Tourism Outlook Continues To Be Positive

Tourism Outlook Continues To Be Positive – But Some Issues Concern Big Operators

The latest Tourism Industry Association/Ernst and Young Tourism Outlook Survey shows that tourism operators continue to have a positive outlook for the tourism industry, with 68% of respondents expecting improvements in profit in the year ending June 2001.

The survey, done twice a year, was completed in December 2000. It asked 93 chief executives a range of questions regarding their company’s recent performance and their expectations for the first six months of 2001.

Glenys Coughlan, the Tourism Industry Association’s Chief Executive, says the survey shows tourism operators are still very upbeat about 2001, mirroring the results of the last survey, released in May last year.

“Most operators are expressing confidence in the year ahead. 75% of those surveyed expected improvements in revenue, with just 19% expecting a fall.

“50% of respondents expect to employ more staff in the year ending June 2001 by comparison with a year earlier. Seasonal factors will account for some of this expected growth, when compared to the May survey, where 37% expected to employ more staff.
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“Operators are also bullish on the continued growth potential of all international visitor markets, with optimism strongest in relation to the UK, North American and Australian markets. The Asian bounce-back continues to be reflected in operator’s expectations.

“Previous surveys have gauged operator expectations about the impact of major events. This time, the survey asked about the actual impact of these events. By far the most positive event as viewed by the operators surveyed was the America’s Cup, with 80% of those who had previously expressed a positive view about the event, saying the event met or exceeded their expectations.

“The Millennium and the Olympic Games didn’t meet all operators expectations at the time, but operators were generally pleased with results from APEC. Operators expected the impact of the Olympics to be longer term as New Zealand capitalises on Australia’s increased profile.

“Indications from Australia are that the Olympics will provide more business, particularly from the United Kingdom, Europe and the United States, and New Zealand can be expected to see some of these people combining New Zealand with their Australian holiday.

“Overall, it is clear that major events are an important part of the tourism mix, however, events will yield both immediate benefits as well as those in the longer term. Events must be managed carefully to extract maximum benefit from both the short term and the long term, and an events strategy is a priority for the industry.”

Ms Coughlan says that operators are clearly nervous about some Government policies. The survey has identified several issues as having the potential to constrain profit growth, including concerns about some government legislation.

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“The Employment Relations Act still concerns tourism businesses, although it is still early days and its impact is still uncertain. The Resource Management Act is still seen as a large and unwieldy impediment to some tourism development.”

“Industry specific concerns include insufficient hotel capacity in some key tourism areas, and oversupply in others, seasonal visitor arrival patterns and fluctuations in the exchange rate and domestic economy.”

“While operators are expecting a good summer season, high import costs, such as fuel, may affect overall profitability for some sectors, such as airlines, tour bus operators and some adventure operators.

“The New Zealand Tourism Strategy will be looking at a range of industry issues, including all those identified by the people involved in the survey.

“This survey confirms, New Zealand will be able to continue to rely on tourism to perform well, and add to New Zealand’s export earnings and employment 2001,” Ms Coughlan said.

ENDS

More information:
Simon King,
(04) 494 1845,
(025) 807 252

Attached – Tourism Outlook Survey – 7 pages

January 2001

Overview

The Tourism Industry Association’s industry confidence survey prepared in conjunction with Ernst & Young shows that 75% of respondents reported improved revenue in the year ended June 2000. 64% of respondents indicated that this growth in revenue generated improved profitability.

Confidence levels about future performance remain high. 75% of respondents believe that revenue in the year ending June 2001 will be higher than last year, with 68% expecting profits to also improve.

The survey presents a “snap shot” view of industry opinion, and includes responses from 93 tourism operators spread across eight key segments of the tourism industry.

Key Findings
Outlook for 2001
 Confidence levels continue at a high level
 Profit Outlook: 68% of respondents expect improvements in profit. Of these, 54% expect some improvement in profitability, with a further 13 % expecting significant improvement. 23% expect a small decline in profitability, due in part to higher fuel prices, higher labour costs and currency movements.
 Revenue Outlook: 75% of respondents expect improvements in revenue. Of these, 60% expect some improvement in revenue, with a further 14 % expecting significant improvement. 19% expect a decline in revenue.
 Employment Outlook: Over 50% of respondents expect to employ more staff in the year ending June 2001 by comparison with a year earlier. In the May survey only 37% expected to employ additional staff.
Outlook by Market
 Overall, there is strong confidence in the growth potential of all international visitor markets.
 Optimism is strongest in relation to the UK, North American, and Australian markets.
 There is renewed confidence in the Japanese and Other Asia markets. 67.5% of respondents expect growth in the Japanese market, an increase of 11.3% on the May 2000 Outlook. 87.1% expect the Other Asia market to grow, an increase of 5.6%.
 Over 75% of respondents expect growth in domestic visitor numbers. 10% of which expect domestic tourism to grow at 5% or more.
2000 Performance
 Profitability in the year ended June 2000: 25% of businesses reported significant improvements in profitability by comparison with a year earlier, with a further 39% reporting a small improvement; 10% reported no change; 26% reported lower profitability, due in part to increasing operating costs, capacity and competition and unseasonal weather in some areas.
 Revenue in the year ended June 2000: 33% of respondents reported a significant increases in revenue, with a further 42% reporting a small improvement; 3% reported no change in revenue, and 22% reported lower revenue.

