THE GFC AND AUSTRALIA'S TOURISM INDUSTRY RESPONSE - PDF - PDF

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					THE GFC AND AUSTRALIA’S
TOURISM INDUSTRY RESPONSE
Tim Quinn, Department of Resources, Energy, and Tourism
Overview

    I.  An overview of Australia’s tourism industry
    II. The impact of the GFC on Australia’s tourism industry
    III.Current economic environment
    IV. Government strategies
    V.  Specific industry experiences
               I.   Aviation sector
               II. Accommodation sector
    VI. Outlook
An overview of Australia’s tourism industry
Tourism contributes significantly to Australia’s economy

     In 2007-08, the Australian tourism industry:
     Directly generated:
     •    $40.6bn in GDP (3.6% of total GDP)
     •    $23.6bn in exports (10.1% of total exports)
     •    497,800 jobs (4.7% of total jobs)
     Indirectly generated:
     •     $29.8bn in GDP
     •     380,000 jobs

     Domestic tourism accounts for around 75% of industry GDP
The impact of the GFC on Australia’s tourism industry
The GFC has impacted the Australian tourism industry

         By sector (inbound, outbound, and domestic)
         •    2 out of 3 sectors are in decline
         •    Australia’s ‘credit’ sectors are in the ‘red’ - imports are up…
Main inbound market growth, 2009                             Growth by industry sector                   Dec 2007 to June 2009
   Malaysia                                                                               15
 Hong Kong
       India
  Singapore                                                                               10




                                                             Change (%, rolling annual)
        USA
      China
                                                                                           5
New Zealand
       Total
         UK                                                                                0
   Germany
    Canada
South Korea                                                                               -5
      Japan

               -30   -20     -10     0     10      20   30                         -10
                           Growth (2009 CYTD, %)                                               Inbound     Outbound         Domestic
             But the GFC needs to be examined in perspective

                               Other events have caused greater declines
                               •    Terrorist attacks - September 11 2001; Bali 2003
                               •    Health scares – SARS, H1N1 Influenza
                               •    Industry events – Pilot strike 1989
                                                                                                                                             25
                 6                                                                                            30
                              Change (RHS, %)
                                                                          Arrivals (LHS, mil)                 25
                 5                                                                                                                           20
                                                                                                              20
                                                                                  Sydney
                 4                                                                Olympics




                                                                                                                                 Frequency
                                                                                                              15                             15            GFC
Arrivals (mil)




                                                                                                                    Change (%)
                 3                                                                                            10                                   Asian
                                                                                                                                             10    FC
                                                                                                              5
                 2
                                                                                                                                               911;
                                                                                                              0
                                                                                                                                             5 SARS
                 1
                                                   Asian Financial                                            -5
                        Pilots Strike                                                 Bali  SARS
                                                   Crisis               Sept 11                  GFC
                                                                                    Bombing
                 0                                                                                            -10                            0
                     1981    1984       1987    1990    1993     1996     1999       2002       2005   2008                                       -20 -16 -12 -8 -4 0   4   8 12 16 20 24 28 32
                                                                                                                                                                 Growth (%, y-o-y)
Economic influences on tourism
The GFC’s relationship with tourism consumption

                 Wealth                                  Income



                           Pool of Financial Resources               Employment




        Save                 Propensities: Consume                    Confidence




    Discretionary Consumption                 Non-Discretionary Consumption

                                                Other G & S

  Tourism consumption: in real terms, down 1.3 per cent to $87.8bn
Incomes have declined significantly

                           The GFC has caused significant declines in the income and wealth
                                for many of Australia’s source-market economies
 Correlation between incomes and arrivals, Dec 2007 to June 2009
                          2%
                                       ARRIVALS
                          1%
  Change (year-on-year)




                          0%

                          -1%

                          -2%
                                   GDP
                          -3%

                          -4%
                                                           -22.5%
                          -5%
                                United States     Japan   Eurozone   United Kingdom   New Zealand
Employment and sentiment impact on discretionary spend

    The GFC has resulted in volatile consumer and business sentiment
    •    Declines in employment usually follows a decline in sentiment
    •    Unstable economic environments does not support tourism
                  60                                                                                                                                                    6
                  50
                                                                                                                                                                        4
                  40
                  30                                                                                                                                                    2

                  20




                                                                                                                                                                             Change (%)
     Change (%)




