The winners and losers as 'revenge spending' takes hold and Australian travellers are encouraged to dream

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Australia’s tourism industry has the potential to rebound strongly from Covid-19 thanks to ‘revenge spending’; a term coined to describe pent-up Chinese consumer demand in the 1980s that was unleashed after the chaos and poverty of the Cultural Revolution.

 

Fast-forward to today’s unique situation and every Australian who’s been stuck in isolation has probably quaran-dreamed about the places they’ll go, when we can finally leave our houses. Tourism Australia has been encouraging isolated travellers to dream a little bigger with a LIVE program of virtual events from underwater experiences to backyard BBQs, hosted by some of Australia’s most iconic personalities.

 

With many investors expecting the domestic leisure segment to lead the recovery, hoteliers are hoping for a swift turnaround when we finally elbow bump goodbye to the coronavirus. Indeed, a ring-fenced Australian public offers unrivalled opportunity if destinations can attract the more than 6 million Australians who headed overseas for a holiday in 2019. But where will prosper and for how long?

Ring-fenced Australians can provide a much-needed sugar hit

A watershed moment for the tourism industry, Australia became a net exporter of tourists for the first time in history in 2007.

The outbound travel trend by Australians has grown exponentially over the past decade, far outpacing the growth in inbound visitation. The Australian visitor index reached a low point in FY12 of 0.747 when weakness in the global economy weighed heavily on inbound tourism demand, whilst the relative strength of the Australian economy and the record high Australian Dollar spurred more Australians to head overseas. In FY19, 11.3 million Australians headed outbound, far outweighing the 9.5 million visitors who arrived on our shores and resulting in a visitor index of 0.832.

 

Australian Tourism Visitor Index – Inbound/Outbound Visitors FY08 to YTD March FY20

 

Source: Australian Bureau of Statistics, Colliers International

Note: Australia is a net exporter of visitors when the index is below 1.0

 

The Australian holiday visitor index – as the segment most likely to drive the recovery post-Covid-19 - is even more pronounced, whilst mirroring the same trend.

Almost twice as many Australians headed overseas for a holiday in FY12 as international visitors came here with an Australian holiday visitor index of 0.568. The holiday visitor index narrowed over the next five years as the Australian dollar declined and Chinese tourism boomed to reach 0.732 in FY17. The index has moderated again over the past three years to average 0.687 in FY19.

A ring-fenced Australian public therefore has the potential to bring unquantifiable benefit to the local hotel and tourism industry with domestic leisure travel able to outweigh lost international leisure tourism demand, but timing will be critical.

 

Nothing can stay gold forever

Growth in domestic leisure tourism will provide a short-term sugar hit but is likely lose its luster once government stimulus unwinds and Australia’s international borders reopen.

Outbound travel from Australia typically experiences three peaks throughout the year, in accordance with the school holiday period. The exception is during the Easter (April) school holidays. During these peak months outbound travel increases above the monthly average with growth ranging between 20% and 47% in 2019. Outbound leisure travel follows a similar trend but with a greater increase evident in July and October of up to 30% when the weather is more inclement.

Australian Outbound Travel – Monthly Seasonality 2019

 

Source:Australian Bureau of Statistics, Colliers International

Whilst the Commonwealth is yet to announce a date for the resumption of international travel, consensus dictates that it is unlikely to be before the end of this year. If eventuating, the proposed trans-Tasman bubble is also likely to yield greater tourism benefit to New Zealand and the Pacific Islands than to Australia given the size of the respective travelling populations.

Whilst some outbound trips proposed by Australians for 2020 will be foregone, others will be pushed into next year should the household budget permit, or beyond. The opening of some European borders ahead of the summer vacation period will provide further insight into the future appetite for international travel.

Australian Outbound Travel – Growth in Peak Periods v Annual Average 2019

Source:Australian Bureau of Statistics, Colliers International

Extraordinary amounts of fiscal and monetary policy support have been injected into the Australian economy, obscuring the extent of the near-term damage to economies, businesses and households. Many are expecting a second wave of redundancies later in 2020 once the stimulus unwinds and the longer-term impacts of Covid-19 are better understood.

Arguably, the window for ‘revenge travel’ is therefore over the next six months with intrastate short road trips likely to be favoured in the near term and anecdotal evidence of an uptick in bookings for the June Queen’s birthday long weekend. If cases remain low as social distancing measures relax, confidence and aspirations for travel will continue to grow and Australians will start to venture further afield, particularly as the colder months set in. This is likely to result in a W-shaped recovery for those states which are open to domestic interstate travel.

