Australian Tourism & Aviation Industry Market Insights
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VALUATION AND ADVISORY AUSTRALIAN TOURISM & AVIATION INDUSTRY MARKET INSIGHTS With the advent of the COVID-19 pandemic, our recent valuation and advisory engagements have required us to look closely at the potential and likely impact on hotel performance as a result of the current aviation restrictions due to both State and International Border Security closures. We’ve also been in numerous discussions with our investor clients and hotel operators as to our views on what the likely impacts on the tourism sector for Australia is, post the current COVID-19 pandemic restrictions. Based on our discussions and experience of other health and economic downturns, we are able to provide strategic consultancy advice for various asset classes and are delighted to provide an insight into the current aviation restrictions and likely impact on the tourism market below. As Federal and State restrictions have spend and consequently employment, When looking at Australia’s major been imposed across Australia in order with a number of hotels having closed markets more specifically, in the year to impede the spread of the COVID-19 and others considering temporary/ ending 31 December 2019, Sydney virus, this meant that travel and aviation partial closure or accepting essential and Melbourne (excluding education) restrictions were also imposed on 20 services and/or quarantine and reported the highest proportion of March 2020 whereby only Australian self-isolating business and associated international visitor nights at 61.9% citizens, residents and immediate family contracts with minimal staffing levels. and 57.5% respectively, followed by members can travel to Australia whilst In the year ending 31 December Perth (49.6%) and Brisbane (43.7%), from 28 March 2020, all travellers 2019, Australia’s domestic versus meaning that such markets are more arriving in Australia are required reliant on inbound business, indicating internationalProportionProportion visitor of nights Domesticof Domestic was v International v International Visitor Visitor Nights Nights (exc. (exc. Education) Education) to undertake a mandatory 14-day relatively evenly split with just over that any changes to inbound 100.0%100.0% quarantine in their port of arrival. 50% of visitor nights being domestic passenger movements may likely affect such markets. Whilst uncertainty remains about the (159.7 million visitor nights) and the 90.0%90.0% phasing and re-instatement of domestic remainder (156.3 million visitor nights) 21.3%21.3% 27.8%27.8% being international visitor30.8%30.8% nights. 31.2%31.2% and international air services, it is widely 35.3%35.3% 80.0%80.0% 36.8%36.8% accepted that domestic restrictions 43.7%43.7% will most likely be primarily lifted and 49.6%49.6% Proportion of Domestic v International Visitor Nights (exc.57.5% Education)57.5% international air services will follow70.0% 70.0% Proportion of Domestic v International Visitor Nights (exc. Education) 61.9%61.9% within a reported/slated indicative 100.0% 12-month period. 60.0%60.0% 90.0% 21.3% 27.8% Virgin Australia and Qantas ceased air 30.8% 31.2% 35.3% 80.0% 36.8% services and operations in late March50.0%50.0% 43.7% 2020, with both airlines stopping all 49.6% 70.0% 57.5% international flights. Qantas recently 61.9% 40.0%40.0% 78.7%78.7% announced that domestic air services 60.0% 72.2%72.2% 69.2%69.2% 68.8%68.8% may re-commence in late May/early 64.7%64.7% 63.2%63.2% 30.0%30.0% 50.0% Proportion of Visitor Nights June whilst international air servicesProportion of Visitor Nights 56.3%56.3% may re-commence in approximately 12 50.4%50.4% 40.0% 78.7% 72.2% 42.5%42.5% months, however, this is heavily reliant20.0%20.0% 69.2% 68.8% 38.1%38.1% 64.7% 30.0% 63.2% Proportion of Visitor Nights on the phasing of Federal and State Nights of Visitor Proportion 56.3% 50.4% imposed restrictions being lifted 10.0%and10.0% 20.0% 42.5% other countries’ COVID-19 status. 38.1% Inevitably, this has had impacts on0.0% 0.0% 10.0% not only the aviation industry labour AdelaideAdelaide0.0% BrisbaneBrisbaneCanberraCanberra DarwinDarwinGoldGold Coast CoastHobartHobartMelbourneMelbournePerthPerth SydneySydney TNQTNQ force, with Virgin Australia and Qantas AdelaideAdelaide BrisbaneBrisbane CanberraCanberra DarwinDarwin GoldGold Coast HobartHobart MelbourneMelbourne PerthPerth SydneySydney TNQTNQ standing down 8,000 and around TourismTourism Region Region TourismTourism Region 20,000 staff respectively, but also direct DomesticDomestic InternationalInternationalInternationalInternational impact on the tourism sector with room night demand decline affecting tourism Source: Tourism Research Australia CUSHMAN & WAKEFIELD 1 What is the current state of the Aviation Industry? For markets where reliance on Qantas, being a domestically owned REX certainty to operate essential international source markets are company, has noted that should Virgin air services to regional and remote predominant, it becomes increasingly Australia receive a bridging loan, destinations in Queensland