Deloitte Hotels Tourism Q2 2013

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Tourism and HotelMarket OutlookHalf yearly update 2013

July 2013


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Key developments 1

The macroeconomic context 2

The outlook for Australias tourism sector 4

Hotel market outlook 11

Contents


3/20Tourism and Hotel Market Outlook - Half yearly update 2013 | 1

Key developments1

Mixed economic signals for the tourism sector

Concerns over the ability of the Australian economy tomaintain growth as the mining construction boom peakshave combined with weaker economic news from overseasto generate a degree of economic uncertainty for tourismoperators. However, the easing of the Australian dollar hasbeen a welcome development.

The latest Mastercard-TTF sentiment survey indicates

that international industry sentiment remains relativelystable. Notably, however, 50% of those surveyed sawthe Australian dollar as having a high impact on theirbusiness, highlighting the potential upside of the localcurrency easing.

Growth in international visitor arrivals continuesto impress

International visitor arrivals grew 4.9% over the yearto March while international visitornights grew 7.2%,signicantly outpacing average growth of the last decade.

While this growth has been largely led by the emergingAsian 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 arrivalsfrom the US.

Increasing length of stay by Japanese visitors was also akey contributor to visitor night growth.

The outlook for international visitorsremains robust

Despite a marginally weaker economic outlook,Deloitte Access Economics continues to project solidgrowth in international visitor arrivals and nights overthe next three years, with arrivals forecast to grow by4.5% p.a. and nights by 4.9% p.a.

While the outlook for growth in Chinese visitors hasmoderated slightly, China is expected to remain thesingle largest contributor to growth, with visitor nightsforecast to grow by 6.7% p.a. over the next three years.Overall, Asia is projected to account for two thirds offorecast growth in international visitor nights.

In an encouraging sign for the nations larger regionaltourism destinations, recent trends have revealedChinese travellers venturing beyond our capital citiesin increasing numbers. In fact, the Gold Coast andTropical North Queensland are now frequentedmore commonly by Chinese leisure visitors than byinternational leisure travellers generally.

The domestic visitor market continues to expandAfter a decade of weak or negative growth, the domestictourism market rebounded strongly in the rst half of 2012.While this rapid rate of growth has not been maintained,the domestic market has continued to expand, with visitornights increasing 2.2% over the year to March 2013.

Strengthening leisure market forecast to be thekey driver of domestic growth

Corporate travel has been the predominant driver ofdomestic tourism growth over the last decade. Howevera softer domestic economic outlook and signs of acontinued pick-up in holiday travel indicate the leisuresegment playing a more prominent role in driving domestictourism over the next few years particularly if theAustralian dollar continues to recede.

Holiday visitor nights grew 11.6% in the March quarterand by 3.7% over the year to March. This representsthe fastest rate of growth since before the GFC andconsiderably narrowed the gap with outbound leisuretravel, which grew by 4.6% over the same period.

Overall, Deloitte Access Economics forecasts domesticvisitor nights to grow at an average rate of 1.6% p.a.over the next three years.

Hotel occupancy rates in Brisbane and Perth easewhile smaller markets record strong growth

In a clear sign that travel associated with the miningsector is slowing, the last two quarters saw a softeningin occupancy rates in Brisbane and Perth with averageoccupancies for the year to May 2013 around 2% lowerthan the previous year.

However, growth in domestic holiday travel has beengood news for destinations such as the Gold Coastwhere occupancy rates continue to improve, whileTropical North Queensland has benetted from stronggrowth in international visitor nights.

A softer domestic economic outlook ismoderating growth forecasts for several majorhotel markets

Growth in occupancies and room rates in marketsassociated with mining-related corporate travel, such asBrisbane and Perth, is forecast to be more subdued, asthe resource-related construction boom reaches its peak.At the same time, the weakening of the Australian dollaris forecast to provide further support for room rates andoccupancies in leisure-oriented markets.

Nevertheless, and despite a strengthening investmentpipeline, demand is forecast to outstrip supply and,accordingly, occupancy rates are forecast to grow 2% androom rates by 3.5% p.a. nationally over the three years toDecember 2015.


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The macroeconomic context2

The Australian dollar falls below parity

Having remained broadly at or above parity with the USdollar since early 2011, the Australian dollar lost signicantground in May. By the end of May, the Australian dollarhad fallen to US$0.96, while the Trade Weighted Index(TWI), which measures the strength of Australias currencyagainst its trading partners, fell from 78.2 on the 1st ofMay to 74.0 by the end of the month. At the time ofwriting the Australian dollar had fallen to US$0.92 andthe TWI had fallen to 71.2.

The decline in the Australian dollar against its majortrading partners was partly precipitated by the ReserveBanks decision in May to reduce the ofcial cash rate to2.75%, while an announcement by the Federal Reserve ofa possible tapering of its quantitative easing strategy hascaused a more recent drop against the US dollar.

The decline in the Australian dollar is good news for localtourism operators. Previous Deloitte Access Economicsresearch for Tourism Australia found that the value ofthe Australian dollar has a relatively modest impact onthe decision to visit Australia. However, it has a more

pronounced impact on the level of spending undertakenby visitors once they arrive, which is likely to be of greaterimportance for many tourism operators. The moderationof the Australian dollar is also likely to further slowgrowth in outbound travel by Australians as the price-competitiveness of local destinations improves.

Despite the pace of the recent moderation, the longerterm outlook for the local currency remains relativelyunchanged with the Australian dollar projected to remainat US$0.80 from 2018-19.

The global outlook

The moderation of the Australian currency relative tothe US dollar has been driven in part by an improvedoutlook for the US economy. The most recent gures fromthe US show that real GDP grew by 0.6% in the Marchquarter up from the 0.1% recorded in the Decemberquarter. Over the year to March, US real GDP grew by1.8%. Moreover, the US housing market continues to

strengthen, with the S&P Case Shiller 20-City CompositeHome Price Index rising by 10.9% over the year toMarch 2013 and housing approvals rising almost 21%since May 2012.

