October 2017 This report by Tourism Futures International (TFI) for Destination New South Wales reviews the operating environment and aviation performance of Sydney and NSW over 2016 and into 2017. Key Findings International Traffic Performance: Sydney Airport is Australia s major gateway for international visitors, securing 41% of total international arrivals to Australia in 2016. During 2016, 3.4 million international visitors arrived in Australia via Sydney Airport, up 12% on the previous year. Sydney s top five source markets (China, NZ, USA, UK/Ireland and South Korea) accounted for 55% of all visitors; the next five (Japan, Singapore, HK, India and Germany) accounted for 17%. The Top 10 markets are unchanged from 2015, with the exception of Germany replacing Canada in the 10 th position. China is the major growth market for Sydney Airport contributing 23% of the increase in visitor arrivals to Sydney during 2016 and with an average annual growth rate of 15.9% over the fiveyear period 2011 to 2016. During 2016, China was closely followed by the USA, contributing 20% to visitor growth. Korea and Japan each contributed 10% to growth. The Philippines contributed 4% while India, Indonesia and Hong Kong each contributed 3%. These eight markets combined contributed three-quarters of the growth in visitor arrivals to Sydney during 2016. Of the 49.3 million seats operated to/from Australia on scheduled international passenger services during 2016, Sydney airport accounted for 40%. A total of 19.7 million seats were provided at Sydney with 80.0% of seats utilised (2.2 percentage points down on 2015). Domestic Traffic Performance: Aviation Performance in NSW 2016-17 The fourteen major Sydney interstate competitive routes accounted for 41% of the total Australian domestic passenger traffic in 2016. Of the fourteen major Sydney interstate routes, the top two routes combined, Sydney to and from Melbourne and Brisbane accounted for 56% of the passengers carried in 2016. Overall, passenger numbers on the 14 major Sydney interstate routes increased by 3.7% in 2016. As at September 2016, there were 25 operating routes connecting regional NSW to Sydney, one up on 2015 but down from 47 in the final quarter of 2000. The top eight Sydney intrastate routes accounted for 82% of the NSW air routes to and from Sydney Airport. The average annual passenger growth over the past five years has been strongest to Ballina, Armidale and Tamworth.
Sydney International Inbound and Outbound Performance Figure 1 shows the international visitor arrivals at Sydney Airport over the period from January 1995 to April 2017. It also shows some of the key aviation and non-aviation events that have had an impact on worldwide and Australian air traffic. One new international full service carrier commenced year-round services to Sydney during 2016, Qatar Airlines. During the year, one low cost carrier withdrew from the market, Indonesia AirAsia X. Figure 1: Sydney Airport Visitor Arrivals, January 1995 to April 2017 Source: TFI based on ABS data Significant developments over 2016 and into 2017 include: China Southern commenced a three times weekly A333 service from Shenzhen in January 2016 (adding to existing services from Guangzhou). The new route was introduced as seasonal but extended to year-round from March 2016. Qatar commenced a daily B777 service from Doha in March 2016. The service was up-gauged to an A380 from September 2016. Hainan Airlines commenced twice weekly A330-200 service from Changsha in September 2016, and commenced twice weekly year-round services from Xian (had previously operated as a seasonal service over December-March period). China Eastern added two new Chinese destinations for Sydney in November 2016 with three times weekly A330-200 direct services from Kunming and from Hangzhou, adding to its existing twice daily services from Shanghai. 2
Air China commenced a three times weekly A330-200 service from Chengdu to Sydney in November 2016, adding to existing services from Shanghai and Beijing. This is a new direct route for Sydney. China Eastern commenced a new direct service to Sydney from Wuhan in January 2017. The A330-200 service operates three times weekly. Qantas returned to Beijing in January 2017, having last operated on this route in 2009. The daily A330-200 services added to its daily services to Shanghai. Qantas extended its Denpasar service from seasonal to year round from March 2017. The B737-800 services had first operated over December 2015-January 2016, and re-commenced in December 2016. Vietnam Airlines added a second route to Sydney in March 2017, offering three times weekly B787-9 flights from Hanoi and adding to its existing daily service from Ho Chi Minh City. Jetstar commenced four times weekly B787-8 services to Ho Chi Minh City from May 2017 (had previously operated on this route during 2006-08). Most notable over recent years has been the rapid increase in services from