Vivid Sydney 2015_Harbour view from Circular Quay_Credit-DestinationNSW EDITED

The latest Tourism and Hotel Market Outlook has seen Deloitte Access Economics again upwardly revise its forecasts for international visitation, with trips to grow by 5.4% and visitor nights by 5.3% per annum over the next three years.

Lachlan Smirl, Deloitte Access Economics partner, said: “2015 saw China join the million visitors a year club. The fact this occurred a year earlier than expected reinforces the extraordinary pace at which the number of visitors from China is growing. Average visitation growth in 2015 was faster over the preceding five years. At this rate, Australia’s first ever two million visitors a year market may be closer than we thought.

“The forecast for China alone is for another 285,000 visitors per year by 2018 – equivalent to an extra 10 return A380 services every week. When each of those people spends an average $7,300 in our domestic economy, it really adds up. At current prices, we would need to ship 160 tonnes of iron ore to China to get the same trade gain as an extra Chinese tourist choosing to holiday in Australia. It’s a simplistic comparison, but you can see where the opportunity lies.”

Australia’s appeal as a tourism destination is not limited to China. 75% of Australian source markets grew above their five-year trend, and 25% of markets grew at twice that pace. The US was the main rebounder with 50,000 more visitors, or 9% in 2015.

“The US is starting to look more like an economy with business–as–usual levels of economic growth, which is good for household incomes and outbound travel, as well as growth for US trading partners,” said Smirl.

Macro conditions remain favourable for international travel generally, and for Australian tourism specifically. Key factors underpinning this remain cheaper long-haul travel, via oil prices, and improved price competitiveness, as a result of the cheaper Australian dollar. The former was down 40%, and the latter down 11%, for the 2015 calendar year.

Either directly or indirectly, tourism employs around 8% of Australia’s workforce, or almost 1 million people. So the positive effects of growth in tourism will be widespread.

Australians are increasingly keen on travel in all forms: domestic trips, international trips, even day trips are all well above trend growth. With expenditure in each of these categories up 6-7%, Australians are spending a larger share of their incomes on travel. Almost half of this extra spending was associated with leisure travel.

The impact of a lower Australian dollar hasn’t been as clear-cut as some would expect, explained Smirl: “We haven’t seen a sharp substitution from international to domestic holiday travel. Australians are seeking out cheaper destinations, holidaying for shorter periods, or in part absorbing the higher prices. The picture is more nuanced, but a return to Australian’s love interest with local holiday favourites is evidently upon us.

“One form of travel that has declined drastically is air passenger levels into the Western Australian mining centres. The local FIFO index is down 27% from its peak in January 2013 and at the current rate, will be back to pre boom levels in two to three years. The challenge for Perth, and Western Australia in general, is to facilitate leisure tourism. Major projects underway, including Elizabeth Quay and Perth Stadium, will help to enhance the visitor experience over time.”

Story Bridge Brisbane

Other key highlights from H2 2015 included:
-Though not a major contributor of volume, business travel from a number of South East Asian markets, including Hong Kong, Indonesia, Malaysia and Singapore, was down 25%;
-Tasmania topped the growth league table, with international visitor numbers growing 19%, boosted by a 40% increase from China;
-Victoria saw the second fastest growth in international visitor arrivals – 11% evenly split between corporate and leisure travel;
-Visitation to the Northern Territory slid backwards for holiday travel, and was flat overall for 2015. Flight reductions were a contributory factor, although low seat utilisation was also at play;
-In South Australia, Cricket World Cup visitation in the first half of the year offset reductions in international services from Air Asia X, leaving international visitation up only 0.5%;
-Gold Coast Airport overtook Adelaide as Australia’s 5th fifth busiest international airport, and has the potential to become a mini-transit hub for international passengers travelling with Air Asia X; and
-Tropical North Queensland also benefitted from peaks in the school holiday travel. Melbourne families are rediscovering the region with passenger volumes between Tullamarine and Cairns up 16% last year.

According to Smirl: “The macro drivers of international travel remain favourable for strong visitor growth to Australia. Despite increasing levels of global economic uncertainty, tourism remains poised to continue its impressive growth path.”

