Wednesday 19 September 2012

Australia’s tourism industry: between a rock and a hard place


The Department of Resources, Energy and Tourism, Tourism Australia and the Australian Trade Commission recently teamed up and published a Tourism Investment Guide to promote Australia as an attractive tourism investment destination in an attempt to reverse investment activity in that sector, that can be described as sluggish at best. Burdened by strict labour laws that award workers double or even triple pay for overtime, as well as an exceptionally strong currency, the country now finds itself in the unusual situation where despite high occupancy and record profitability, hotel investment is flat. While not all is doom and gloom, and there are a number of projects on the horizon, there are some worrying developments that may stunt Australia’s tourism investment efforts before they even take off.

Image courtesy terradaily.com
Is Australia ready for Asia?
Given that Asia is the fastest growing tourism market in the world, Australia sees demand from that region playing a key role in achieving their projected tourism growth targets. And, not surprisingly, China stands on top of the table.  

Australia’s Tourism Forecasting Committee (TFC) expects that between now and 2020, international visitor arrivals will grow by 3.2 per cent per annum, with China at the forefront of delivering tourists to the Lucky Country. While this year travelers from China to Australia are expected to exceed 600,000, estimates see this number swelling to one million by 2020, bringing a A$9 billion windfall to the country.

The aforementioned Tourism Investment Guide firmly positions the country within Asia by referring to the ‘Asian century’ that is upon us. But is the country’s tourism sector ready for the influx of Asian travelers?
A number of speakers at the recent ANZPHIC hospitality conference in Sydney mentioned that the quality of travel experience in Australia still leaves a lot to be desired for travelers spoiled by their Asian experiences. And this not only counts for rural areas, but even the major cities like Sydney, Melbourne and Brisbane where experiences don’t quite match other major cities throughout the region.

Then there’s of course the worrying shortfall of accommodation, which, based on the predicted influx of Chinese travelers, sees the country in need of a whopping 40,000 plus rooms by 2020.

So high labour costs and strong currency notwithstanding, why aren’t global hotel investment firms knocking down the doors to get a slice of the Australian tourism action? Perhaps it is because there are two developments on the horizon that are making people increasingly nervous: the dramatically slowing Chinese economy and the slowing mining investment boom.

Australia’s Mining Boom – not all good news
Just recently, Accor put out a statement claiming that investing in new hotels in Australia's mining capital Perth was risky business despite high occupancy rates and government incentives. In the hotel chain’s view, hotel developers are not convinced the mining industry will guarantee sustained room demand. 

This is echoing the concerns about the impact of what is generally known as Australia’s two-speed economy, which refers to the boom in mining on one side and a gloomy outlook and heavy job cuts in most other industries. With predictions that the mining boom will fade in the next two to three years, the scenario of a two-speed economy stuttering to a halt are becoming uncomfortably real indeed.

The China Bubble – about to burst?
With dark clouds on the mining horizon, the efforts by the Australian government to boost tourism, particularly from China, should be commended, although you may argue that this initiative comes a little late in the game.

But will China deliver on the high expectations? The recent trickle of uneasy news about the state of the Chinese economy has certainly brought up warning lights. China’s manufacturing activity is at a nine-month low and contracting further, despite government intervention.  What’s more, a recent piece by the Financial Times outlined the worrying trends in China that are pointing to the “mother of all credit bubbles” created by the property boom. What goes up, must come down and when the bubble bursts it will have a huge domino effect that is likely to engulf the whole country.

How deeply this will impact China’s emerging middle class, which Australia targets as its new core inbound travel market, is anyone’s guess. China is a big country and even with a slowed down economy will have plenty of people moving into the middle class ranks and fulfilling their appetite for travel. So for my money, even if the numbers don’t stack up quite as rosily as predicted by the government, China remains a fairly solid target for inbound tourism, particularly to offset a potentially disastrous slowing in the mining industry.

But however big the influx of travelers may turn out to be, Australia can’t be complacent when it comes to delivering a sophisticated travel experience. Australia lacks quite dramatically the quality of lodging and service levels found elsewhere in Asia and has to be a lot more accommodating to win over the Chinese middle class traveler. Natural beauty is just not enough of a draw card, particularly not when there are many countries within easier reach to China than Australia.

Having said that though, Australia has a distinct advantage compared to the US, which is only a marginally longer flight distance from China.  While the Chinese call the US Měiguó or “the beautiful country”, given that the ‘Asian Century’ is upon us they may be more drawn to “ao da li ya”, the phonetic name of Australia in Chinese, which means “harbour, big, advantage, Asia”.