Industry Report – Hotel & Tourism

However, the easing of the Australian dollar has been a welcome development. The latest Mastered-OTF sentiment survey indicates that international industry sentiment remains relatively stable. Notably, however, 50% of those surveyed saw the Australian dollar as having a high impact on their business, highlighting the potential upside of the local currency easing. Growth In International visitor arrivals continues to Impress International visitor arrivals grew 4. 9% over the year to March while International visitor nights grew 7. 2%, significantly outpacing average growth of the last decade. While this growth has been largely led by the emerging Asian economies, particularly China which accounted for more than a third of total growth in visitor arrivals, there has also been a sustained pick up in visitor arrivals from the US. ; Increasing length of stay by Japanese visitors was also a key contributor to visitor night growth. The outlook for international visitors remains robust ; Despite a marginally weaker economic outlook, Dolomite Access Economics continues to project solid growth in international visitor arrivals and nights over the next three years, with arrivals forecast to grow by 4. 5% p. A. ND nights by 4. 9% p. A. ; While the outlook for growth in Chinese visitors has moderated slightly, China is expected to remain the single largest contributor to growth, with visitor nights forecast to grow by 6. 7% p. A. Over the next three years. Overall, Asia is projected to account for two thirds of forecast growth In International violators nights. ; In an encouraging sign for the nation's larger regional tourism destinations, recent trends have revealed Chinese travelers Tropical North Queensland are now frequented more commonly by Chinese leisure visitors than by international leisure travelers generally.

The domestic visitor market entities to expand After a decade of weak or negative growth, the domestic tourism market rebounded strongly in the first half of 2012. While this rapid rate of growth has not been maintained, the domestic market has continued to expand, with visitor nights increasing 2. 2% over the year to March 2013. Strengthening leisure market forecast to be the key driver of domestic growth Corporate travel has been the predominant driver of domestic tourism growth over the last decade.

However a softer domestic economic outlook and signs of a continued pick-up in holiday travel indicate the leisure segment playing a more reorient role in driving domestic tourism over the next few years - particularly if the Australian dollar continues to recede. ; Holiday visitor nights grew 1 1. 6% in the March quarter and by 3. 7% over the year to March. This represents the fastest rate of growth since before the SGF and considerably narrowed the gap with outbound leisure travel, which grew by 4. % over the same period. ; Overall, Dolomite Access Economics forecasts domestic visitor nights to grow at an average rate of 1. 6% p. A. Over the next three years. Hotel occupancy rates in Brisbane and Perth ease while mailer markets record strong growth ; In a clear sign that travel associated with the mining sector is slowing, the last two quarters saw a softening in occupancy rates in Brisbane and Perth with average occupancies for the year to May 2013 around 2% lower than the previous year. However, growth in domestic holiday travel has been good news for destinations such as the Gold Coast where occupancy rates continue to improve, while Tropical North Queensland has benefited from strong growth in international visitor nights. A softer domestic economic outlook is moderating growth recasts for several major hotel markets ; Growth in occupancies and room rates in markets associated with mining-related corporate travel, such as Brisbane and Perth, is forecast to be more subdued, as the resource-related construction boom reaches its peak.

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At the same time, the weakening of the Australian dollar is forecast to provide further support for room rates and occupancies in leisure-oriented markets. ; Nevertheless, and despite a strengthening investment pipeline, demand is forecast to outstrip supply and, accordingly, occupancy rates are forecast to grow 2% and room rates by 3. % p. A. Nationally over the three years to December 2015. Tourism and Hotel Market Outlook - Half yearly update 2013 2 The macroeconomic context with the US dollar since early 2011, the Australian dollar lost significant ground in May.

By the end of May, the Australian dollar had fallen to IIS$O. 96, while the Trade Weighted Index (TWIT), which measures the strength of Australia's currency against its trading partners, fell from 78. 2 on the 1st of May to 74. 0 by the end of the month. At the time of writing the Australian dollar had fallen to IIS$O. 92 and the TWIT had fallen to 71. 2. The decline in the Australian dollar against its major trading partners was partly precipitated by the Reserve Banks decision in May to reduce the official cash rate to 2. 5%, while an announcement by the Federal Reserve of a possible tapering' of its quantitative easing strategy has caused a more recent drop against the US dollar. The decline in the Australian dollar is good news for local tourism operators. Previous Dolomite Access Economics research for Tourism Australia found that the value of the Australian dollar has a relatively modest impact on the decision to visit Australia. However, it has a more pronounced impact on the level of spending undertaken by visitors once they arrive, which is likely to be of greater importance for many tourism operators.