Encouraging gures have also appeared from theUS labour market, with the unemployment ratefalling to 7.5% in April (though it edged up to 7.6%in May). However, looking beyond the headline datareveals a labour market which remains soft. This isespecially evident in the employment to populationratio (capturing both unemployment and workforceparticipation), which remains essentially unchanged fromthe depths reached in late 2009. This data suggests that

the falling unemployment rate has mainly been due toindividuals dropping out of the labour force rather thanstrong employment growth.

These emerging signs of recovery along with recentimprovements in consumer condence suggest that,although scal consolidation will limit the speed of thenations economic recovery, the US is better placed thanpreviously to handle the impact of $85 billion in budgetcuts associated with the sequester and a 2% increasein payroll tax.

By comparison, the outlook for Chinese growth isslightly weaker than forecast six months ago with growthfalling from 7.9% over the year to December 2012 to7.7% over the year to March 2013. Growth continuesto be supported by infrastructure spending and housingconstruction with recent growth in real estate pricesprompting renewed concerns about the potential fora housing price bubble in China.

Growth in both consumer spending and industrialproduction were not as strong as anticipated in theMarch quarter. Over the longer term, China will need torebalance its growth towards higher wages and increasedconsumer spending, which is likely to imply a slower butmore balanced growth trajectory. The OECD EconomicOutlook forecasts Chinese growth to remain at 7.8% in2013, before rising to 8.4% in 2014 on the back of anacceleration of global trade.



In Europe, scal austerity has continued to hamper growthwith unemployment in the region climbing further.While austerity measures have increased the level ofpolitical instability in some member states, the EuropeanCentral Banks actions in purchasing government bondshas reduced the risk of a severe collapse over the lasteighteen months. The OECD expects growth in the euroarea of 0.6% in 2013 before recovering to 1.1% in 2014.By comparison, the outlook is slightly stronger for Japan asmonetary easing has led to a depreciation of the yen sinceNovember 2012, although the OECD is forecasting growthof only 1.6% in 2013.

On the whole, the global outlook remains broadly similarto six months ago, with more promising signs of recoveryin the US being counterbalanced by a slightly softeroutlook for Chinas economy and continued weaknessin the Eurozone.

The domestic outlook

In Australia, concerns have been growing about thecapacity of the non-mining sectors to sustain growthonce the resource-related construction boom peaks.The economy grew by 0.6% in the March quarter to beup by 2.5% over the year, but growth was largely drivenby an improvement in net exports. A decline in newengineering construction in the quarter has prompted

increasing concerns that the mining construction boomhas begun to peak.

While Deloitte Access Economics expects resource-relatedconstruction to plateau for some time before receding,alternative sources of growth must be forthcoming ifan economic slowdown is to be avoided. While there isevidence that housing construction and the retail sectorare beginning to grow, the recovery in both sectors hasbeen relatively mild to date. Residential constructionactivity grew by only 2.1% over the year to March, whileretail expenditure grew by 3.1% over the year to April.

The decision by the Reserve Bank to cut interest ratesto a record low of 2.75% in May should act to further

stimulate the housing and retail sectors. At the same time,while the decision by the Federal government to delay areturn to budget surplus to 2015-16 has been welcomed,indicators suggest business condence has weakened inrecent months due to concerns about the impending peakin construction activity in the resources sector.

The OECD Economic Outlook is projecting Australian GDPgrowth to remain moderate at 2.6% in 2013, in line withthe Reserve Bank forecasts, before picking up to 3.2% in2014. Deloitte Access Economics latest macroeconomicforecasts will be released as part of the Business Outlook publication in mid-July.


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The outlook for Australiastourism sector

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Overview

After a sharp rebound in the rst half of 2012,domestic visitor nights continued to expand inthe December and March quarters, albeit at a moremodest pace.

- Domestic visitortrips grew by 1.8% and domesticvisitornights by 2.2% over the year to March 2013.

- This was largely driven by strong performance

in the holiday and business segments whichrecorded growth of 3.7% and 6.4% respectively.

- The strength of the domestic holiday markethas been most evident in Melbourne, Hobart,the Gold Coast and the Sunshine Coast, as wellas Brisbane and Perth where it has helped tooffset a softening in corporate travel over thelast twelve months.

Mixed economic conditions are projected to moderatethe rate of growth in domestic visitor activity over theoutlook period.

- The weaker economic outlook will see a slowingin the growth of corporate travel. At the sametime, the decline in the value of the Australiandollar will contribute to leisure travel playing amore prominent role in driving growth in thedomestic market.

- Deloitte Access Economics forecasts domesticvisitor nights to grow at an average rate of1.6% p.a. over the next three years.

The weakening of the Australian dollar is also forecastto augment a further slowing in the growth ofoutbound travel by Australians, which by end-2015 isprojected to have eased to 3% p.a.

Growth in international visitor arrivals has continued

to outpace its average of the last decade.- International visitorarrivals grew by 4.9% over

the year to March 2013, while international visitornights grew by 7.2%.

- Growth continues to be driven by the emergingAsian economies, although visitor arrivals fromthe US have also picked up.

- While arrivals from Japan and the UK have been at,those who came to Australia chose to stay longer.

Deloitte Access Economics forecasts point to theinternational market continuing to grow strongly,although the rate of growth in visitor nights is projectedto return closer to trend.

- International visitor nights are projected to growat an average annual rate of 4.9% p.a. over thenext three years.

- This growth will continue to be driven by the

emerging economies of Asia with growth invisitor nights forecast to average 8.6% for Indiaand 6.7% for China over the next three years.The forecast for China is a slight moderation onlast quarter reecting a more uncertain outlookfor Chinese growth going forward.