Industry Performance in the year ended June 2000
Profit for the year ended June 2000 compared to 1999

Significantly Slightly No Slightly Significantly
Sectors Down Down Change Up Up
Adventure/Outdoor 9.1% 27.3% 9.1% 9.1% 45.5%
Air Transport 0.0% 42.9% 0.0% 42.9% 14.3%
Attractions/Shopping 0.0% 27.8% 11.1% 22.2% 38.9%
Hospitality - Major 0.0% 18.8% 12.5% 50.0% 18.8%
Hospitality - Other 12.5% 6.3% 18.8% 43.8% 18.8%
Marketing / Distribution 10.0% 20.0% 0.0% 40.0% 30.0%
Other 0.0% 0.0% 50.0% 50.0% 0.0%
Surface Transport 0.0% 18.2% 0.0% 72.7% 9.1%
TOTAL INDUSTRY 4.3% 21.7% 9.8% 39.1% 25.0%

A high proportion of tourism industry operators continued to report improving profitability, and this was spread widely across the various segments of the industry. Key reasons for continuing profit improvement included the impact of major events, and sustained growth from inbound visitor markets – especially from higher yielding and longer stay markets.

Overall, 64% reported improved profitability. The most strongly “positive” sectors were the Surface Transport sector (with 82% reporting improved profitability), Marketing/Distribution sector (with 70% reporting improved profitability), and the Major Accommodation sector (with 69% reporting improved profitability).

Outlook for 2001 – Continuing profitability improvement
Profit for the year ending June 2001 compared to 2000

Significantly Slightly No Slightly Significantly
Sectors Down Down Change Up Up
Adventure / Outdoor 0.0% 27.3% 18.2% 27.3% 27.3%
Air Transport 0.0% 42.9% 14.3% 28.6% 14.3%
Attractions/Shopping 0.0% 16.7% 5.6% 55.5% 22.2%
Hospitality - Major 0.0% 31.3% 0.0% 68.8% 0.0%
Hospitality - Other 0.0% 25.0% 12.5% 56.3% 6.3%
Marketing / Distribution 0.0% 20.0% 0.0% 80.0% 0.0%
Other 0.0% 33.3% 0.0% 33.3% 33.3%
Surface Transport 0.0% 0.0% 18.2% 54.5% 27.3%
TOTAL INDUSTRY 0.0% 23.7% 8.6% 53.8% 14.0%

68% of respondents expect profitability to improve in the year ending June 2001, slightly down from the 76% reported in the previous survey for the year ending December 2000.

Concerns expressed by operators impacting on profitability included higher fuel prices, higher labour cost expectations, the lack of major events over the next few months, the unpredictable effect of currency movements and capacity issues in some areas.

The sectors with the highest proportion of operators expecting profit improvement are Surface Transport (82%), Attractions and Shopping (78%), Marketing and Distribution (80%), although in most cases the profit improvements are expected to be slight rather than significant.

Positive factors contributing to profit growth expectations, include increased visitor arrival expectations, including recovery from Asian markets, the “open skies” agreement delivering increased flights and more shorter stay visitors from Australia, and the value of NZ dollar.

Revenue for the year ending June 2001 compared to 2000

Significantly Slightly No Slightly Significantly
Sectors Down Down Change Up Up
Adventure / Outdoor 9.1% 9.1% 0.0% 54.5% 27.3%
Air Transport 0.0% 14.3% 14.3% 42.9% 28.6%
Attractions/Shopping 0.0% 15.8% 0.0% 63.2% 21.1%
Hospitality - Major 0.0% 25.0% 6.3% 68.8% 0.0%
Hospitality - Other 0.0% 25.0% 6.3% 56.3% 12.5%
Marketing / Distribution 0.0% 20.0% 10.0% 70.0% 0.0%
Other 0.0% 33.3% 0.0% 66.7% 0.0%
Surface Transport 0.0% 0.0% 18.2% 54.5% 27.3%
TOTAL INDUSTRY 1.1% 18.2% 6.4% 59.8% 14.9%

More respondents expect improved revenue in the current year than are expecting improved profitability, with 75% of operators reporting expectations of improved revenue. This suggests that, for some operators, there are concerns that costs will be rising faster than revenue and there is aggressive price competition in some areas.

For example:
 82% of adventure and outdoor activity operators are expecting higher revenue, but only 55% are expecting higher profitability
 72% of air transport operators are expecting higher revenue, but only 43% are expecting higher profitability.

This could also suggest that, while revenues may be increasing, average yield per customer/visitor may be declining, resulting in reduced profitability despite higher volumes.

