Tourism Investment Monitor 2019–20

Australian tourism investment and COVID-19 impacts

Growth in demand and supply of tourism

The Australian tourism industry has had sustained growth over the last decade from both the domestic and international markets. Over the 10 years since 2009:

  • international visitors increased 69%,  and spend increased 79%
  • domestic overnight trips increased 74%, and spend increased 77%.

Hover on line over relevant year to show total figures.

 

This strong increase in visitation has attracted ongoing investment into Australia’s tourism industry. The investment pipeline has been consistently valued at over $40 billion over the past 3 years. Continued investment has helped ensure Australia’s supply of accommodation, transport, and entertainment meets domestic and international tourists’ needs.

Short-term tourism disruptions due to COVID-19

The COVID-19 pandemic has caused severe disruptions to demand for tourism, both globally and in Australia. The industry experienced:

  • a sudden halt in international visitation
  • restrictions on domestic mobility
  • increased health and safety concerns.

Australia’s proactive management approach to the pandemic has played a key role in protecting domestic demand for tourism. The general success in containing the virus has further improved the perception of safety for Australian tourism destinations.

In late September 2020, two-thirds of Australians stated they felt safe to travel within Australia. This was up from 45% in late July 2020. However, only:

  • 51% of people intend to travel in Australia in the next six months
  • 14% intend to book a holiday in the next month (as at 23 September 2020).

(Source: Tourism Australia, Travel sentiment tracker, 2020)

Aviation

The COVID-19 impacts on aviation were immediate and severe. They forced the industry to adapt quickly in the face of mass disruptions.

  • Volatile border closures and the sudden loss of consumer demand saw a 95% drop in the total number of domestic passengers carried in the June quarter 2020, compared with June quarter 2019 (Source: Bureau of Infrastructure and Transport Research Economics, Aviation Statistics, 2020).
  • Domestic overnight trips that included air travel fell from 24% to 6% in the June 2020 quarter compared with June 2019.
  • Virgin Australia entered voluntary administration in April 2020. It was later acquired by United States private equity firm Bain Capital.
  • Australia’s primary airline carriers, Qantas and Virgin, announced thousands of jobs cuts. The stop-start nature of domestic border closures placed extreme pressure on airline operations.
  • The effects of heavily reduced airline activity has flowed on to airports. Many had to lay off staff and close business on certain days in order to remain afloat.

Accommodation

In the accommodation sector the impact has not been felt evenly across the country.

  • Capital cities rely more heavily on domestic business travel and international spend. International visitors accounted for 41% of all spend in capital cities (only 10% for regional locations). Domestic overnight visits to capital cities fell by 78% in the June quarter 2020 compared with June 2019.
  • Regional tourism locations within driving distance of capital cities fared reasonably well compared to capital cities. However, remote regional locations that rely on visitors using air travel were suddenly cut off from their traditional domestic markets.
  • Many accommodation venues went into hibernation as occupancy rates fell sharply in March and April of 2020. However, they showed signs of recovery in May and June once initial lockdowns were eased (Source: STR, Australian Accommodation Monitor, 2019–20).

Hover on line over relevant month to show total figures.

(Chart source: STR, Australian Accommodation Monitor, 2019–20)

 

Overall tourism industry challenges

There have been many short-term changes for Australia’s tourism landscape.

  • Businesses are now catering for a purely domestic tourism market.
  • Domestic tourists are taking shorter, more frequent trips, and spending less. The average trip spend in the June 2020 quarter was just $385 per person, compared with $648 per person in June 2019.
  • Sudden closure of international borders hurt many parts of the industry relying on international visitors. While domestic visitors could help fill this gap, recovery will still depend on the return of international travel. In 2018–19, 23% of nights spent in hotels was due to international visitors.
  • Some parts of the industry had almost a complete loss of tourism revenue due to lockdowns. Visitor spend was down significantly across a number of entertainment industries in the June 2020 quarter. This included:
    • convention and conference fees (down 99%)
    • organised tours (down 98%)
    • gambling (down 98%)
    • entertainment (down 97%)
    • taxis (down 95%).
    A certain amount of bounce back is expected. However, the recovery will be hindered by social distancing requirements and capacity constraints applied on venues.
  • The industry needed to adopt new technologies to deliver a safer experience and adhere to national safety measures. This includes contact tracing.

Domestic demand for tourism has remained strong, despite ongoing disruptions to the tourism industry. For example, as soon as mobility restrictions were eased, or state borders opened, there was immediate interest in bookings for accommodation venues and reinstated flights. Local travel vouchers were also being purchased within minutes of becoming available. This is one of many reasons why the Australian tourism industry still provides attractive investment prospects over the longer term.

Current positive trends need to be considered with a measure of caution. While it is possible that Australian tourism could return to pre-COVID-19 levels, bookings are still significantly lower than 2018–19 levels.

Slowing down of the pipeline

The COVID-19 pandemic’s impacts on the Australian tourism landscape will likely continue for many years. Although there is still uncertainty, we expect the flow of projects transitioning through the pipeline to slow. Causes for this include:

  • Projects that were in the proposed phase may delay transitioning to the planning phase which requires further financial outlay, until further certainty is available.
  • Some projects that were under construction have had construction works halted due to lockdowns and social distancing restrictions, or slowed due to limited supply of materials. This creates more implications for new construction.
  • A number of hotels that were expected to open in 2019–20 have postponed their opening dates. For example, Crowne Plaza Sydney Darling Harbour was expected to open in May 2020, but this was delayed until October 2020.
  • Domestic travellers have shown a preference for regional tourism locations. This could shift future investment proposals in this direction. Regional developments cost less than those in capital cities. This could result in future pipelines having lower values.

Despite this uncertainty, only one stand-alone accommodation project and 7 mixed-use projects were abandoned. Instead most investors re-evaluating their projects have deferred or placed projects on hold until there is more certainty. This is partly due to the significant time and costs needed to get a large-scale investment project to the planning phase. A total of 23 projects were deferred in 2019–20 (compared with 11 in 2018–19). Most deferrals:

  • are in the accommodation space (20 projects)
  • were in the planning phase in the 2018–19 pipeline
  • were located in capital cities, where there has been strongest impact from the pandemic
  • occurred in May 2020.

Slightly more than half of the deferrals were in the mixed-use accommodation space. Three projects were in the arts, recreation and business services sector.