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Australia & New Zealand

Australia outbound boom is destined to slow down
October 2014 1503

AUSTRALIA’S outbound tourism has grown rapidly in recent years, with 8 per cent growth in both 2012 and 2013. There are several reasons for this, such as the appreciation of the Australian dollar (although it has now dropped back towards its natural level) and the expansion of low-cost airlines, both of which serve to make outbound travel more affordable to Australians.

Another, less appreciated reason is demographics.

Who is responsible for Australia’s outbound tourism boom?

Australia’s outbound travel has been fuelled by two distinct age groups, at opposite ends of the age spectrum. The first is Generation Y Australians, who are now in their late-20s/early-30s, meaning they are old enough to earn high enough incomes to travel overseas, but they have not yet settled down to raise a family. The second is “empty nesters”, those consumers aged between 50-years-old and 65-years-old whose children have left home and who are still earning a salary. For many “empty nesters” they are earning salaries higher than ever before. They have the time and the funds and the lack of family responsibilities that allow travel, and they are making the most of it.

“Empty nesters” continue to travel after they retire but only for a short period of time. A combination of old age and running out of funds means that there is comparatively little outbound travel after the age of 70 years. It is this group of “empty nesters” aged between 50-years-old and 70-years-old that is the primary sweet spot for outbound travel.

As the Baby Boomer generation has approached old age, the number of Australians aged between 50 years old and 70 years old has experienced strong growth. The number of Australians aged between 50 years old and 70 years old has increased by more than 100,000 each and every year since 1998. This increase in the number of 50-year-old to 70-year-old Australians peaked in 2011 however, when 132,000 Australians were added to this age group. No surprise then that outbound travel experienced such strong growth in both 2012 and 2013.

2014, however, will be the last year that the number of Australians aged between 50-years-old and 70-years-old will grow by more than 100,000. From 2015 onwards, growth will be far lower, reaching only 63,000 by 2018. Much of the impetus behind the growth in outbound travel will thus fade away.

Who else will be impacted?

A slowing of outbound travel will not be the only result of the passing of the “empty nester” demographic, or at least its more restrained growth over the following decade. It will also reflect the types of holidays being chosen, and the channels through, which holidays are booked.

“Empty nesters” have been big supporters of offline travel in recent years. Whilst other demographics have switched to booking their travel online, either through online travel agents or direct with airlines or hotels, “empty nesters” have continued to patronise offline travel agents. In Australia this predominately means the Flight Centre and Escape Travel brands, both of which are owned by Flight Centre Travel Group Limited, and Harvey World Travel owned by Helloworld Limited. “Empty nesters” also prefer package holidays and cruises, with both options experiencing strong growth in the Australian market in recent years.

Flight Centre Travel Group Limited has therefore been able to laugh at the naysayers claiming that online travel will erode its business model, pointing to its own rising revenue and profits. Other offline players however, such as Helloworld Limited have found their business model to be far less resilient, with negative growth in total transaction value. As growth in the number of “empty nesters” engaging in outbound travel and buying package holidays/cruises through offline travel agents slows, all offline travel retailers are likely to come under greater pressure. The future is likely to resemble Helloworld Limited more than Flight Centre Travel Group Limited.

Those countries that are the recipients of Australian outbound travellers will also be affected. Dream destinations such as those in Western Europe and the US (which many Baby Boomers wish to travel to for pop cultural pilgrimage reasons) have been highly popular amongst this generation and have experienced strong growth accordingly. Such strong growth rates are now likely to fade. As “empty nesters” continue to age over the next decade or so, they are also likely to switch from the holidays of their middle-aged years to a greater skew towards travel for the purpose of visiting friends and relatives (VFR). With VFR tending to be a less lucrative form of travel, the profitability of Australian outbound tourism is likely to diminish.

All this does not mean that offline travel retail will actually decline. Offline travel retail has been remarkably resilient in the face of the online travel revolution and companies like Flight Centre Travel Group Limited can never be written off. This is not a time for hubris however, and offline travel agents in Australia need to recognise that much of their success in recent years has been the result of a demographic sweet spot, a sweet spot that is about to turn a little bit sour.

The writer is a senior analyst for Euromonitor International

By Daniel Grimsey


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