New Zealand's inbound tourism industry is on a roll. Figures issued by Statistics New Zealand this week show that overseas visitors increased by 10.8 per cent in December compared with December 2001 and last year the country attracted more than two million short-term visitors.
Our tourism growth is extremely impressive compared
with Australia and the rest of the world and this trend is expected to continue.
The strong growth in visitor numbers should have a positive influence on Stock Exchange-listed tourism and tourism-related companies.
Listed retailers had a great year last year; will tourism stocks be the big winners this year?
Last year 2,044,960 overseas short-term visitors came to New Zealand, a 7.1 per cent increase over the year before. As the accompanying table shows, short-term visitors have soared by 437,480 or 27.2 per cent since 1999 whereas visitor numbers to Australia have risen by only 8.1 per cent over the same period.
Virtually all of our major inbound markets have grown since 1999. Visitor numbers from Australia have risen by 109,000, from the United Kingdom 68,000, Korea 67,000, China 53,000 and United States 24,000.
The good news is that in the past 12 months we have done much better than Australia in attracting more visitors from Korea, the UK and US. The number of Australians visiting New Zealand continues to grow but there has been a drop in New Zealanders going across the Tasman.
New Zealand has become a hot destination, even for the Aussies.
There are several reasons why the tourism industry is doing so well:
* The low dollar has made New Zealand extremely cheap and its recent appreciation has not reduced our competitiveness.
* The industry has been promoted aggressively and recent high-profile promotions in Britain and the US should boost visitor numbers over the next 12 months. Lonely Planet's decision to name New Zealand as the world's top destination for 2003 is a big positive.
* Peter Jackson's Lord of the Rings is a huge boost for inbound tourism, particularly from North America and Europe. With the final sequel still to be released, Lord of the Rings will continue to deliver benefits for the sector.
* The America's Cup has also had a positive influence and its retention would help to maintain inbound growth for another few years. It is a great shame that the NZ Rugby Football Union made such a botch of its proposed co-hosting role of this year's Rugby World Cup.
* Several studies have shown that post-World War II baby-boomers will spend a greater percentage of their disposable income on travel when they retire. New Zealand will be one of their preferred destinations because it offers a combination of safety, scenery, outdoor pursuits and is extremely price-competitive.
The main threats to the tourism industry are a prolonged war over Iraq and major changes in the airline business.
New Zealand was not adversely affected by the Gulf War in 1991. Visitor numbers from the United States dropped off but higher numbers from Japan more than compensated for this.
Short-term arrivals increased by 3.6 per cent in the March 1991 year and by 3.4 per cent the following year.
New Zealand does relatively well when there are security concerns in the Northern Hemisphere because it is seen as a safe destination.
The end of United Airways' Pacific operations and the proposed creation of Air Monopoly, the link between Air New Zealand and Qantas, is the industry's biggest concern.
The present competitive environment is extremely satisfactory for inbound tourism and it seems strange that Air New Zealand and Qantas are arguing that they have to work closer together for their financial wellbeing when both of them, together with Virgin Blue, will announce excellent profit results in the next few weeks.
The Commerce Commission will have to take a close look at the impact of the proposed Air New Zealand/Qantas deal on the tourism industry.
According to a recent Statistics New Zealand study, the sector is the second highest export earner, behind the dairy industry, and the proposed airline cartel could push up fares and choke its huge potential earnings power.
Air New Zealand released a four-year profit plan to coincide with its December 2001 recapitalisation, which resulted in the Crown taking a fully diluted 82 per cent stake.
The national carrier has performed much better than expected and the projected pre-tax profit before unusual items for the June year has been gradually increased from $87 million to $230 million.
Air New Zealand announces its interim profit on February 27 and its share price should move higher if earnings continue to be better than expected.
Auckland International Airport is one of the main beneficiaries of the growth in tourism numbers. In the week ended January 12 a record 125,188 international passengers passed through its facility, compared with its previous weekly high of 114,463.
This indicates that last year's strong momentum has carried through to the early weeks of this year.
This week First NZ Capital, the firm that advised Auckland City on the recent partial sell-down of its holding at $4.90 a share, released a bullish report on Auckland Airport. It raised its earnings forecast for the June year from $73.9 million to $79.5 million and its discounted cash flow valuation from $6.04 to $6.41 a share.
The best strategy as far as Auckland Airport is concerned may be to buy into the company on any share price weakness caused by the start of hostilities between the US and Iraq.
CDL Hotels, which owns and operates the Millennium, Copthorne and Quality Hotel chains in New Zealand, has achieved a steady increase in earnings and is the cheapest tourism stock in terms of price/earnings ratio and share price to net asset backing.
The company is expected to announce a good result for the year to last December as Statistics New Zealand figures show hotel guest nights increased by 8.4 per cent in the July-November period compared with the same period in the previous year.
Shareholders will be particularly interested in any announcement regarding the restructuring of the group, especially the selldown or an in specie distribution of its 60.1 per cent CDL Investments stake and/or 50.7 per cent Kingsgate International holding.
Sky City is not heavily reliant on the short-term visitors but it has benefited from the large increase in Asian immigration. This continued last year with 38,886 permanent settlers from that region compared with 29,434 in 2001. China was the main source with 15,931 people, followed by India with 6860, Japan 4099 and Korea 3503.
Sky is trading at a huge premium to its net tangible asset backing of just 15c a share but it has a relatively high gross dividend yield and benefits from rising Asian immigration.
Tourism Holdings has had a bad run after its ill-fated acquisition of Britz in Australia but its performance has taken a turn for the better.
Directors told shareholders at the November annual meeting that a net profit before unusual items of $4 million was expected for the six months to December compared with $2.6 million in the same period last year.
Managing director Dennis Pickup has made positive comments about the tourism season and the company is expected to report net earnings of $9 million for the June year compared with just $300,000 last year.
Although Tourism Holdings has a big exposure to the less buoyant Australian tourism sector - 43 per cent of its assets are across the Tasman - its share price should continue to benefit from the strong growth in New Zealand's inbound tourism sector.
* Disclosure of interest: Brian Gaynor is a CDL Hotels and Tourism Holdings shareholder.
* Email Brian Gaynor
New Zealand's inbound tourism industry is on a roll. Figures issued by Statistics New Zealand this week show that overseas visitors increased by 10.8 per cent in December compared with December 2001 and last year the country attracted more than two million short-term visitors.
Our tourism growth is extremely impressive compared
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