- The growth in Chinese visitor arrivals over thenext three years is forecast to continue to bedriven by leisure visitors. While Chinese leisuretravellers stay in Australia for relatively shortperiods of time, they have high daily expenditurelevels and are more likely to visit regionalleisure destinations such as the Gold Coast and

Tropical North Queensland.Domestic visitors

After the sharp rebound in domestic visitor activity inthe rst half of 2012, visitor activity continued to growin the December and March quarters, albeit at a moremoderate rate. Over the year to March 2013, domesticvisitor trips grew by 1.8% while domestic visitor nightsgrew by 2.2%, to be broadly in line with our longerterm forecasts.

In the March quarter, visitor nights grew by 4.3%compared to the year prior and domestic visitor tripsgrew by 0.8%. As has been the case for some time,growth in domestic visitor nights was supported by solidgrowth in corporate travel. However, in an encouragingsign for the sector, the holiday sector also grew stronglyin the December and March quarters. Holiday visitornights grew 6.7% in the December quarter and 11.6%in March relative to the December and March quartersof 2012.

The growth in domestic holiday visitor nights has ledto a substantial increase in demand for key leisuredestinations. Chart 3.1 shows the six major touristdestinations that experienced the highest growthin domestic holiday visitor nights in the year toMarch 2013. The light blue column shows the growthin visitor nights for each destination while the lightgreen column illustrates the growth in visitor trips.


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While holiday visitornights grew exceptionally stronglyin Melbourne, this was largely driven by an increase inaverage length of stay the number of holiday visitortrips in fac t grew only 2.1%. By comparison, growthin holiday visitor nights was accompanied by solidgrowth in visitor trips for the Gold Coast, SunshineCoast, Hobart and Perth. In the case of Hobart thegrowth in visitor trips substantially exceeded growthin visitor nights.

Chart 3.1: Destinations with highest growth indomestic holiday nights*

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*Growth over the year to March 2013.Source: TRA, Deloitte Access Economics.

The growth in holiday nights was not evident in alllocations. Domestic holiday visitor nights were relativelyunchanged over the year to March in Sydney, Canberraand Tropical North Queensland (although the latterreceived a sharp inux in international visitors over theyear to March) and holiday visitor nights declined bymore than 10% in both Adelaide and Darwin.

Business nights grew by 6.4% over the year to Marchnationally, but declined by more than 20% in Brisbaneand Perth. While business visitor nights are by farthe most volatile segment of the domestic market,business visitor nights in Brisbane and Perth have fallenconsistently in recent quarters.

Chart 3.2 shows the growth in business visitor nightsin Perth and Brisbane by quarter. Although the guresindicate that business visitor nights are highly volatile,growth in business visitor nights was negative betweenMarch and December 2012 and in Perth between June2012 and March 2013.

Chart 3.2: Year-on-year growth in domestic businessvisitor nights in Perth and Brisbane*

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*Growth for each quarter is relative to the corresponding quarter inthe previous year. Source: TRA, Deloitte Access Economics.

Overall, these gures suggest a signicant cooling indemand for business travel, consistent with resource-related construction reaching its peak. However, from ahistorical perspective, business travel to both Perth andBrisbane remains at relatively elevated levels. As shownin Chart 3.3, business visitor nights in both markets are

still above the prevailing level of three years ago.

Chart 3.3: Rolling annual business visitor nightsover time for Perth and Brisbane

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Source: TRA, Deloitte Access Economics.

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Deloitte Access Economics forecasts domestic visitor nights togrow by an average of 1.6% p.a. and domestic visitor trips togrow by 1.7% p.a. over the next three yearsThe other major development in the domestic tourismmarket has been a decline in growth in domestic day tripsin the March quarter. Having grown rapidly in the rstthree quarters of 2012, domestic day trips were at in theDecember quarter and fell by 7.6% in the March quarter2013 relative to the March quarter 2012. Nevertheless,the strength of growth in previous quarters has meantthat domestic day trips still grew by 2.5% over the yearto March 2013 with the annualised level of domestic daytrips remaining close to record highs.

Looking forward, Deloitte Access Economics forecastsdomestic visitor nights to grow by an average of 1.6%

p.a. and domestic visitor trips to grow by 1.7% p.a.over the next three years. This is moderately lowerthan the growth rate recorded over the year to March,reecting a softening domestic economic outlook andits impact on domestic corporate travel. Coupled withthe depreciation of the Australian dollar, moderatinglocal economic conditions are expected to see thecomposition of this growth shift gradually towardthe leisure segment.

Outbound travel by Australians

The latest gures for outbound departures show themgrowing by 5.1% over the 12 months to April 2013.Overall, the growth in outbound departures appears to

have stabilised at around 5%, well below the doubledigit growth rates recorded in 2010 and 2011 but stillindicating a relatively healthy rate of growth.

Outbound holiday trips grew by 5.7% whileinternational trips to visit friends and relatives grewby 6.9%. Business trips fell by 0.1% over the 12 monthsto April 2013.

The gap in growth rates between the outbound leisuremarket and the domestic leisure market has fallenover the last twelve months. Over the year to March2012, outbound holiday trips increased by 14.2% whiledomestic holiday trips grew by just 2%. By comparisonover the year to March 2013 outbound holiday tripsgrew by 4.6% and domestic holiday trips grew by 3.2%.

The moderation of the Australian dollar, coupled

with subdued economic conditions locally, is forecastto lead to a further slowing in the pace of outboundtravel by Australians. Indeed, growth in outboundtravel is forecast to moderate to around 3% p.a.over the next three years. As evidenced over the past12 months, at least part of this slowing is likely to betransferred across to the domestic leisure market inthe form of more Australians holidaying at home.Of course, should the Australian dollar depreciatemore sharply than anticipated, so too will the

pace of outbound travel.

