Small operators play a part in New Zealand's tourism boom

By Peter V O'Brien

Friday 14th September 2001

The share price performance of listed companies associated with tourism belies the buoyancy of a major industry, which contributes substantial amounts of foreign exchange to the country's "export" trade.

There are several reasons for that situation, of which some are relevant to the current discussion. Tourism is a fragmented industry, akin to, say, the retail sector in its diversity and the number of participants operating in each section,

There are, for example, apparently about 100 plus operators engaged in aspects of tourism, particularly adventure activities in the Queenstown region and adjacent areas.

It is also difficult to define exactly what businesses are involved in tourism.

The industry ranges from large companies, such as Air New Zealand, to hotels, local cafes, restaurants, bars, backpacker accommodation and souvenir shops. Those facilities cater for overseas and local tourists (the latter being New Zealanders on holiday) but often attract much or most of their custom from people who live close to the particular business.

A similar situation applies to Air New Zealand. The airline is the major carrier of inbound tourists. It also transports New Zealanders up and down the country on business, on holiday, to and from educational institutions and for many other purposes.

People who travel through New Zealand by bus, rail or rental cars are a mix of overseas and local tourists and local residents who have many reasons unassociated with holidays to use such facilities.

Companies in the table have interests in tourism, although the inclusion of Sky City may be stretching the definition. Comparative share prices at February 19 were included because that was the cutoff date for The National Business Review's discussion of the sector on February 23.

Other listed companies, not in the table, which have links to tourism include Auckland International Airport, CDL Hotels, and Submarines Australasia. There may be others.

The companies in the table have widely divergent business interests, the only common element being "tourism," however that is defined.

Air New Zealand and Sky City are the only large companies involved in the industry, although the other three would be considered substantial in relation to the host of non-listed businesses.

We can gloss over Air New Zealand. That company's current woes have nothing to do with the state of tourism.

Tourism Holdings is the biggest of the "pure" tourism groups. It had problems in the year ended June, particularly in Australia (that Australian syndrome again; see the O'Brien Column on previous page).

The company earned $13 million last year, down $1.8 million, or 12%, on the $14.8 million recorded in the previous year and below the $14-16 million forecast in February, the latter figures in turn being substantially below an earlier forecast of $21 million.

Tourism Holdings said the downturn was mainly a result of "ongoing soft trading" in the Australian market, particularly in the area of disposal of used motor homes.

The market's assessment of the company's prospects as reflected in its share price may be too conservative, given the apparent better trading conditions in Australia in the current term.

Pre-tax from New Zealand activities went from $27.9 million in 2000 to $30.76 million last year but the Australian contribution fell from $9 million to $2.32 million.

Assuming a turnaround in Australia and ongoing improvement in New Zealand this year, the share price might deserve a higher rating. Tourism Holdings got 71% of its pre-tax profit last year from transport activities (motor homes and rental cats) and 2% from "experiences," the latter including the group's coaching businesses since July 1 last year.

The split in the previous year was 80% in transport and 20% in experiences, reflecting the recent problems in Australia.

Tourism Holdings' "experiences" include Kelly Tarlton's Underwater World, the Waitomo Caves, Milford Sound Red Boats, the Treble Cone ski field and helicopter and ski-plane sightseeing.

Sky City has been riding a wave of profit growth and sharemarket attention recently, as shown in the company's share price improvement.

The company's facilities obviously attract tourists but it is doubtful if even it knows exactly the proportions of revenue obtained from tourists and from locals "out on the town."

Shotover Jet has continued its slow recovery after severe problems in recent times, which stopped dividend payments.

The company also passed a dividend this year, preferring to "take a conservative approach, reinvesting the surplus and strengthening our existing operations to make sure we produce better value for shareholders."

New Zealand Experience is also in recovery mode. It is the smallest listed operator and even smaller this year, after selling the Christchurch Gondola.

Tourism is booming but some of the listed companies have yet to get full benefits from that situation.

TOURISM COMPANIES SHARE PRICES (c)
Company	10.9.01	19.2.01	2000/01 high	2000/01 low	% change 19.2.01 to 10.9.01

Air NZ A	72	161	229	67	-55.3
Air NZ B	88	204	260	79	-56.9
NZ Experience	10.1	10	15.5	8	+1.0
Shotover Jet	52	60	72	38	-13.3
Sky City	1111	913	1200	585	+21.7
Tourism	147	137	317	125	+7.3
NZSE 40 cap index (¹)	1952	1966	2174	1868	-0.7

(¹) rounded

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