2. Out of the six largest advanced economies, only the
The Deloitte Tourism, Hospitality & Leisure US and Germany are bigger today than three years
(THL) Market Outlook - Q3 2011 reports on the ago, while government spending cuts and tax hikes
performance of the Australian hotel industry to are cutting a swathe through prospects for Europe’s
June 2011, based on data until the March 2011 drowning periphery, slowing down growth everywhere
quarter as published by the Australian Bureau from the UK to Italy, Portugal and Greece.
of Statistics (ABS), and extrapolated through That said, current fears are overblown, and recovery
information collected by STR Global. is continuing. Elsewhere, China and India are starting
Based on a correlation of historic market to cool. But that slowdown – like the associated lift in
performance with state-by-state indicators for their interest rates – is modest so far. That not merely
sectoral performance as reported by Deloitte leaves their short term outlook excellent, it also means
Access Economics, we also present a forecast for overheating risks remain. With developed economies
each market until year-end 2014. The economic doing better and emerging economies only throttling
commentary providing the background for this back a bit, the upshot overall is continuing global
outlook is derived from the Deloitte Access growth both this year and next.
Economics Business Outlook - June 2011. The Australian economy
Subscribe to Deloitte Access Economics Yes, it is tough out there for many families and
publications online. businesses. Most of Australia’s growth engines are
misfiring: (1) families are saving rather than spending;
(2) stimulus has run its course, and its absence will be
keenly felt; (3) housing construction – a pocket rocket
The ‘two-speed’ screws are tightening in past recoveries – is limping into this one as interest
The weather wiped out what would otherwise rates drown out population pressures; while (4)
have been continuing growth in Australia’s economy our export gains from resource sales volumes are
in early 2011. Mines couldn’t be worked, sugar, being mostly matched by lost sales from tourists,
banana and cotton crops were destroyed, livestock manufacturers and international students. Add in the
drowned, grain crops were flooded, building sites were huge costs of floods and cyclones, and no wonder
abandoned, employees couldn’t get to work, shoppers people are shaking their heads at hints that the
couldn’t get to the stores, and tourists stayed away in Reserve Bank may raise rates further.
droves – the impact was huge. However, the flood and cyclone costs were a one-off,
Moreover, when news of just how much Australia’s and production is already rebounding from those losses.
economy had shrunk in the opening months of 2011 One growth positive is enormous: businesses (especially
finally came out, that figure was worse than most miners) want to spend a fortune on adding to their
had imagined. capacity, and that will power continuing recovery even
if they only achieve a fraction of what they are aiming for.
Most notably, consumers remain cautious. They haven’t Growth prospects are very narrowly based however:
had any lack of income growth, but they have been one sixth of Australia’s economy has to account for almost
trying very hard to save rather more substantively than two thirds of its growth in the coming financial year.
they did in times past. We think that should be achievable though.
And, if interest rates do rise in the coming year, Sectors
Australian families are now so indebted that any such On the sectoral front, the ‘two speed economy’
increase in the cost of credit is likely to see saving rates pressures on the industrial landscape are intensifying.
lift further still. That has been partially masked by the striking impact of
The result is that the domestic tourism sector is weak floods and cyclones, which hurt mining exports. But the
at present, but it is not all necessarily bad news continuing stellar strength of the $A is combining with
looking forward. Australia is, after all, in the midst of expectations of further interest rate increases ahead,
an unprecedented resources boom and there will be a exerting pressure across a range of sectors.
range of dividends from that: more jobs, wage growth, That is no surprise. After all, value added per employee
profits and government revenues, which are all boosting in mining is seven times the average, so the desire to
growth in the corporate accommodation sector. see that sector contribute more to national income has
The global economy set off a scramble that will boost construction of
Forecasters are dialling down estimates for advanced mining facilities before it can lift the mining sector itself.
economic growth in the wake of a surge in commodity But both these two will struggle to grow as fast as
prices and Japan’s awful earthquake. they’d like as skill shortages will keep them on a
short leash.
