Owen Hembry

Business news editor of the New Zealand Herald

Rocky year ahead for tourism

International visitors spent $5.6 billion here in the year ended September - a drop of 3.3 per cent on the previous year. Photo / Alan Gibson
International visitors spent $5.6 billion here in the year ended September - a drop of 3.3 per cent on the previous year. Photo / Alan Gibson

Consolidation is inevitable in the tourism sector with operators facing a particularly tough year, according to a leading industry player.

Data from Statistics New Zealand shows short-term overseas visitor arrivals for the year ended November were up 2.5 per cent 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 per cent 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," 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 will be a particularly tough year for the industry, according to Johns.

"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, Johns 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 US for the year ended November were down by 2.6 per cent and 4 per cent respectively, while China was up by 17.5 per cent.

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."

Operators had gravitated towards Asia, Cossar said.

"They're spending a lot more time in market, spending a lot more time alongside the likes of Tourism New Zealand and the airlines ... so I think those markets, they will play a very critical role in our success in the next few years."

It would be a challenging year, Cossar said, "but not one where it's going to bailout either".

Goldman Sachs economist Philip Borkin said the industry had seen a couple of tough years.

"I think the firms that are left have done well to survive, for want of a better word ... certainly there's still challenges ahead but I think if firms can continue to deal with these lower levels of demand then they will just be able to hang in there."

- NZ Herald

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