China: In 2010, three mainland Chinese airlines (plus Qantas) were operating regular scheduled services to Sydney from the three major Chinese gateways. As at January 2015, four mainland Chinese airlines were operating services to Sydney from five Chinese cities; by March 2017, six mainland Chinese airlines were operating services to Sydney from fourteen Chinese cities. With Beijing Capital Airlines proposing to commence a service from Qingdao in September 2017, seven mainland Chinese airlines would then be operating to Sydney from fifteen Chinese cities. All fifteen cities are amongst the largest 30 urban agglomerations in China. Figure 2 shows the rolling 12-month sum of international short-term visitor arrivals and resident departures 1 at Sydney Airport over the period from January 2000 to March 2017. With Australian resident growth outpacing visitor growth, the visitor share of the combined total number of residents and visitors fell from 58% in 2000 to a low of 43% by 2012. Stronger visitor growth over the last four years has seen the visitor share slowly increase to 47% by 2016. Tourism Future International s expectation is for the international visitor market to continue to grow relative to Australian outbound market. 1 International Short Term Visitor Arrivals and Resident Departures: overseas visitors whose intended stay in Australia is less than 12 months, residents who intend travelling overseas for less than 12 months. 3
Figure 2: International Short-Term Visitor Arrivals and Resident Departures, Sydney Airport Rolling Sum January 2000 to March 2017 Source: TFI based on ABS. Figure 3 shows the major country-contributors to visitor arrivals in Sydney during 2016 and resident departures from Sydney for each of the same group of overseas markets. Markets are ranked by the number of visitor arrivals at Sydney by Country of Residence for 2016 (shown on the right-hand side of the chart). Australian resident departures (by Main Destination) from Sydney for each of the same group of overseas markets are shown on the left-hand side of the chart. The top five source markets for visitors to Sydney (China, NZ, USA, UK/Ireland and South Korea) account for an aggregate 55% of all visitors, with the Top 10 accounting for 72%. Of the Top 10 markets, growth over the past five years has been strongest from China, India and Singapore (Table 1). The significance of outbound flows for many of the major markets is evident in Figure 3. For the USA, while the visitor share has increased over the past year (from 38% in 2015 to 42% in 2016), there are still around four Australian resident departures to the USA for every three visitors arriving. This trend is even more evident for the holiday destinations of Indonesia (a resident to visitor ratio of 4:1) and Thailand (almost 5:1). In comparison, the Chinese market is dominated by visitor arrivals with five arrivals for each two resident departures to China. The visitor arrival share is also high for Korea at 5:1. The top five destinations for residents departing Sydney - USA, NZ, Indonesia, UK/Ireland and China - accounted for 48% of resident departures in 2016, with the Top 10 accounting for 67%. 4
Figure 3: Inverted Pyramid Showing Overseas Visitor Arrivals (by Country of Residence) at Sydney and Australian Resident Departures Overseas from Sydney (by Main Destination), 2016 Source: TFI based on data from ABS. Table 1 summarises Sydney s performance in its major visitor source markets over the past five years, 2011 to 2016. Over this period, overseas visitor arrivals to Sydney have increased at an average annual growth of 6.6%. Sydney Airport continues to be Australia s main gateway for international arrivals to Australia, with a 40.8% share in 2016, up slightly on 2015 but down by 1.5 percentage points on its share in 2011. Over this period, Sydney gained a 14.8 percentage point increase in share of arrivals to Australia from the Philippines and a 4.8 percentage point increase in share of arrivals from Malaysia. Smaller increases in market shares have also been achieved in arrivals from Korea, Japan, Singapore, India and Indonesia. 5
Sydney Rank 2016 Table 1: International Visitor Arrivals to Sydney, 2016 Market Share of Sydney, Sydney Share of Australia and Five-year Growth Visitor Market Market Share of Sydney 2016 Sydney Share of Australia 2016 Five-year Comparison 2016-2011 CAGR 5Yr Share of Aust. 2011 Chg in Share of Aust. (ppt) 1 China 15.7% 44.2% 15.9% 47.5% -3.2 2 New Zealand 13.1% 32.7% 2.0% 34.6% -1.9 3 USA 12.2% 58.1% 8.6% 61.1% -3.0 4 UKI 8.8% 38.3% 0.6% 42.2% -3.9 5 Korea 5.6% 66.1% 6.8% 65.8% 0.3 6 Japan 4.7% 38.0% 6.5% 35.1% 2.8 7 Singapore 3.4% 26.1% 10.5% 25.5% 0.7 8 Hong Kong 3.1% 41.7% 6.0% 50.4% -8.7 9 India 2.9% 37.1% 12.7% 36.8% 0.3 10 Germany 2.5% 41.9% 2.5% 47.1% -5.2 11 Canada 2.5% 55.0% 1.2% 63.1% -8.2 12 Malaysia 2.2% 19.4% 18.0% 14.6% 4.8 13 Indonesia 2.1% 41.2% 5.8% 40.6% 0.6 14 Philippines 1.8% 56.9% 20.6% 