2
3. Hotel Market Outlook Q3/2011
In turn, the pressure from high exchange and interest
rates is making life extremely uncomfortable in much
of manufacturing, as well as in tourism, parts of
education, for retailers, and in farming. Moreover,
as the straitjacket on skilled workers is tightened over
the next two years, many of the latter list of sectors
will also find they face unwelcome wage pressure
from competition for employees from the mining and
Australians are now holidaying in the rest of the
construction sectors.
world instead of at home, while foreigners are being
Economic impacts for the Tourism, Hospitality deterred by the sheer strength of the $A. And although
& Leisure sector the currency isn’t the only driver of inbound tourism
Leisure-based tourism is a discretionary spend, and numbers, it has been the biggest mover on that front,
as such directly related to retail spend. Unfortunately, and the pain of rising exchange rates will increasingly be
retailers have had to sail into the teeth of a howling evident in revised wholesale contracts for internationally
headwind in the last few years. The classic signs of based travel agents. That means the $A exchange rate
caution are there to be seen, with food spending could experience no change from here and yet punters
leading the retail leader board list, whereas most around the world will find Australia a relatively more
discretionary categories have been lagging badly. expensive destination in six months or so.
The global financial crisis gave the world a scare. The huge natural disasters in both New Zealand and
And although Australia’s economy escaped much of Japan have not helped what are traditionally two key
the damage seen elsewhere, the damage to the psyche inbound tourism markets for Australia.
of savers was just as marked here as in the rest of
Yet although these are a series of important negatives
the developed world. This surge towards savings has
for the recreation sector, it is worth remembering that
probably not yet finished. Interest rates will probably
– even in an economy amid the stresses and strains of
head up a bit further from here, and chances are utilities
‘two speed’ pressures – business demand is on the rise.
prices will as well. The resultant squeeze on family
That is perhaps most evident in the hotel sector, and
incomes may see savings rates climb further still in the
especially those hotels selling to business clients. Rising
next little while. That said, we expect consumer, retail
room occupancy rates have allowed hotels to edge up
and leisure spending will once more be growing in lock
average room rates with further room rate
step with family incomes a year or 18 months from now
rises expected in 2012.
(that is, once rate rises have been absorbed).
Some of the earlier strengths in cafes and restaurants
Our export earnings have soared more than 30% in the
has faded of late, while the mooted poker machine
three years to 2010, but mostly because we are selling
reforms could also have an impact on this sector.
at higher prices rather than because we are selling
higher quantities. That leap in world prices for industrial And then there is the grounding of Tiger Airways.
commodities has had two effects on volumes: it has Though still uncertain if it will ever fly again when
instituted an investment program which will eventually writing this report, its grounding spells bad news for
lift resource export quantities, but it has also resulted in the leisure sector, especially in regional destinations,
sharp and rapid bad news for export volumes of pretty as it takes the cheapest airfares out of the Australian
much everything else: farm goods, manufacturing, skies, creating opportunity for its competitors to hike
tourism and international student numbers all have to up their fares. In times of a squeezed household wallet,
grapple with the higher interest and exchange rates that this is pushing people back in their cars, putting
characterise commodity booms. destinations further afield out of reach for the main
population centres.
Tourism and international education are the two
key sectors which dominate our service exports. Finally, as the straitjacket on skilled workers is tightened
Past ‘growth heroes’, both these sectors are now on over the next two years, the service sectors will also find
the wrong side of Australia’s two speed economy, they face wage pressure from mining and construction,
with higher exchange rates combining with changed putting further pressure on the bottom line.
migration rules and a sharp competitive push from US
Visitor flow
colleges results in depressingly large falls in enrolments
According to the latest publication from the Tourism
in key parts of the international education sector. At the
Forecasting Committee (TFC, May 2011), departures
same time, although numbers of inbound tourists did
continue to outpace arrivals at Australia’s shores, at ever
lift of late, it is hard to see visitor numbers sprinting any
increasing rates, resulting in an increase in the net visitor
time soon. Although the $A isn’t the be-all-and-end-all
exchange, as demonstrated in the following graph.
of tourism prospects, it remains painful as long as the
$A is above parity with the $US.
