Optimism in the tourism sector is lifting but it still remains mainly in negative territory, according to the tourism industry monitor.
The monthly assessment of performance in the $20 billion sector found demand was down 3 per cent and profitability fell 4.1 per cent in the three months to July.
But 38 per cent of tourism businesses now believe demand will improve in the next three months compared with the 23 per cent last month and the 17 per cent the month before.
Ministry of Tourism head of research Bruce Bassett said the figures indicated a gradual increase in optimism but warned it was too soon to say if it was a sustained recovery.
"These indicators show that things are moving in the right direction but we can't get too excited yet."
The survey found the increase in optimism was being driven by the expectation of a strong ski season and strong growth in Australian and domestic tourists.
But the optimism was not evenly spread, with businesses in the North Island less positive than their South Island counterparts.
On average those in the North Island expected a drop in demand of between 2 per cent and 6 per cent while South Island businesses expected a drop of between zero and 4 per cent.
Tourism Industry Association chief executive Tim Cossar said it was not a one-size-fits-all situation but it was encouraging to see some operators feeling more optimistic.
"It's still an incredibly tough market but we are hearing an increasing number of more positive reports coming out of international markets."
Over the next three months, small and medium-sized businesses were expecting a flat trading environment compared with last year but large businesses were expecting a tougher time with profitability expected to fall on average by 6.3 per cent.
Demand was cited as the main factor for limiting business performance, although 32 per cent said they were also being affected by competition and discounting, 21 per cent by weather conditions and 21 per cent by swine flu.