42.1% 14.8 15 France 1.7% 46.2% 2.2% 51.3% -5.2 16 Taiwan 1.6% 33.7% 9.5% 40.8% -7.1 17 Middle East 1.3% 38.0% 4.7% 39.7% -1.7 18 Thailand 1.2% 42.4% 4.0% 43.0% -0.6 Other 13.6% 43.3% 4.9% 45.3% -2.1 Total 100.0% 40.8% 6.6% 42.4% -1.5 Notes: CAGR (Compound Annual Growth Rate); ppt (Percentage Points Change). Totals may not sum due to rounding. Source: ABS and TFI In terms of aviation capacity, of the 49.3 million seats operated to/from Australia on scheduled international passenger services during 2016, Sydney accounted for a total of 19.7 million seats (40% share) with 80.0% of seats utilised (2.2 percentage points down on 2015). The Low Cost Carrier (LCC) share of total Australian international seats has increased over time, from 3% in 2005 to 18.2% in 2016. The March quarter 2017 LCC share dropped back to 16.6% with the withdrawal of Indonesia AirAsia X from the Australian market. Over the same period, the LCC share of Sydney international seats has increased from 1% to 10.4%, and back to 9.4% during the March quarter 2017. Four international LCCs currently operate services to Sydney Jetstar (from 2005), AirAsia X and Scoot (from 2012) and Cebu Pacific (from 2014). A fifth LCC, Indonesia AirAsia X, operated from mid- October 2015 to end-august 2016. 6
Although Sydney has a relatively low share of seats carried by LCCs, the total volume of LCC seats carried to and from Sydney for the first quarter of 2017 is second largest of Australian airports in terms of LCC seats carried. TFI expects the aggregate LCC shares for Sydney and Australia to continue to increase as new Asian LCCs add longer aircraft types and longer-haul services. Sydney Domestic and Regional Performance Figure 4 shows the domestic passenger movements at Sydney Airport over the period from January 1996 to March 2017 along with some of the key events impacting on Australian domestic passenger demand. The positive impacts on growth from the introduction of the domestic LCCs, Virgin Blue (now Virgin Australia) in 2000, Jetstar in 2004 and Tiger (now Tigerair) in 2007 are shown on the chart. The significant negative impacts of the collapse of Ansett in October 2002, the 2008/09 Global Financial Crisis, the July 2011 suspension of Tiger services and the October 2011 grounding of the Qantas fleet are also shown. Figure 4: Sydney Airport Domestic Passengers, January 1996 to March 2017 Source: TFI based on BITRE data. Figure 5 shows the rolling annual sum of passenger numbers on intrastate domestic routes to/from Sydney for the period from 1997 to the September quarter of 2016. The figure also shows the number of ports connected to Sydney via regular air services. 7
The trend has been for modest growth and a lower number of routes. In 1997, there were 42 routes connecting regional NSW to Sydney. Following the collapse of Ansett, this number had fallen to around 32 routes. By the September quarter 2016 the number of NSW regional routes to Sydney had fallen to 25; only 9 of these routes are competitive. Figure 5: Passengers on Intrastate Domestic Routes to/from Sydney and Number of Operating Routes Rolling Annual Quarters 1997 to September Quarter 2016 Source: TFI based on Transport for NSW data Table 2 shows seats and passengers on the major Sydney competitive interstate and intrastate routes during 2016. The 14 major Sydney interstate competitive routes accounted for 41% of total Australian domestic passenger traffic in 2016 and for 38% of seats provided across Australia. The top two routes, Sydney- Melbourne and Sydney-Brisbane, accounted for 56% of the passengers carried on the competitive Sydney interstate routes and the top five routes for 82%. The fastest growing Sydney interstate routes for 2016 were the outbound-oriented smaller routes, where growth is over a low base; Sydney to/from Ayers Rock and to/from Hamilton Island. Of the larger routes, growth was strongest for Sydney to/from Brisbane (up 4%) while passenger numbers for Sydney to/from Perth slightly declined. Overall passenger numbers on the 14 major Sydney interstate routes increased by 3.7%. Eight of the largest Sydney regional routes are competitive with at least two airlines operating during 2016; up from six routes in 2013 following the entry of Regional Express to Armidale in March 2014 and the entry of Virgin Australia to Tamworth in May 2015. During 2016, Sydney-Ballina was again the fastest growing of the major regional routes. 8
