Upsurge in Chinese tourism having mixed impact: UBS

There is a mixed impact on major tourism players from a big lift in the popularity of New Zealand as a tourist destination for middle to high-income Chinese. Photo / Thinkstock

UBS finds there is a mixed impact on major tourism players from a big lift in the popularity of New Zealand as a tourist destination for middle to high-income Chinese.

Of those Chinese surveyed, 14 per cent said they were planning a trip to this country in the next 12 months, up from the 8 per cent of respondents who had travelled here during the past 15 months.

The firm said this lifted the country's ranking from 11 to eight among a group of destinations as outbound travel by Chinese tourists booms. In five years their numbers have doubled to 117 million in 2014.

The UBS survey of nearly 3000 past and prospective travellers also highlights continued popularity of multi-city trips, with similar proportions of respondents planning on visiting Auckland, Queenstown and Wellington.

New Zealand's growing popularity reflected a stronger alignment with the core Chinese tourist, being a free independent traveller (63 per cent of respondents), well-educated, mostly under 45 and motivated by beautiful scenery (50 per cent of respondents) and local culture (29 per cent of respondents), and New Zealand's "100% pure" image.

How the affected companies are rated:

Air New Zealand (Buy, share price target $3.15 - closing price yesterday $2.65.)

This lift in popularity for New Zealand is timely, given it corresponds with a substantial increase in airline capacity into China over the next six months. UBS finds seat capacity out of Auckland into mainland China and Hong Kong will jump 28 per cent by January 2016, driven by new scheduled services. But strong demand out of China should limit potential pressure on passenger yields, especially on Air New Zealand's Auckland-Beijing route.

Air New Zealand's brand awareness among respondents at 40 per cent was relatively strong given New Zealand's popularity ranking, and above Qantas' 36 per cent. Air China topped the list of preferred airlines and this had positive implications for Air New Zealand's joint venture with the Beijing-based carrier.

Auckland International Airport (Sell, share price target $3.95 - closing price $5.05.)

China has recently become New Zealand's second largest inbound tourism market, accounting for 9 per cent of visitor arrivals. This follows five years of strong volume growth (averaging 21 per cent a year), underpinned by a rapid expansion of Chinese outbound tourism.

Looking forward, the combination of New Zealand's growing popularity and greater airline capacity suggests the 14 per cent growth estimate for 2016 financial year Chinese visitor arrivals is conservative. Chinese tourists have the highest average spend at Auckland Airport but the large clothing and accessories retail opportunity for them remains untapped, with Auckland Airport's current airside retail mix providing limited availability of key luxury brands.

While this might change over the next few years following Auckland Airport's airside retail expansion, competition from the CBD in luxury brands is likely to increase in Auckland's downtown shopping precinct.

Sky City (Neutral, share price target $4.50 - closing price $4.25.)

Tourists, especially from Asia, account for around 20 per cent of local gaming revenue at the Auckland casino (72 per cent of group earnings before interest, tax, depreciation and amortisation in the year's first half).

Asian tourists also dominate international VIP gaming revenue and provide good support to Sky City's two Auckland hotels.

In particular, Sky City highlighted that strong growth in international VIP revenue was driven by Chinese players, helped by tighter gaming restrictions in Macau. Stronger Chinese inbound tourism for New Zealand should be supportive of gaming revenue growth at the Auckland casino.

However, the key profit driver for the Auckland casino remains local consumer spending and business activity, with residents accounting for around 80 per cent of high-margin local gaming revenue.