Tourism and Hotel Market Outlook 2015 Mid year update August 2015
Executive summary
2015 continues to be a standout year for Australian tourism, as the sector’s key macroeconomic drivers have remained favourably orientated. While the pace of growth in the global economy has been slower than anticipated, it has nevertheless supported international visitor arrivals growing above trend, as both the depreciation of the Australian dollar and a sharp fall in oil prices—which both increases income growth and reduces the cost of travel—have buoyed demand for the Australian experience.
Though forecasts for near-term economic growth have been downgraded, growth among Australia’s tourism source markets is nevertheless forecast to strengthen and, with it, so too is the outlook for tourism. Stronger tourism growth means stronger hotel demand and with the supply pipeline steady the nation’s average occupancy is forecast to push higher. However, with both the demand outlook and the supply pipeline varying significantly across the nation’s major hotel markets, the variation in expected performance is wider than ever. Domestic tourism Domestic tourism continues to grow at pace, with trips growing by 6.1% and nights by 8.5% over the year to March. Although a slight tick down from the growth posted in the year to December, domestic travel continues to grow faster than at any other time in the past 15 years. This didn’t, however, translate into the same pace of growth among domestic travellers staying in paid accommodation—this, in contrast, grew only modestly, as visitors sought alternative lodging options. Encouragingly, the fluctuating fortunes of domestic leisure travel swung back in the positive direction, with trips up multiples of their decade average at 4%. Interstate leisure travel (i.e. excluding intrastate holidays) grew faster again at 5.3%. However, the standout among the domestic travel segments was again corporate travel which, along with employment and
2
education purposes, grew 14%. While the Australian economy slowed and digital technology continued its disruptive path, Australian business women and men continued to travel in record numbers. Patterns of growth across the states and territories moved only partly in step with the fundamentals. The ‘two-speed role reversal’ was mildly evident in Victoria, where both trips and nights grew above average. The same, however, could not be said for New South Wales where growth was only half that observed nationally. The standout performers were Tasmania— which continued a run of growth of two years and counting—and, unexpectedly, Western Australia, where both domestic visitor numbers and nights grew close to 15%. WA growth in particular was led by stays in private accommodation. While domestic travel surged, growth in the number of Australians travelling abroad continued to slow, easing back to 2.9% over the year to June. After growing at an average rate of 11% a year for the last decade, outbound holiday travel came to a grinding halt, falling 0.2% over the year to June. In some respects, this headline masks the extent to which outbound travel trends are changing. Not only is the growth in trips slowing, Australians are opting for cheaper destinations, then staying for a shorter periods and spending less.
more encouraging since the global financial crisis. THREE-YEAR FORECAST GDP GROWTH
6.8 2.9 2.4 6.5 %
CHINA
AUSTRALIAN DOLLAR IN 2014
-9
%
%
%
US
UK
OIL PRICES IN 2014
%
SOUTH-EAST ASIA
OTHER FACTORS • Destination marketing and major events • Short stay accommodation: a pipeline of
-50 7.4bn %
Forecast for continued growth in the medium term Emerging Asia will continue to be the driving force – accounting for 60% of total growth – but the outlook for several of Australia’s traditional markets is also strengthening.
3.7% 4.6% NORTH AMERICA
UNITED KINGDOM
2.1% EUROPE
8.3%
3.1% JAPAN/ KOREA
CHINA
5.1% WORLD
7.4%
S.E ASIA (INCL. INDIA)
4.7% OTHER
3.2% NEW ZEALAND
Note: circle size denotes the market volume, percentages shown are three year forecasts
International tourism The recently released June arrivals data confirms that Tourism and Hotel Outlook 2015 | Australia inbound arrivals have maintained their momentum through the first half of 2015, albeit at a marginally more moderate pace. Arrivals grew 6.6% over the year to June and, encouragingly, leisure travel remained among the major drivers, posting growth of 5.4%. China edged closer to joining New Zealand in the illustrious million visitors per annum club, outperforming its last five years to grow by 22% and marginally eclipse visitation from India, which grew 19% as cricket fans flocked to Australia’s stadia. Emerging Asia was joined in the growth stakes by some of Australia’s tourism stalwarts as the United States (9.0%) continued its stellar run and New Zealand (3.6%) out-paced historic trends. Visitation patterns across the nation are somewhat more difficult to gauge given lag in data publication. However, as
with domestic tourism, it was Tasmania atop the growth league table. The island state posted a remarkable 28% 5 growth in arrivals for the year—well clear of Victoria with a nevertheless impressive 11.6%. Hotel performance It’s been a modest first half of 2015 for Australia’s hotels, as the strong growth in tourism flowed through only partially to increasing demand for commercial accommodation. Indeed, room nights sold (RNS) in commercial accommodation were up a relatively modest 2.6% over the year to June (STR Global). Nevertheless, the trend of demand outpacing supply continued and Australia’s national average occupancy edged higher as a result. On average—and indeed across many of the major markets—room rate growth over the first half of the year has been restrained, with the nation’s Average Daily Tourism and Hotel Outlook 2015 Australia 3
Rates (ADR) increasing at a trend rate of 1.3% for the year to June (2.6% annualised - STR Global). Performance was led by Queensland’s beaches—with the Gold Coast posting RevPAR growth of 3.7% and Hobart 3.5%— while the mining states lagged, as supply increases teamed with softening demand to drag both occupancies and room rates lower (STR Global). Outlook Macroeconomic developments While the global economy looks set to underperform relative to economists’ expectations in 2015, the medium term remains encouraging for Australian tourism. With the US, the UK and even the Eurozone all charting courses back toward trend from their post-GFC malaise, it is a generally strengthening outlook across Australia’s traditional tourism markets (albeit not as strong as expected six months prior). Though the risks around the outlook for China are increasing, the central case remains conducive to strong growth in outbound travel—and the long term upside remains massive given where China sits on the economic development curve. However, China may well be eclipsed by India, with the world’s tenth largest economy expected to post faster growth in 2016. Meanwhile, the Australian dollar looks likely to stay around current levels relative to the US—but may even drift lower—however oil prices are expected to rebound over the medium term. On the domestic front, growth in the Australian economy is expected to remain below trend, as it continues to wrangle the post-mining boom transition. Domestic and international tourism The outlook for domestic tourism reflects a composite of factors which are pulling, at least in some cases, in conflicting directions. The nation’s economy is forecast to grow below trend over the next two years. The anticipation, therefore, would be that domestic corporate travel grows below trend also. But as recent defiance has indicated, travel is an everyday part of business, even when economic conditions are sluggish. Wage growth is projected to remain meek and with it discretionary expenditure.