Table 2: Seats and Passengers on Major Sydney Competitive Interstate and Intrastate Routes, Year-end December 2016 Sydney to/from: Number 000 Passengers Seats Pax Change Share of Number Change Share of Load on 2015 Total 000 on 2015 Total Factor Interstate Routes Melbourne 8,905 3.4% 36.6% 10,652 0.6% 35.9% 83.6% Brisbane 4,658 4.1% 19.1% 5,706 1.8% 19.2% 81.6% Gold Coast 2,704 3.3% 11.1% 3,143 0.3% 10.6% 86.0% Adelaide 1,872 2.2% 7.7% 2,317-1.0% 7.8% 80.8% Perth 1,754-0.4% 7.2% 2,160-3.6% 7.3% 81.2% Sum of Sydney Interstate routes 24,339 3.7% 100.0% 29,647 1.4% 100.0% 82.1% Intrastate Routes Ballina 385 7.5% 21.1% 472 7.3% 18.2% 81.7% Coffs Harbour 339 1.2% 18.6% 451 1.5% 17.4% 75.1% Albury 225 3.8% 12.4% 345 2.9% 13.3% 65.2% Port Macquarie 193 4.4% 10.6% 268 0.0% 10.3% 72.2% Wagga Wagga 188 2.3% 10.3% 294 1.6% 11.3% 64.0% Dubbo 188 0.6% 10.3% 293-0.2% 11.3% 64.3% Tamworth (a) 175 n.a. 9.6% 279 n.a. 10.8% 62.7% Armidale 128 2.5% 7.0% 196-4.5% 7.5% 65.3% Sum Above 1,822 8.0% 100.0% 2,598 7.0% 100.0% 70.1% Note: Individual routes shown are restricted to those with an average exceeding 8,000 passengers per month where two or more airlines operate in competition and includes carriage by Australian international airlines operating between Australian airports as part of an international flight. Intrastate Route data may vary to Transport for NSW Intrastate Regional Aviation Statistics. (a) Tamworth-Sydney route included from June 2015, prior data not shown. Totals may not sum to 100% due to rounding. Source: TFI based on data from BITRE. Factors Impacting on Performance After progressively lowering its global growth forecasts, the International Monetary Fund (IMF) has recently presented a marginally higher growth expectation for 2017 based on improved economic results in Europe and Asia, as well as a continuing expectation for higher growth this year and next in the United States. With continued policy support, growth in China is expected to continue this year at 6.6%. Global growth is now projected to pick up from 3.1% in 2016 to 3.5% in 2017. Over the medium term, the growth outlook for the Euro area is expected to be held back by weak productivity, adverse demographics and unresolved debt issues, while in the United Kingdom, the adverse impact of Brexit is expected to materialise. Over the longer term, the IMF projections indicate a more subdued outlook for the United States along with a gradual slowdown of the Chinese economy as the country rebalances to lower, but still high, trend growth rates. At the same time, growth in India is expected to strengthen following the implementation of key structural reforms. However the IMF also points to notable negative risks to economic activity, including heightened global trade protectionism, tightening financial conditions in emerging markets, slow productivity growth in some advanced countries and the threat of rising geopolitical tension, terrorism and domestic strife. 9
Oil prices fell to a 12-year low in January 2016 with the Brent price of US$31 per barrel, the lowest seen since December 2003. Prices have since increased to around US$50 per barrel, but at this level are still around one-third below the average monthly price of the past five years. The Australian dollar (AUD) remains low against most currencies, lowering the relative cost of a visit to Australia and making it more expensive for Australians to travel overseas. The lower AUD should also encourage domestic travel across Australia. Aviation Outlook For airlines, all these economic developments are generally positive. The main airline developments in the Asia Pacific included: The growth in Chinese airlines and traffic. Growth in routes and airlines between Australian and China is unprecedented and is expected to continue. Fifteen of the 30 largest urban agglomerations in China are now connected to Australia by non-stop air services operated by seven mainland Chinese airlines plus Qantas. Two years previously, there had been just four Chinese airlines operating from six Chinese cities. Tourism Research Australia is forecasting that China will contribute around 43% of the total visitor growth to Australia over the next decade. The emergence of Low Cost Carriers across Asia and the increase in aircraft operated, or ordered, by these LCCs continues. The introduction of the new fuel efficient and longer range aircraft types continues. Large orders exist with Airbus and Boeing for the new narrow-body aircraft (A320 and A321neos, and B737MAX aircraft) as well as the wide-body types (A350s and B787s). These aircraft types provide significantly improved economics on thinner medium/long haul airline routes and therefore offer huge potential benefits for the marketing of inbound tourism to Australia. Australian international airline performance remains positive and should continue to do well on the back of strong inbound growth and continued growth in capacity. On the other hand, domestic aviation performance remains sluggish: In Australia, the economy continues to adjust to the end of the mining investment boom. Whilst the unemployment rate remains relatively low and headline GDP figures remain just below longer-term averages, income and consumption growth levels remain well below longterm averages. The airlines, in their quarterly/half-yearly performance reports, continue to point to sluggish demand and low yield growth. In response, the airlines have delayed the delivery of new aircraft. 10