There is a never-to-be-repeated phenomenon going on in the region around us.
The OECD estimates that by 2035-2045 the Asian middle class – from India through to China – will surge from its current 600 million people to 3 billion.
Not in 100 years, not in 50 years, but within 20 to 30 years.
It is an economic and humanitarian miracle; and it is unfolding on our doorstep.
The UN tells us that by 2020, half of the world’s middle class will be living in Asia.
This means half the world’s middle class will be a direct flight away from Australia.
Consider China alone.
Last year, 100 million Chinese went on an international holiday.
The Chinese tell me that by 2020 this is set to double to some 200 million.
For much of the last 15 years, the ‘Asian boom’ narrative has centred on an insatiable demand for Australian resources & energy, but the exploding Asian middle class is now seeking higher living standards and affluent experiences:
- International travel
- Food and wine
- Blue sky and golden beaches
- Western brands
- International education; and
- Unique, high-end leisure experiences.
As if by fate, these are areas, or strengths, in which Australia is naturally endowed.
We have nearly 60,000 kilometres of shoreline, 3,000 hours of sunshine a year, and a variety of climates from sunny, tropical and Mediterranean to snowy.
We have the unique advantage of being an overnight flight away in the Asian time zone, and can boast that 2 million Australians speak an Asian language in the home, with 800,000 speaking Mandarin or Cantonese.
It is no surprise that tourism and hospitality is therefore one of five key sectors in Australia set for supercharged growth in coming decades – and I believe it can be the fastest growing.
The opportunities are immense – but they won’t just fall into our laps.
State of the industry
Tourism and hospitality has the critical mass and management skills to take advantage of the rapidly emerging opportunities, but it will require vision, courage and a huge injection of capital.
- generates $100bn of consumption a year;
- employs directly or indirectly one million Australians;
- includes 270,000 businesses;
- is our largest services export worth $30bn in export income;
- is a critical regional developer; and
- is part of an international sector that is truly global, now accounting for 30 per cent of the world’s trade in services.
I believe our tourism and hospitality industry is in a reasonably good place but much more must be achieved if we are to surf the tidal wave of opportunity coming our way.
Last year, international arrivals reached a record 6.3 million visitors. Record results were achieved from China as well as traditional markets such as the US.
Compared with the previous year, arrivals from China last year were up 67 per cent for Chinese New Year. Today is the first day of this Lunar New Year, and hotel bookings are again seeing a significant increase over last year’s record, with yields also substantially higher.
Overall, the sector grew 6 per cent last year, with the international component growing 8 per cent.
To reach the 2020 target we need sustained overall annual growth of between 6 to 10 per cent over the next 5 years. And it can be done.
This is a possibility beyond the reach of almost every other sector in Australia.
Putting 2020 in context
Literally, in concrete terms, we require another 20,000 (5 or 6 star) rooms by 2020.
This means an additional 80 new hotels (or equivalent resorts, etc), or 16 such establishments each year over the next five years, somewhere around Australia. A big ask.
And in terms of aviation capacity, we will require another 3 million seats annually – or the equivalent of 120 more A380 aircraft – entering Australia each week by 2020.
Four priorities guiding our agenda
To help reach these targets Australian governments are following four priorities that have been agreed to by my state and territory counterparts.
Firstly, we must aim to have a very strong offering at the premium end of the market.
Secondly, we must pursue major deregulation to be seriously competitive, including on aviation and visas.
Thirdly, we must ensure marketing efforts are coordinated, well financed and first-rate.
And fourthly, we must drive investment in new and significant tourism infrastructure.
Firstly, in regard to high-quality tourism experiences, we are a high-cost country and a long-haul tourism destination.
To this end, leveraging our ‘clean, green and safe’ brand is critical to being the number-one long-haul destination in Asia.
Given the numbers entering the middle class, at all levels, across the region, what will appear to us as mass markets will in fact be niche markets.
The transition to high-quality and high-yielding tourism is well underway. A few years ago, tour groups comprised 75 per cent of the Chinese market, yet now they constitute only around 35 per cent. Independent travellers are now the focus.
I am not saying that there is no role for 3 or 4-star experiences but we must set a high standard at the top.
I use the BMW example – achieve recognition in the top series, and then feed off that benchmark at each level.
It is a telling statistic that while Australia ranks 43rd in the world in terms of arrival numbers, we rank first when it comes to spend per visitor. We must strive to lock in this ranking.
The second priority is to pursue serious deregulation.
My first act as tourism minister was to freeze the Passenger Movement Charge for this term of office, a tax on tourism and hospitality that increased 45 per cent under Labor.
Our six-monthly “deregulation repeal” days in parliament have already removed 17,000 regulations that will save business $2 billion in compliance per year.
It is the first time I have seen Cabinet Ministers competing on how many unnecessary rules they have removed, rather than on how many they have created.
We scrapped the carbon tax, which was costing the tourism and hospitality sector $115 million per year and eroding hotel profitability by up to 12 per cent.
