Year of the Rooster - lucky for Australian Tourism?

This week the Minister for Trade, Tourism and Investment Steve Ciobo heads a delegation to China that includes tourism operators.

The delegation comes at a time of an expanding tourism relationship with China. The Australian Bureau of Statistics reported last week that almost 1.2 million Chinese tourists arrived in Australia in the year ending December 2016, a growth rate of 16.9% from the previous year. Tourism Research Australia suggests this strong growth is driven by the expansion of the Chinese middle-class.

Australia is a significant cultural destination for Chinese travellers, with Sydney's Lunar New Year Festival now considered one of the largest outside Asia. In December Australia and China signed an open aviation market air services agreement to remove aviation restrictions between the two countries. As the Minister for Trade has outlined.

The arrangement removes all capacity restrictions between Australia and China for airlines of both countries and allows airlines of Australia and China to offer unlimited flights to and from any points in Australia and China, including international airports in regional Australia. This is the first time China has signed such an agreement with any country.

Chinese tourism is growing fast than expected and will continue

In our last post on this topic we noted that in 2011 Tourism Australia produced a strategy document targeting international tourism growth by key markets to 2020. If all went well, according to the upper bound target, Australia would be welcoming around 860,000 Chinese visitors in 2020.

The 2020 target has been surpassed four years early. We'd suggest that any time an upper bound target in a strategy document is passed well before the expected date something is going better than planned.

In July 2016 Tourism Research Australia published their 2016 Tourism Forecasts. The forecasts paint a picture of a long period high sustained growth in Chinese visitors, 11% over the years 2017 to 2025. Chinese visitors will grow from the estimated 1.4 million in 2017 to 1.9 million by 2020 and almost 3.2 million by 2025.

What does this mean for our economy?

Our estimate is that, in 2017, higher than expected Chinese tourism growth will contribute an additional $2.1 billion of income to the Australian economy, $87 of additional income per Australian (compared with the lower bound estimate in Tourism Australia's Chinese strategic plan). This additional tourism expenditure is estimated to increase Australia's employment by just over 3,000 full time equivalent.

If TRA current growth projection were to be realised, we estimate that Australian income would be $7.8 billion higher in today's dollars in 2025, with an additional 9,883 full time equivalent employees (compared with our own extrapolation of Tourism Australia's lower bound Chinese tourism forecast beyond 2020). In income per person terms, this would mean $288 for every person in Australia.

What are the risks to this growth?

While the open skies agreement allows unlimited flights between China and Australia, there are systemic issues with our planning system that may hinder growth.

As highlighted yesterday by Michael Smith in the Australian Financial Review "One of the biggest hurdles though will be convincing the Chinese carriers there is the appropriate infrastructure in Australia to handle an influx of discerning Chinese tourists."

The magnitude of this task is not to be underestimated. Chinese tourists effectively increase Australia's population. For example, in 2017 we estimate Chinese tourists effectively increased Australia's population by around 140,000. By 2025 this number is expected to be closer to 327,000. To put this into context Australia's permanent migration program is about 190,000 people a year.

If we don't have the appropriate planning and Government foresight - at all levels of government - in place to capture this growth we may risk missing out on the next boom.

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