International visitorsThe international visitor market grew strongly over thelast three quarters. International visitor arrivals increasedby 4.9% over the year to March 2013 and internationalvisitor nights increased by 7.2%. This pace of growth iswell above the average of the last decade, during whichinternational visitor arrivals grew by 2.7% and internationalvisitor nights grew by 5.9%.

As in previous quarters, growth has been drivenpredominantly by the emerging Asian economies,particularly China. Over the year to March 2013, visitorsfrom China grew by 17.4% while visitors from Malaysiaand Singapore grew by 12.4% and 12.5% respectively.Arrivals from Hong Kong grew by 7.8% while arrivals fromIndia grew by 7.3%. The strength of these gures reectsthe extent of the growth in the middle class in Asia and itsimpact on the demand for international travel.

While some of the strongest growth in arrivals hascome from Asia, overall market growth has also beensupported by visitors from the US. International visitorsfrom the US grew by 6.7% while visitor nights grew by8.0% over the year to March 2013 as the local economygathers momentum.

Visitor arrivals from Japan grew by a more moderate2.5% while arrivals from the UK fell by 3.5%. However,

visitors from both these markets opted to extend theirlength of stay, with Japanese visitor nights growingby 25.4% and UK visitor nights growing by 10.4%.The increased length of stay occurred across allJapanese visitor segments, while in the UK it was morepronounced among those visiting friends and relatives.



Looking forward, Deloitte Access Economics forecasts international arrivals continuing to growover time on the back of growth in Asias middle class.Current forecasts indicate international visitor arrivals

growing by 4.5% p.a. on average over the next three years and international visitor nights by 4.9% p.a.These forecasts are broadly similar to those of our

Q1 release, with the strength of recent visitor demandbeing counterbalanced by increased uncertainty aboutthe pace of economic growth in the Chinese economy.

The largest contributor to the growth in visitor nightsover the next three years is forecast to be Chinafollowed by India and the UK. Visitor nights from Indiaare projected to grow by 8.6% p.a. on average overthe next three years, while visitor nights from China areprojected to grow, on average, by 6.7% p.a. Averagegrowth in visitor nights in excess of 7% p.a. is alsoforecast for Indonesia and Thailand, albeit from a lowerbase. Other countries with forecast average growth

rates between 4% and 6% include Korea, Singapore,Taiwan, Hong Kong and Malaysia.

Asia is once again anticipated to provide the primarysource of growth in visitor nights, accounting for closeto two thirds of the growth in visitor nights over thenext three years. Outside of Asia, growth from the USand UK is more modest at 3.4% p.a., although thisremains signicant given the UK market accounts for7.4% of total growth in total visitor nights to Australia.Chart 3.4 below shows the forecast growth in visitornights over the next three years for Australias sevenlargest source countries for international visitor nights.

Chart 3.4: Growth in visitor nights from majorsource countries

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Source: OAD, TRA, Deloitte Access Economics.

The moderation of the Australian dollar will alsohave an impact on international visitor expenditure.As international trips are often planned some time inadvance, research by Deloitte Access Economics showsthat currency uctuations tend to have a larger impacton expenditure than the decision to travel.

Chart 3.5 shows international visitor expenditureper trip for Australias ve largest tourism markets

in terms of visitor nights and for all internationalvisitors. The blue columns show average expenditurefor all tourists from a given source while the greencolumns indicate expenditure per trip by holidayvisitors (who constitute the largest component ofthe international visitor market).

While Chinese visitors exhibit the largest expenditureper visitor of all source countries, this is largely drivenby the higher expenditure of international students.By comparison, Chinese holiday visitors spend slightlyless than the international holiday visitors as a whole.Holiday visitors from the UK and South Korea had thehighest per-visitor expenditure of Australias ve largest

tourism markets, reecting their longer average lengthof stay. South Korean visitors had an average lengthof stay of 57 nights while UK visitors had an averagelength of stay of 46 nights. By contrast, New Zealandholiday visitors stayed for only 14 nights on average.

Chart 3.5: International visitor expenditure

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Source: ABS OAD, TRA, Deloitte Access Economics.

Holiday visitors and students, who collectivelycomprise 57% of total international visitor nights,tend to be the most sensitive to uctuations in theexchange rate and thus are likely to be the sec torsthat grow most quickly in response to a decline inexchange rates. Deloitte Access Economics forecaststhat as the Australian dollar moderates over the next

three years, expenditure by international holidayvisitors will grow by 8% p.a. in real terms.


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However, if the exchange rate were to depreciatemore quickly than anticipated, this would be expectedto result in a signicant increase in international visitorexpenditure. The results of research undertaken byDeloitte Access Economics indicate that a further 10%depreciation of the Australian dollar would lead to a4% increase in overall international visitor expendi tureand a 6.6% increase in expenditure by internationalleisure travellers.

Performance by state

The trends in domestic business and holiday travelto particular destinations have in turn impacted theperformance of individual state markets. As Chart3.7 shows, strong growth in domestic visitor nightswas recorded for Victoria, Western Australia andTasmania, reecting the strong growth in holidayvisitor nights over the year to March 2013 forMelbourne, Perth and Hobart.

Domestic visitor nights in NSW and Queensland wererelatively unchanged. In the case of Queensland, whileholiday visitor nights improved on the Gold Coast,Brisbane and the Sunshine Coast, this was offset bya broader decline in business visitor nights and thosevisiting friends and relatives. Domestic visitor nightsdeclined in South Australia, reecting the fall indemand for holiday visitor nights in Adelaide.

Shifting patternsof corporate and leisuretravel are impacting the

performance of regionaltourism sectors andhotel markets

Chart 3.6: Growth in visitor nights by state*

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*Growth for the year to March 2013.Source: ABS OAD, TRA, Deloitte Access Economics.