 

Intrastate travel - a boon for New South Wales and Victoria

The reopening of state borders has emerged as a point of tension between the federal and state governments, as the Commonwealth seeks a return to unrestricted domestic travel, while states with low rates of infection are anxious to preserve their isolation. But at what economic cost?

All states and territories except New South Wales, Victoria and the ACT have put some border restrictions in place to limit coronavirus transmission, although the Commonwealth insists it never advised borders to close. The Queensland premier has suggested its borders are unlikely to open before September, and other states have shown no urgency to reopen with South Australia, Western Australia and the Northern Territory all reiterating that they would not be changing their position anytime soon. The Tasmanian premier has also indicated that the earliest for the island state would be July.

New South Wales and Victoria, Australia’s two most populous states, are the largest state economies, together accounting for 56% of the Australian economy. They are also the jurisdictions with the largest intrastate holiday markets, together accounting for 57.3% of all nights spent in Australia in 2019. This should stand them both in good stead over the coming months as ‘revenge spending’ takes hold.

Australian Intrastate Holiday Nights 2019

Source: Tourism Research Australia, Colliers International

 

Closed borders in South Australia, Northern Territory and Tasmania will have a more pronounced impact on their tourism markets with a far greater reliance on interstate travel. It is Queensland, and to a lesser extent Western Australia however, that stand to bear the brunt of the economic cost should borders remain closed for an extended period as previously foreshadowed.

 

Australian Interstate Holiday Nights 2019

 

Source: Tourism Research Australia, Colliers International

 

Queensland & Western Australia – the greatest potential to boost state coffers

Analysis of the larger five state domestic tourism indices (all purposes of travel) highlights how Queensland and to a lesser extent Western Australia have the potential to be the primary beneficiaries of ‘revenge tourism spending’ with one of the highest domestic tourism indexes as highlighted below.

All five states except for Victoria are net importers of domestic visitors with the domestic visitor index ranging between 1.21 in South Australia and 1.12 in New South Wales in 2019 with a high degree of domestic business and leisure travel between the states. Victoria on the other hand exported more visitors than it received in 2019 with a domestic visitor index of 0.93. This partly explains why the state has always worked harder to promote a strong calendar of events as it attempts to tip the balance back in its favour.

Australian State Tourism Index – Visitors in 2019

Source: Tourism Research Australia, Colliers International

 

The domestic tourism index is even more pronounced for visitor nights which takes into the account the duration of stay. This is a better reflection of domestic leisure travel trends with longer stays evident for holiday travel than for business trips and highlights those states which are likely to benefit from a ring-fenced Australian public.

 

Australian State Tourism Index – Visitor Nights in 2019

Source: Tourism Research Australia, Colliers International

In this regard, only Queensland and Western Australia are net importers of domestic tourism with a visitor night index of 1.29 and 1.27 respectively in 2019. This compares to a more balanced 0.98 in New South Wales. South Australia and Victoria fare worse with a domestic visitor night index of 0.86 and 0.66 respectively. This highlights that, in the absence of international tourists, it will be the residents of Victoria which offer the greatest opportunity to other state tourism economies with a high propensity to traverse state borders in the pursuit of warmer climes. A trend which peaks through the colder parts of the year.

 

In Summary

Australia’s tourism industry has the potential to regain some of the losses from Covid-19 thanks to ‘revenge spending’ and a rebounding domestic leisure segment after Australians have spent more than two months cooped up indoors.

Restricted domestic flight schedules are putting the once mainstay of Australian tourism – the great road trip – back on the cards. This has the potential to bring significant economic benefit to regional towns over the next few months.

As social distancing measures relax, the freedom now being afforded is also encouraging Australians to dream a little bigger and plan bucket-list trips as they look to rediscover the beauty of their home shores. Proximity to the two largest southern state economies affords Queensland the greatest opportunity to thrive as the brightness of the sunshine has never glowed so strong, but timing will be key.

'Charting the Course' series

Colliers International Hotels team have put together a series of articles to help the hotel and tourism industry chart the course to recovery, as one of the sectors most acutely impacted by social distancing measures introduced in response to Covid-19.

For more insights and articles, please click the image below to be redirected to our home page.

 

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