Asian tourism will provide the backbone of New Zealand’s growth by 2020

Asia will drive New Zealand's tourism growth over the next decade

Over the course of the current decade the New Zealand tourism profile will continue to shift away from its traditional European base to Asia, which will potentially account for one million arrivals by 2020, according to AIA.

Asian tourists contributed NZD1.67 billion (USD1.35 billion) to the New Zealand economy in 2012. This has the potential to grow to NZD3.61 billion (USD2.93 billion) by 2020. Asian arrivals are expected to grow 114% by 2020 as vast numbers of the population reach middle incomes, while growth from other regions is estimated at 44%.

By 2020 New Zealand's top five markets by number and visitor spend will be headed by Australia, China, the United States, Britain and Japan (which is typically accounted separately by tourism bodies). But the top markets by real visitor growth over the decade will be slightly different - Australia, China, the United States, South America and India.

Top five markets by real visitor growth: 2020

Source: Auckland International Airport

Australia will continue to grow strongly and North America will recover as air capacity is added and economic conditions improve. Likewise the high value German market will return once the eurozone sovereign debt crisis passes.

But China and other emerging markets offer the greatest opportunity for growth, AIA says.

China in particular is a vital high growth market for New Zealand with nearly 175,000 visitors in 2012, making it one of the country's top visitor markets. This number is forecast to grow to a potential 570,000 by 2020. The Asian inbound market overall has grown to 20% of total arrivals from 16% in 2009.

Australia remains by far New Zealand's biggest inbound market, growing to account for 45% or 1.15 million of total arrivals, up from 31% in 2002. But as demand grows from Asia and South America, Australian visitors as a proportion of the total market will reduce to about 41%.

New Zealand tourism outlook is positive but a full upswing is not expected until 2016

As the world's major economies begin their slow recovery from the fall-out of the global financial crisis and LCC carriers continue to evolve in short and medium-haul market, full service carriers are likely to seek opportunities in long-haul and ultra-long-haul markets to boost network traffic which should benefit New Zealand, AIA says. However, AIA does not expect the upswing in demand to gain full momentum until 2016.

The report forecasts visitors arrivals could increase to just over four million by the end of the decade at a cumulative average growth rate (CAGR) of 5.89% between 2012 and 2020 under the most aggressive of three scenarios.

The scenario is based on New Zealand's ability to use its enviable range of tourism offerings to quickly develop new markets and improve air links. In a fast changing aviation world, this latter is a difficult outcome to predict; but as the trend is towards more liberal access, the potential for expansion is a reasonable expectation.

Potential visitor arrivals to New Zealand: 2000-2020

Source: Auckland International Airport

Australia will remain New Zealand's biggest source market

Australia is expected to remain New Zealand's largest source of inbound visitors and tourism revenue with their number is targeted to increase by about 500,000 by 2020 to nearly 1.6 million. However, while more Australians make the three hour trip across the Tasman, their stays may become shorter as New Zealand increasingly becomes regarded as an extension of a domestic weekend escape.

Currently New Zealand is the destination for 13% of the 8.2 million Australian outbound trips per year. Increasing that demand will also require improved air connections to regional Australian markets and price competitive offerings against competing Asian markets.

Potential visitor arrivals: Australia

Source: Auckland International Airport

The trans-Tasman market has undergone significant changes in recent years which have seen the route effectively consolidated to two main airline blocs consisting of an alliance between Air NZ and Virgin Australia and the recently approved alliance between Qantas and Emirates, which also encompasses Qantas' LCC subsidiary Jetstar. Together these groupings account for about 95% of the total capacity on the route.

See related reports:

• Qantas-Emirates alliance: the last piece of the puzzle falls in place across the Tasman
• Virgin Australia and Air New Zealand apply for renewal of trans-Tasman alliance, without conditions

The Australian domestic market is covered by onward connections beyond the four main gateways of Sydney, Melbourne, Brisbane and Perth on the Qantas and Virgin Australia networks. But direct links to secondary points are limited to Auckland-Gold Coast, Auckland-Adelaide, Auckland-Cairns and Christchurch-Gold Coast. Prospects of capacity being increased on the Tasman route appear low given that both groups claim the market is over served - although, with an array of new airlines expanding in Asia (Indonesia's Lion Air and new Chinese private airlines, for example), predicting market entry outcomes for five years hence is a challenge.

Increased dual destination tourism could lead to an increase in capacity by fifth freedom carriers on the Tasman. Currently Lan Airlines, China Airlines and Emirates provide trans-Tasman services linking their respective home markets. China Airlines operates daily to Auckland, including four times weekly from Sydney and three times weekly from Brisbane as a continuation of its Taipei service.