At the same time, South Australia recorded thestrongest growth in international visitor nights,although both Queensland and Western Australia alsoexperienced double digit growth. The performanceof South Australia was driven by an improvement ofmore than 20% in international holiday visitor nightsand a 17.4% improvement in the visitor nights for those

visiting friends and relatives with particularly stronggrowth in visitor nights for those from Hong Kong,Singapore and the UK. Solid growth in internationalvisitor nights also occurred in Victoria and Tasmania.

The weakest growth in international visitor nights wasin NSW where visitor nights only grew by 2% overthe year to March. While this in parts reects weakergrowth in the international student market, growth ininternational holiday nights in NSW grew by only 0.6%.Given the strong growth experienced elsewhere in thecountry these gures indicate that NSW has received arelatively small proportion of the growth in internationalholiday visitor nights relative to other states.



The Chinese leisure market

It is well recognised that much of the recent growth ininternational visitor arrivals to Australia has been drivenby the emerging economies of Asia; China in particular.Over the last two years, Chinese visitors have accountedfor 49% of the growth in international visitor numbers and 16% of the growth in international visitor nights .

The growth in Chinese visitor numbers has beenlargely driven by the leisure market, reecting therapid bourgeoning of the Chinese middle class. In fact,holiday visitors accounted for 73% of the growth inChinese visitor arrivals over the last two years and 58%of growth over the last ve years. The share of visitors who are holiday travellers has risen from 46% to 52%over the last ve years.

However, Chinese holiday visitors tend to stay inAustralia for relatively short periods of time. On average,

Chinese holiday visitors stayed for 11.1 nights in theyear to March 2013, compared to 27.4 nights forinternational holiday visitors as a whole. As a result,holiday visitors accounted for just 30% of the growth inChinese visitornights over the last two years. Overall,holiday visitors currently account for around 10% oftotal visitor nights, with students still accounting foraround half.

Despite their relatively short stay, the overallexpenditure of Chinese visitors was only slightly lowerthan other international visitors, due to an averagedaily spend of $212 compared to $99 for the averageinternational holiday visitor.

Looking forward, Deloitte Access Economicsforecasts Chinese holiday makers continuing toprovide a signicant source of visitor arrivals,accounting for 70% of the growth in the Chinesevisitor arrivals over the period to 2020 and over 40%of the total increase in non-student visitor nights.In terms of the dispersion of Chinese visitors acrossAustralia, this increase will lead to a gradual shift invisitation patterns towards holiday destinations.

Figure 3.1 shows that while Chinese tourists as a wholeare far more likely to visit Sydney and Melbourne andless likely to visit regional destinations, Chinese holidayvisitors actually spend a similar share of their timeoutside the capital cities as other international visitors.

In particular, Chinese holiday visitors spent 15.2% oftheir total visitor nights on the Gold Coast and 7.9%

in Tropical North Queensland. By comparison allinternational holiday visitors spent only 5.4% of theirnights on the Gold Coast and 6% in Tropical NorthQueensland. The popularity of these destinationswith Chinese travellers is likely to partly reect notonly their innate appeal but the expansion of low costcarriers from Asia to the Gold Coast and Tropical NorthQueensland, including the introduction of servicesby China Southern to Cairns. The growth in Chineseholiday visitor nights on the Gold Coast and TropicalNorth Queensland over the last three years is shown inChart 3.8 below.

Focus on...

Chart 3.7: Share of international visitor nightsby destination

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Note: Data is for the year to March 2013. Internationalstudents were not included in the analysis. Source: TRA 2013,Deloitte Access Economics

Chart 3.8: Rolling annual Chinese holiday visitornights on the Gold Coast and Tropical NorthQueensland

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Source: TRA 2013, Deloitte Access Economics


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The growth in Chinese visitor numbers has beenlargely driven by the leisure market, reflecting therapid bourgeoning of the Chinese middle class.In fact, holiday visitors accounted for 73% of thegrowth in Chinese visitor arrivals over the last twoyears and 58% of growth over the last five years

Since 2008, there has been a shift in total Chinesevisitor nights (excluding students) towards smallercities and regional destinations. For example, theshare of visitor nights in Sydney and Melbournehas fallen from 73.1% to 62.8%, with the shareof visitor nights in Brisbane, other capital citiesand other regional destinations growing by 4.8%,2.5% and 3.1%, respectively.

Based on current visitation patterns, DeloitteAccess Economics forecasts that the growth in theChinese holiday visitor market to 2020 will lead to asubstantial increase in demand for these destinations.The forecast growth in the Chinese holiday visitormarket alone will lead to:

278,000 additional annual visitor nights on theGold Coast (equivalent to 7.3% of total internationalleisure visitor nights in the year to March);

145,000 additional annual visitor nights in TropicalNorth Queensland (equivalent to 3.5% of totalinternational leisure visitor nights in the yearto March); and

1.2 million additional visitor nights in Sydney,Melbourne and Brisbane (equivalent to 3.2% oftotal international leisure visitor nights in the yearto March).

This is likely to considerably hasten the recovery intourist activity and occupancy rates in destinationssuch as the Gold Coast and Tropical NorthQueensland which saw a sharp decline during theGFC (and in Tropical North Queenslands case, overa decade).

However, there is signicant scope for further gains ifChinese holiday visitors can be encouraged to extendtheir stay. For example, increasing the average lengthof stay by 3 nights would lead to another 120,000visitor nights on the Gold Coast and 62,000 visitornights in Tropical North Queensland.

As Deloitte Access Economics has previously noted,the size of the China opportunity is unprecedented.If its growth trajectory were to follow a similar pathto its neighbour Japan, then in little more than twodecades time, the number of Chinese visitors to

Australia could parallel todays entire internationaltourism market.

The economic benets for the regions successful inluring the Chinese traveller would be signicant.

