In early March this year, when the novel coronavirus COVID-19 felt like a distant threat, Mark Dalgleish landed what should have been a dream booking for his family’s small business.
Hollywood power couple Tom Hanks and Rita Wilson wanted a private zip around Sydney’s iconic harbour and chartered one of Sydney Harbour Boat Tours’ two vessels for the job.
While Australia’s decision to shut out visitors from China in February was hurting some tourism operators, Dalgleish was still fully booked with American and European tourists. But four days after their cruise, on March 12, the Oscar winner and his singer/actor wife publicly revealed they had been diagnosed with COVID-19.
“We went from ‘woohoo, we’ve got Tom Hanks on the boat, to ‘woohoo, we may have coronavirus on the boat’,” Dalgleish recalls.
While his crew went into isolation awaiting test results (all negative), a photo of Hanks, Wilson and the boat’s capitan – Dalgleish’s daughter Elodi – arm-in-arm were splashed on the front of Sydney’s Daily Telegraph the next day. There was no choice but to shut the business down.
“We were probably one of the first tourism operators to shut shop and we really haven’t been open since, given 95 per cent of our customer base was international,” he says.
Dalgleish’s tourism business may have been one of the first to temporarily shut, but it wasn’t the last. COVID-19 has wreaked havoc across Australia’s economy, but nowhere was the pain as instant or more devastating as in the tourism industry, which was already reeling from the summer’s horror bushfires.
The tourism industry directly employs 666,000 people – or 5 per cent of the Australian workforce – and in 2019 it accounted for 3.5 per cent ($60.8 billion) of Australia’s GDP while growing faster than the overall economy at 3.4 per cent.
Overseas arrivals in Australia plunged 99.7 per cent in April to just 21,170 people, compared to 1.7 million in same month last year, according to the Australian Bureau of Statistics.
Any hopes that domestic tourists would help keep businesses alive after they were cut off from China (our biggest source of inbound tourists) in February and the rest of the world in late March were dashed as Australians were ordered into lock-down and states raised their borders for the first time in a century. The Tourism Transport Forum estimates the industry has been losing $10 billion a month.
“I’d be stunned if we don’t lose at least a fifth of our industry over the short to medium term,” says Simon Westaway, executive director of the Australian Tourism Industry Council.
“A lot of businesses are hibernating and whether or not they’ll come out the other side is the big question.”
Along with the family-owned small to medium businesses, COVID-19 has cut a swathe through the ASX and been particularly brutal for companies exposed to travel and tourism. Qantas, casino owners Crown Resorts and Star Resorts, and travel agents Flight Centre, Webjet and Helloworld have sacked thousands of employees and been forced to raise capital or take on debt to survive. Virgin Australia didn’t make it, collapsing into administration under $6.8 billion in debts.
The scary thing is, nobody really knows how long this will last. While the Morrison government had said international borders would not open this year (with the exception of New Zealand), Qantas boss Alan Joyce delivered a reality check last week when he said his airline did not expect international flights to resume in a meaningful way for at least another 12 months.
Sydney Airport boss Geoff Culbert, however, eyes a quicker recovery. While his hopes of opening a “bubble” with New Zealand in time for the July school holidays were dashed by a flare up a COVID-19 cases, he now thinks it could be ready in time for September. And once established that will serve as a model to open up to other countries.
“We’re actually getting a lot of inquiries from countries, and airlines and airports around the world that are really keen to establish air-bridges to Australia. We’re talking to the likes of Singapore, Hong Kong, Japan, Korea, even Canada has reached out to us,” he says.
“We’d like to think that we can get some of these travel bubbles established before the middle of next year. If Qantas aren’t going to fly those routes before the middle of next year, other airlines would be keen to.”
It can’t come soon enough for the ASX-listed airport. Just 92,000 passengers moved through its gates in May, compared to 3.5 million in the same month last year.
