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18 Aug, 2008

Economic Crisis Means Bleak Days Ahead for Australian Tourism

Although Australian tourism is preparing for a publicity windfall following the projected release of the movie “Australia” later this year, its future outlook is almost entirely at the mercy of oil prices and the strength of the Aussie dollar, according to its national forecasting body.

Says the latest report by Australia’s Tourism Forecasting Committee, “For the first time in many years, tourism is facing significant downward forces of an economic nature. Econometric modelling shows that growth in per capita GDP is a primary driver for tourism activity and lower economic growth (and higher interest rates) will lower tourism activity from its long term growth path in 2008 and 2009.

“ This, combined with higher fuel costs, a reduction in international aviation capacity, rising interest rates and a high Australian dollar are placing downward pressure on tourism activity to Australia. Although all these factors have been taken into account when developing these forecasts, a worsening of world economic conditions (particularly in western economies) will place considerably more downward pressure on the world (and Australian) tourism industry.”

The forecast notes that Australia as a long haul route “carries a heavy fuel cost penalty. It also relies heavily on leisure traffic (holiday travel is expected to account for 56% of total short term visitor arrivals in 2008) which tends to be more sensitive to changes in oil prices. Rising oil prices would therefore be expected to have a considerable negative effect on the number of visitor arrivals.”

At the same time, the report adds, “Fluctuations in currencies have an important affect on travel behaviour. An increase in the value (an appreciation) of the Australian dollar against the home currency of a visitor makes Australian goods and services more expensive for that visitor, leading to lower expenditure.

“ Further, an appreciation of the Australian dollar increases the competitiveness of overseas travel (and other imports) to Australians, often at the expense of domestic tourism.

“ As a result, an appreciation of the Australian dollar tends to reduce the economic contribution of both inbound and domestic tourism. A further appreciation of the Australian dollar will reinforce the current trend of low growth in domestic and international travel to Australia.”

The report says that overall arrivals forecast for this year is 5.6 million, unchanged over 2007. Taking an optimistic approach of clearer skies ahead, it is projecting a 3.3% growth to 5.8 million in 2009. However, “Total Inbound Economic Value (TIEV) of inbound tourism is forecast to increase by 2.5% to $24.3 billion in 2008 and by a further 2.9% to $25.1 billion in 2009.”

In a sign of changing market conditions, the forecast says the major contributors to the increase in tourism exports are expected to be China (up $22.5 billion or 27% of the total gain), the United States ($12 billion, or 14.5%), while the emerging markets of India and Middle East/ North Africa are also projected to be significant contributors to the growth in the value of tourism exports over the next 10 years.

India, for example, is expected to generate 20% growth this year, the fastest growing source of visitors. Growth in arrivals from China is forecast to ease from 16% in 2007 to 11% in 2008 due to the Beijing Olympics and the recent earthquake that devastated South West China, but both these impacts are expected to be short-lived.

The good news for Thailand and the rest of Asia is the forecast that the strength of the Australian dollar and continued strength of domestic jobs is leading to a boom in outbound travel.

Says the report, “Outbound departures are forecast to increase by 9.9% to reach 6.0 million in 2008 before rising a further 8% to 6.5 million in 2009. Departures are forecast to continue growing at a higher rate than domestic tourism given the strength of the Australian dollar, the expansion of low cost air capacity to outbound markets and the overall expansion in international aviation capacity from late 2008.

“ Over the period from 2007 to 2017, total outbound departures are forecast to grow at an annual average rate of 5.4% to reach 9.3 million in 2017 (532,000 higher than inbound arrivals).”

One new feature in the report is a section devoted to what is referred to as “The Impact of Shocks.” It notes that although the forecasts “represent the most likely outcome given past trends, currently available information and assumptions regarding key economic variables, neither the occurrence nor the impacts of potential future shocks are taken into account in the generation of the base case forecasts.”

Considering the travel disruptions caused by “shocks” in the past decade such as the Asian financial crisis, 9/11, the SARS pandemic, the Bali bombings and the latest oil price surge, the forecast factors in at least two more “hypothetical shocks” between now and 2014, which could lead to a projected 3% decline in arrivals in each of the affected years.

The full report can be downloaded for free: http://www.tra.australia.com

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