Significant inbound growth from the emerging economies of India and, in particular, China, and domestic demand stabilising after a prolonged period of decline, have emerged as positives for Australian tourism, according to Deloitte Access Economics’ Tourism and Hotel Market Outlook for Q1 2012.

1. Q1
2012
Tourism and Hotel
Market Outlook

2. 1 Background These risks noted, Australia’s economic growth is
forecast to be modest over 2012 before returning to
longer term norms. The nation’s GDP is projected to
Deloitte Access Economics’ Tourism and Hotel
expand by 3.6% in 2012, before moderating back
Market Outlook – Q1 2012 reports on the
to 3% in 2013 over the years thereafter. Inflation is
performance of Australia’s tourism and hotel
forecast to remain broadly within the RBA’s 2 – 3%
accommodation sector, based on data published
target range throughout the forecast period, with
by the Australian Bureau of Statistics (ABS) and
interest rates also expected to be relatively steady,
extrapolated through information from Tourism
provided a major downturn in Europe is averted.
Research Australia and other sources.
The domestic economy is expected to grow more
Forecasts to year-end 2014 are presented,
strongly than many of Australia’s traditional tourism
based on projections generated from Deloitte
source markets. The Eurozone is expected to contract
Access Economics’ in-house tourism forecasting
by 0.4% over 2012, and both the UK and Japan are
model and hotel accommodation sector model.
expected to expand only marginally. China, on the
These projections draw on Deloitte Access
other hand, is forecast to continue growing at a rapid
Economics’ macroeconomic forecasts, as reported
pace – exceeding 8% growth annually, over the next
in our quarterly Business Outlook publication.
five year outlook period – as will India and north east
The methodology used in this edition of the Outlook Asia (excluding Japan).
has changed since the last publication. Consequently
the forecasts presented in these two issues of the
Exchange rates
publications may not be directly comparable.
The recent strength of the Australian dollar,
which has seen it reach its highest level since the
floating of the currency in 1983, has been largely
1.1 The macroeconomic context driven by demand for Australian commodities in
expanding Asian economies. While this has led to
Economic uncertainty strong growth in the nation’s terms of trade and
Weakness in the global economy is expected to export earnings in directly affected sectors, it has
continue in 2012, with ongoing challenges facing presented challenges for other export (and import-
the Eurozone. The recent downgrading of France’s competing) industries, such as tourism. While a
credit rating is symptomatic of the continuing 2011 analysis by Deloitte Access Economics found
difficulties confronting the region over the coming the exchange rate had only a limited effect on
year. While Asian economies continue to perform international visitation to Australia – with growth
well overall, the easing in exports to the West is in incomes the more significant long term driver
seeing a moderation in growth in these countries. – a stronger relationship was found between the
World Gross Domestic Product (GDP) is forecast to exchange rate and outbound travel by Australians.1
grow 2.9% in 2012, before rebounding to 3.7%
The resilience of the Australian economy together
from 2013.
with the strength of the Australian currency have seen
Australia’s economic performance remains tied to the Australians making overseas trips at unprecedented
fortunes of other nations, with growth expectations rates, with a corresponding stagnation in the growth
heavily contingent on the performance of European of domestic trips in Australia. Expectations are for the
economies. If Europe averts a major economic Australian dollar to remain strong over the short term
downturn, and China and India continue to grow, – Deloitte Access Economics forecasts the AUD/USD
the economic outlook for Australia is robust. Indeed, exchange rate remaining close to parity until 2013 –
it may even outstrip expectations. If the situation in and hence for the associated economic opportunities
Europe unravels, the economic reverberations will and challenges to remain. Over the longer term, the
significantly dent the growth prospects of the global Australian dollar is forecast to moderate as global
economy, with negative implications for Australia’s economic conditions adjust.
economic outlook.