RBC Capital Markets analyst James Nevin estimated this week it will take until 2023 for Sydney Airport’s domestic passenger numbers to fully recover and until 2024 for international passengers to bounce back. He warned the company might have to to raise equity to survive the prolonged downturn. It already had to cancel its half-year dividend to preserve cash.
But Culbert says there is no point “crystal-ball gazing” about the recovery timeline when so many variables are at play. He’s been buoyed, though, by airlines rapidly returning domestic flights in recent weeks.
Qantas and Jetstar had planned to increase their domestic flying from 15 per cent of pre-pandemic flying to around 40 per cent by the end of July. But some of those flights have been cancelled following the flare up of COVID-19 cases in Melbourne, which prompted the Queensland government to open its borders to all states barring Victoria.
We don’t see international borders opening up in any meaningful way for at least 12 months
Village Roadshow CEO Clark Kirby
Culbert says building confidence in people that it is safe to fly will be key to the recovery, with technology to play a big role. He points to Lufthansa’s move to offer two-hour COVID-19 tests at Frankfurt airport with the results integrated into boarding passes.
“Once people do it for the first time it builds that confidence, but it is going to take time,” he says.
Local leisure travellers make up around half the passengers passing through domestic airport gates every year. Another 45 per cent are travelling for business and 5 per cent are international tourists, according to IBISWorld
The nascent recovery as restrictions on travel within and between states slowly lift is already ahead of exceptions for Clark Kirby, chief executive of the ASX-listed theme parks and cinema operator Village Roadshow.
When he shut his Gold Coast theme parks Movie World, Sea World and Wet‘N’Wild in March, he assumed they would not reopen until October and possibly not until January.
“From that point on we were just thrown into an absolute state of flux. We really had no idea how long this was going to last and we were just in full-time panic mode,” he says.
“The numbers looked incredibly, incredibly ugly and we were doing everything we could just to minimise our cash burn. We were over $20 million a month when we first shut and we had to get that down dramatically.”
The group stood-down 4000 staff (including from its cinema chain, which was also shut) and entered discussions that are still ongoing with its lenders to extend its debt facilities. The company’s share price resembled one of its rollercoasters, falling almost 80 per cent from $4.04 in mid-February to just 86¢ a month later. The stock has since recovered to $2.08.
But ahead of expectations, Sea World reopened last Friday and had 10,000 visitors over its first weekend, close to its capacity which was capped at 50 per cent to reduce crowding.
Movie World and Wet‘N’Wild will follow on July 26. With Queensland to open to all states bar Victoria on July 10, Kirby says the group’s 402-room hotel its adjoining Sea World is on its way to being booked out for the September school holidays.
The theme parks welcomed 4.5 million visitors last year, which were around one-fifth from overseas, one-fifth from interstate and the rest from Queensland.
“We don’t see international borders opening up in any meaningful way for at least 12 months,” says Kirby. But with the Australians also cut off from the rest of the world, he thinks there’s a unique opportunity to reintroduce families who would have otherwise gone to Bali or Fiji to the Gold Coast.
Australians spend around $64.2 billion on overseas trips a year, and now with borders effectively shut the local tourism industry hopes to capture a slice that money.
“People want to get out there and as long as there’s a strong supply of flights and flights aren’t too expensive they will choose to holiday here,” he says.
While all borders needed to reopen for that to happen, he had no problem with Victoria remaining cut off for the time being. “The last thing I want is a further outbreak in Queensland,” he says.
Westaway, from the Australian Tourism Industry Council, isn’t so sure domestic tourists will fill the hole left by international visitors in the short term.
“You’re not necessarily going to convert a Thailand or Bali holiday into a trip up to northern Queensland,” he says.
“I just don’t think there’s a natural correlation between them, and the major issue in the short term is just the stress on the household budget. One in five working Australians are either out of a job, on Jobkeeper or they are working less hours than they want to”.
“Households have really had to tighten their belt, so are they going to bank the savings from the Bali trip they would do every year or will they convert that to going to the Gold Coast? I’m not sure currently they will do that.”
