Australia's Tourism Industry Feels the Pain From Strong Dollar

Australia’s leisure industry is being buffeted from two sides because of a strong currency, as domestic travelers head abroad for cheaper holidays, and international travelers find Australia more expensive to visit.

Sydney skyline
Peter Hendrie | Getty Images
Sydney skyline

The Australian dollar has risen over 24 percent over the last year. At its peak earlier this month, the dollar traded as high as US$1.10 — up 30 percent from last year.

"For an international tourist, Australia is getting increasingly expensive," says Rutger Smits, the head of Deloitte's tourism, hospitality & leisure practice.

According to Tourism Australia, the country saw 1.5 million visitor arrivals in the first quarter, down 0.3 percent compared to the same period last year. The numbers were worse in March, with international visitor arrivals down 5.1 percent from the year before.

According to Smits, the longer the Australian dollar stays above parity against the U.S. dollar, the tougher it will be to see growth in the country’s leisure sector.

The chief executive of Accommodation Association of Australia, Lorraine Duffy says high fuel prices are also leading to weakness in domestic driving holidays, with people staying at home more. On the other hand, foreign trips are becoming more popular.

“The trips to Bali and Malaysia are becoming more affordable, people are getting in planes as opposed to getting in their cars, which is what we'd like to see.”

Two-Speed Hotel Market

Despite the weak tourism market, Deloitte is forecasting average hotel room rates will rise 5.2 percent this year to A$146 per night compared to a 1.7 percent increase last year.

The firm says that’s because major Australian cities have not seen any significant increase in hotel supply since before the 2000 Sydney Olympics.

Australia's two-speed economy is also impacting the hotel market. On the one hand, corporate demand has remained strong because of the booming resources sector, which in turn is pushing room rates up. But the leisure sector, particularly in regional destinations, is losing demand to international destinations.

"In the cities, we're seeing 15 to 20 percent growth in revenue, in the regional areas we're only seeing about 5 percent growth," says Simon McGrath, Vice President of hotel chain Accor Australia.