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					                FRST Advisory Group
                               Tourism and Oil
                      9.45 to 12.15 on Thursday 30th October 2008



Attendees
  Present: John McIlree, Ross Clapcott, Don Lewis, Sam Peate, Julie Donaldson,
   Gerard Robertson, Sharon Jennings (by phone), Ann-Marie Johnson (by phone),
   Aaron Schiff, John Small, Andrea Carboni, Shane Vuletich, Susanne Becken
  Apologies: Christine Prince, Dave Hawkey, Kerry Marshall, Trevor Hall, James
   Lennox


AGENDA

10.00 – 10.15: Overview of research project and outline of morning (S. Becken)
10.15 – 10.40: “Tourism Consumption Bundles”: what do tourists do in NZ and how
              much do they spend (by 18 segments) (S. Becken, A. Carboni)
10.40 – 11.00: Tourism Price Index: the „price of tourism‟ over time and relationship to oil
              price (by 18 segments) (S. Vuletich, A. Schiff)
11.00 – 11.30: Tourist Arrivals Model: international arrivals to New Zealand and
              relationship to oil price (J. Small)
11.30 – 11.50: The bigger picture: developing a Tourism General Equilibrium Model (J.
              Lennox, A. Schiff)
11.50 – 12.00: At-risk sectors: insights from campervan tourists (S. Becken)
12.00 – 12.15: Steps from here. Summary. (S. Becken)




                                                                                          1
Minutes

1. Key points: “Tourism Consumption Bundles”
   • 18 segments have been identified (based on origin + style + purpose) and their
       consumption patterns were derived, i.e. what tourists do in terms of transport,
       fuel consumption, accommodation choices and other decisions.
   • We can observe changes in transport behaviour over time, but the patterns are
       complex and require more work (to be undertaken in the next 6 months); it
       seems that car and air kilometres have dropped and bus km have increased. The
       trends differ for the 18 segments.
   • Some tourists spend substantial amounts of dollars on fuel (directly), i.e. as a
       result of car or van hire.

                         Spend per trip on fuel, based on Car+Campervan kms

       $350.00
       $300.00
       $250.00
       $200.00
       $150.00
       $100.00
        $50.00
          $-                        er
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   •      The mode of “water transport” also includes „cruise ship tourists‟ and it might be
          appropriate to start separate investigations into the fuel dependency of cruise
          ship tourism, as well as price sensitivity of customers.
   •      Based on the consumption behaviour in each segment we created expenditure
          profiles – this gives some indication on how exposed a particular segment is to
          components that will increase in price due to higher global oil prices (e.g.
          transport components). We have full information for the years 1997 to 2007.

2. Key points: “Price Index”
    • We used the Consumer Price Index information from Statistics New Zealand to
       track the price of the different consumption bundles (the 18 segments, see
       above) over time.
    • To this end we had to match Statistics NZ categories with tourism components,
       e.g. the price index of air transport was matched with tourists‟ expenditure on
       domestic air travel. However, it was noted that many tourists use domestic links
       as part of their international fare and as a result the NZ consumer price index for
       air travel might be too high for the tourism context. More enquiries will be
       necessary to provide the best match.
    • Other categories that we could match were: Transport, Accommodation, Fuel,
       and Other (the general CPI).



                                                                                               2
   •    The total price a tourist pays for their trip within NZ (international airfare
        excluded) is composed of accommodation, air transport, other transport, fuel and
        other items. The share of each of these categories differs for the 18 segments.
        For example, China Tour visitors stand out for their high proportion on „other‟
        spending (mainly retail).

    Australia FIT Holiday
       Australia FIT VFR
      Australia FIT Other
           Australia Tour
              UK Holiday
      UK VFR and Other
        USA FIT Holiday
 USA FIT VFR and Other
                USA Tour
       Japan FIT Holiday
Japan FIT VFR and Other
              Japan Tour
         South Korea All
                China FIT
              China Tour
             Germany All
       Rest of World FIT
      Rest of World Tour

                            0%     10%    20%     30%     40%     50%    60%    70%      80%   90% 100%
   ACCOMMODATION               AIR TRANSPORT            OTHER TRANSPORT               FUEL     ALL OTHER



   •    The price of domestic air transport and fuel has gone up above inflation rates,
        whereas the other items in the consumption bundle have approximately followed
        inflation rates over the last ten year.
   •    Overall the „price of tourism‟ has increased faster than inflation in New Zealand;
        there is some variation across the 18 segments, but it is relatively minor.
1300
              Tourism      CPI
1250


1200


1150


1100


1050


1000


 950


 900
       1997      1998   1999     2000   2001    2002    2003    2004    2005   2006    2007




                                                                                                           3
   •   Exchange rate has fluctuated widely over the last 10 years for the major
       currencies, and the exchange rate effects dominate those of general price
       increases.
   •   When expressed in their own currency, the price of tourism in NZ has increased
       substantially for visitors from:
             USA
             South Korea
             Japan;
   •   The price of NZ tourism has decreased for visitors from the UK, and stayed about
       the same for other tourists (e.g. from Germany).
   •   It can be concluded that oil price influences the price of some tourism
       components, but to date the exchange rate effects have been much more
       significant.
   •   It was also mentioned that there might be other reasons why the price of tourism
       has increased above inflation. One possibility is that it is cost-based (e.g. oil, but
       also other factors, such as wages), another possibility is that it is yield based (i.e.
       higher prices can be demanded). The latter may be less likely.



