Ben Hurley Reporter

Ben covers the property industry and has a keen interest in entrepreneurship and travel writing. He speaks Mandarin and previously covered housing and urban affairs for The Australian Financial Review.

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Domestic leisure seekers are the new face of Australian travel

Published 29 May 2013 09:19, Updated 30 May 2013 00:46

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Domestic leisure seekers are the new face of Australian travel

Domestic travel was once for special occasions; now more people travel interstate for the weekend thanks to budget airlines. Photo: Paul Rovere

It’s one of the biggest growth markets in Australian tourism, and no, it’s not the Chinese. It’s the domestic travellers flying to Melbourne to see Monet’s Garden and the King Kong musical, or to Sydney to see the Mardi Gras.

Despite the strong Australian dollar sending Australians overseas in droves, the weekend domestic jet-setter is emerging as one of the fastest-growing sectors of the travel industry, bringing some confidence in the domestic market back to hotel operators who have lost a large slice of their custom to overseas competitors.

Accor Hotels’ general manager of communications, Peter Hook, says in Melbourne last year there was a 28.7 per cent growth in “domestic leisure” guests. While extended holidays in Australia have declined, fly in, fly out leisure seekers are on the rise thanks to lower airfares and nationwide marketing of events.

Hooks 10 years ago people travelled interstate once or twice a year for big events like family weddings.

“Now it’s ‘we’ll go interstate next Friday,”’ he says.

“This is going down to Melbourne for one or two nights or an extended long weekend.”

Partially making up for the flight of Aussies overseas, visitors to Australia increased 5 per cent in 2012 to 5.7 million people, according to Tourism Australia.

New Zealand was the largest source of visitors, while China was second – ahead of the UK – with 592,000 visitors. Despite a relatively short median stay of eight days, Chinese visitors spent far more than visitors from any other country, with a total of $3.1 billion compared with the second-placed UK at $1.7 billion. Hook says Chinese visitor groups include workplace rev-up sessions and conferences, weddings and intrepid campervan tourers, in addition to the traditional package tour market.

But despite strong occupancy rates and a healthy return on assets in the hotel sector, nervousness about the global economy and the future of the tourism market have kept capital values weak. A Colliers International report on the hotel industry found the sector had outperformed other commercial property asset classes over the past year, but had fallen behind at the end of 2012 due to lower income growth across the eastern seaboard. Total returns across the sector fell to 9.4 per cent in the 12 months to December 2012, down from 16.7 per cent in 2011.

Tourism Accommodation Australia also claims the impact of the carbon tax has been substantial, imposing $114.9 million of costs on the industry in its first year and reducing the profits by as much as 12 per cent.

This state of affairs led to a surge in hotel sales activity over 2012. More than $1.25 billion of hotel assets changed hands, according to Colliers – a 30 per cent increase on the previous year and the largest number since 2007. About 70 per cent of the sales were to Asian investors.

Among the transactions were the Government of Singapore Investment Corporation’s $330 million sale of the Shangri-La Hotel in Sydney, the transfer in ownership of the Mirvac wholesale fund to investors headed by Singapore institution Ascendas, and the $415 million purchase of three Marriot Hotels by Malaysian Starhill REIT. In Melbourne, the Holiday Inn on Flinders Street sold for almost $50 million to a group linked to New Zealand-based Philip Carter of Carter Group, and developer Toga also purchased two hotels in Canberra and Hobart.

Hook says the shift in ownership from big American brands to Asian investors has brought sweeping changes to the sector.

“In the past year, the whole hotel landscape has changed,” Hook says. “If we look back to May 2012, Hilton was the largest upscale hotel brand. But in May 2013, Pullman [part of the Accor group] is the largest upscale hotel brand. In one year it has changed completely.”

Accor’s room occupancy rate is about 85 per cent averaged over a year in Sydney and slightly lower in Melbourne. In Perth and Darwin it is up around 90 per cent. But nervousness about fluctuation in the tourism business is limiting the number of new hotels being built. Part of Accor’s strategy is to take over the management of existing hotels such as the Harbour Rocks Hotel in Sydney and Reef House Resort near Cairns.

“Fewer hotels are being built so it’s more about getting the existing market as part of your network,” Hook says.

Rooms for improvement

For those bullish about the tourism sector’s future, the national occupancy rate of 75.5 per cent has made the numbers stack up for building. In Sydney, the International Convention & Exhibition Centre at Darling Harbour will provide more than 900 rooms, there will be at least 350 at Lend Lease’s Barangaroo South. There are others in the pipeline as well, such as the expansion of Melbourne’s Chadstone Shopping Centre, the refurbishment of the Sheraton on Hastings Street in Noosa and a 33-level proposed Amara Hotel in East Perth.

BRW Rich 200 stalwarts the Vidor family have also expressed confidence in tourism, with their Toga Group sealing a $450 million deal with Singaporean property group Far East Orchard to manage more than 6800 serviced apartments and hotels in Australasia, Germany and Denmark.

But doubts remain. “The capital cities are doing well by and large, but there’s a lot of regional areas quite troubled,” says Tourism Accommodation Australia managing director Rodger Powell.

Record numbers of Australians are going abroad, with holiday markets from Indonesia to the US attracting increasing numbers of tourists. More Australians than ever before are also going on cruises, Powell says, hitting traditional holiday areas hard.

“I don’t think it’s just the Australian dollar. But it’s the fact Australians are naturally curious – big travellers – and it’s been more affordable because of the dollar, but also because those other economies are in the doldrums, they have aggressive deals in place.”

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