1
For an overview of the
findings of this research, see
www.tourism.australia.com
2

3. Tourism and Hotel Market Outlook Q1/2012
Labour force challenges in the Australian
The performance of Australia’s tourism sector
Skill and labour force shortages are among the
tourism and hotel accommodation most significant challenges facing the Australian
economy (and are issues discussed in detail in
industry remains tied to the the first report in Deloitte’s Building the Lucky
Country series, Where is your next worker?)2
strength of the business sector and With the resources boom driving demand for
workers, a moderation in migrant numbers and
the emergent Asian economies an increasing share of the population reaching
retirement age, constraints in the labour
market are becoming increasingly apparent.
Within the tourism sector specifically, labour
Exceptional events and skills challenges have long been identified as
2011 was a year of one-off events impacting on the a concern and, moreover, as a factor increasingly
Australian economy – the tourism sector included. affecting the industry’s performance. Not only
In particular, the industry was dealt several blows in do workforce issues impact on the quality of
Queensland, with the floods in the south east of the the tourism product, they also impact business
state and Cyclone Yasi effectively shutting parts of profitability with potential flow-ons for tourism
the industry down for a period of time. Conversely, investment and output.
the hosting of the Commonwealth Head of Government
In a 2011 study for the Federal Department of
Meeting (CHOGM) in Perth led to a boost for the
Resources, Energy and Tourism, Deloitte Access
industry in Western Australia, with very high demand
Economics undertook a survey of tourism
for hotel accommodation in the lead up to and
employers to review the nature and severity of
throughout the conference.
labour force shortages.3 Around half of surveyed
If unique events such as the floods and cyclone employers indicated they were experiencing
in Queensland were not challenging enough for recruitment difficulties; skills deficiencies and/
hoteliers and tourism operators, events in source or retention difficulties, with these challenges
markets provided additional difficulty. Both Japan most pronounced in the Northern Territory and
and New Zealand were struck by major natural Western Australia. Furthermore, the industry
disasters (earthquake and tsunami, and earthquake, reported that 9% of advertised jobs went unfilled,
respectively) which dented both economic performance compared to a whole-of-economy rate of 2%.
of these countries and the appetite of their citizens for This is equivalent to a shortage of 35,800 workers
international travel. The pace at which these regions Australia-wide.
recover and travel patterns return to their norms will
Labour force forecasts developed by Deloitte
determine the outlook for these tourism markets.
Access Economics indicate that, without policy
change, the shortage in tourism workers will
Labour market conditions increase to 56,000 by 2015. Around half of these
The tourism industry is a labour-intensive one and, positions are likely to be skilled occupations, with
as a result, its fortunes are highly sensitive to labour demand highest for kitchenhands, waiters, cafe
availability and wages. Over recent years, labour and restaurant managers and chefs.
force challenges facing the tourism sector have been
Based on the findings of this research,
2
For more information heightened by the strength of Australia’s mining
the Tourism 2020 Labour and Skills Working
on this report, visit: sector which has placed upward pressure on wages
www.deloitte.com.au Group is implementing a range of initiatives to
and drawn workers from tourism-related sectors.
help address the labour force challenges facing
3
For more information Deloitte Access Economics forecasts steady growth in
on this report, visit: the sector.4
www.ret.gov.au/tourism wages over the Outlook period, with nominal earnings
forecast to increase 4.4% in 2011 – 12, before more
4
For more information on
Labour and Skills Working moderate growth over the period 2012 – 13 through
Group initiatives, visit: 2014 – 15.
www.tourism.gov.au/labour
3

4. The improvement follows several years of declining
While the economic challenges
domestic visitation as increasing numbers of Australian
holiday makers took advantage of the high Australian
dollar and strong growth in incomes and ventured
will remain, the outlook overseas.
for the tourism and hotel The changing composition between international
and domestic tourism presents both challenges and
accommodation industry is an opportunities for the sector. The rapid emergence of
source markets such as China is benefiting regions and
encouraging one offerings that appeal to Chinese preferences. At the
same time, the decline in domestic visitation presents
challenges for regional operators. Unlike domestic
travellers, who often holiday in regional areas,
international visitors tend to spend the majority of their
Of course, labour force issues vary markedly time in capital cities. As the tourist mix shifts toward
across sectors. Given the significance of wages to international visitors, therefore, tourism expenditure
the tourism sector and the importance of high calibre becomes increasingly concentrated in capital cities.
workers to the quality of the tourism experience,
labour market conditions are integral to the prospects
Domestic visitors
of the tourism and hotel accommodation sectors.