The Chinese leisure market (continued)



Australia

The rst half of 2013 has seen the nationalaccommodation market remain broadly on parwith its 2012 performance, with occupancy ratesaveraging 66.0% for the year to May and roomrates growing 2.6% p.a. While the national pictureis a relatively stable one, there has been a signicantdivergence in performance across the countrys

accommodation markets.Occupancy rates improved in the Gold Coast andMelbourne as a result of increased domestic holidayvisitor nights, while occupancies grew in Tropical NorthQueensland on the back of increased internationalvisitor arrivals. There was also a noticeable improvementin occupancy rates in Darwin.

However, occupancy rates eased in a number of majorcapital city markets with occupancy rates falling by 2%in Brisbane and 2.3% in Perth over the year to May2013, reecting a softening in the growth of corporatetravel. At the same time, weakness in the domesticleisure segment contributed to a fall in occupancy

rates in Adelaide.

The outlook for accommodation demand remains broadlysimilar to last quarter, with the softer outlook for corporatetravel being largely counterbalanced by the positiveimpact of the weakening Australian dollar. Deloitte AccessEconomics three year outlook for room nights sold effectively demand is for growth of 2.3% p.a.

However, the outlook for room nights available effectively supply also continues to strengthen as aresult of a number of developments being announced inBrisbane, Adelaide, Canberra and several regional areas.Room nights available are forecast to grow by 1.2%

p.a. over the three years to December 2015, an increaseof 0.3% p.a. on our Q1 release, but still considerablyslower than forecast demand.

Much of the forecast development is 3 and 4 starhotels and serviced apartments with the cost of 5 starhotel developments remaining more difcult to justifyfor developers.

In total, 65 projects were identied in the supplypipeline across Australia at varying stages ofdevelopment. This number was similar to the 66developments recorded last quarter with recent hotel

openings being replaced by new developments. Thecurrent pipeline represents a signicant expansion onthe 45 developments recorded at the beginning oflast year.

Overall, with demand continuing to grow at close totwice the pace of supply, national occupancy rates areforecast to reach 67.9% by the year to December 2015.This is a slight moderation on the 68.1% forecast inour Q1 release, reecting a relatively stronger supplyoutlook to last quarter.

Room rates grew moderately in the rst ve monthsof 2013, growing by 2.6% over the year to May 2013to $150. The forecast for growth in room rates for thethree years to December 2015 has also been revisedslightly downwards from our Q1 release, with roomrates projected to grow at an average annual rate of3.5% over the three years to December 2012, reaching$165 in the year to December 2015.

Average yield per room (Revenue Per Available Room RevPAR) was $99 per room in the year to May 2012and is forecast to increase by 4.6% per annum over thethree years to December 2015 to $112.

Sydney

After easing between June 2011 and December 2012,demand for accommodation in Sydney picked upmarginally in the rst ve months of 2013. This hasresulted in occupancy rates improving slightly to 84.8%over the year to May 2013 from the 84.7% recordedover the year to December 2012. While occupancy ratesin Sydney have been relatively at, room rates havecontinued to grow steadily, improving 3.5% to $196over the year to May 2013, while RevPAR grew 3.1%to $167 over the year to May.

Overall, demand for accommodation in Sydneyremains softer than two years ago when occupancyrates peaked at 86.3%. This softness largely reects adecline in corporate travel, with corporate visitor nightsin Sydney falling by 14.4% over the year to March2013, contributing to an 8.1% decline in domesticvisitor nights.

Hotel market outlook4

Chart 4.1: Hotel outlook, Australia

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Source: Deloitte Access Economics based on: ABS Small AreaAccommodation data and STR Global


14/2012

Chart 4.2: Hotel outlook, Sydney

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Chart 4.3: Hotel outlook, Melbourne

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The decline in domestic visitor nights was offset to somedegree by a 1.7% increase in international visitor nights,as international visitors account for just over 50% oftotal nights in paid accommodation in the inner Sydneyregion. The domestic business and leisure segmentseach account for approximately 20% of total paid visitornights in inner Sydney.

Looking forward, occupancy rates for Sydney areforecast to improve as international visitor arrivalscontinue to grow. Sydney remains Australias majorgateway for international visitors, with 47% of visitorsarriving in Australia via Sydney and 27% of totalinternational visitor nights being spent in Sydney.By the year to December 2015, occupancy rates areforecast to reach 86.4%.

While there are a number of large developmentsin the pipeline for Sydney (such as the Four PointsSheraton and new Convention and Exhibition Centrehotel), most of the new capacity will not becomeavailable until 2015. Two small new accommodationdevelopments opened in Sydney in the month ofJune Adina Apartments in Bondi and the 1888hotel in Pyrmont although both contain fewer than120 rooms. Outside of the CBD, the larger 318 roomRydges Sydney Airport hotel opened in May.

The outlook for room rates is slightly more moderatethan our Q1 release with growth forecast to average3.6% over the three years to December 2015, takingroom rates to $216 by the year to December 2015.RevPAR is forecast to grow by 4.4% p.a. over the threeyears to December 2015, reaching $187 in the year toDecember 2015.

Melbourne

In contrast to the other major capital cities, occupancyrates have been pushed higher in Melbourne overrecent months, picking up from 81% in the year toDecember 2012 to 81.9% over the year to May 2013.The Melbourne hotel market has been especially tightin recent months with occupancy rates remainingabove 82% in February, March and April (althoughoccupancies fell marginally in May). This rise inoccupancy rates was partly driven by the strongincrease in holiday visitor nights over the year to March,

illustrated in Chart 3.1, as well as the closing of theSebel Melbourne in February.

Deloitte Access Economics forecasts occupancy ratesclimbing steadily to 84.1% by the end of December2015. This is a marginal upward revision on theforecasts of our Q1 release, reecting the strength ofdemand in the March quarter and the expected impactof a moderation in the Australian dollar over time.Melbourne is likely to only see a small increase in supplyover the next three years with the major planned hotelopening being the Oaks on William Street which shouldopen its door on the 15th of July. However, given thenumber of residential apartment developments currently

under way in Melbourne, there is scope for the supplyof serviced apartments to respond to market conditionsover time.

