Downturn taking toll on tourism companies

Experts say tourism companies without strong balance sheets will struggle to survive the current pricing and yield upheaval. Photo / Supplied

A series of body blows in the last year has forced a reshape in the way tourism companies do business.

Last year it was soaring oil prices and a strong currency which dented demand, now it was lower visitor numbers due to the global credit crunch which, according to an analysis by publicly-listed tourist operator Tourism Holdings (THL), could result in fewer aviation and tourism operators in New Zealand.

It was also causing companies to change the way they priced their products and how tourists bought them, with many buying directly from operators at the last minute to take advantage of special prices.

THL warned that price volatility would hurt some companies.

"Companies without strong balance sheets will not survive this current pricing and yield upheaval."

The reality was that the number of tourists visiting New Zealand had been falling for the last year and the share prices of listed tourist companies on both sides of the Tasman have similarly taken a battering, falling by up to 74 per cent in the year to April 9.

Statistics New Zealand figures show visitor numbers in February were down 8.5 per cent compared with a year earlier and while numbers from Australia were up, arrivals from other key markets - Britain, United States, Korea, Japan, China and Hong Kong - were down.

In the year to February 2009, 2.425 million tourists visited New Zealand, down 60,000, or 2 per cent, on the previous year.

Forsyth Barr investment adviser Suzanne Kinnaird said the decline was similar to that following the 1998 Asian crisis, but she believed investors had oversold tourist stocks given the companies had the ability to rebound quite quickly. She said key New Zealand operators THL and Air New Zealand had relatively high fixed costs which, with declining visitors, had led to a difficult last 18 months.

Air New Zealand had reacted quickly to downsize its fleet and seat capacity, while favourable foreign exchange hedging and lower fuel costs had protected its earnings.

However, THL committed to increasing its motorhome fleet in March last year which had resulted in a severe earnings downgrade. THL reported a worse than expected six-month loss of $4.8 million boosted to a $4.5 million profit by abnormals.

Forsyth Barr has reduced its forecast normal full-year profit for THL from $8.5 million to $1.7 million including an abnormal gain of $4.5 million. Divesting of some non-core assets has, however, raised $65 million in cash.

Ms Kinnaird believed Air New Zealand had adjusted its business model, had the financial strength and product offering to manage its way through the difficulties and would benefit from foreign exchange gains.

Given this, the broker had increased its forecast profit for this year from $49.8 million to $112.9 million.

Ms Kinnaird said both Air NZ and THL had strong balance sheets, but the unknown was when the tourism industry would pick up again. She remained confident about the long-term picture.

"Despite the current weakness in global travel trends we are confident that tourism growth will resume its long-term trend of about 5 per cent a year."

- OTAGO DAILY TIMES