Risks of Sydney Airport
Tourism Research Australia have stated that more than 1.3 million Chinese visited and spent time in Australia in 2018, accounting for more than 15 percent of the total inbound market. Sydney airport has been a big beneficiary in recent years of increasing Chinese travellers.
However, a recent UBS report noted that Chinese residents’ travel intentions have shown a sharp decline in their plans to visit Australia, which has fallen from the second most popular destination to the fourth. Sydney, which was previously the second to Tokyo, now ranks behind Tokyo, Seoul and Phuket.
Sydney airport caters for 16.6 million international passengers, which are more profitable than domestic passengers because of the higher fees airport charge for international arrivals and departures. Sydney Airport has achieved a 7 percent sales growth in the past three years, with two-thirds of their annual revenue generated from international visitors. The number of Chinese tourists takes up 9 percent of the airport’s international passengers, having risen 4.6 per cent between January and November 2018. This represents a slowdown compared with the previous two years, when numbers grew about 18 per cent.
The report also said that Chinese visitors, which typically spend three times more than other countries, are spending less money on duty-free goods in the airport. They prefer to spend more in the shopping malls and discount stores instead of the airport duty-free shops as was common before. The decline of Chinese tourists hits the Sydney airport hard and will potentially bring negative effect on Sydney Airport’s growth.
Reasons for Tourism decrease
The reasons for the slowdown of tourism can be attributed to the slowdown in the Chinese economy and the uncertainty of the China-US trade war, a lack of advertising campaigns to attract visitors and the threats from other low-cost airlines.
The first reason can be attributed to the macroeconomic factor. China’s economic growth prospect is expected to slow down in 2019, which affects consumers’ confidence within the bleak economic outlook, and would also create a self-reinforcing cycle of lower investment and spending. The uncertainty of the trade war will also cause Chinese residents to decrease consumption overseas due to the high tariff on foreign goods and cut down time in Australia to travel to other countries. Although the trade war is not directly connected with Australia’s goods and services, it has an influence on the consumption concept. A similar decrease in Chinese domestic demand will lead Chinese residents to stay in China and spend domestically over Australian goods and services.
The second reason is the lack of promotions to attract travellers. The main purpose of most Chinese visitors who visit Australia is to spend their holidays here. The most popular destinations were Sydney at 62%, Melbourne with 50% and the Gold Coast at 25% of visitors. Sydney airport plays an important role in promoting Australia. Attracting return visitors is critical as a tourist destination, and if people don’t perceive anything interesting or attractive, they will not visit again.
The third reason is that Sydney airport will experience high competition with other low-cost airlines in terms of quality of service. The seats available on the flight to Sydney has decreased, which has caused the airport’s previously strong trend in international passenger traffic growth to turn to be lower than previous quarters. The frequency of delays in QANTAS have increased and more travellers are booking with other airlines. In addition, the charge of Sydney airport is high, and the available parking limits its competitiveness with other airports. And once the Western airport project has been completed, Sydney airport will face more challenges.
The potential Effect
The share price of Sydney airport has declined over the past few months. Domestic passenger traffic was down 2.7% and international passenger traffic was up 0.4%, leading total passengers to be down by 1.5%.
We see that there are potential risks with regards to the tourism decrease to the Australian economy. China is Australia’s largest and most lucrative tourism market, worth more than $11.5 billion to the Australian economy. The large decrease of Chinese travellers has caused Sydney airport’s profit-generating ability to decrease as the number of arrivals and departures has decreased. This will drive Sydney airport to charge a higher price to domestic and other international travellers to maintain the profit margin level. The complaint on the higher fees will make Sydney airport become less attractive.
In the short term, Sydney Airport’s outlook is still positive; the annual growth rate will be 7 percent between 2018 and 2020 due to stable domestic passenger traffic, higher aeronautical charges, and new growth initiatives. However, in the long term period, it is not sustainable and both the government and the airport will need to fix that problem by implementing promotions to international travellers.
By Chang Lui
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