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How will the strong dollar impact Australian tourism?

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The mining boom has and will continue to result in significant changes to the Australian economy. Particular industries will gain and progress while others will suffer and maybe decline. A major determinant of which industries will grow or decline will be the terms of trade with the AUD likely to continue to strengthen putting more pressure on those industries exposed to export markets. This month I would like to discuss the impact of the strengthening AUD on the tourism industry. Australians have always been proud of their tourism industry. It enables us to show the world what a diverse and beautiful country we have and also generates substantial revenue for many parts of regional Australia and for the economy as a whole. However, the world is changing and the competition for international tourists is intensifying. Governments the world over spend enormous amounts of money trying to attract tourists to visit their country to generate export income. The problem for Australia is that we suffer from a major competitive disadvantage, being the distance from major North American and European markets. The resulting cost and time to travel in and around Australia deters many travellers, and with the strengthening AUD this will be exacerbated. For our tourism businesses the AUD strength is a double-whammy with more Australians now travelling overseas than in the past and not holidaying in Australian locations. This is having a significant impact on our balance of trade with Australia’s tourism imports exceeding Australia’s tourism exports every year since 2004/05 and with the deficit of tourism exports to tourism imports reaching $5.0b in 2009/10 according to the Australian Bureau of Statistics. There is significant economic downturn in many parts of regional Australia as a result. There is no easy fix and any solution must be long term. Tourism Australia has developed an initiative "2020 Tourism Industry Potential" focused on overnight visitor expenditure. There is clearly great potential from increasing visitor night expenditure and the benefits to the Australian economy are clearly enormous but the key question is how can this be achieved? Australia always had great potential as a tourist destination but has rarely fulfilled the potential with the exception of the mid 1980’s when there was a influx of Japanese tourist which incidentally created an significant inbound investment from Japan focused on the tourism industry. However, past experience has shown that the potential interest in Australia as a tourist destination has not been fulfilled. Many campaigns have been successful in raising awareness of Australia and respondents to surveys indicated that Australia would be a place they would like to visit, but the intentions were not acted upon. I suspect that the recent Oprah Winfrey campaign will raise awareness but not visitor numbers by a significant factor. Tourism Australia does anticipate that a substantial portion of the potential increase in visitor night expenditure will come from the emerging countries of China and India. This is a logical approach that can be supported on the basis of proximity as well growing economies with large populations. The issues, clearly identified by Tourism Australia that must be addressed to achieve the potential from these markets are more quality accommodation, improved aviation infrastructure, more skilled labour force (including language skills) and new, interesting tourism products. Leisure tourism must not dominate the discussion on the potential of tourism. Business tourism which includes conventions, conferences, meetings, incentives and events is more rewarding and has some great long term prospects. This has been recognised by governments and now additional infrastructure around business events such as the new convention and exhibition centre in Melbourne and the proposed new centre is Sydney will enable Australia to compete and win additional business events that will generate additional tourism to Australia. In recent years various governments have funded improved and better infrastructure. In addition to the convention and exhibition centres there have major improvements to regional airports in major tourist destinations such as Gold Coast and Cairns. For tourism to reach its potential this must continue with infrastructure developed that will provide a better standard of amenity for tourists. The infrastructure, business tourism opportunities, growth from emerging markets, new tourism products  and addressing skilled labour problems may well assist in achieving the "Tourism Industry Potential" by 2020. However, the impact of a strong $A could negate all these improvements to industry. For the Australian tourism industry to reach its potential it is crucial that products are not sold on price but on quality - that is critical.

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