3. Key points: “Tourist Arrivals Model”
    • We attempted to model quarterly arrivals to New Zealand for the 18 segments
       based on the following input variables:
            Real consumption per capita (foreign)
            Real GDP per capita (foreign)
            CPI (foreign)
            Exchange rate (foreign with $NZ)
            Oil price (world price)
            On the ground “OTG” price index (in foreign currency) = price of tourism
                in NZ
            Airfare (in foreign currency)
            Quarterly dummy variables
    • The data were taken from various sources, e.g. Statistics NZ, Treasury etc; the
       data quality differs for some of the „origin‟ data, e.g. GDP in home country. China
       in particular posed problems and the match of our model with past arrivals is not
       very good.
    • The „Real consumption per capita‟ in the home country was the single most
       important predictor of tourist arrivals. This was particularly true for tourists from
       the USA, Germany and China. It means that at times when consumption at home
       is high (as opposed to savings/investments), tourism to New Zealand is
       flourishing. We discussed that the current environment which is marked by
       economic pessimism and reluctance to consume might affect NZ tourism
       severely, especially from the countries mentioned above.
    • Another important variable was the Price Index in the home country (CPI), for
       example in the case of Japan higher prices at home mean more tourist arrivals to
       NZ.




                                                                                            4
   •   Airfares were also important, but only for some segments, for example those
       from the UK (who were also relatively sensitive to exchange rate and OTG
       prices)
   •   Oil price was significant in only three models, which highlights that at this point it
       has not been a major factor. However, it is important to note that oil price is also
       indirectly represented in other variables, e.g. aifares, CPI, OTG etc.
   •   The arrivals of British VRF and Other (i.e. mainly business) tourists, for example
       seem to be influenced by: Exchange rate, Oil price and OTG price (see model
       below). The model matches well, but fails to predict the seasonal extremes.




   •   Given that we do not have data for many substitutes visitors have for travel to
       New Zealand, these are not demand systems, so they can not be used to
       estimate demand elasticities for international travel to New Zealand (e.g. as
       reported in several overseas studies).
   •   More detailed analysis, that could be used to estimate elasticities, may be
       warranted for a smaller set of markets. This would help to assess NZ‟s
       competitiveness compared with other destinations. Key markets of interest could
       be Australia and the UK, although it might also be useful to consider emerging
       markets such as China.
   •   For any work of this type, data is the key constraint. It might be worthwhile to
       start putting data collection systems in place for future competitiveness analyses.
   •   It is clear from these models that travel decisions are driven by a complex set of
       factors and are not simply a matter of price. This is a partial explanation of why
       NZ has been relatively resistant so far to exchange-rate drive changes in price
       that – in theory – could have resulted in severe reductions of arrival numbers.

4. Other
    • We briefly discussed the Energy Survey that was undertaken in partnership with
       TIA (417 responses). Key results were that
           Businesses seemed to be sensitised to the issues of energy and carbon
              emissions
           A lot of them have already implemented energy reduction measures



                                                                                                5
            Energy is a substantial cost factor for many sub-sectors, in particular
              accommodation (more than expected)
            Results will be available shortly via TIA and LEaP (www.leap.ac.nz)
   •   Key results were also represented from the campervan survey undertaken in
       partnership with KEA Campers (over 800 responses):
            Tourists are environmentally conscious but less so than in last year‟s
              survey; tourists‟ perception is likely to be influenced strongly by media
              etc, which was more prominent in 2007 compared with 2008
            Transport behaviour in NZ (i.e. km travelled by campervan) does NOT
              relate to how environmentally conscious tourists are.
            When responding to higher fuel prices, tourists are most likely to reduce
              spending on restaurants. Second to compromise is accommodation,
              followed by activities and travel distance. Tourists are unlikely to
              downgrade their campervan to a smaller (and more fuel efficient) one.

Outlook:

The research team will continue research in the above areas to identify tourists, regions
and products that are at risk from higher oil prices. We will also increase our efforts on
identifying strategies for reducing vulnerability to high energy costs. For this we rely on
partnerships, for example with EECA, TIA, the Ministry of Tourism etc.
It is also suggested to organise a Think Tank with the Ministry of Tourism and Tourism
New Zealand (and possibly the Ministry of Transport and AirNZ) to discuss the
implications of the arrival modelling and to develop alternative ideas for understanding
tourist arrivals in the future.
Another research stream that we were not able to discuss at this meeting relates to the
General Equilibrium Model (James Lennox from Landcare Research) that will be
completed in the next 6 months. With this we will be able to look at wider implications of
high oil prices for tourism and the whole economy. We will then also be able to discuss
how the model could be used for other purposes, e.g. the impacts of the Emissions
Trading Scheme.

The presentations from this meeting and other relevant material will be available for
download from the Land Environment & People website at:

http://www.leap.ac.nz/site/story.asp?bid=24&storyid=25248

Or contact: S. Becken (beckens@lincoln.ac.nz)




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