to outperform real GDP, and after a decade of decline through to 2010, domestic visitation has now been growing consistently for the last eight years.”
While the growth in domestic tourism has strengthened, the number of trips overseas by Australian residents continues to grow. The average Australian spent $5030 on travel in the last year, 12% of household consumption. Of this, 46% is spent on overseas travel. Australians took around 11 million international trips, up 5.0% on the previous year, consistent with the average growth over the past five years.
Other key 2018 numbers:
- Domestic visitor nights increased 6%, slightly slower growth relative to trips, and a continuation of a trend towards shorter trips seen in recent years
- Local holiday travel was up 8.6%, more than double the growth of the previous year
- Local business trips grew by 7.7%, a moderation compared to 13.6% in the year prior
- All states and territories saw an increase in domestic trips except the Northern Territory which was down 0.4% with the completion of major infrastructure projects.
Tourism outlook
“Weaker global economic conditions will likely lead to slower growth for inbound tourism in the near term. That said, Deloitte Access Economics still forecasts international visitor trips to grow by 6.2%, and visitor nights by 5.9%, on average each year over the next three years,” Labine-Romain said.
Annual international arrivals into Australia are expected to hit 10 million milestone in 2020, with India continuing to emerge as a key growth market. Visitor numbers ex-India will grow an average 13.5% over the next three years, and annual visitors should exceed half a million by 2021. Arrivals from China have slowed recently, but are still forecast to see average annual growth of 8.5% over the next three years.
“On the domestic front, and despite challenges around falling property prices and household wealth, Australia’s economy is still expected to continue its run of uninterrupted growth heading into 2019, and provide stable conditions for continued strong domestic travel demand,” she said.
“Domestic trips are forecast to grow by 4.2%, and visitor nights by 3.8%, each year on average over the next three years. Visitor nights growth will be slower compared to total trips, consistent with the declining length of stay trend.
“The pace of overseas travel might take a step back. It has softened for two consecutive years, and medium term forecasts remain between 4.0% and 4.5% per year.”
Hotel market performance
“With record levels of international visitors and domestic overnight travel in Australia last year, the hotel sector continues to perform strongly,” Labine-Romain said.
“More than 7,100 new Australian hotel rooms were added in 2018, and new supply is now exceeding growth in demand for the first time in a number of years. The main contributors were Sydney and Brisbane, with around 700 additional rooms each, followed by Perth and Melbourne.
“Across the country, occupancy rates were down slightly year-on-year, but still a healthy 76%, and the average daily room rate increased 1.8% to $190, on par with growth over the last five years.
“The largely leisure-focused markets of the Gold Coast, Tropical North Queensland and Hobart recorded strong gains in average room rate, with the Gold Coast a stand out, up 8.5%.
“Adelaide, Canberra, Hobart, Gold Coast and Western Sydney saw increased occupancy rates above the prior year, with each adding limited capacity.
“Sydney’s average room rate is closing in on the $300 mark, with Melbourne and Gold Coast the next two most expensive hotel markets.”
Hotel market outlook
Labine-Romain said: “Growth in new capacity will continue, with another 33,000 new rooms expected to be added over the next three years, and half of these expected to be hosting guests by the end of 2020.
“The majority of this new stock will be concentrated in Perth, Sydney and Melbourne in particular, with around 6,500 new rooms expected to come online in Melbourne in 2019 and 2020 via 32 new properties.
“Capacity to absorb the new room pipeline varies across markets, and occupancy levels are expected to soften in coming years. Sydney should be least affected given a strong base of demand and limited recent additions to room stock, while Melbourne and Perth are likely to edge below 80% and 70% respectively in 2020 before they improve as these markets adjust to new hotel and room stock. Average room rates are also expected to be impacted in Melbourne and Perth, before they too recover.”
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