According to projections by Tourism Australia (TA), there will be a 50% increase on how much is spent in Australia on tourism in 2026–2027. That increase equates to approximately $151.4 billion dollars (from 15 million inbound international visitors and 14.8 million outbound Australian residents).
Significantly, by 2020 TA expects to see overnight spend reach $115 billion and anticipates Chinese inbound tourism to grow to 25.7% of market share. TA also suggests we may experience slower growth in the more traditional markets of New Zealand, the United States (US), the United Kingdom (UK), and Singapore.
It's a positive picture with some years to play out in terms of the growth in spend, but the most recent data back in April doesn't quite live up to expectations. Chinese arrivals are down 12% year-on-year (YoY) for the month and the full year estimation of Chinese arrivals is now anticipated to see only a very modest increase of 0.9%. While TA put the lion's share of its faith in a faster growing China market based on trajectory, the other four nations mentioned above all had increased monthly arrivals in April 2019 versus April 2018. We'll get a much clearer sense of the slowing of growth from those markets when year-end data is released.
There's a sense of uncertainty in the wider economy, which leaves the mostly cyclical shares in the tourism sector exposed to downturn. In addition, there are the unknown side effects of the potentially escalating trade issues between the US and China.
So, where does that leave investors who are more positive about the sector in the longer term, but reluctant in the immediate and short-term?
Sydney Airport Holdings Pty Ltd (ASX: SYD)
More than just three runways, Sydney Airport Holdings also has a suite of other offerings in the areas of aeronautical, retail, property, car rental and parking and ground transport services. There's also an advertising business unit. Analyst opinions are spread on this stock right now but it's still worth considering if we can link it back to some of those more positive longer-term statistics. It's Australia's busiest airport and is number one in terms of both entry and departure points. It's fair to say Sydney Airport is in the pole position to reap its share of the benefits if that 50% increase in tourism spend comes to fruition.
The Sydney Airport share price hit a record high on 26 June at $8.34 and has dipped slightly since to $8.16 (at time of writing). It's also a good dividend stock paying out a 4.79% dividend yield. If economic headwinds prevail, Sydney Airport has some buffering to protect itself from a reduction in tourist numbers. It has a diverse range of businesses and we can hope that government, business, and domestic travel can go some way in alleviating a painful drop in international tourist travel.
Sealink Travel Group Limited (ASX: SLK)
Sealink is another company that might look forward to some growth in the next 6–8 years if TA's projections hold up. Sealink has a large and diverse range of Australian river and sea tourism experiences as well as accommodations, restaurants, land travel excursions, and freight and barge services. Over the past 52 weeks the Sealink share price has dipped 15.8%, hitting a year low at $3.56 back in May, but is slowly trending upwards and is currently trading for $3.73 (at time of writing).
Back in February the company reported several positive half-year financial results, including revenue up by 32%, net underlying profit after tax up by 15%, and debt reduced by 12.5%. In its full half-yearly snapshot, Sealink was also keen to point out it was pleased with the early results of the recently acquired operations on Queensland's Fraser Island.
Foolish takeaway
The tourism sector will always be at the whim of a customer's access to discretionary funds. Where we go, how we travel, be it a luxury cruise or backpacking adventures, depends on how much coin we have in our pockets and how secure we feel in spending it in the prevailing economic climate. Read widely and often to make up your own mind on how the sector is faring. Investors are spoiled for choice in terms of researching statistics, as you'll find regularly updated sources across state and federal governments and industry organisations.