Lan Airlines stops at Auckland en route from Santiago to Sydney six times per week, while Emirates is by far the biggest fifth freedom operator offering a total of 28 weekly frequencies to Auckland from Sydney, Melbourne and Brisbane as well as to Christchurch from Sydney, all as an extension of its Dubai services.

Australia to New Zealand (seats per week, one way): 19-Sep-2011 to 10-Nov-2013

Source: CAPA - Centre for Aviation & Innovata

China's rapid visitor growth will accelerate as its emerging middle class begins to travel

China is expected to provide the biggest increase in visitor numbers, outside of Australia, adding up to around 376,000 to the nearly 200,000 visitors in 2012 as an increasing number of middle class Chinese tourists look to travel beyond Asia. Australasia has a summer seasonal advantage for major Chinese New Year holiday, which falls in January or February each year.

In addition the Chinese market is expected to become increasingly valuable to the tourism industry with the number of high net worth individuals forecast to grow by 130% in the next decade.

Potential visitor arrivals to New Zealand: China

Source: Auckland International Airport

Air NZ offers daily services from Auckland to Shanghai while China Southern operates daily to Auckland from its Guangzhou hub. But Air NZ has found it difficult to build demand on its China services and in 2012 consolidated its Beijing service to Shanghai.

Later that year the carrier entered into alliance with Cathay Pacific on the Auckland-Hong Kong route. That relationship is expected to develop further to provide Air NZ with access into mainland China via Cathay's subsidiary Dragonair.

See related reports:

• Air New Zealand-Cathay Pacific partnership has implications across Asia and for SIA & China Southern
• End of line carriers increasingly relying on partners to serve China

China Southern has expressed interest in expanding services to New Zealand, but is yet to take up any of the additional double daily frequencies still available under the bilateral agreement between the two countries.

India's middle class of 300 million and strong economy provides a significant tourism opportunity

The Indian market to New Zealand is forecast to increase by up to 130% to nearly 70,000 visitors by 2020. Most of this will be dual destinational traffic via Australia where the market is expected to grow to at least 370,000 by the end of the decade, according to AIA.

India has a middle class of 300 million and the number of high net worth individuals is forecast to double over the next decade. The number of Indians forecast to travel internationally is expected to grow from about 14 million to 50 million by 2020.

Direct services between New Zealand and India will become possible with the 787-9, of which Air NZ has 10 on order, with the first due for delivery in 2014. While India has been on Air NZ's radar, the airline has focused its priorities on developing its Pacific Rim network and will initially deploy its 787s on Asian routes.

India's expansion market will however mostly result from sixth freedom intermediate operators. Their superior products (in terms of one-stop route access to a variety of points in India) are necessarily available with Singapore Airlines and the Gulf carriers, which have multiple access points in the country, as well as multiple points in Australia and New Zealand. Thus, for example an Auckland-Mumbai flight would be most valuable for point to point operations - and would command a premium - but where other Indian or New Zealand points are involved, the equation changes quickly.

Japan remains an important market but is unlikely to recover to its previous highs

The Japan market has been in steep decline since about 2004 having fallen from about 170,000 visitors to just 72,000 in 2012. Even under the most optimistic forecast allowing for an annual growth rate of 4.2% the market will recover to only 100,000 visitors by 2020. But with a forecast total annual spend of NZD410 million (USD338 million) by 2020, the Japanese tourist is among the most valuable, although over the next decade Japan will slip from the top market for high net worth individuals in Asia to third behind China and India, according to AIA.

Potential visitor arrivals: Japan

Source: Auckland International Airport

As Japan's economy changes track under "Abe-economics" and the Japanese yen slides, the inbound Japanese market is however seeing the first signs of a resurgence. This is, perhaps counter-intuitively, a positive for New Zealand inbound tourism too, as the potential for an airline achieving sound route economics increases where there are two-way flows.

Air New Zealand has announced it will deploy a 787-9 on the Auckland-Tokyo Narita route from 30-Mar-2014 and increase frequency to daily from the current four times weekly. Air NZ also flies twice weekly to Osaka from Auckland. Air NZ has also offered summer charter services from several Japanese regional centres to Auckland and Christchurch for the past four years in an attempt to stimulate demand.

Auckland could serve as a hub linking Asia, Australasia and the Americas

Auckland International Airport has for some time talked of an eagerness to develop deeper air links to the booming South American economies and set itself up as a hub linking the continent to Asia and Australasia which would also drive visitor numbers. This is a big call which will require concerted inputs and the achievement of critical mass; but as other airports have experienced, where tourism bodies and government as a whole are prepared to support a strategy and it is well implemented, mindsets can be shifted.

Visitor numbers from South America are forecast to grow at nearly 17% a year to about 73,200 in 2020 from about 21,200 in 2012. But to achieve the target air capacity will need to increase.

Brazil is anticipated to experience one of the highest growth rates of high net worth individuals in the world at 138% and coupled with Argentinean growth of 74% and Chile at 55% the market provides significant opportunity in the higher value segment of the market, AIA says.