The number of domestic tourists recovered marginally
The significance of labour and skills to the fortunes of
in 2011 following several years of declines. However,
the Australian tourism industry is highlighted by the
total domestic visitor nights has not experienced a
emphasis placed on it in the Tourism 2020 strategy.
similar uplift, suggesting that travellers are tending to
A recent study by Deloitte Access Economics highlights
take shorter breaks than has historically been the case.
the nature and magnitude of the current and future
The downward trend in domestic visitors over much
labour force challenges facing the tourism sector
over the past decade is reflective of a growing numbers
(see blue box on page 3).
of Australians opting to spend their holidays overseas
2 The outlook for Australia’s tourism sector rather than holiday locally. The high exchange rate is
an important driver in this increased preference for
As the weakness in the global economy threatens to
international travel, but cheaper and more frequent
turn into a potentially protracted recession in Europe,
international flights, rising incomes, and the price
forecast visitor numbers to Australia and expenditure
competitiveness of international destinations compared
have generally been downgraded. Nonetheless,
to domestic travel have also contributed to the
strong income growth in emerging Asian economies,
increasing appeal of overseas holiday destinations.
and particularly China and India, is expected to
drive growth in international visitor arrivals over the Looking forward, Deloitte Access Economics forecasts
outlook period. domestic visitor nights edging up marginally over the
period to end-2014 – at an annual rate of growth of
On the domestic visitor front, visitor numbers
less than 1% – and domestic tourism expenditure
have somewhat stabilised, despite the natural
increasing similarly.
disasters early in the year that had operators,
especially in Queensland, concerned about a At the same time, outbound travel by Australians
fall in demand. is forecast to continue to grow solidly, considering
outpacing growth in international arrivals.
4

5. Tourism and Hotel Market Outlook Q1/2012
Chart 2.1: Domestic and international visitor nights Over recent years, growth in international visitors has
been underpinned by a strong increases in tourists
M from emerging Asian countries, particularly China and
Domestic
India, which is more than offsetting slower growth in
290
Australia’s traditional inbound tourists such as New
270 Zealand and United States, and a decline in visitors from
250 M the United Kingdom and Japan (Chart 2.1).
International
200
Chart 2.3: International visitors by country
150
100 '000
2000 2002 2004 2006 2008 2010 2012 2014 1200
1000
* ear to September quarter. Source: DAE, TRA
Y 800
The number of nights spent in paid accommodation by 600
domestic visitors declined by over 10% between 2007 400
and 2010. Holiday travel – which accounts for around 200
half of total domestic visitor nights – fell further in 2011 0
2000 2002 2004 2006 2008 2010 2012 2014
and is forecast to remain depressed in coming years,
New Zealand Japan China India United Kingdom
although business travel – around one-third of total
visitor nights rebounded in 2011 and is expected to
regain its 2007 peak by end-2014 (Chart 2.2). * ear to September quarter. Source: DAE, TRA
Y
Indeed, China has overtaken Japan to be Australia’s
hart 2.2: Domestic visitor nights in paid
C third largest inbound visitor market behind New Zealand
accommodation, Index, 1999=100 and the UK, with annual growth averaging 13% over
the past decade. Even more significantly, with average
length of stay and average daily spend both high relative
Index
to Australia’s other major source markets, China has
105
surpassed the UK as Australia’s largest market in terms
100 of visitor nights and expenditure (Chart 2.1). By 2014,
95 expenditure from the China source market is expected
to exceed the UK and NZ markets combined.
