Australian travel is still buoyant but can the industry remain immune from negative forces sweeping the country's business community? I don't think so – there will be damage.
Locally discretionary retail is in dire straights with a string of collapses and downgrades highlighted by the spectacular implosion of the local incarnation of famed British fashion chain Topshop.
Other retail failures include Payless Shoes, Pumpkin Patch, Herringbone, Rhodes & Beckett, Marcs and David Lawrence.
There have also been profit warnings from The Reject Shop, Adairs, shoe chain owner RCG Corp and Oroton.
Key reasons for the retail malaise include:
- Low wage growth
- Rising household debt
- Increasing energy prices
- Decline in discretionary spending
- Consumer confidence faltering
- Shift to online spending
In travel, this can be seen mostly clearly at retailing giant Flight Centre, where profit has fallen in real terms over the past couple of years.
Virgin Australian too is struggling, posting a revenue decline of 0.9% over the first six months of this financial year, the poor result driven primarily by a "subdued" domestic market.
Of course the reverse is true at Qantas, which reported domestic revenue growth of 4.6% for the third quarter, indicating it is taking market share from its major local rival.
The same pattern is playing out in other sectors, corporate travel for example.
Market leader Corporate Travel Management estimates the value of Australian market at A$7 billion and claims to have a 14% market share.
The company's revenue was up 12% for the first six months of this financial year even though it says client activity in ANZ/Asia “continues to be flat”.
The reason for CTM's strong performance is that it's doing a better job than its rivals, especially on the technology front, and is taking share in a stagnant environment.
Online retailer Webjet continues to grow and regularly says it is growing market share at the expense of other retailers.
So we have a situation where key travel sectors are not growing and there are winners (those taking market share) and losers (those losing market share).
Meanwhile, the outbound travel boom by Australians is in serious decline.
The latest ABS stats show that outbound growth fell to just +1% during March,
That's the lowest figure since the bad old days of the GFC in 2009, when outbound travel went backwards and the sixth consecutive month to under-perform the previous year.
Post-GFC outbound travel rebounded spectacularly but this time it feels different.
I believe it is the leading edge of a longer-term trend, which doesn't bode well for the immediate future.
In my opinion, outbound will continue to grow, but much slower than in the recent past.
The major stimulus will be airline discounting due to high levels of international capacity.
Asian hotels are also cheap, counteracting a lower dollar and less consumer spending power.
Counter arguments include:
- Travel and experiences now viewed as a necessity not a luxury by Australian consumers
- Excessive capacity in airlines and hotels keep travel prices down
- Surging property prices in major markets of Sydney and Melbourne give consumers sense of wealth
- Inbound travel is continues to grow strongly
Of all the counter arguments the inbound growth story is by far the strongest.
International tourists led by the Chinese are filling the nation's hotels and bringing joy to domestic operators.
However, that accounts for only part of the industry and I fear that other sectors will continue to struggle for growth as Australian consumers continue to reassess their spending priorities.