International visitor numbers are forecast to grow above five-year trend pace, increasing at an annual rate of 5.4% per year to December 2018. Asia will be responsible for 60% of this growth, with China alone responsible for 26%. The outlook suggests mixed fortunes for Australia’s legacy markets – New Zealand will contribute 10% of the additional nights, while mainland Europe will provide just 4%.

“With domestic travel conditions improving, our forecasts for domestic travel have been upwardly revised. Overnight visitor numbers are now forecast to grow 3.3% per year to December 2018. This is acknowledging Australians are keen to spend more of their budget on travel in all forms,” Smirl said.

The second half of 2015 saw the mixed fortunes that characterised the first half of the year continue to play out. Sydney, with the nation’s highest hotel occupancy at 88.5%, saw room rate growth of 8.8% annualised for the second half of the year, signalling that room rate growth expected to accompany such lofty occupancies is finally materialising.

Across the nation, room nights sold were up 3.3%, a noticeable increase from the 2.5% observed over the year to June. National room rates growth similarly accelerated over the second half of the year.

Fortunes were mixed across the major markets, with key Outlook highlights including:
-While rates in Melbourne grew 4.5% for the year, 93% occupancies in November were a record for the city;
-Hobart, a market an eighth the size of Melbourne by turnover, recorded the same feat in the same month;
-Queensland’s beaches posted the biggest gains in occupancy, with the Gold Coast and Tropical North Queensland recording increases of 3.0% and 4.8% respectively on the same period last year, although the latter was due to some properties being taken out of service for renovation;
-Mining hubs lagged as supply increases combined with softening demand to drag both occupancy and room rates lower in Brisbane, Perth and, especially, Darwin;
-Brisbane hoteliers had a good run during the G20 meeting at the end of 2014, with room rates the city’s highest on record, but they struggled to see growth in performance for most of last year;
-Despite significant supply increases, the Darwin market effectively contracted 8.4% over 2015, as measured by total takings; and
-Canberra was the quiet achiever, where additions to supply masked 10% growth in room nights sold.

Looking forward, 64 properties are due online before the end of 2018 across the nine major hotel markets analysed in the Outlook. This represents a significant swelling of the supply pipeline from the August 2015 report, with the new room count up 12% in likelihood adjusted terms. Another 30 projects are mooted for regional hotel markets, although many are in the 50-room category.
Activity is not limited to additions in supply, with transaction volumes well up on previous years. 62 existing hotel sales were recorded in 2015, with an aggregate value of AU$3.77bn, AU$1.2bn more than 2014.

Key Outlook forecast points, include:
-8,650 rooms are expected to be added to the nation’s major hotel markets, and a further 3,900 in other regional markets, over the next two-and-a-half years, pushing supply higher at an average annual pace of 1.7%;
-Supply growth outlook is led by Perth, with likelihood-adjusted expectations of an additional 1,900 rooms by the end of 2018;
-Hobart now has nine properties in the pipeline, and will undergo its own small boom in hotel construction, with room nights available increasing at 5.6% per year;
-Over the next three years, supply growth is expected to be healthy, but more moderate, in Brisbane (4.1% per year) and Adelaide (4.0% per year);
-In Sydney and Melbourne, where 90% average occupancy is in sight, supply is still forecast to trail demand despite a number of high profile projects coming onto the market over the next three years;
-Of any market, the relative growth prospects have improved most for Canberra given its hotel stock upgrades and refurbishments, and the expected arrival of direct international flights from Singapore and Wellington; and
-The projected national performance outlook remains one of demand growth (3% per year) outstripping supply growth (1.6%) and occupancies forecast to climb 2 percentage points to just above 71.3% by December 2018.

Smirl added: “The range of forecast performance across markets is widening as the sector’s growth drivers shift. With corporate travel following the nation’s economic transition back to the south east, so too is short stay accommodation demand, in turn putting further pressure on the already stretched Melbourne and, particularly, Sydney markets.

“At the same time, a resurgent domestic leisure segment is buoying demand for holiday hot spots from Tasmania to Queensland’s beaches and emerging Asia continues to propel markets successful in luring these high growth segments.

“Indeed, it is the Gold Coast that is projected to post the largest occupancy gains, leading up to the 126,000 visitors expected for the Commonwealth Games in April 2018,” Smirl said.

James Wilkinson

Editor-In-Chief, Hotel Management