Westaway says that the industry has under-invested in domestic tourism, and needs to work on strategies to disperse local overnight and interstate visitor further afield, into new destinations and away from crowded hotspots like Victoria’s beachside Lorne or NSW’s Byron Bay.
“There’s an opportunity for the industry to re-imagine themselves, but I think it’s beholden on policy makers to think about that,” he said.
The biggest driver of tourism over the past decade has been the extraordinary growth in Chinese visitors, doubling between 2013 and 2018 to hit 1.4 million annual arrivals. That growth flat-lined in 2019 however and like other areas of the economy, COVID-19 has forced the tourism industry to reckon with whether it grew too reliant on China.
So, just how long will it take for tourism to bounce back?
Research by Deloitte Access Economics released exclusively to this masthead has plotted three different scenarios which hinge on when state and national borders fully reopen, the extent of the economic damage from COVID-19, and how many tourism operators are still standing to spark a revival.
Deloitte’s lead travel partner Adele Labine-Romain says another key element is whether Australians will feel safe travelling again. And on that front, things do not look good, with her research finding only one in four people now feel confident taking a flight and one in 10 are confident staying in a hotel.
Labine-Romain says domestic tourism will fall between 42 and 68 per cent this year, and take two to four years to recover, while international tourism will be 75 per cent lower this year than in 2019 and take up to five years to fully recover.
“The road back is a long one, and we need to set up for a gradual return of demand,” she says.
“There’s still a fair ways to go until we get to broad comfort levels. And then there’s what travel will look like. People will travel differently; the things that were drivers of tourism in 2019 – major events, major festivals, conferences, sporting events in big cities – will those be happening?”.
The uncertainty means that investing in companies exposed to travel or tourism will be risky for at least the next couple of years, says Rikki Bannan, a fund manager at IFM Investors.
The $156 billion superannuation-backed investment powerhouse has participated in some of the deeply discounted equity raisings some travel companies launched early in the COVID-19 crisis, and is also a cornerstone investor in unlisted transport assets including the Melbourne, Brisbane, Adelaide and Perth airports.
“It’s going to be very sentiment driven: if people are feeling confident that cases aren’t spiking or if there’s a flare up in cases, the stocks are going to be quite volatile,” she says.
Liquidity and balance sheet strength will continue to be issues for tourism exposed companies until earnings start to recover in 2022, Bannan says. But at the same time investors were still looking to back winners out of the crisis.
“There’s been a number of small players go under already and there will be more over the next 12 to 18 months. Does that throw up opportunities in terms of market share? Travel and tourism is an incredibly fragmented industry so who’s best placed to capitalise on that?”
With a year-long recovery ahead, the tourism industry is now warning that tens of thousands more jobs will be lost when the government’s JobKeeper wage subsidy expires in September. The industry is pushing for an extension.
Federal tourism minister Simon Birmingham says the government understands that COVID-19 hit the industry the earliest and that the economic pain would last the longest as it reviews what to do with Jobkeeper. A decision due on July 23.
For his part, Birmingham says the industry needs all state borders to fully reopen, which would allow airlines to schedule more flights, people to book tickets with confidence, and tourism agencies to start campaigns to encourage Australians to spend a “good portion” of what they would normally blow on overseas holidays at home.
“It’s a long path back to what we previously saw as normality,” he says. “It’s going to take many small steps, the most important of which is to get our domestic tourism back on its feet.”
But the cast-away boat operator Dalgleish isn’t waiting around for government help. He’s launched a new brand, My Sydney Boat, as he tried to pivot from international tourists to Sydneysiders and interstate travellers who want to explore the city’s hidden coves and beaches.
“Although it’s been a devastating three months, in a way we’ve used it to create something new and I think something that we probably should have been doing but instead we’ve just been focused on international,” he says. As brutal as it’s been, he sees light at the end of the tunnel.
“In the last week, the phone is starting to ring for the first time since March.”
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Business reporter at The Age and Sydney Morning Herald.