Employment for the year ending June 2001 compared to 2000

Significantly Slightly Slightly Significantly
Sectors Down Down No Change Up Up
Adventure / Outdoor 0.0% 9.1% 18.2% 63.6% 9.1%
Air Transport 0.0% 14.3% 42.9% 28.6% 14.3%
Attractions/Shopping 0.0% 5.3% 31.6% 57.9% 5.3%
Hospitality - Major 0.0% 18.8% 43.8% 37.5% 0.0%
Hospitality - Other 0.0% 18.8% 37.5% 43.8% 0.0%
Marketing / Distribution 0.0% 0.0% 50.0% 40.0% 10.0%
Other 0.0% 0.0% 100.0% 0.0% 0.0%
Surface Transport 9.1% 9.1% 27.3% 54.5% 0.0%
TOTAL INDUSTRY 1.1% 11.7% 37.2% 45.7% 4.3%

50% of tourism operators expect to employ more staff than last year, although the increases are generally expected to be modest.

The strongest employment growth prospects appear to be expected in the Adventure and Outdoor operators, Attractions and Shopping, and Surface Transport sectors.

Impact of Major Events on Tourism Business

Over the last 18 months New Zealand has hosted, or been associated with, a range of major events including the World Cup of Golf, the America’s Cup, APEC, Millennium, and the Olympics.

As part of this survey, operators identified their pre-event expectations of the impact of a range of events on their businesses. They were also asked to indicate the actual impact each event had had on their business.
Impact of America’s Cup
Almost 80% of the surveyed businesses had a positive pre-event expectation in relation to the impact of the America’s Cup on their business. Only 6% believed the event would have a negative impact on their business. As it transpired, 80% of the businesses that believed the event would be positive for them had their expectations either met or exceeded.
Impact of the Millennium celebrations
By way of contrast, 50% of businesses believed the Millennium celebrations would have a positive impact on their business. However, after the event 65% of those who thought the event would have a positive impact found that their expectations were not met. Furthermore, 81% of the businesses that believed the Millennium would have a negative impact had their expectations met.

This is consistent with anecdotal evidence from last summer where travel patterns were disrupted as a result of Y2K concerns and travellers favoured time with family and friends versus attending major events.
Impact of the Olympic Games
A similar pattern is evident in relation to the Sydney Olympics with only half of respondents having their expectations met. This is consistent with an earlier Tourism Industry Association membership survey, which indicated members expected more long-term benefits Vs short-term benefits from the Games.
Impact of APEC
Expectations in relation to APEC were more widely met. Of the 45% that believed it would have a positive impact, over 80% had their expectations met or exceeded.
Impact of Major Events
With the obvious success of the America’s Cup, major events clearly can have a role in assisting the growth of the tourism industry as well as regional economic development. However, there is a need for a strategic approach to major events, recognising that certain events will deliver greater benefits and provide easier leverage opportunities for tourism than others.

It is important to note that international exposure generated by major events such as the Millennium celebrations, the Americas Cup and the Sydney Olympics is unique and the tourism industry should reap the benefits in the long term.

Outlook by Market

Industry participants are “bullish” about visitor growth expectations.
Visitor Arrival Expectations

Down>5% Down 0-5% Up 0-5% Up>5%
Australia 2.2% 5.4% 52.2% 40.2%
Nth. America 0.0% 11.0% 42.9% 46.2%
UK 0.0% 5.5% 44.0% 50.5%
Other Europe 0.0% 15.7% 56.6% 27.7%
Japan 4.7% 27.9% 57.0% 10.5%
Other Asia 1.2% 11.8% 40.0% 47.1%
Other Countries 0.0% 14.9% 66.2% 18.9%
Domestic visitor numbers 6.2% 18.5% 65.4% 9.9%

Overall, there is strong confidence in the growth potential of all international visitor markets. The majority of respondents anticipate growth across all visitor markets.

The strongest consensus about growth in inbound visitor arrivals this year relates to growth from the UK. 95% of respondents expect growth from this market – including 51% of respondents expecting growth of greater than 5%.

89% of respondents expect growth from the North American market- including 46% expecting growth of greater than 5%.

There is increasing confidence about the growth potential of the Japan (67% expecting growth) and Other Asia markets (87% expecting growth).

Overall, respondents expect domestic numbers to increase this year with 75% expecting growth in the domestic market, up 4.7% on the May 2000 Tourism Outlook. 24.7% of operators expect a small to modest decline in domestic visitor numbers.
Major Issues Facing Tourism Operators in 2001

Operators identified several issues as having the potential to constrain profit growth for the industry. These included implementing central and local government legislation, especially the Employment Relation Act and the Resource Management Act; as well as industry specific issues such as insufficient hotel capacity in some key tourism locations, ongoing infrastructural issues (roading, telecommunications, sewage systems, etc), seasonal visitor arrival patterns and fluctuations in the exchange rate and domestic economy.

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