90
85
Chart 2.4: International visitor expenditure by country
80
1999 2002 2005 2008 2011 2014
$m
Business Holiday
4.0
3.5
*ncludes hotels, motels, guesthouses, and serviced apartments.
I 3.0
Source: TFC, DAE 2.5
2.0
1.5
International visitors 1.0
0.5
In contrast to the outlook for domestic visitor numbers,
0
international visitor nights are expected to continue 2000 2002 2004 2006 2008 2010 2012 2014
to grow solidly through to 2014, albeit at a slower New Zealand Japan China India United Kingdom
pace than witnessed over recent years. Visitor nights
are forecast to increase at an average annual rate of
* ear to September quarter. Source: DAE, TRA
Y
3.5%, which is below the 4.1% average annual growth
experienced over the previous decade.
5

6. Chart 2.5: verage expenditure per day and length of
A However the overall strength in occupancy rates masks
stay by country a divergence between demand for CBD rooms, where
the market is expected to be tight, and softer conditions
160 in urban and generally regional Australia (reflecting,
140 among other things, the changing composition of the
120 tourism market).
100
80 Room rates are also expected to rebound further,
60 reaching an average $150 by year’s end and $160 by
40 end-2014. Average yield per room (RevPAR) for 2012
20
also forecast to grow solidly and is projected to reach
0
India United Korea Japan New China Singapore $100 by the end of the year – a 5.5% increase on 2011 –
Kingdom Zealand
and $110 by end 2014.
Expenditure ($/day) Length of stay (nights)
* ource: DAE, TRA
S Sydney
Looking ahead, arrivals from China are expected to Chart 3.2: Hotel outlook, Sydney
continue to grow strongly in coming years, accounting
95.0% $240
for over one third of the forecast growth in international
visitor nights over the period to 2014. 90.0% $200
Meanwhile, the number of international visitors from 85.0% $160
Australia’s traditional inbound tourist markets, including 80.0% $120
the UK, Japan, US and Europe, is expected to remain
75.0% $80
subdued amid ongoing global economic uncertainties
and the high Australian dollar. New Zealand is the 70.0% $40
exception, where visitor numbers are expected to 65.0% $0
continue to trend higher.
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Room Occ% trend (LHS) Room Rate trend (RHS) RevPAR trend (RHS)
3 The hotel market outlook
Occupancy rates in Sydney are the nation’s highest
Australia and are forecast to increase further over the projection
period, with average occupancy rates of 85% in 2012
Chart 3.1: Hotel outlook, Australia growing to 88% by 2014. These forecasts suggest
that the market faces periods of operating at or above
75.0% $175
capacity during peak times over coming years.
70.0% $140
The Park Hyatt in Sydney reopened on 13 February
2012, returning additional capacity (and a small number
65.0% $105 of additional rooms) to the top end of the market.
60.0% $70
The hotel has undergone extensive renovations, and its
reopening will bring 155 harbourside rooms back online.
55.0% $35
Such high room occupancy rates may act as a stimulus
50.0% $0 to further investment, as yields increase. Our projections
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see RevPAR in Sydney growing to $165 by end 2012 and
Room Occ% trend (LHS) Room Rate trend (RHS) RevPAR trend (RHS)
reaching $185 by 2014. In addition to higher occupancy
rates, the growth in projected yields is also driven
Driven in large part by the forecast growth in forecast growth in room rates of 4% p.a.
international visitors and the domestic business
segment, room occupancy rates are projected to
increase solidly over the forecast period, increasing from
65% into 68% by 2014. This expected improvement
in 2011 would see occupancy rates reach their highest
level in recent decades.
6

7. Tourism and Hotel Market Outlook Q1/2012
Melbourne The outlook for the Brisbane market is characterised
by a relatively high volume of new hotel projects that
Chart 3.3: Hotel outlook, Melbourne are due for completion over the next two to four years.
