As Australia’s resource super-cycle subsides and the commodity export tailwind falls away, the need for a focus on new export channels is becoming increasingly apparent. The country’s terms of trade – the ratio of export prices to import prices – are now at a decade low and the current account deficit continues to widen. While some may see this as challenge for the economy, it can also present an opportunity.
One new export channel that can sustainably address the gap is tourism.
The tourism industry in Australia currently accounts for 3% of Gross Domestic Product (GDP) or A$40bn in value. This figure is set to grow with Chinese inbound arrivals being the key catalyst as the lower Australian dollar broadens the tourism appeal. The activity increase has also seen the private sector respond, as evidenced in services sector job growth.
According to Tourism Research Australia, international visitor numbers into Australia are up 8% annually to December 2015 and the continued emergence of Chinese outbound tourism leaves the industry with a strong outlook.
Sydney and Melbourne remain by far the most popular cities for Chinese visitors with both destinations experiencing strong growth over recent years, with further acceleration seen in the last 12 months. However, the most meaningful recovery in Chinese visitor numbers over the last two years, after some very weak numbers in late 2013, has been in the Gold Coast. Overall visitor numbers are materially smaller in the Gold Coast, relative to Sydney and Melbourne but the upside is greater. Airline capacity to the Sunshine State has materially increased and with it being relatively more expensive to take an overseas holiday for Australians now, domestic travel has become more attractive and Gold Coast is the greatest beneficiary.
It’s not just the number of visitors, it’s the amount those visitors are spending that’s increasing rapidly too. International visitor expenditure rose 18% in 2015, the strongest annual growth rate in 14 years. This growth was supported by a 45% increase in spend by Chinese visitors over the same period. Further, Chinese visitors now account for over 20% of total expenditure by international visitors on trips to Australia.
There are many sectors that are poised to benefit from this national surge in tourism. Notably;
- Airlines and airports as more visitors enter the country and travel domestically e.g Qantas, Sydney Airport
- Hotels/resorts which are currently experiencing record capacity in the major cities e.g Event Hospitality and Entertainment, Mantra Group
- Entertainment operators, particularly the Theme Parks on the Gold Coast e.g Village Roadshow, Ardent Leisure
Unlike the mining sector which is experiencing an abundance of supply, the tourism sector’s possible weakness could likely be a shortage of supply. The targeted increases in supply, while protecting the quality of local Australian attractions will need to be finely balanced. Otherwise, the strong inbound growth of Chinese visitors will not be a sustainable contribution to the Australian economy going forward.
Disclosure: Milford Funds Ltd. holds shares of all the companies mentioned apart from Mantra and Ardent, on behalf of investors.
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.