The moderation of the Australian dollar is also likely to further slow growth in outbound travel by Australians as the overcompensation's of local destinations improves. Despite the pace of the recent moderation, the longer term outlook for the local currency remains relatively unchanged with the Australian dollar projected to remain at IIS$O. 80 from 2018-19. The global outlook The moderation of the Australian currency relative to the US dollar as been driven in part by an improved outlook for the US economy.

The most recent figures from the US show that real GAP grew by 0. 6% in the March quarter up from the 0. 1% recorded in the December quarter. Over the year to March, US real GAP grew by 1. 8%. Moreover, the US housing market continues to strengthen, with the S&P Case Sheller 20-City Composite Home Price Index rising by 10. 9% over the year to March 2013 and housing approvals rising almost 21% since May 2012. Encouraging figures have also appeared from the US labor market, with the unemployment rate falling to 7. % in April (though it edged up to 7. % in May). However, looking beyond the headline data reveals a labor market which remains soft. This is especially evident in the employment to population ratio (capturing both unemployment and workforce participation), which remains essentially unchanged from the depths reached in late 2009. This data suggests that the falling unemployment rate has mainly been due to individuals dropping out of the labor force rather than strong employment growth.

These emerging signs of recovery - along with recent improvements in consumer confidence - suggest that, although fiscal consolidation ill limit the speed of the nation's economic recovery, the US is better placed than previously to handle the impact of $85 billion in budget cuts associated with the 'sequester' and a 2% increase in payroll tax. By comparison, the outlook for Chinese growth is slightly weaker than forecast six months ago with growth falling from 7. 9% over the year to December 2012 to 7. 7% over the year to March 2013.

Growth continues to be supported by infrastructure spending and housing construction with recent growth in real estate prices prompting renewed concerns about the potential or a housing price bubble in China. Growth in both consumer spending and the longer term, China will need to rebalanced its growth towards higher wages and increased consumer spending, which is likely to imply a slower but more balanced growth trajectory. The COED Economic Outlook forecasts Chinese growth to remain at 7. 8% in 2013, before rising to 8. 4% in 2014 on the back of an acceleration of global trade.

In Europe, fiscal austerity has continued to hamper growth with unemployment in the region climbing further. While austerity measures have increased the level of lattice instability in some member states, the European Central Banks actions in purchasing government bonds has reduced the risk of a severe collapse over the last eighteen months. The COED expects growth in the Euro area of in 2013 before recovering to 1 . 1% in 2014. By comparison, the outlook is slightly stronger for Japan as monetary easing has led to a depreciation of the yen since November 2012, although the COED is forecasting growth of only 1. % in 2013. On the whole, the global outlook remains broadly similar to six months ago, with more promising signs f recovery in the US being counterbalanced by a slightly softer outlook for China's economy and continued weakness in the Rezone. The domestic outlook In Australia, concerns have been growing about the capacity of the non-mining sectors to sustain growth once the resource-related construction boom peaks. The economy grew by 0. 6% in the March quarter to be up by 2. 5% over the year, but growth was largely driven by an improvement in net exports.

A decline in new engineering construction in the quarter has prompted increasing concerns that the mining construction boom has begun to peak. While Dolomite Access Economics expects resource-related construction to plateau for some time before receding, alternative sources of growth must be forthcoming if an economic slowdown is to be avoided. While there is evidence that housing construction and the retail sector are beginning to grow, the recovery in both sectors has been relatively mild to date. Residential construction activity grew by only 2. % over the year to March, while retail expenditure grew by 3. 1% over the year to April. The decision by the Reserve Bank to cut interest rates to a record low of 2. 75% in May should act to Arthur stimulate the housing and retail sectors. At the same time, while the decision by the Federal government to delay a return to budget surplus to 2015-16 has been welcomed, indicators suggest business confidence has weakened in recent months due to concerns about the impending peak in construction activity in the resources sector.

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