Potential visitor arrivals: South America

Source: Auckland International Airport

Linking the high growth economies of Asia and Latin America is something that many airlines are grappling with, but the route is largely too long to operate non-stop due to aircraft range limitations, even for the next generation 787 and A350. And certainly not from Brazil to China. Several services do operate one-stop over Europe or the United States and some are planned via Africa, taking advantage of that continent's growing economic importance.

And, as the Gulf carriers ramp up capacity and route diversity on the continent, their one stop potential to most parts of the world is growing almost daily. Between them they already operate 16 flights weekly non-stop to Sao Paulo, a frequency that is only going to grow. At the same time they also serve Beijing (and several other Chinese points) with some 20+ non-stop service a week - also increasingly supported by Chinese airlines (some of them partners) who see the Gulf as a desirable base, with markets like Africa also in their sights.

One stop routes to China over Auckland would be limited to Chile and Argentina as the more important hubs at Rio de Janeiro and Sao Paulo in Brazil are out of reach from New Zealand. Santiago to Auckland is a distance of 5,223nm and a further 5,013nm to Guangzhou for a total distance of 10,236nm which is slightly shorter than existing services from Sao Paulo.

Santiago-Auckland-Guangzhou route

Source: Great Circle Mapper

See related reports:

• Ethiopian Airlines extends its Asian reach and links South America with China
• Cathay Pacific explores new growth opportunities as pressure mounts in traditional markets

The United States market stages a recovery as Air NZ and Hawaiian Airlines add capacity

Visitors from the United States began to decline ahead of the global financial crisis, which was then followed by a weak economic recovery. US visitor numbers declined 15% in the last decade to 178,000 in 2012 compared with 10% growth into Australia over the same period.

But with US GDP now forecast to grow at 3%, the market to New Zealand is expected to recover gradually over the course of the decade.

Air NZ has a monopoly on New Zealand-to-mainland United States routes, where it has been adding capacity since Qantas pulled off the Auckland-Los Angeles route in May-2012. But competition has arrived on the Auckland-Honolulu route in the form of Hawaiian Airlines which launched three times weekly services in Mar-2013.

Indonesia offers high growth potential, but will require better air links

Indonesia, with a population of 240 million and a growing middle class, also offers significant opportunity for growth which AIA targets at 217% by 2020 which would take visitor numbers from the country to a little over 100,000 as air links improve. Just 1.7 million Indonesians currently travel long-haul, of which New Zealand attracted only about 12,300 in 2012, according to AIA.

Holiday traffic has grown 110% in the last five years but air capacity constraints have led to airfares rising more than 40% in real terms and should encourage market entry - while meanwhile suppressing demand.

Potential visitor arrivals: Indonesia

Source: Auckland International Airport

Currently, the only direct service to Indonesia is Air NZ's seasonal services from Auckland to Denpasar and that is aimed at New Zealanders looking to swap winter for a spell on a Bali beach.

Malaysian visitors spiked with a short lived AirAsia X Kuala Lumpur-Christchurch service

The impact of the region's long haul low cost airlines is a potentially major force in the future. The Malaysian market received a short-lived boost in 2011 when AirAsia X operated a direct Kuala-Lumpur-Christchurch service. However, despite maintaining a commitment to the market after the earthquake disaster, the carrier pulled out of the market a year later in Mar-2012 as part of a strategic shift away from long-haul operations in favour of refocusing on its Asian network.

As a result, Malaysian visitor arrivals fell 16% in 2012 to about 29,500 - which was still 35% higher than in 2010. The market, however, has strong potential with total outbound travel of about 50 million trips per year and Auckland International Airport forecasts visitor numbers could reach nearly 51,000 by 2020.

Malaysia Airlines today has the route to itself and airfares have risen 45% in real terms over the past five years, according to Auckland International Airport, suggesting the market is ripe for competition.

See related report: AirAsia X continues concentration theme with Christchurch withdrawal as ultra-long-haul loses favour

New Zealand's tourism industry is set to ride the Asian growth wave having endured the effects of the GFC

New Zealand's tourism suffered a significant slowdown in the wake of the global financial crisis which impacted its traditional long-haul source markets and has caused the national currency to rise to uncompetitive levels.

The effects have been compounded by the massive growth in short-haul budget airlines, including in Asia, which has encouraged people to holiday closer to home at the expense of long-haul destinations like New Zealand.

But the burgeoning middle classes in Asia as well as Latin America will drive demand for long-haul travel and in the process radically shift New Zealand's tourism profile over the course of the next decade. And, as new airlines emerge in the volatile Asian market, so some basic equations for entry may well shift too. It would be a brave forecaster who would name the airlines which will be serving new Zealand in ten years' time.