Difficult year forecast for NZ tourism industry

Consolidation is inevitable in the tourism sector as operators face a particularly tough year, a leading industry player says.

Data from Statistics New Zealand shows short-term overseas visitor arrivals for the year ended November were up 2.5% at 2.6 million.

However, InterCity Group chief executive Malcolm Johns said visitor expenditure was a bigger challenge than the number of arrivals.

"The hidden story in our numbers over the last 12 months has been the collapse in visitor expenditure and so you're just simply not getting as much out of each visitor ... and that means dollars aren't being spread around the industry as far and wide as they used to be."

According to the Ministry of Economic Development, international visitors spent $5.6 billion here in the year ended September, excluding international airfares, which was a drop of 3.3% on the previous year.

Overseas visitors did not have as much money to spend and the value of the New Zealand dollar meant it could be worth less when translated into local currency.

"So you've got the same number of operators fighting for a smaller level of expenditure," Mr Johns said. "That's inevitably leading to wildfires in terms of discount wars ... that means that we're simply as an industry not extracting as much from visitors as we possibly could do."

However, the flip side of the exchange rate was that a lot of industry operating costs would be substantially higher if the dollar was lower.

It would be a particularly tough year for the industry, Mr Johns said.

"I think we'll see some consolidation and some merger and acquisition activity happen ... over the next 12 months. I think that's inevitable."

There had been a structural change during the past two years, he said.

"I think if your viewpoint is that we're going to ride this out until things go back to where they were in 2007, then you're kidding yourself.

It's very much a case of realigning and readjusting your business structures and expectations to recognise the changes that have happened over the last 24 months."

Three-quarters of the growth in arrivals during the next five years was forecast to come from Asia and Australia, which were predominantly short-visit, low-spend markets, he said.

Consolidation would help the industry to improve yields, the cycle would turn up in terms of profitability, new players would enter the market and growth would again plateau.

Tourism was an incredibly adaptive industry which had been through the Asian financial crisis, terrorist attacks in the United States, Sars, bird flu, earthquakes and the global financial crisis, Johns said.

"And the tourism industry is still here and it's still functioning and it's still bloody optimistic about itself."

Inbound Tour Operators Council president Martin Horgan said the high value of the dollar and global economic instability were hurting arrivals.

"I think that's going to continue well into 2012 and particularly from our highest-yielding markets.

"There are some wonderful opportunities out there still and we're seeing a lot of growth out of places like China, but our traditional markets like the UK and Europe and USA, numbers are not so good and in decline at this stage."

Short-term overseas visitor arrivals from Britain and the United States for the year ended November were down by 2.6% and 4% respectively, while China was up by 17.5%.

It would be the toughest year in tourism for quite some time, he said.

"I think the majority of the established tour operators and the suppliers in New Zealand are well funded and they'll be prepared for this."

Tourism Industry Association chief executive Tim Cossar said alarm bells were ringing in Europe.

"Last year, we had some good growth out of France, and Germany was pretty steady, but those economies there have got the real wobbles on and the UK visitor numbers have been declining for a little while."

 

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