This outlook is expected to result in relatively healthygrowth in room rates and yields for Melbourne overthe period to December 2015. Room rates are forecastto grow at an average rate of 4.0% p.a. over the threeyear period to December 2015, reaching $201 in theyear to December 2015. Room rates averaged $181over the year to May 2013. The improvement in forecastoccupancy rates is forecast to lead RevPAR to grow by5.4% p.a. to reach $169 by the year to December 2015from $147 currently.



Perth

A decline in domestic corporate travel saw Perthsoccupancy rates for the year to March 2013 fall to 83.8%,the lowest level since the year to June 2011. More recentdata from April and May indicate that Perths occupancyrates are stabilising at this level with average occupancyrates for the year to May being 83.8%.

As the resource-related construction boom inWestern Australia peaks, the demand for business travelto Perth will continue to soften. Domestic businesstravel accounts for 30.6% of total visitor nights in paidaccommodation in Perth, with international and domesticbusiness travel combined accounting for 43.6% ofvisitor nights.

However, the decline in business visitor nights has beenpartly offset by the leisure segment, with the volume ofdomestic holiday and international visitor nights whichaccount for 32.4% of the hotel market growing solidlyover the last 12 months.

Occupancy rates in Perth are expected to remain relativelystable over the next two years as growth in holiday visitornights helps to offset a more modest outlook for corporatetravel, before easing slightly to 83.5% over the year to

December 2015 as resource-related construction declinesand additional supply enters the market. In addition toCrown Towers and the proposed hotel development atFESA House, Holiday Inn Express indicated in May that itplans to open a 224 room hotel in Perth in 2015.

Weakening corporate travel and the recent cancellation ofseveral major resource projects has meant that the outlookfor growth in room rates in Perth has moderated notably.Over the three years to December 2015, room rates areforecast to grow at 6.2% p.a. still the nations fastest, butconsiderably slower than the pace of recent years.

Room rates are expected to remain the highest in thecountry, rising from $200 currently to $239 by the year toDecember 2015. RevPAR is forecast to grow by 5.6% overthe three years to December 2015, reaching $199 in theyear to December 2015.

Brisbane

The decline in visitor nights by corporate travellers overthe last year has seen occupancy rates soften in theBrisbane market. After sustaining an average rate of81% over the year to March 2012, average occupancieseased to 79.3% over the year to March 2013 and havesoftened marginally further since, edging below 79%over the year to May.

Looking forward, a signicant amount of additionalsupply is projected to enter the Brisbane market overthe next two years ahead of the G20 conference inNovember 2014. The new Tryp by Wyndham hoteldevelopment was announced in May and Quest hasannounced proposed developments at Upper MountGravatt and Woolloongabba, while the rst stage ofthe Meriton Serviced Apartments on Herschel Streetopened in June. The Gambaro restaurant has alsoannounced plans to open a 68 room hotel in 2014.

As a result of the forecast increase in supply overthe next two years and the recent softening inbusiness travel, occupancy rates for Brisbane areexpected to remain relatively stable over the nexttwo years, reaching 80.1% in the year to December2015. This outlook is a downward revision on our Q1release, reecting the weakening corporate traveland a strengthening supply outlook.

The outlook for room rates and RevPAR for Brisbanehas also moderated. Over the three year period toDecember 2015, room rates are forecast to grow by4.1% p.a. to reach $198. The moderating growthoutlook being driven both by additions to the stockof rooms and a softer outlook for corporate travel.RevPAR is expected to grow by 4.0% p.a. over the threeyear period to December 2015, climbing to $159 by theyear to December 2015.

Chart 4.5: Hotel outlook, Perth

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Chart 4.4: Hotel outlook, Brisbane

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16/2014

Chart 4.7: Hotel outlook, Canberra

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Chart 4.6: Hotel outlook, Adelaide

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Canberra

Canberra has seen a decline in occupancy rates overthe last two years, with occupancies falling to 69.2%for the year to May 2013 as Canberras scal pressureshave weighed on travel to the nations capital. Supply isforecast to expand in the second half of the year withthe announcement earlier this year that Adobe Wodenwould open a 153 room hotel on the site of the formerCommonwealth Department of Health and Ageingofces in August.

As a result, the growth in occupancy rates is expectedto be milder than was forecast in our Q1 release withoccupancy rates remaining relatively steady in the shortterm before growing to reach 72.1% for the year toDecember 2015.

Reecting the recent decline in average occupancies,room rates were relatively steady in Canberra over therst ve months of the year. Room rates are projected togrow at a modest 2.9% p.a. over the three year periodto December 2015, rising to $179. The posit ive growthoutlook for both occupancy and room rates has resultedin projected RevPAR growth of 3.8% p.a. over the threeyears to December 2015.

Adelaide

Occupancy rates in Adelaide have remained steadyover the last two years at approximately 75%. Lookingforward, occupancy rates are forecast to edge up onlymarginally, reaching 75.3% in the year to December 2015.

As well as weak demand side conditions, the moderateoutlook for Adelaide is partly a reection of an expectedexpansion in the supply of hotel rooms in the city.This year has seen the opening of 117 rooms at Queston Franklin which will be complemented by anotherQuest property on King William Street next year, alongwith three other Adelaide hotel developments which areplanned to open by the end of 2014.

Room rates have been relatively at in Adelaide sincethe GFC and are expected to grow moderately overthe three years to December 2015, averaging 2.4% p.a.over the period to December 2015. The combination ofat occupancy rates and only modest growth in roomrates has resulted in projected average annual RevPARgrowth rate of 2.3% p.a. over the three year period toDecember 2015.



