Sydney, October 23, 2001 - Whilst there is little doubt that Australia�s tourism industry has been dented by the events of 11 September and the demise of Ansett Airlines, there have been very few comments that have done justice to the resilience of the Australia tourism industry.  Jones Lang LaSalle Hotels draws on the industry�s past performance and current responses to highlight the factors which are likely to help counter the impact of these events.

The Tourism Industry 

�Over the past ten years, international arrivals have been affected by a number of downturns, such as the recession of the early 1990�s and the Asian economic crisis during 1997/98,� said David Gibson, CEO Asia Pacific of Jones Lang LaSalle Hotels.  �However, international arrivals have always recovered soon after and carried along the long term growth path�.  

During the quarter of Operation Desert Storm (March quarter 1991), international arrivals to Australia dropped by 0.2%, but recovered quickly to record 7% growth for the year ended December 1991.  

�There is no reason to suggest arrivals will not rebound again after recent events� Mr Gibson continued.  

This opinion is supported by the revised forecasts by the Tourism Forecasting Council (TFC), which were published this week.  According to the TFC international arrivals are expected to decline by just 0.4% in 2001 and recover during 2002 to increase by 4.3%.

The $20 million funding package committed by the Federal Government is a significant boost for tourism operators and is critical to stimulate activity at this vital time.  �Few realise that this package represents over 20% of the Australian Tourist Commission�s total annual budget for 2001 so the benefits should be material� said Mr Gibson.

The negative effects being experienced by various parts of the tourism sector must be balanced with some of the more positive factors including:

• The North American inbound market accounts for only 12% of international nights spent in Australia and international visitors account for only 27% of total visitor nights spent in Australia.  From these calculations, a complete shutdown in US visitors would only impact 3% of tourist nights spent in Australia.

• With security, travel time and a low Australian dollar, many will opt for holidays at home this year instead of traveling abroad.  

• People still need to travel.  Australians have a strong propensity to travel and this is set to continue.

• Many of Australia�s important inbound markets, i.e. Japan, Europe and Asia will be more attracted to our shores because of Australia�s �safe haven� image.  Australia was recently voted the second safest international destination after New Zealand.

According to Mr Gibson, the ability of the hotel industry to withstand the pressures of these events has vastly improved over the last decade.  Hotel management and their financiers are now far more skilled and responsive than ever before.  

�The lessons learnt during the Gulf War, the Pilot�s strike, the recession of the early 1990s and the Asian economic downturn of 1997/98 have been remembered and are being implemented industry-wide� Mr Gibson.

That said, investors and financiers will need to ensure that their operators do not misjudge the impact of recent events as the risks are high.  �Strategies must be property specific.  For many hotels, a unilateral cost cutting program could be exactly the wrong action to take at this time, however it may be appropriate for other assets� cautioned Mr Gibson.

The Australian hotel market showcased its resilence during the Gulf War when demand for the March quarter grew in eight of the ten major markets.  Seven of these markets achieved significant room rate growth, despite the conflict and onset of the recession.

In 2001, the accommodation industry as a whole is in a relatively healthy state.  Australia�s outlook for supply of new hotels is at the lowest percentage of existing supply since 1994 when supply of the major markets contracted by 0.8%.  And, with several hotels being converted to residential use, occupancies are set to recover sooner.  �At present, over 1,000 rooms in Sydney have been touted for residential conversion and over 400 rooms have already closed since the Olympics� said Mr Gibson.

It is important to recognise that the impact o these events are not likely to affect all tourism operators equally.Many tourism operators have been hard hit, particularly in regional areas.  But there are also numerous examples of accommodation properties which are faring just as well since mid September, many recording occupancies in the 70-80% range.  These properties tend to be in locations which are readily accessible to the drive market and hotels with a large share of domestic business. 

Investment Implications

�Times such as this usually provide cashed up investors with a window of opportunity to snare under-managed prime assets at significant discounts� said Mr Gibson.  �However, if investors are going to act, they will have to be quick, as, judging from previous slowdowns, recovery is around the corner�. 

Conclusion

On balance, the vast majority of the tourism sector is far more resilient and better prepared to respond quickly and avoid significant long-term negative consequences than it has been previously.  The quick response of the industry and the Federal Government suggest that fundamental shifts to the long-term growth trends of the tourism sector will not occur.  �That said, the continued operation and expansion of Ansett Mk II will be critical to ensure true competition remains in our skies and that air travel is accessible to a broad part of our community,� said Mr Gibson.