                                                                                                                                                                        0
                  10
                                                                                                                                                                        -2
                   0
                  -10                                                                                                                                                   -4
                  -20
                                                                                                                                                                        -6
                  -30
                  -40                                                                                                                                                   -8
                        Feb-79

                                 Feb-81

                                          Feb-83

                                                   Feb-85

                                                            Feb-87

                                                                     Feb-89

                                                                              Feb-91

                                                                                       Feb-93

                                                                                                Feb-95

                                                                                                         Feb-97

                                                                                                                  Feb-99

                                                                                                                           Feb-01

                                                                                                                                    Feb-03

                                                                                                                                             Feb-05

                                                                                                                                                      Feb-07

                                                                                                                                                               Feb-09
                                                        Consumer Sentiment Index (SA)                Full-time employment (lag 13 months)
The AUD has a significant influence on demand

    A high AUD makes Australia’s tourism product more expensive
    •    Tourism-balance of trade remains under pressure
     The AUD and tourism flows
          200                                                                                           40

                           150               New arrivals                                               45
     Net arrivals (000s)




                                                                                                        50
                           100




                                                                                                             AUD (TWI)
                                                                                                        55
                            50
                                                                                                        60
                              0
                                                                                                        65
                            -50                                                AUD
                                                                                                        70
                                                                             (inverted)
                           -100                                                                         75
                           -150                                                                         80
                               Jan-   Jan-    Jan-   Jan-   Jan-   Jan-   Jan-   Jan-     Jan-   Jan-
                                91     93      95     97     99     01     03     05       07     09
The GFC and government and industry responses
  Government and industry response ‘levers’

                               Government




Economic stimulus   Industry support    Policy development / alignment       Marketing




                                  Industry




 Hedging    Surcharges      Tarrifs          Costs     Marketing         Capacity
Short-run government strategies - indirect industry stimulus

 Economy-wide action                    Other G &
 •   Economic Security Strategy 2008 S
     ($10.4b)
 •   Nation Building and Jobs Plan ($42b)
 •   Export Marketing Development
     Grants ($200m)                                  Pre-GFC
 •   Building Brand Australia ($20m)
 •   Temporary business tax break ($2.7b) Post-GFC

 Economic stimulus provides opportunities
 for the tourism industry to leverage off a
 wider-economy recovery                              Tourism G &
                                                     S
Short-run government strategies – direct industry stimulus (i)
                                         Other G & S
 Tourism marketing and programs
 •    No leave, No Life
 •    Come Walkabout ($40m)
 •    Road for Recovery ($9m)
 •    TQUAL ($8m)
                                                                Post-GFC
                                               Pre-GFC
 Increased marketing designed to:
 •    maintain or recover market share
 •    develop ‘brand’ awareness

                                                         Tourism G & S
Australia’s Accommodation and Aviation industries’
           and the Global Financial Crisis
Short-run industry strategies

     The accommodation sector is:
     •    Reducing room tariffs and providing complimentary add-ons
     •    Managing employment structures
     •    Delaying investment

     Australia’s aviation industry is:
     •    Reducing airfares
     •    Revising operational strategies (routes and capacity)
     •    Delaying investment such as deferring delivery
     Accommodation industry
             Lower demand is driving down yield
              • Will the past be a good predictor of the future?
     Price
                                                                   25
                     (SR)Supply

                                                                   20


                                                                   15




                                            Change in RevPAR (%)
                                                                   10
P0
                                                                    5


                                                                    0


                                                                    -5
P1                                                                                                                                                                  Where is this
                                                                                            Consistent                                                             cycle's trough?
                                                                   -10
                                                                                              trough

                                       D1                          -15
                                  D1
                                                                         Mar-90




                                                                                           Mar-93




                                                                                                             Mar-96




                                                                                                                               Mar-99




                                                                                                                                                 Mar-02




                                                                                                                                                                   Mar-05




                                                                                                                                                                                     Mar-08
                                                                                  Sep-91




                                                                                                    Sep-94




                                                                                                                      Sep-97




                                                                                                                                        Sep-00




                                                                                                                                                          Sep-03




                                                                                                                                                                            Sep-06




                                                                                                                                                                                              Sep-09
                    Quantity
Accommodation industry

    Mixed fortunes compared to the last significant downturn (2001)
     • Room rates are supporting a more severe decline in yield
     • Room values have declined significantly *investment alert*
                 Value Per Room      Occupancy               ADR            RevPAR
         0.0%



