FYI | Sep 14 2010
By Chris Shaw
The Australian tourism sector has been doing it tougher of late and a stronger Australian dollar suggests this trend is set to continue, reports CommSec chief economist Craig James. The Aussie dollar hit near 21-year highs against the euro this week and also moved back above US93c.
James notes Australia's tourism deficit, which is the excess of departures over arrivals, is now at record highs with more than a million more Australians travelling overseas in the past year than foreign visitors coming to Australia. This compares to an opposite situation nine years ago, when almost 1.5 million more foreign tourists visited Australia than there were Australians travelling overseas.
This deficit is poised to move even higher in coming months in James's view as the stronger Australian dollar makes it less attractive for foreign visitors to come to Australia. The data highlight this trend, as while tourist arrivals are up 9% from the depressed levels of a year ago, they are still 4.5% lower than the level of two years ago.
Any downturn in tourism has implications for the Australian economy, as James notes tourism directly accounts for almost half a million jobs and about 5% of total employment. Most vulnerable to the stronger Australian dollar impacting on tourism is regional Australia, as many tourism jobs are in regions such as northern New South Wales, North Queensland, Tasmania and the Northern Territory.
Tourism's impact on the Australian economy is significant, James noting the Australian Bureau of Statistics estimated the value of internal tourism consumption in 2008/09 was $92 billion. Of this, domestic tourism contributed $68.5 billion and international tourism $23.5 billion.
In terms of the overall economy, tourism GDP fell 0.4% in 2008/09, which compares to a 6.0% nominal lift in the broader economy. This means tourism's share of the Australian economy overall declined in 2008/09 to 2.6% from 2.8% previously.
One way to gauge how large the impact of a slump in tourism is for regional Australia, reports James, is to look at passenger numbers on key air routes. Here, Bureau of Infrastructure, Transport and Regional Economics (BITRE) figures show for the year to June 2010 a total of 51.76 million passengers were carried on routes averaging more than 8,000 passengers a month and with two or more airlines operating in competition.
The busiest route of Melbourne-Sydney reported a 12.2% increase in passenger numbers in FY10, while Adelaide-Sydney reported an increase of 10.9%. But tourism routes were down sharply over the same period, BITRE data showing the Cairns-Melbourne route experienced a 16.4% fall in passenger numbers and Sunshine Coast-Sydney a 15.5% fall.
James sees some implications for investors from a continuation of the weakening tourism trend in Australia. Those sectors most at risk according to James are the food and accommodation suppliers, as well as transport and tour operators.
James also notes there are knock-on effects of any downturn in these sectors, as higher unemployment in the broader tourist-dependent communities is likely to flow through to negative impacts on the retail, housing and other service businesses in such economies.
There is a more general impact as well, as James points out a stronger Australian dollar acts to depress economic activity, though it also acts to keep inflationary pressures at bay. For those regions most affected by a downturn in tourism James suggests State and Federal governments may need to introduce some economic assistance grants or programs to offset the lack of tourism dollars being spent.
From a listed stock perspective, CommSec rates Virgin Blue ((VBA)) as a Hold at current levels, as the group's core business remains weak given its emphasis on the leisure end of the Australian airline market.
The FNArena database shows Virgin Blue is rated as Buy three times and Hold five times, with an average price target of $0.44. Shares in Virgin Blue today are up 1c at 39c as at 1.30pm.