Two other key priorities for deregulation are visas and aviation, both ‘game-changers’.
Early last year, China overtook the UK as the top source country for visitor visa applications to Australia.
Currently 75 per cent of Chinese visa applications are processed within 5 days, and 91 per cent within 10 days, with 97 per cent overall approval.
But there is more work to be done.
We have introduced a three-year multiple entry visa for Chinese business visitors, and aim to do the same for Chinese tourist visas this year.
We have rolled out pilot programs for online visa lodgment for both China and India.
Since taking office, we have more than doubled the number of countries eligible for online visa applications, from 71 to 197.
We have also made access to SmartGate permanent to the US, UK and Singapore.
Trials for Switzerland, Canada and Ireland are underway.
And trials for Hong Kong, China and Japan are slated for March 2015.
On Working Holiday, the FTA with China helped secure 5,000 places for Chinese backpackers into Australia, the first arrangement of its kind with China.
And with the Cricket World Cup underway, the joint visa for visitors to Australia and New Zealand is an initiative which is proving very popular, and which may lead to a more permanent arrangement.
On aviation policy, I have taken a very active role.
Connectivity underwrites our economic relationships.
Following the deals struck between Qantas/Emirates and Virgin/Etihad, weekly flights to the UAE increased from 40 to 160, and trade between the Middle East and Australia doubled in one year. It proves the power of connectivity.
The new air deal struck with China 2 weeks ago makes for a happy Chinese New Year.
It is a landmark deal that will triple capacity over two years.
This time last year, Chinese carriers were allowed up to 22,500 seats per week, a cap that had to be temporarily lifted to accommodate demand during Chinese New Year.
The entitlement has already more than doubled to 53,000 seats and for the first time includes access for China’s so-called ‘regional’ airports such as Chengdu (14 million people), Tianjin (8 million) and Shenzhen (a modest 7 million people!).
By the end of 2016, available capacity will reach 67,000 seats per week from China.
It had been 4 years since the Chinese came to the aviation negotiating table, and it was the Free Trade Agreement that moved us up their list of priorities.
It is absolutely essential that we provide sufficient air capacity ahead of demand.
We have already secured talks with Qatar, Malaysia and Indonesia for 2015. And our officials are seeking agreement for talks with Hong Kong.
I warmly congratulate my colleague, Warren Truss, on the China result, but I will continue to make representations to Warren on these additional negotiations.
I am aware, for example, that Qatar Airways is seeking to complement their existing services to Melbourne and Perth with a new service to Sydney, but are unable to do so under a restrictive air services agreement.
There is a clear need for deregulation, as additional capacity could generate over $120 million of expenditure by European visitors travelling to Australia via Qatar.
The third priority is to ensure marketing is adequately funded and effective.
Unlike New Zealand, we have both state and federal marketing agencies.
That is why we took a deliberate decision to allow Tourism Australia to focus squarely on their international marketing efforts, albeit in a highly coordinated way with the equivalent state and territory organisations.
Global competition for the tourist dollar is fierce.
The Restaurant Australia campaign had immense success in 2014 and there is more in store for 2015.
Research shows that ‘great food, wine, and local cuisine’ is a major factor influencing holiday decision making. Yet, for many foreigners Australia’s ‘food and wine’ experience is a big secret.
When people overseas were asked “where would you rank Australia for a food and wine experience?”, those who had never been to Australia ranked us 56th in the world, whereas those who had visited our shores ranked us 6th in the world.
Restaurant Australia is about narrowing that perception gap.
TA hosted a number of international launches in London, Shanghai, Seoul, Singapore, Hong Kong and Paris last year. The second phase in China will run across 9 cities commencing next month, complemented by the new air deal we struck with China.
On marketing funding, last Budget I managed to preserve, and slightly increase Tourism Australia’s government funding in a tough fiscal environment, with record funding of over $143 million.
Yet, industry outspends government on marketing by a ratio of 7:1.
In the short term, leverage is the key. And this year Tourism Australia is exploring innovative new partnerships across financial services, retail and other sectors, to complement the airline joint promotions.
Exploring new markets – India, Indonesia
I would add that marketing is not only about inspiring ads and savvy PR.
It is also about spending time in market: developing trust and people-to-people links.
My role as Minister is to be the No.1 sales rep for Australia.
In January this year, I took 450 business leaders to India, a market with great potential. India is where China was 10-15 years ago.
India has the population of China but our trade is only one-tenth of that with China.
Our Commonwealth and cricketing ties, combined with a substantial Indian student base here, provides a strong foundation for future growth.
In a couple of months, I will also take a significant business delegation to Indonesia.
Indonesia is an untapped market. It is currently worth $600 million to Australia but that could reach $1.5 billion by 2020 if we get it right.
The final priority is to drive tourism infrastructure.
Over the last 10 years, demand for accommodation has increased by 4 per cent per year, but the supply of rooms in capital cities has only increased by 2 per cent a year.
This deficit means we need an additional 20,000 rooms – or the equivalent of 16 new hotels each year by 2020.