3
4. Whilst Australia recorded some 1.5 million more Asia is expected to continue to lead the growth
arrivals than departures around the turn of the century, in inbound arrivals to Australia in the short and
this began to reverse during the financial crisis in longer term.
mid-2008 and has now reached a negative net
For 2011, there has been an upward revision for
outflow of more than 1.5 million visitors. The Tourism
arrivals from China (from 21.9% to 25.8%) and
Forecasting Committee (TFC) is expecting this trend
Indonesia (from 6.8% to 13.1%), as aviation capacity
to revert almost instantly, as a result of both increased
continues to increase. Arrivals from most other
growth of international visitors and a normalisation of
Asian countries are forecast to grow in line with
the continued increase in departures.
previous expectations, or at a slightly increased pace.
A notable exception is Japan, where arrivals have been
10000000
9000000
8000000 downgraded substantially (from 401,000 to 293,000) in
7000000
2011, due to the recent natural disaster in that country.
6000000
Australia
5000000
HMO Q3 Slides.xlsx
4000000
3000000 70.0% $200
2000000
68.0% $180
1000000
66.0% $160
0
-1000000 64.0% $140
-2000000 62.0% $120
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Residents Departing Tourists Arriving Net Tourist Exchange 58.0% $80
56.0% $60
TFC expects domestic visitor nights to fall by 0.3% to 54.0% $40
259 million in 2011 which is a downward revision from
52.0% $20
50.0% $0
the previously expected 0.6% growth. The weaker
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short term outlook can be linked to the effects of Room Occ% trend (LHS) Room Rate trend (RHS) RevPAR trend (RHS)
recent floods and cyclones on travel coupled with the
Australia-wide hotel performance is steadily improving
Australia
sustained and increasing strength of the Australian
from its RevPAR low at the end of 2009. This steady
dollar (which makes outbound travel more attractive)
trend masks significant discrepancies between various
and restrained consumer spending. The annual average
markets, however, and more particularly between the
growth rate of 0.3% in the longer term is similar to
leisure and business segments.
previous expectations with domestic visitor nights
forecasted to be 266 million in 2020. City-based hotels are generally recording excellent
occupancy levels, close to capacity during midweek
Australian resident outbound departures are forecast
periods and thus providing only limited opportunity for
to grow by 10.1% to 7.8 million in 2011, which is an
further growth. RevPAR growth in the cities is therefore
upward revision from the previous forecast of 7.7%.
almost solely driven by rate improvement. Leisure
This growth is driven by the continued high value of
destinations are not that fortunate, and are fighting
the Australian dollar and strong growth in aviation
to maintain occupancy levels, often at the expense of
capacity to many key outbound markets including
growth in room rates.
China, Indonesia and the United States. The longer
term outlook for outbound travel is slightly higher Our supply outlook shows a pushback on a number of
than previously forecast, with annual average growth hotel development projects, resulting in a slightly higher
expected to be 3.7% (rather than 3.2%) and departures occupancy outlook in the short to medium term.
to reach 10.3 million in 2020. Room rates are not growing as fast as we had hoped,
and have been revised downwards.
Inbound visitor arrivals are forecast to increase by 3.1%
to reach 6.1 million in 2011 – a downward revision Overall, our RevPAR forecast for Australia in 2011
from the previous forecast (5.6%). This was due to remains unchanged at $93 and 4.9% growth over 2010.
rapidly escalating oil prices linked to political unrest in We have increased our occupancy outlook from 63.5%
the Middle East; the continued slow pace of recovery to 64.3% however, at the expense of a slight reduction
in developed economies; and effects from the natural in rate growth, finishing the year at $153, a 5.6%
disaster in Japan. The longer term outlook remains improvement over 2010. Our RevPAR forecast for 2012
similar to that previously forecast, with annual average was revised downward slightly, from $100 to $99,
growth expected to be 3.6% rather than previously with slightly higher occupancies and lower room rates.
expected 3.9% with inbound arrivals to reach 8.4
million by 2020.
4