This increase in supply is expected to weigh on
90.0% $250
occupancy rates during the forecast horizon, which
85.0% $200
are expected to ease by around one percentage point
over 2012.
80.0% $150
Nonetheless, increased room rates – growing from $170
75.0% $100 at the end of 2011 to $201 by end 2014 – are expected
to underpin solid growth in yields over the period, with
70.0% $50
RevPAR growing by 5.2% p.a.
65.0% $0
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Perth
Room Occ% trend (LHS) Room Rate trend (RHS) RevPAR trend (RHS)
Chart 3.5: Hotel outlook, Perth
The Melbourne market is expected to level out
over 2012, with room occupancy rates forecast to be 95.0% $240
broadly stable over 2012 with associated slow growth 90.0% $210
in both room rates and yields. Weakening economic 85.0% $180
conditions mean that the previously forecast growth 80.0% $150
in yields per room of near 10% for 2012 will not be
75.0% $120
realised, with revised forecasts indicating that growth in
70.0% $90
2012 will be a more moderate 4%.
65.0% $60
We forecast some recovery in room occupancy rates 60.0% $30
from mid-2013, in line with the forecast increase in 55.0% $0
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economic growth. Increased capacity from the opening
of the new Sheraton Hotel in 2013 is expected to be Room Occ% trend (LHS) Room Rate trend (RHS) RevPAR trend (RHS)
sufficient to meet growth in demand in the short-term,
As the hub of mining boom, the Perth hotel sector
but occupancy rates are expected to regain their 2008
has benefited for some time from relatively high
peak by the end of the forecast horizon. Growth in room
occupancy rates. Resilient business travellers continue
rates and yields is expected to be relatively restrained;
to have visit Perth, with occupancy rates hitting 85%
yields are forecast to grow by 15% between 2011 and
in late 2011.
2014 (4.7% p.a.).
Looking forward, the market is expected to remain
tight throughout the forecast period, with occupancy
Brisbane
rates steadying in 2012, before reaching the previous
peak of 87% by the end of the forecast horizon.
Chart 3.4: Hotel outlook, Brisbane
Over the longer term, a range of initiatives aimed
90.0% $240 at stimulating investment in the sector – including
the removal of residential caps on mixed use
85.0% $200
developments and the release and provision of crown
80.0% $160 land for tourism investment – mean that occupancy
75.0% $120
rates have the potential to moderate.
70.0% $80 Room rates and yields are also expected to grow
strongly over the forecast period, with room rates
65.0% $40
jumping 14% in 2012 and 5.3% p.a. over the
60.0% $0 following two years, reaching $220 in 2014.
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7

8. Adelaide After the return to growth, Canberra occupancy rates
are expected to rebound, rising almost five percentage
Chart 3.6: Hotel outlook, Adelaide points to 75% in 2014. Limited expectations of future
growth in capacity – and indeed the loss of some
90.0% $200
capacity as some older hotels are demolished to make
85.0% $175
way for mixed use or fully residential developments –
80.0% $150
are contributing to this. Growth in room occupancy
75.0% $125
rates combined with an increase in room rates mean
70.0% $100
that yields are forecast to grow moderately in Canberra
65.0% $75 over the forecast period, by 16% over three years.
60.0% $50
55.0% $25
Darwin
50.0% $0
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Room Occ% trend (LHS) Room Rate trend (RHS) RevPAR trend (RHS) Chart 3.8: Hotel outlook, Darwin
100.0% $240
Forecasts suggest that the occupancy rate in Adelaide
will trough in 2012, before growing modestly in the 90.0% $200
latter two years of the forecast. Occupancy rates are 80.0% $160
forecast to end the next three years one percentage
70.0% $120
point higher than end-2011 rates, at 76%.
