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Flying high

By Roger Armstrong

Saturday 1st February 2003

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September 11 2001 wasn't great for our tourism sector - in theory. It was a fair assumption that when planes began flying into buildings, people would opt to take their cars on holiday. And as New Zealand is a car ride from nowhere, that global trend should have slammed our tourism industry.

In one way, it did. Visitor arrivals in the year to September 2002 were down to 2% from "normal" levels of around 6%. But in another way, it didn't. Over the same 12 months, New Zealand was one of the best performing tourist markets in the world. And that's despite our national carrier tottering on the edge of bankruptcy, a reduction in long-haul capacity around the world and a significant increase in the price of travel from our key market across the Tasman.

Preliminary data suggests that in October 2002, visitor numbers were roughly 13% ahead of the previous year and 10% ahead of the 2000 levels (and remember that latter figure is pre-September 11). Statistics New Zealand figures show 23% growth in tourist numbers over the two weeks to November 5 2002 compared with the year before. Tourism operators are reporting strong forward bookings.

Sure, the America's Cup is probably helping, but one event doth not a recovery make. Consider the mayhem in other markets. Travel to the Americas is down 20% and air travel is off 10% in Europe, although the self-drive holiday phenomenon means the tourism industry generally is doing better than these numbers suggest. The Middle East is off 11%.

You might argue Australasia is far away from trouble hotspots in the eyes of tourists, and therefore safe. Seemingly not - as far as Australia is concerned at least. The most notable achievement for New Zealand post-September 11 has been the breaking of the link between Australia and New Zealand. Historically, most international visitors coming to New Zealand also drop in on Australia. Over the past decade these two markets have moved in virtual lockstep, both recording roughly 6% average growth in visitor arrivals.

But while New Zealand's tourist numbers grew 2% in the September 2002 year, Australia's look likely to have slumped 8% (only the August figures were available as Unlimited went to press). And as the table above shows, New Zealand has outperformed Australia in just about all source markets over the past year. If only the All Blacks could deal to the Wallabies like our tourism industry has thrashed its Australian counterpart.

Given the rising cost of air travel, increased security issues at airports and the global recession, the New Zealand tourist recovery has been startling. Success has come from a variety of sources. Travel from Australia, our largest market, has held up well at -2% despite capacity on the route having been strangled by Air New Zealand and Qantas. Probably the strength out of the UK (+8%), our second biggest market, has been the most praiseworthy achievement given its distance from New Zealand and the fact visitors must fly either through the US or over the Middle East. Growth out of China and Taiwan has also been impressive and we seem to have done a better job than most at convincing the traumatised and impoverished Americans to travel.

Compared with New Zealand, Australia is suffering by having a high reliance on Japanese tourism (14% of visitors to Australia are from Japan versus 8% for New Zealand). As well as being nervous travellers, the Japanese are being worn down by continued economic strangulation.

And while the low New Zealand dollar, especially weak in the September 2001-March 2002 period, would have helped our industry, Australia also had a soft currency and has not appeared to gain any benefit.

Part of New Zealand's tourism success is more luck than judgement. Congratulating ourselves on our "safe haven" status is rather like the Inuits patting themselves on the back for having all that nice snow. But Tourism New Zealand probably also deserves some credit. The "100% Pure" New Zealand branding is a good campaign, subtly positioning the country as a global backwater. It is in contrast to the way Australia generally portrays itself in terms of excitement, sun, sex and shopping. At the moment travellers appear to be favouring safety over sex, and the Bali nightclub bombings aren't going to change that in a hurry.

Although most think of September 11 as the biggest influence on tourism over the past year, the global recession is probably just as important. The number of tourists arriving in New Zealand from Germany dropped 10% in the year to September 2002 (-11% for Australia), and Japanese numbers were down 7% (-11%). With economists tipping an end to the worldwide recession in 2003, global tourism growth should recover, albeit with continued risk from terrorism. But an ongoing trend of shorter and shorter booking cycles means the industry is at constant risk of changing public perceptions.

Another encouraging aspect of the recovery in the local tourism sector is the lift in yields by many major operators. CDL Hotels' interim profit result last August showed yields were up 9%. Air New Zealand has enjoyed significantly improved profitability over the past year, with higher prices being a major factor. Tourism Holdings is known to have increased its prices as fleet downsizing has tightened up industry capacity, and Sky City Casino's hotel operation appeared to enjoy a small yield improvement - and the fact it is looking to build more rooms suggests it must be doing okay in this area.

Historically, this is a sector where high numbers growth hasn't necessarily translated into the major operators making a decent return on invested capital. And while operators seem a bit more canny lately in terms of yields, the industry will truly deserve a pat on the back only when growth in tourist numbers and yields is matched by a material lift in profitability.

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