The O'Brien Column: Contrarians should look at ailing tourism sector

Friday 8th September 2000

Reports from specialist tourism companies, including Air New Zealand, have shown a good year for the industry and the country had some negatives for particular operators.

Air New Zealand was an exception because the airline carries tourists, among other people, and an overall rise in tourist numbers assists the company.

Tourism Holdings noted the effect of the America's Cup and millennium events had on its business, despite a widespread view last year that both occasions were expected to help tourism.

The company had said in its earlier interim report (The National Business Review, March 10) there were some short-term negative impacts from the millennium celebrations, Apec and the America's Cup, but expected its tourism business in the medium to longer term would benefit from the excellent international exposure those activities gained for New Zealand.

Tourism Holdings' preliminary report for the year ended June 30 confirmed the point when net profit of $14.8 million was below a forecast of $17.8 million made in October last year and repeated in the interim report.

The share price has declined since March, as shown in the table, as have the prices of New Zealand Experience and Shotover Jet. Companies in the table are confined to traditional tourism groups and exclude the more broadly based "leisure" industry operators that were part of the March discussion.

Shotover Jet's preliminary report for the year ended June 30 also referred to the millennium when noting five unforeseeable events which substantially affected trading during the year.

"The much publicised and anticipated millennium trading period over Christmas and New Year 1999/2000 did not produce the revenues anticipated by most operators in the industry and this was compounded by the fact that the company had increased its staffing levels to cope with the predicted business levels."

Shotover Jet had to deal with other problems peculiar to its activities including the coup in Fiji that resulted in the temporary shutdown of Shotover Jet Fiji.

The company said the timing of the coup was particularly unfortunate because it coincided with the start of the prime tourism trading period when the group's results benefited from the Fiji business being counter-cyclical to New Zealand operations.

Shotover Jet also mentioned the effects of an accident in Queenstown in November, floods in the same area at the same time and an unseasonably wet summer in the Wakatipu area.

These matters, plus provision for additional depreciation related to a decision to replace much of the jet boat fleet, resulted in net profit falling from 1999's $2.7 million to $484,000.

Depreciation rose from $911,000 to $1.21 million but the interest bill was cut from the previous year's $981,000 to $675,000.

The company's recitation of its woes last year made a general comment look like an understatement.

"In summary, this has been a period in which the company has had to deal with a series of unprecedented one-off events."

It was hardly surprising the share price fell 35.4% between March and last Monday.

New Zealand Experience is the smallest of the four companies under discussion but it also reported a tough trading year due to difficulties at the Rainbow's End entertainment park with increased competition from the America's Cup and adverse weather. Net profit was $25,000 compared with $120,000 in the previous year.

Air New Zealand saw an encouraging outlook, saying inbound demand for air travel to New Zealand and Australia was expected to continue to grow at encouraging levels, "bolstered by the gathering strength of economic recovery in Asian markets and the high profile of the Olympic Games in Sydney in September."

The airline will not have an easy ride because a declining New Zealand dollar has disadvantages as well as the benefits from the country becoming a cheaper travel destination. Fuel price trends and foreign exchange rate movements, particularly for the US dollar in which 44% of the group's costs were met, continued to affect operating costs.

The company said it would be proceeding with a renounceable pro-rata rights issue to shareholders in October to raise about $285 million. Details have yet to be announced.

Share price movements detailed in the table suggest investors have gone off the sector, with the exception of Air New Zealand. Counter-cyclical theory would make this a time to buy.

Tourism companies share prices

Company	4/9/00 (c)	3/3/00 (c)	2000 high c	2000 low c	% change from 3/3/00
Air NZ A	190	183	241	168	+3.8
Air NZ B	280	203	295	190	+37.9
NZ Experience	12	14	15.5	8	-14.3
Shotover Jet	42	65	72	40	-35.4
Tourism Hldgs	264	304	317	205	-13.2

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