Record numbers of visitors pouring into Australia suggest flights full of free-spending tourists landing at crowded airports around the country, cramming through immigration to dash to the nearest shopping centre and lift the nation’s retail sales figures as quickly as possible.
Actually, the description is only a slight exaggeration as Australia’s tourism industry undergoes resurgence, thanks in large part to record arrivals from China. The buoyant visitor numbers suggest several themes worth considering. Here, we look at two.
How busy are we?
A record 7.8 million short-term visitors arrived in Australia1 over the year to June 2016, up 44% from June 2006. New Zealand remained the top contributor to our short-term visitor numbers, with 1.3 million people arriving from across the Tasman, up 23% from 1 million a decade ago.
However, the number of visitors from China was a close second at 1.15 million, nearly quadruple the 294,000 visitors just 10 years ago.
Given the robust visitor data, investing in airline shares such as Qantas Airways (QAN) and Virgin Australia Holdings (VAH) might seem a no-brainer. However, airlines in general have a long track record of delivering poor returns through the business cycle, mainly because its two largest costs – oil and labour – are difficult to control.
Also, Australian-based airlines compete with rivals that may not have the same competitive constraints. For example, airlines based in the Middle East have access to fuel at cheaper prices and their labour laws are different to Australia’s heavily unionised environment.
Capturing the investment theme of visitor spending
Nonetheless, inbound travellers from China are the key target market for Australia’s tourism sector due to their sheer numbers and track record for growth so it would be beneficial to pinpoint a way to invest in this trend.
Chinese tourists make a large contribution to Australia’s economy, spending on average five times as much as tourists from other countries.
And while most tourists from China are destined for our major cities, there is growing evidence that Chinese tourists are regionalising their visits.
For example, Gold Coast Airport expects growth of 7-8% a year from China over the next five years and is opening a new international terminal in 2018 to accommodate them. A key commercial focus for the Gold Coast Airport is attracting a new Chinese carrier since two-thirds of Chinese tourists landing at Brisbane Airport actually bypass Brisbane altogether and head straight for the Gold Coast.
This regionalisation underscores an investment theme, signalling double benefit for Australia’s listed travel agents (Flight Centre (FLT), Corporate Travel (CTD) and Hello World (HLO). These travel agents help tourists make arrangements from their country of origin to Australia, then travel around the country.
Last but certainly not least, a handful of Australia food, health and beauty brands have received the consumer goods sector’s version of a golden ticket – voracious demand in China sparked by Chinese travellers returning home with Australian products and spreading the word.
Chinese concerns over food safety at home have given rise to unprecedented demand for Australia’s powdered baby formula, underpinning shares in Bellamy’s (BAL) and A2 Milk (A2M).
In addition, a perception among Chinese consumers of certain Australian brands delivering high quality and value for money has also created strong demand for Blackmores’ (BKL) vitamins and Sukin skincare, owned by BWX (BWX). The opening of free trade zones in China has allowed what was a suitcase trade to develop into vibrant online commerce, as well as bricks and mortar businesses.
Australia’s record visitor numbers may point to airlines as a way of gaining investment exposure to the nation’s influx of arrivals but AMP Capital prefers non-airline beneficiaries of tourism. We prefer travel agents, as well as certain food and health brands embraced by visitors from China, transported back home and promoted by word of mouth.
Enthusiastic Chinese visitors seeking out Australia’s reputation for safety and quality have turned their personal consumption into unprecedented demand for certain Australian brands of baby formula, vitamins and skincare. This demand, in addition to ongoing Australian consumption and exports elsewhere in the world, make these companies a less risky play on Australia’s tourism theme than airlines, in our view.
Author: Maurizio Viani, Portfolio Manager
Source: AMP Capital 10 Jan 2017
1 Australian Bureau of Statistics, 3401.0 Overseas Arrivals and Departures, Australia June 2016 http://www.abs.gov.au/AUSSTATS/abs@.nsf/Previousproducts/3401.0Feature%20Article1Jun%202016?opendocument&tabname=Summary&prodno=3401.0&issue=Jun%202016&num=&view=
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Source: Market Updates