Foreign investment is critical – and has been since the First Fleet – with 40 per cent of new rooms being funded by capital sourced from Singapore, Malaysia, HK and China.
Roundtables supporting tourism
I have now held 50 investor roundtables in 22 countries.
During a visit to North America, I participated in a roundtable with the seven biggest investment funds in New York, representing $1.5 trillion under management.
They have been one of our most reliable sources of investment but they had never met a Cabinet Minister from Australia before.
In Toronto I had a roundtable with the major pension funds representing nearly $500 billion; in Singapore I met with six potential investors managing $1.2 trillion in sovereign wealth funds.
It has been a similar story in China, Japan, Hong Kong, Korea, Germany, the United Arab Emirates and France among others.
In virtually all such roundtable meetings I have highlighted tourism as one of only 5 National Investment Priorities.
Every time, I have had their attention.
A roundtable in China resulted in investors conducting site visits in Australia.
This included the Wanda Group, which has since confirmed a $900 million investment into a triple-tower, beachfront resort on the Gold Coast, the ‘Jewel’.
The Jewel site commences construction in 2015 and is set to be completed in 2018, the year the Gold Coast will host the Commonwealth Games.
The Wanda Group Chairman, Mr Wang, told me he plans for a further $3 billion to avoid being underweight in Australia, as demonstrated by the recent ‘Goldfields’ transaction in Circular Quay.
The world is in fact awash with cheap capital in search of a home and aggressive investment attraction is one of my key goals for 2015. But the world is also awash with very nervous investors.
In this regard, Australia is seen as an investment safe-haven, with 24 years of uninterrupted economic growth, sound regulations and institutions, and political and economic stability. But to see the investment funds flow we need investor ready projects. Everywhere I go in the investment world, that is the cry.
As Australia’s first Minister for Trade and Investment, the establishment and promotion of investor-ready projects is a major priority.
Earlier this month, the China State Council – the Chinese equivalent of our Federal Cabinet – gave the green light for China to run down its $4 trillion of foreign exchange holdings to buy directly into major international infrastructure projects.
China’s investment surge is set to continue.
And investment need not be just one way. Our Free Trade Agreement with China, for the first time, opens the door for Australian businesses to build, own (100 per cent) and operate restaurants and hotels in China. You could open one or you could open 100 if you wanted to.
Opportunities for Northern Australia
There is a significant opportunity to grow the tourist and hospitality economy in Northern Australia and this will also require substantial foreign investment.
The development of Northern Australia is a key priority this year with the impending White Paper.
The region’s positioning within the Tropics is invaluable, and there is great potential for ecotourism and enterprises owned and managed by Indigenous peoples.
For example, Mossman Gorge is located in the World-Heritage-Listed Daintree National Park, 80km north of Cairns. The Daintree is the oldest surviving rainforest in the world and at 120,000 hectares is Australia's largest tropical rainforest.
The creation of the $20 million Mossman Gorge cultural centre by the Indigenous Land Corporation is a remarkable example of Indigenous communities in the North leveraging tourism to promote their culture and make economic gains.
The centre employs up to 70 Indigenous people during high season, and 30,000 visitors were ushered through the centre and onto the Gorge in its first month alone.
Tourism already makes a strong contribution to Northern Australia and in some regions it is the largest employing industry. But recent arrival numbers are falling and the fall in dollar will not be sufficient to counter this.
Rejuvenation of accommodation, new attractions, access to labour and new infrastructure are essential to fulfil tourism’s promise in the North.
This requires investment and in November this year I will be hosting a Northern Investment Forum in Darwin which aims to attract major investors from around the world. But again we need investment-ready projects. Tourism and hospitality infrastructure will be a key element of what we intend to showcase to major investors.
Promoting tourism careers
Before concluding, I would like to emphasise the need to retain young people in the sector.
There is a mentality in the community, particularly amongst the parents and peers of young people, that tourism and hospitality ‘is a job, not a career’. For many, it is seen as a fill-in job while you prepare for something else.
I am on a mission to change this false perception.
This year there will be an estimated 56,000 vacancies in the sector; some say the figure is closer to 80,000.
This is why we are relaxing the 457 visa program, have included Chefs on the Skilled Occupation List and this year will seek to also include Restaurant Managers and cooks.
But if we believe tourism and hospitality is one of 5 sectors set for supercharged growth, then we must assure our young people that tourism and hospitality offers an exciting, well paid career in an industry with huge growth prospects.
Ladies and gentlemen, tonight we bid farewell to the Chinese Year of the Horse, an animal considered to be strongly matched to the Chinese ethos of self-improvement.
It is a fitting symbol for a year that saw record arrivals from China, an historic FTA, a landmark air deal and visa improvements.
And today as we welcome the Year of the Goat – a symbol of intelligence and creativity – we should recommit ourselves to working productively together to ensure we don’t miss this extraordinary tidal wave of opportunity.
- Trade Minister's Office: (02) 6277 7420
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