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Tourism sector posts another year of remarkable growth

August 25, 2017 Hotel Trends No Comments Email Email

Australia’s tourism sector has posted yet another remarkable year of growth, despite a moderation of global economic conditions, according to Deloitte Access Economics’ latest Tourism and Hotel Market Outlook report.

“Continuing growth in visitor arrivals and expenditure highlight tourism is among the fastest growing sectors in the Australian economy,” said Adele Labine-Romain, Deloitte national Tourism, Hospitality and Leisure leader.

International travel

International visitor numbers to Australia climbed 8.9% over the past year to 8.5 million, with an additional 700,000 visitors arriving on our shores. Visitor arrivals from China eased over the first half of 2017, though still recorded 9.9% growth for the year.

“It is an outstanding figure relative to any standard benchmark, and while less impressive than the remarkable growth rate of recent years, Chinese arrivals have more than doubled in the last five years and now represent 15% of all arrivals into Australia,” continued Labine-Romain.

Among the many good news stories, India continues to gain market share on the back of exceptional economic performance, recording growth of 8.9%. Also significant, the US, which for the second year running recorded arrivals growth of around 14%, overtook the UK as Australia’s third largest international market.

As Labine-Romain, observed: “Growth of this magnitude in the face of slowing arrivals from China signals a healthy diversification of Australia’s international growth profile. Visitors from Japan, Malaysia, South Korea and Hong Kong also chalked up double-digit growth in arrivals in a further indication of the broad-based underpinnings of this current wave of international tourism.”

International visitor trips continue to grow across all states and territories. Tasmania retained its position as Australia’s fastest growing stopover destination for international travellers, growing at 15.8% and the only state to post double-digit growth over the year. New South Wales, buoyed by solid demand across all major visitor segments, also outperformed the national average, growing 9.9% over the year. Western Australia came in third overall, with 8.7% growth over the year, but topped the destination growth for international holidaymakers, posting a 16.8% gain.

Domestic tourism

On the domestic front, growth in trips at home has slowed since the 2017 February Outlook (down to 3.1% from 4.8%), with an uptick in corporate travel insufficient to counter the stalling of growth in domestic leisure travel.

“In part, this reflects a pattern of generally weaker spending by Australian households,” explained Labine-Romain. “As growth in household incomes has slowed, so too has consumer spending and with that, spending on leisure travel.

“Growth in outbound leisure travel has also slowed from 4.5% to 3.7% over the year to June 2017. So it’s not the case that Australians are substituting international holiday destinations for Australian ones.  Rather, they are travelling a bit less overall.”

Hotel performance

The performance of Australia’s hotel sector was modest in the first half of 2017, with room occupancies averaging 68% on the back of 0.3% growth.

Deloitte Access Economics’ Bryon Merzeo said: “National performance was weighed down by weaker growth in Melbourne, Perth, Darwin and Brisbane. Melbourne is working to absorb recent additions in supply in the market, while Perth, Darwin and Brisbane are contending with additional supply and softer demand conditions due to exposure to the mining sector. Together, these markets represent 45% of capital city markets and 17% of aggregate hotel revenue nationally. Hence their lacklustre performance was reflected in the national figures, and ultimately weighed on performance relative to expectations.”

Leisure travellers and people visiting friends and relatives continued to substitute traditional accommodation for sharing economy options. The growth in private rental nights is more than double the growth in nights in traditional short-term accommodation (9.2% vs. 3.7%), though from a much smaller base. Holiday travellers, in particular, look favourably upon private rentals with use of private rentals by Australian holidaymakers growing at nearly double its five-year average.

Despite the muted hotel sector performance, there were some highlights:

  • Highest year-to-date growth in average daily rate (ADR) and revenue per available room (RevPAR) was seen in Tropical North Queensland (TNQ), Sydney and Canberra
  • TNQ was the standout as ADR grew 4.2% over the first half of 2017 and RevPAR jumped 8.5%
  • Canberra was another standout with 3.7% room rate growth and 6.6% RevPAR growth in the year.

Tourism outlook

“Global economic conditions remain favourably orientated for Australian tourism,” said Labine-Romain.

“Yes, travel costs are expected to increase as oil prices continue to rebound. But global output and income growth are expected to maintain momentum over the next three years. Asia’s large and fast-growing economies are forecast to largely continue the growth that has underwritten the tourism boom experienced by Australia over recent years.”

Deloitte Access Economics forecasts international visitor trips to grow by 6.9% p.a. and visitor nights by 6.4% p.a. on average over the next three years – a strengthening of growth expectations. The visitor growth will be led by India at 12%, closely followed by China and Indonesia at 10%.

“The realisation of this growth will see visitor arrivals reach the 10 million milestone in 2020 and international visitor nights overtake domestic visitor nights in 2023,” said Labine-Romain.

For domestic tourism, the recent slowdown in holiday travel by Australians points to a broader slowing of discretionary income and consumer spending. As income growth picks up, so too will discretionary expenditure and hence leisure travel. The stalling witnessed over the last 12 months is not expected to persist with domestic trips forecast to grow by 3.4% p.a. and visitor nights to grow by 3.3% p.a. on average over the next three years.

Hotel outlook

While demand for hotel accommodation is projected to grow at 3.2% p.a., supply is also forecast to expand solidly, growing by 2.8% p.a. nationally. Although the number of new hotel rooms added to the market slowed during the first half of 2017, with 1,418 rooms added across 10 projects, another 1,407 new rooms have opened in July and August alone.

Merzeo said: “This represents a further narrowing in the supply-demand growth differential and hence a further easing of occupancy growth expectations.

“The spread of individual market performance outlooks continues to widen. Tropical North Queensland and the Gold Coast are forecast to lead the key markets in terms of RevPAR growth over the medium-term. While Perth and Brisbane are still working through booms in their respective supply pipeline, and will struggle to realise improvements in performance over the next three years. Relative to previous editions of the Outlook, the largest movers in expected performance are Melbourne and Hobart, which have fallen away considerably on the back of greater expected supply.”

Overall, the national trend occupancy rate is forecast to grow by 0.3% p.a. over the next three years to reach 68.5% in 2019.

“This represents a softening compared to previous forecasts, clearly impacted by the significant strengthening in national supply pipeline,” added Merzeo.

Room rates are forecast to steadily grow over the next three years, increasing by 2.8% p.a. to reach $171 in 2019, while RevPAR will show healthy growth of 3.1% p.a. to reach $117 in 2019.

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