4
However, against these headwinds, is an AUD depreciation-fuelled 25% improvement in relative prices—the impacts of which are still in their early stages of materialising—and big boosts to the affordability of air and road travel, thanks to lower crude oil prices. On balance, therefore, our forecasts indicate domestic travel growing at 2.7% p.a. to December 2017—modest relative to the results posted over the last 12 months but a considerable out-performance of longer term trends. Our outlook for outbound travel remains unchanged at a medium term range of 3–3.5% p.a. however the associated confidence intervals have narrowed as trend growth has moderated. Conditions across the global economy remain strongly supportive of international travel and favourable for Australia—as we remarked earlier in the year, they haven’t been this favourable since before the GFC. However, with the downgrading of the global economic outlook has come a modest downgrading of forecasts for international visitor arrivals, with visitor numbers now projected to grow at an average pace of 5.2% over to end 2017. This forecast would see international visitor numbers grow at trend rather than above. Hotel performance The national performance outlook remains as it has for some time, with demand growth (2.5% p.a.) projected to outstrip supply growth (1.3% p.a.) and occupancies pushing higher as a result. Nationally, the rate of occupancy is forecast to climb 1.5 percentage points to just above 70%. However, 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. 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 with direct exposure. The single biggest driver of the performance divide is, however, supply. With big pipelines across several cities edging closer to realisation, occupancies will recede across several major markets.
About the Tourism Hotel Market Outlook This document presents a snapshot of the Deloitte Access Economics’ Tourism and Hotel Market Outlook, which is available via subscription by contacting Bryon Merzeo at
[email protected] Tourism and Hotel Market Outlook provides in-depth analysis of recent trends and their underlying drivers, across the domestic and international tourism sectors and ten of the country’s major hotel markets (including all capital cities). Against the backdrop of Deloitte Access Economics’ latest economic forecasts, projections are provided for domestic and international tourism over the next three years. Building on projected travel demand and utilising our in-house registry of short stay accommodation projects, detailed three-year forecasts are provided for hotel market performance against room rates, RevPAR and occupancy. Data and forecasts are accompanied by detailed commentary of market drivers and performance determinants. While our forecasts are based on a forecasting methodology and a hotel market model developed over 15 years, Tourism and Hotel Market Outlook is designed for a general audience. To discuss how this capability can be tailored to a bespoke market or market segment, please contact us (contact details overleaf).
Tourism and Hotel Outlook 2015 Australia 5
Contact us
For further information on how we can support your business needs, please contact one of our Travel, Hospitality and Leisure specialists:
Lachlan Smirl Leader, Tourism and Hotels Tel: +61 3 9671 7567 Email:
[email protected]
Bryon Merzeo Consultant, Tourism and Hotels Tel: +61 2 9322 3917 Email:
[email protected]
Damian Winterburn Deloitte Capland Real Estate Advisory Tel: +61 7 3308 1200 Email:
[email protected]
David Boyd National Leader, Consumer Business Tel: +61 3 9671 7077 Email:
[email protected]
Limitation of our work General use restriction This report is not intended to and should not be used or relied upon by anyone else and we accept no duty of care to any other person or entity. The report has been prepared for the purpose of providing an outlook on hotel industry performance in Australia. You should not refer to or use our name or the advice for any other purpose. Deloitte is recognised as one of the leading global advisors to the Tourism, Hospitality and Leisure industry, with a practice of more than 2000 professionals. In Australia, our multidisciplinary group of industry specialists have a deep knowledge of the market issues and business challenges faced by the industry. Your industry, our expertise Our dedicated practice provides a wide range of services to financiers, property owners, investment fund managers, private investors, developers, operators, government departments, professional and business groups and tourism intermediaries. We offer a full range of services to address key industry issues associated with economic conditions, regulatory change, competition, emerging market sectors, technological advancements, mergers & acquisitions, and changing needs of investors. Deloitte Access Economics specialises in providing economic modelling and public policy advice to the tourism industry, with extensive experience in forecasting and projections, econometric analysis, economic impact studies across both government and the private sector.
6
This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence. About Deloitte Australia In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms, Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country. Focused on the creation of value and growth, and known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients and our people excel. For more information, please visit Deloitte’s web site at www.deloitte. com.au. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited © 2015 Deloitte Touche Tohmatsu.
