New South Wales and Hong Kong | Two Tales of Topical Troubled Tourism Trends

With the risk of starting the new decade with negative news, for a number of markets and regions it is certainly not currently the start of another ‘Roaring 20s’. Unless you’ve been living under a rock and ignored all news, you will be aware of two significant circumstances based on very different causes: The ongoing bush fires across the Australian continent, as well as the protests and political challenges in Hong Kong S.A.R.

Beyond the obvious and very serious effects these events have directly on people, the environment and macroeconomics, much is said also how it effects travel and tourism.

Beyond the occasional deep-faked, vitriolic and polarising comments that may surface, broad perspectives and neutrality remain important, and we continue to monitor how incidents create ripple effects across the accommodation sector performance and demand generation.

Hong Kong S.A.R - The long view for perspective

For reference, absolute trading levels are far away from as low as during the SARS outbreak period in 2003, and even if the Hong Kong market has seen changes in both arrivals, demand and supply in the 16 years since then – It is worthwhile to note that the market bounced back quickly after SARS.

Occupancy levels went back from 11.8% (May 03) to 81.3% (Oct 03) in just 3 months, with ADR gradually coming back as well.

This is not unusual per se, it reminds most people of Bangkok, a market that over the past 20 years of pandemics, floods and political upheaval consistently have managed to bounce back and retrieve demand reasonably quickly – while maintaining hotel rate levels quite intact, which in turn supports profitability recovery.

In terms of recovery, Hong Kong came back reasonably quickly also from the 2008 Financial Crisis originating in the US, as it impacted people’s wallets rather than creating travel advisory and tourism uncertainty.

What is perhaps concerning then, is that the recovery and confidence from Mainland Chinese travellers which would fuel the hotel, retail and F&B business – certainly seems to take longer during the more recent kind of political turmoil. In the aftermath of the 2014 Hong Kong Protests it took well over two years for performance levels to really shine again.

This last point infers that whenever the current political challenges eventually cease, we may very well see an extended period of recovery, rather than a quick jump of performance back to high watermarks of the past.

2019: Year-over-year decline continues well beyond earlier expectations

Over the past 6 months we have continued to see not only the initial huge drop in Occupancy, but this was followed by ADR and in December we've seen no signs of coming back – in fact it was the worst month so far in terms of comparing the month to 2018 same month.

At this time of year one would expect Hong Kong to be trading at Occupancy levels in the low 90s (Dec 2018 was at 91.6%), and ADR well above HKD1,700 for the month (with a 3-4% growth from Dec 2018).

Instead we’re seeing some of the lowest ever-recorded metrics, with December daily data showing Occupancy below 60% and ADR below HKD1,000 (last time we saw that was in August 2006!).

Downward Trend

It remains less interesting to compare the full year of 2019 to that of 2018, given that the demand challenges started halfway through the year, rather making quarterly, monthly and even daily comparisons more relevant.

As seen in the graph above, from August we’ve seen negative RevPAR growth of between 40-50%, in equal measures of Occupancy and ADR. In November that deepened further to -55.4%, and Daily December data shows a staggering -62.4% – which includes a drop in ADR of over 40% compared to Dec 2018.

Numbers during Q4 were always going to be quite dramatic, given that the challenge now affects the peak season in Hong Kong.

It remains anyone’s guess at what stage things will start to turn around, our estimates still speak to the fact that we see very little uplift also in Q1, thus continuing the downturn at least until the starting point in 2019, to the month of May.

This is also supported by statements from economic institutes indicating that Hong Kong is likely to be in recession during 2020, covering at least two first quarters in the year.

Australian bushfires and their effects

As updated via Tourism Australia at https://www.australia.com/en/travel-alerts.html, we know that the currently impacted parts are in South Australia, Victoria and New South Wales with no direct impact across Western Australia, Northern Territories, Tasmania and Queensland.

We’ve seen numerous examples so far where regional accommodation providers have seen partial or a total destruction of facilities, with notable inclusions in for instance Southern Lodge on Kangaroo Island.

New South Wales markets greatly affected

Preliminary hotel performance data for December 2019 shows Sydney Drive Regional, a submarket within a two-hour-drive radius of Greater Sydney, has been greatly affected by continued bushfires in Australia.

The submarket showed a 14.7% year-over-year decline in demand (room nights sold) and subsequent double-digit declines in each of the three key performance metrics: occupancy (-14.5% to 52.2%), average daily rate (-18.4% to AUD194.74) and revenue per available room (-30.3% to AUD101.48)

“Because the physical impact of the bushfires has been predominantly across the Great Dividing Range of New South Wales and Victoria, we’ve not yet seen significant demand decreases in the major city areas of Australia,” said Matthew Burke, STR’s Regional Manager – Pacific. “However, these regional locations are popular tourist spots for family holidays in vacation homes, hotels and holiday parks. The post-Christmas period to the end of January is peak season, when so many local businesses rely on the transient tourist trade. Moreover, with road closures through January, we will watch to see the impact more broadly.”

Across New South Wales, results have been mixed. The NSW North Coast submarket, or Northern Rivers region, saw a 7.0% jump in demand and a 5.8% lift in ADR, while the NSW North Coast South submarket (known as the Mid North Coast) saw muted demand growth (+0.4%).

“Certainly the focus is on the wellbeing of those dealing with incredible devastation around the country,” Burke said. “We also want to do our part to keep the industry informed of hotel performance developments particularly in the recovery phase. Based on the makeup of our sample, we expect to have more to report from our full December and January data.”

STR will release December monthly data and 2019 year-end data next week, contact us at [email protected] for more info.

About STR

STR provides premium data benchmarking, analytics and marketplace insights for global hospitality sectors. Founded in 1985, STR maintains a presence in 15 countries with a corporate North American headquarters in Hendersonville, Tennessee, an international headquarters in London, and an Asia Pacific headquarters in Singapore. STR was acquired in October 2019 by CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces. For more information, please visit str.com and costargroup.com.