Chart 4.9: Hotel outlook, Gold Coast

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Chart 4.8: Hotel outlook, Darwin

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Gold Coast

Occupancy rates on the Gold Coast have grown stronglyover the past 18 months, reecting a surge in domesticholiday visitors. Occupancy rates for the year to March2013 reached 71.0%, a 4% increase to March 2012.Demand for accommodation is highly seasonal on theGold Coast and while occupancy rates fell in April andMay they were broadly on par with last year, averaging71.1% over the year to May. Deloitte Access Economicsprojects that occupancy rates will continue to growthrough 2013 and then stabilise at around 72% by

the end of 2015.In contrast to occupancy rates, and reecting thesignicant capacity that remains in the market, roomrates on the Gold Coast have grown relatively slowlyover the past two years. Consistent with recent trends,room rate growth is projected to average 3.5% p.a.over the three years to December 2015, while continuedgrowth in occupancies is forecast to see RevPAR growat an average rate of 4.5% p.a. over the same period.

Darwin

The average occupancy rate in Darwin has beengrowing steadily since September 2011 withoccupancies for the year to May 2013 reaching 78.5%.Looking forward, occupancy rates in Darwin areprojected to continue to grow for the remainder of2013, before moderating in 2014 and 2015 as newhotel developments increase the supply of rooms on themarket. The new H Hotel, with 196 rooms has openedrecently, while Ausco Modular and Quest Berrimah areboth expected to open by the end of 2014.

The occupancy rate for the year to December 2015 isprojected to be 78.1%, slightly lower than the year toMay 2013.

Room rates have been growing rapidly over the last18 months with room rates for the year to May 2013growing 10.7% to $159. This growth is expectedmoderate as new supply enters the market, with roomrates forecast to grow by 4.2% p.a. over the three yearsto December 2015 to reach $177.

RevPAR has also grown rapidly over the last two years,with RevPAR for the year to May 2013 growing to $125.RevPAR is expected to grow at 4.3% p.a. over the three

years to December 2015.


18/2016

Deloitte Access EconomicsTourism and Hotel Market Outlook Half yearly update 2013 reports on theperformance of Australias tourism and hotel accommodation sector, based on data published by the

Australian Bureau of Statistics (ABS) and extrapolated through information from Tourism Research Australia(TRA) and other sources.

Forecasts to December 2015 are presented, based on projections generated from our in-house tourismforecasting model and hotel accommodation sector model. These projections draw on Deloitte AccessEconomics macroeconomic forecasts, as reported in our quarterly Business Outlook publication.

The average occupancy rate in the Tropical North Queenslandregion has been improving steadily since the end of 2010,reaching 61.2% in the year to March 2013Tropical North Queensland

The average occupancy rate in the Tropical NorthQueensland region has been improving steadily sincethe end of 2010, reaching 61.2% in the year to March2013. This recovery has been driven by a strong pick upin international visitor nights for the region which grewby over 20% over the year to March. As with the GoldCoast, occupancy rates in Tropical North Queenslandare highly seasonal but fell slightly in April and Mayrelative to last year, with occupancy rates averaging60.9% over the year to May 2013.

Deloitte Access Economics forecasts continued growthin occupancy rates in Tropical North Queensland, withaverage occupancies projected to increase to 65.6%

by the year to December 2015, reecting the expectedgrowth in international visitor nights Asian leisuretravellers in particular over the next three years.

Room rates have been relatively steady over the pasttwo years with, like Gold Coast, a signicant amountof capacity remaining in the market. Looking forward,however, room rates are forecast trend upwards,growing at an average annual rate of 4.2% p.a.

The strong growth in occupancy rate and roomrates mean that RevPAR is expected to grow at anaverage annual rate of 7% over the three years toDecember 2015.

Chart 4.10: Hotel outlook, Tropical North Queensland

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Source: Deloitte Access Economics based on: ABS Small Area

Accommodation data and STR Global



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Our dedicated practice provides a wide rangeof services to nanciers, property owners,investment fund managers, private investors,developers, operators, government departments,professional and business groups and tourismintermediaries.

We offer a full range of services to addresskey industry issues associated with economicconditions, regulatory change, competition,emerging market sectors, technologicaladvancements, mergers & acquisitions, andchanging needs of investors.

Deloitte Access Economics specialises in providingeconomic modelling and public policy advice tothe tourism industry, with extensive experience inforecasting and projections, econometric analysis,economic impact studies across both governmentand the private sector.

To subscribe to Deloitte Access Economicspublications visit :

www.deloitte.com.au/economics
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This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms,or their related entities (collectively the Deloitte Network) is, by means of this publication, rendering professionaladvice or services.

Before making any decision or taking any action that may affect your finances or your business, you should consult a

qualified professional adviser. No entity in the Deloi tte Network shall be responsible for any loss whatsoever sustainedby any person who relies on this publication.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and itsnetwork of member firms, each of which is a legally separate and independent entity. Please see w ww.deloitte.com/au/ about for a detailed description of the legal structure of Deloit te Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multipleindustries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-classcapabilities and high-quality service to clients, delivering the insights they need to address their most complex businesschallenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence.

About Deloitte Australia

In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australias leadingprofessional services firms, Deloit te Touche Tohmatsu and its affili ates provide audit, tax, consulting, and financialadvisory services through approximately 6,000 people across the country. Focused on the creation of value and growth,and known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients

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Contact us

For further information on how we can support your business needs,please contact one of our Tourism, Hospitality and Leisure specialists:

Lachlan SmirlLeader, Tourism,Hospitality and LeisureTel: +61 3 9671 7567Email: [email protected]

Ian BreedonNational Leader,Real EstateTel: +61 2 9322 5888Email: [email protected]

Damian WinterburnDeloitte CaplandReal Estate Advisory Tel: +61 7 3034 0401Email: [email protected]
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Documents

Deloitte Hotels Tourism Q2 2013