Domestic tourism is worth more to the Australian economy (at over 4% of GDP) compared to how much international tourists bring into Australia (at 1.3%). And, Australian spending on overseas trips is worth twice the value of international tourist spending within Australia.
So, there is potential to offset the loss of activity from international tourism (especially if the borders stay closed through 2021) through higher domestic tourism. But, state border closures are likely to remain in flux until a vaccine reaches a large share of the population so intrastate tourism spending will be more important than interstate tourism.
Regional cities are likely to benefit more as a result, compared to capital cities. Hotel bookings in regional cities have been performing much better compared to the capital cities.
Until the vaccine rollout becomes widespread and while state border restrictions remain in place, there is a case to support tourism-related businesses via government funds which could come from income support for employee salaries, business grants or cheap loans. State governments could also incentivise residents to travel domestically via cash or vouchers.
Tourist-related industries have been one of the most impacted sectors from COVID-19. Inbound arrivals have collapsed to virtually zero (see chart below) and are unlikely to recover in 2021, as the vaccine and the associated immunity to COVID-19 takes time to work. Indications from Australian health officials is that inbound and outbound tourism is unlikely to resume this year. This has large implications for businesses reliant on international arrivals.
Alongside the impact from lower overseas travel, domestic state border closures are restricting interstate tourism. These issues have all had a harder hit on tourism compared to other industries. Pre-COVID, around 4.9% of Australian jobs were in tourism-related areas like accommodation, cafes and takeaway food services. Employment in the tourism sector was down by around 12.8% over the year to September (the latest period for which the ABS gives data on tourist jobs). In comparison, total employment growth was down by 2.7% over the same time period. Job gains since September have been decent nationally so tourism jobs are also likely to have benefitted since September 2020.
This Econosights looks at the outlook for Australian tourism.
The importance of domestic tourism
The focus on Australian tourism is usually around international arrivals. But, domestic tourism (Australians travelling between and within states) actually makes up a larger share of the economy. Domestic tourism is worth just over 4% of GDP, well above the 1.3% of GDP that international tourists spend in Australia (see chart below). Australian offshore tourism detracts around 2.6% of GDP (pre-COVID) which can potentially be re-directed within Australia given the international border closures. So, a continuing ban on international travel but a return to free domestic travel would actually boost the Australian economy (in the short-term).
While domestic tourism is potentially worth a decent chunk of GDP, it is also heavily impacted by COVID-19 because of mobility restrictions and state border closures. Interstate travel (people travelling outside of their own state) makes up around 46% of total domestic tourism and intrastate travel (people travelling within their own state) makes up a larger 54% (see chart below).
Without involving the debate around the spread of the virus from open borders, from an economic perspective, state border restrictions will naturally dampen interstate tourism. Data up to October 2020 indicates that interstate travel was down by 87% over the year to October 2020 and intrastate travel was down by a lower 45%.
Given the continued good management of COVID-19 in Australia, the opening of some interstate borders and the rollout of a vaccine over the next few months, domestic tourism should start to pick up again. Intrastate tourism spending should outpace interstate spending as border closures are likely to remain in flux which will limit interstate tourism. As a result, tourism spending in regional cities is likely to outperform tourism spending in capital cities.
Generally, the number of COVID-19 cases has also been much lower in regional areas compared to the capital cities (because of the lack of hotel quarantine which means less risk of the virus spreading and also lower density of the population) which has allowed regional Australians to generally have fewer mobility restrictions in place, benefitting economic activity. Activity data for regions versus capital cities is available, but it is quite limited. Hotel bookings across Australia all took a similar hit during the worst part of the pandemic over April/May but has recovered by the least for the largest capital cities and the most for regional cities (see chart below). Regional cities bookings are also now starting to increase.
Regional airport traffic data has been mixed. Regional cities airport traffic was recovering up to October 2020 (when the latest data is available) but it also fell by more than traffic in the largest capital cities (see the chart below). However, this is probably because domestic tourism is being driven by interstate travel, which involves less air travel and more driving – and Australian car sales have been very strong recently.
Out of interest, the average spend by Australians travelling within Australia is around $2,533/trip, compared to $3,711 that foreign tourists would spend in Australia. Australians lash out overseas and spend around $6,615 on a trip (this includes the cost of the airfare as it is money that flows out of Australia).
To simply offset the potential spending from international tourists in Australia, Australians need to spend around half of what they would have offshore on domestic goods and services. This domestic spending is likely to be redirected to many areas (like retail) rather than strictly “tourism”. Alongside this potential spending, domestic tourism itself is very important and worth a larger share of GDP. But, it will be difficult to bring domestic tourism to this full capacity in the presence of state border closures and mobility restrictions. Intrastate tourism will need to be the growth driver for domestic tourism while mobility restrictions are in place.
If vaccine rollout is successful in Australia over the next six months and state borders open, then the impacts from the closure of the international border on the tourism sector could be potentially offset by higher domestic tourism. But in the meantime, there is a case for some tourism-dependent businesses to receive government support. An extension of JobKeeper specifically for hospitality workers looks to be off the cards but state governments could provide targeted support for tourism-related businesses (for example through funds for employee salaries, business grants or cheap loans), depending on how much business revenue has declined compared to its pre-COVID levels. Or governments could incentivise residents to travel domestically through increased advertising to domestic residents or offering cash or vouchers for domestic holidays.
While every care has been taken in the preparation of this article, AMP Capital Investors (UK) Limited, Registered Office at Companies House, 4th Floor Berkeley Square House, Berkeley Square, London W1J 6BX (no. 05524536) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.