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Soaring: Booming Australian tourism is creating a need for investment

airports-full-storyThe number of overseas tourists visiting Australia is expected to grow rapidly over the coming decades. Many of these tourists are anticipated to be travelling from Asia, with China likely to overtake New Zealand to become Australia’s number one inbound tourist market in 2016-17. Tourism Research Australia forecasts that Chinese tourists will be spending $20.3 billion, or around 35% of total international tourism expenditure in Australia, by 2021-22. As tourism-related revenue in Australia continues to grow over the next five years, both airport operators and international airlines stand to benefit from growth in inbound tourist numbers. However, the extent to which these industries will benefit relies on adequate capital investment in airport infrastructure.

As airport operators obtain revenue on a per-passenger basis, soaring tourist numbers bode well for airports located in major hubs or near popular tourist destinations. However, major Australian airports, such as Kingsford Smith in Sydney, and Tullamarine in Melbourne, are already reaching capacity in terms of the number of aircraft that can land each day. Australia’s airport infrastructure will require upgrades to cater to the increasing number of inbound tourists expected over the coming decades. Sydney’s long-awaited second airport finally received the go-ahead from the Federal Government in December 2016, after decades of deliberation. While the new airport is intended to ease capacity issues, it is not expected to be operational until the mid-2020s. The long build times for airport infrastructure means that airport operators must ensure their investments are made well in advance of capacity being reached. However, the need for investment is forecast to result in airport establishment numbers rising by an annualised 0.8% over the five years through 2021-22, to total approximately 670 airports.au_industry_i5220_04_keyexternaldriverschartdata

International airlines have competed fiercely on price over the past five years to capture a share of rising inbound tourist numbers. Budget carriers, such as Singapore Airline’s subsidiary Scoot, and Malaysian-based AirAsia X, have extended their Australian route networks and passenger capacity over the period. In addition, AirAsia X, Singapore Airlines and Philippine Airlines have commenced trans-Tasman flights. The extra seat capacity available between Australia and New Zealand has reduced average airfares along this route. While the Australian dollar is forecast to appreciate slightly over the next five years, it will likely remain low and continue to make Australia a cheap destination for international tourists. As a result, international airline establishment numbers are set to rise by an annualised 1.2% over the five years through 2021-22 as foreign airlines commence flights to Australia and existing airlines increase route capacity to retain market share.

Even though low fuel prices, cheap airfares and a weak Australian dollar cannot last forever, inbound tourist numbers are expected to continue growing rapidly over the coming decades due to a growing Asian middle class. While airlines and airport operators are forecast to benefit from these trends, Australian airports require infrastructure investment sooner rather than later if they hope to accommodate booming inbound tourist numbers in the coming years.

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Relevant industries:

Airport operations

International airlines

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