May 12 2020
The Tourism sector is a significant contributor to the Australian economy. Tourism accounted for 3.1% of national GDP in 2018-19, and over 8.2% of Australia’s total export earnings. One in 19 Australian workers, or 666,000 people, were directly employed by the Tourism sector in 2018-19. Historically, the Tourism sector has been resilient to economic shocks. The sector continued to grow, albeit more slowly, during the Global Financial Crisis despite a rapid deterioration in business confidence and consumer sentiment over the period.
The current crisis brought on by the COVID-19 outbreak is expected to have a far greater impact on the Tourism sector. The state and federal governments’ border closures and social distancing regulations have completely shutdown non-essential international travel. Domestic interstate tourism has also been disrupted, due to the imposition of temporary border closures between Australian states and territories. While conditions are currently bleak for tourism operators, the anticipated reopening of the Tourism sector in coming months will provide a vital lifeline to over 111,000 Australian enterprises. The timeline of this reopening is dependent on Australia’s success in containing COVID-19 and preventing a second wave of infections.
Outlook for tourism
The Tourism sector is expected to be entirely reliant on domestic travel until at least December 2020. International travel is unlikely to resume until the threat of re-introducing COVID-19 to Australia has passed. If both Australia and New Zealand can successfully eliminate the virus, international travel may resume between these two countries in 2020-21.
In 2018-19, domestic travellers accounted for 70.6% of the GDP generated by tourism, while international travellers accounted for 29.4%. The COVID-19 pandemic has deprived tourism businesses of revenue from international travellers, and forced domestic consumers to postpone travel arrangements. As a result, revenue in the Tourism sector is expected to decline by 15.7% in 2019-20, to $119.0 billion. In a non-COVID-19 environment, the sector would have been projected to grow by 2.0% in the current year.
Domestic travel restrictions
Most Australian states and territories have implemented interstate travel restrictions since COVID-19 emerged in January. Border checkpoints have been established in airports, seaports, and along major highways. Queensland has restricted all non-essential travel, and only Queensland residents are allowed to enter the state. No one can currently enter Western Australia without an exemption, including residents. Western Australians are also not permitted to leave their local regions in the state. South Australia and Tasmania have introduced restrictions that require anyone arriving at their borders to self-isolate for 14 days. New South Wales and Victoria have not implemented interstate border restrictions.
Domestic travel restrictions are currently expected to be wound back by July 2020, in accordance with the reopening plans recently announced by state and federal governments. Travel within states is expected to resume during May and June. For example, residents of South Australia will be permitted to travel within the state from 11 May, while Queensland residents will be permitted to travel up to 150 kilometres within the state from 15 May. However, these reopening plans may be postponed if a second wave of COVID-19 infections occurs.
Domestic draw backs
The Tourism sector is projected to grow by 6.4% in 2020-21, partially recovering revenue lost during 2019-20. As the next financial year begins, tourism operators are forecast to benefit from a short-term boost provided by pent-up demand from the second half of 2019-20. However, this benefit is expected to be limited by several negative factors:
- Older demographics will likely engage in less travel relative to prior years, due to their greater risk of contracting COVID-19. Australians aged over 50 are expected to account for 33.6% of the total population in 2019-20, and are a major source of tourism revenue.
- Business and government travellers, which accounted for 22.1% of domestic demand in 2018-19, are expected to scale back travel until December 2020. The increased uptake of teleconferencing and remote working is expected to reduce the need to travel. In addition, struggling businesses are expected to cut costs, including non-essential travel.
- Rising unemployment and unstable employment security is expected to cause households to save more and reduce spending on discretionary items, such as holidays. Real household discretionary income is expected to decline by 2.5% in 2019-20, and decline by a further 3.1% in 2020-21.
Despite these drawbacks, the resumption of domestic travel is expected to provide a lifeline for businesses in the Tourism sector to survive until economic conditions normalise.
A lifeline for industries
The recommencement of domestic tourism is expected to provide some much needed assistance to a range of industries and local economies. In 2018-19, domestic tourists accounted for $70.7 billion in consumption of tourism products such as accommodation, restaurant meals, taxi fares, motor vehicle hire and long distance passenger transport. Over the year through December 2019, each domestic traveller spent $193 on average per night, representing a significant contribution to overall economic activity. Australia’s top domestic tourism destinations were Sydney, Melbourne, the North Coast of New South Wales, Brisbane and the Gold Coast in Queensland.
Accommodation providers, such as the Hotels and Resorts industry, Motels industry, and Caravan Parks, Holiday Houses and Other Accommodation industry, are highly reliant on domestic tourism recommencing. Many players are expected to exit these industries in 2019-20, as enterprises are rendered unviable amid low demand and cashflow constraints. Employment numbers are anticipated to drop significantly during the COVID-19 crisis, with many players limiting part-time and casual worker numbers to reduce employee expenses. Revenue in the Hotels and Resorts industry is expected to decline by 10.7% in 2019-20, before rebounding by 8.2% in 2020-21.
While the ongoing effects of COVID-19 are projected to limit air passenger volumes, consumers are expected to quickly return to support the Domestic Airlines industry once restrictions are eased. Qantas, the sole remaining major player in the market following the recent collapse of Virgin Australia, is currently seeking an exemption to social distancing restrictions so that it may fill every seat on domestic flights. Current social distancing restrictions require at least 1.5 meters between people. The Domestic Airlines industry is expected to decline by 24.3% in 2019-20. In a non-COVID-19 environment, the industry would have been projected to decrease by 0.2%.
New Zealand opportunities
The governments of Australia and New Zealand are seeking to arrange a trans-Tasman COVID-safe travel zone, which would enable a resumption of tourism between the two countries. This arrangement would provide a significant benefit to the Australian Tourism sector. New Zealand was Australia’s second largest source of international tourists over the year through December 2019, and accounted for $2.6 billion in consumption spending over the same period. Similarly, New Zealand was also the most popular tourist destination for Australian travellers, accounting for almost half of all the country’s international visitor arrivals.
IBISWorld reports used to develop this release:
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