despite important to understand the current they would seek a proportionate loan passenger numbers decreasing by aviation environment, not only for of $4.2 billion, given its relative size 95% on most routes. Therefore, the domestically based carriers such as to its competitor. However, Qantas announcement of the $298.0 million Qantas and Virgin Australia, but also in contrast to Virgin Australia are Federal Government package will aid other major international airline carriers. relatively well positioned to withstand the airline to remain operational for British Airways flights were suspended and endure current conditions as they circa 6 months as reported in media. in early April 2020, Emirates and have accumulated around US$1.85 Assistance packages are imperative as Malaysia Airlines grounded air services billion in assets. they not only seek to keep essential air to Australia in late March 2020, whilst We note that the Federal Government services from ceasing, but also tries to Etihad Airways is servicing Melbourne has granted $165.0 million towards prevent the existing regional aviation up until April 21, we are aware that this underwriting a range of flights for a providers from being dissolved. There is in relation to resident and citizen period of eight weeks, to be serviced are a further eight regional airlines – repatriation only. We note that Qatar by Qantas and Virgin Australia which including Airlink Airlines, Aviair, Alliance Airways are currently the only airline include key cities such as Melbourne, Airlines, Chartair, Fly Corporate, Fly servicing Sydney, Melbourne, Brisbane, Brisbane, Sydney, Canberra, Gold Pelican, Hardy Aviation and Sharp and Perth to Doha daily however Coast, Adelaide and Perth as well Airlines which are all reliant on such this is also for repatriating residents, as domestic routes between major assistance packages. citizens and immediate family members cities and regional centres, including who had been stranded after foreign Looking further abroad, a number Albury, Alice Springs, Broome, countries imposed travel and border of smaller airlines in remote and Coffs Harbour, Dubbo, Kalgoorlie, restrictions as a result of COVID-19. regional areas of Alaska, and the Karratha, Kununurra, Mackay, Mildura, Further, we are aware that air crew United Kingdom have already claimed Newman, Port Hedland, Port Lincoln, servicing cargo flights are also utilising bankruptcy whilst airlines in the United Rockhampton, Tamworth, Townsville hotel accommodation during this time. States of America will benefit from a and Wagga Wagga. $94.0 billion assistance package. We In Australia, the aviation sector has Regional airlines such as Regional note that Lufthansa is currently in been given circa $715.0 million in aid, Express (‘REX’) has reached an the process of restructuring and has in the form of waived air service agreement with the Queensland announced the permanent cessation charges, aviation security charges, government to continue a reduced of its domestic carrier ‘Germanwings’. and taxes on fuel. This was followed schedule to a minimum of one return Whilst Malaysia Airlines are currently by a further $198.0 million package service a week which is underwritten considering a US$2.5 billion bid from for regional airlines, and a further by the State Government which gives Gold Skies Ventures. $100.0 million in cash support for smaller regional carriers. Major carriers such as Virgin Australia have requested a $1.4 billion ‘bridging’ loan over a two/three year period that would convert to equity if left unpaid, however given that the airline is held by various international stakeholders being Etihad Airways, Singapore Airlines, Nanshan Group, HNA Group, and Richard Branson’s Virgin Group, the Federal Government is not expressing immediate interest in providing financial assistance whilst the aforementioned owner/investors are also facing halted flights in other regions which is having implications on their cash flows, therefore, limiting ability to assist Virgin Australia financially. CUSHMAN & WAKEFIELD | Australian Tourism & Aviation Industry Market Insights 3 What is the likely outlook for Tourism? Given the above, it is reported as 7,000 likely that the aviation industry will see further restructuring, or 6,0006,000 potentially, further insolvencies which would likely have an adverse impact 5,0005,000 on recovery of global economies. Whilst economic conditions and 4,0004,000 confidence will play a large role in discretionary spend for not only leisure but also corporate travellers, given 3,0003,000 the possible outlook with regards to Outbound Passengers ('000's) the aviation industry and anticipated 2,0002,000 Outbound Passangers (‘000’s) Outbound Passangers re-instatement of air services as restrictions are lifted, both domestically 1,000 and internationally, it is highly likely that domestic travel will rebound at 0 0 a quicker pace when compared to Holiday Visiting Friends or Relatives Business Education Em ployme nt Other Holiday Visiting(VFR) friends or Business Education Employment Other relatives (VFR) international passenger movements.