Australian tourism boom - Hoteliers to benefit the most

Accor’s acquisition of one of the largest hotels chain in Australia, Mantra Group, for AUD 1.3 bn on 12 October did not come as a surprise given the country’s attractiveness as a key travel destination. Australia’s major attractions range from rich natural heritage (the Great Barrier Reef) to magnificent architectures (the Sydney Opera House) among others. Accor paid a ~23% premium over 06 October Mantra’s closing price for its 127 properties spread across Australia, New Zealand, Indonesia and Hawaii. The additional 20 000 rooms from this acquisition would nearly double Accor’s existing capacity in the country, strengthening further the group’s leading position in the region.

Australian tourism activity is fast growing, in an economy that is gradually transitioning into diversified service. The tourism sector contributed to 10.9% FY16 Global Domestic Product (AUD 183.2 bn), according to World Tourism & Travel Council. Over FY17¬– 27, Australian tourism activity is expected to grow 2.5% per year (241.9 bn by FY27), with an average 6.7% tourism spending annual growth rate (Source: Tourism Research Australia). Tourism activity in Australia is mainly supported by visitor flows from New Zealand, China, the US and the UK. Robust GDP growth rate in these countries and a weaker AUD will remain supportive. The flow of Chinese travelers to Australia has increased 10% YoY to 1.25 mn over the year ending June 2017, representing AUD 9.8 bn spending. China is expected to contribute the most to Australian tourism activity moving forward, supported by rising middle classes’ disposable income. Local authorities acknowledged the importance of Chinese tourism flows, considering additional airline capacity and the introduction of a 10-year multiple entry visa for Chinese nationals.

The Australian hotel market benefits the most from solid international visitors’ growth. In 1H17, the average occupancy rate was around 68% across the country, according to STR Global. The average daily rate improved strongly (+1.3% Year To Date), supporting higher Revenue Per Available Room (RevPAR: +1.5% YTD). Robust growth in Sydney, Tropical North Queensland (TNQ) and Canberra also offset weaknesses in Melbourne, Perth, Darwin and Brisbane. Looking ahead, real estate services firm Colliers expects hotel markets of the Gold Coast, Sydney, Melbourne and Cairns to be the most appealing in the medium term. Conversely, Darwin, Perth and Brisbane would be impacted by subdued mining investments and overcapacity. Nonetheless, occupancy levels across the country should be supported by a faster pace of hotel accommodation demand vs. supply growth (~3.2% per year vs. ~2.8%) in the years ahead, according to Deloitte Access Economics estimates.

Overall, we believe Accor will benefit from these positive trends. Accor’s current property offering in Australia (205 hotels and 27 401 rooms as at June 2017) should be bolstered by Mantra’s acquisition. This, in tandem with expectations of stronger regional RevPAR growth would be supportive for Accor’s earnings momentum in the long term.

Ravi Kumar

Equity Expert

Data & recommendations as of 06 November, 2017 close

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