60.0% $80
Following several years of stagnant growth, room rates
are expected to increase modestly over the forecast 50.0% $40
horizon, growing by around 10% between 2011 and 40.0% $0
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2014. This growth in room rates is more akin to the
expectations for regional Australia than the CBDs, Room Occ% trend (LHS) Room Rate trend (RHS) RevPAR trend (RHS)
and would make Adelaide the cheapest mainland
capital by some margin. RevPAR is forecast to grow The highly seasonal nature of the tourism industry
from $107 at the end of 2011 to $120 by the end of in Darwin makes it a notoriously difficult investment
the forecast horizon. destination for hotel developments. Effectively only
earning returns on investment six months of every year,
it is difficult to make the case for investment in a hotel-
Canberra
only development.
Chart 3.7: Hotel outlook, Canberra Abstracting from the seasonality, Darwin’s hotels have
the lowest average occupancy rates of any capital city,
85.0% $210 at 70% at the end of 2011. Occupancy rates are forecast
80.0% $180 to stagnate throughout 2012 before increasing steadily
75.0% $150 over 2013 – 14. Combined with an increase in room rates
70.0% $120
of 18% over the next three years, RevPAR in Darwin is
forecast to grow strongly, overtaking Adelaide to reach
65.0% $90
$128 by the end of 2014.
60.0% $60
55.0% $30
50.0% $0
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The Canberra market faces some softening in 2012,
with occupancy rates declining from 73% at the end
of 2011 to 70% mid 2012. However, the relatively high
share of business travellers in total visitors to Canberra
provides the market with some resilience over the
longer term.
8

9. Tourism and Hotel Market Outlook Q1/2012
Gold Coast Tropical North Queensland
Chart 3.9: Hotel outlook, Gold Coast Chart 3.10: Hotel outlook, Tropical North Queensland
80.0% $210 80.0% $200
75.0% $175
75.0% $175
70.0% $150
70.0% $140
65.0% $125
65.0% $105 60.0% $100
55.0% $75
60.0% $70
50.0% $50
55.0% $35
45.0% $25
50.0% $0 40.0% $0
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Hotel performance on the Gold Coast has been weaker The Tropical North Queensland (TNQ) region has faced
than other destinations covered in this report for some challenging conditions in recent times, losing market
time, with new capacity coming online even as room share, particularly as the Japanese source market has
occupancy rates lag behind those of other destinations. declined. Occupancy rates and RevPAR have fallen
However over the coming years the Gold Coast is sharply since the onset of the GFC.
forecast to experience some improvement in conditions,
However, our forecasts suggest a turnaround in
albeit at a slow pace and off a low base. Longer term,
performance for the TNQ hotel market, with occupancy
several new existing projects look set to rejuvenate this
rates to be flat in the first half of 2012, before increasing
important leisure destination.
six percentage points – from 57% to 63% – by
Room occupancy rates are expected to grow steadily end-2014.
over the next three years, increasing from 65% in
RevPAR is forecast to increase by 27% over the period
2011 to 68% by the end of 2014. This improvement in
2011 – 14, however, again, this is off a relatively low
occupancy rates is largely due to fairly flat performance
base. Indeed, by the end of 2014 RevPAR for TNQ
in room rates, which are expected to only grow broadly
region is forecast at just $86, which is the lowest yield
in line with inflation over the next three years.
among the regions reported here.
Yields are forecast to grow moderately over the
projection period, increasing by 13% over the next three
years to a RevPAR of $100. This is lower than the capital
cities, but broadly in line with the overall experience
in Australia where non-capital destinations have lower
occupancy rates and yields than the major cities.
9

10. Deloitte is recognised as one Limitation of our work
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Leisure industry, with a practice or entity. The report has been prepared for
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publications visit www.deloitte.com.au/economics
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11. Tourism and Hotel Market Outlook Q1/2012
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mleech@deloitte.com.au gdoran@deloitte.com.au andrjones@deloitte.com.au mpersson@deloitte.com.au
Corporate Reorganisation Sustainability
Co-contributor (Hotels)
John Greig Shauna Coffey
Rutger Smits, AHS Advisory
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rutger@ahsadvisory.com
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