         -5.0%



        -10.0%



        -15.0%



        -20.0%



        -25.0%

                        Last Cycle           Current Cycle         Note: Uses moving annual average
Accommodation industry
   Lower and volatile revenues means that stock is at risk…
    • Proposed projects at five year low
    • Financing restrictions restricting development
    • Building approvals are 31% lower (Jan-Jun 09 y-o-y)
            5,000

            4,000

            3,000
    Rooms




            2,000

            1,000

                0                                                            Nov-06




                                                                                                  Nov-07




                                                                                                                     Dec-08
                     Sep-03




                                         Sep-04




                                                           Sep-05




                                                                                                                              Aug-09
                              Mar-04




                                                  Mar-05




                                                                    Mar-06




                                                                                         Mar-07




                                                                                                           Mar-08
            -1,000

                                       Openings                     Under Construction                         Proposed
Aviation industry
                                                        Domestic and international airfares
 Sharp decline in demand                                   25
                                                           20




                                                        Change (%, y-o-y)
                                                           15

   • Consistent domestic                                   10
                                                            5

     troughs                                                0
                                                           -5
                                                          -10
                                                          -15
                                                          -20
   • Sharpest decline in                                  -25




                                                                                  Oct-93

                                                                                           Oct-94

                                                                                                      Oct-95

                                                                                                               Oct-96

                                                                                                                        Oct-97

                                                                                                                                 Oct-98

                                                                                                                                          Oct-99

                                                                                                                                                    Oct-00

                                                                                                                                                             Oct-01

                                                                                                                                                                        Oct-02

                                                                                                                                                                                 Oct-03

                                                                                                                                                                                          Oct-04

                                                                                                                                                                                                   Oct-05

                                                                                                                                                                                                            Oct-06

                                                                                                                                                                                                                      Oct-07

                                                                                                                                                                                                                               Oct-08

                                                                                                                                                                                                                                         Oct-09
     international airfares in
     15 years                    International and domestic airfares, 1992 to 2009
                                      1200                                                                                                                                                                                              130

                                                                 1150
                                                                                                                                                                                                                                        120
                                                                 1100

   • Far greater than decline




                                                                                                                                                                                                                                                  Domestic (100 = 2003)
                                 International ($AUD)
                                                                 1050
                                                                                                                                                                                                                                        110
                                                                 1000
     in airfares during the                                                 950                                                                                                                                                         100

     Asian Financial Crisis                                                 900
                                                                                                                                                                                                                                        90
                                                                            850
                                                                            800
                                                                                                                                                                                                                                        80
                                                                            750
                                                                            700                                                                                                                                                         70
                                                                              Oct-92                Oct-94        Oct-96         Oct-98            Oct-00             Oct-02        Oct-04         Oct-06            Oct-08
    Aviation industry
              Lower revenues has resulted in significant drop in profits
               •     Airlines are strategically assessing the balance sheet
                           •    Strategic hedging (Jet-fuel)
                           •    Moving away from full service
                           •    Employment: Increased use of flexible workforce
Change in operating profits                                  Aviation employment restructuring
                                                                                        30




                                                             Part-time:Total jobs (%)
Virgin Blue
                                                                                        25

                                                                                        20

   Qantas                                                                               15

                                                                                        10
          -300   -250    -200    -150     -100     -50   0                                   Aug-   Feb-   Aug-   Feb-   Aug-   Feb-   Aug-
                        Change (%, year-on-year)                                              06     07     07     08     08     09     09
Outlook for Australia’s tourism industry (2010)
Short term outlook
    Downside risks dominate the outlook
     • Second round economic effects
              – Investment
              – Regional employment
     • Strength of the Australian dollar
     • AH1N1 Influenza
    Tourism Forecasting Committee
     • Visitor arrivals to increase 3.1% to 5.5 million
     • Domestic trips to increase 1.8% to 70.1 million
     • Outbound departures to increase 4.5% to 6.0 million
     • Total consumption to increase 3.5% to $91.5 billion
Long term outlook
    Dynamic, long term policy settings are essential
     • Provide the basis for the growth
     • Provide resilience of the industry into the future

    The National Long Term Tourism Strategy
     • addresses both demand and supply issues
     • set the foundations for a more resilient tourism
       industry
     • positions the industry to take advantage of new and
       emerging high value market opportunities
Thank you