Sept 11 effect only a short-term knock on rising visitor arrivals

By Peter V O'Brien

Friday 15th March 2002

Tourism companies' share prices (c)

Company	8.3.02	10.9.01	2001/02 high	2001/02 low	% change 10.9/8.3

Air New Zealand	34	72	168	16	-52.8
NZ Experience	12	10.1	12.5	7	+18.8
Shotover Jet	48	52	60	36	-7.7
Submarines	23	39	52	22	-41.0
Tourism	102	147	191	97	-30.6
Sky City ¹	596	556	662	406	+7.2
NZSE 40 Cap Index	2082	1952	2144	1790	+6.6

¹ Adjusted for share split

The inherent volatility and uncertainty of equity investment was emphasised in the effects of September 11's terrorist attacks on profitability and share prices for tourism companies. Share prices fell immediately and there was pressure on the sector's profits.

Share-price movements for six companies with interests in the broadly defined tourism industry are in the table. The comparison with prices on September 10, the cutoff date for the last time The National Business Review considered the sector, was unfortunately ironic.

The assessment was written on September 11 (New Zealand time), with share prices taken at September 10. Publication was on September 14.

September 11 in the US intervened, making the prices irrelevant and signalling a severe impact on the companies' prospects.

Between September 11 and 13, both our time, Shotover Jet lost 3.8% of its share price, Sky City 5.4%, Tourism Holdings 13.8% and Auckland International Airport (not in the table) 11.5%.

A 32.1% decline in CDL Hotels' share price from 28c to 19c was probably associated with the terrorist attacks but the low base in money terms had a significant effect in percentages terms.

It was no surprise that company reports for the six or 12 months ended December 31 highlighted September's events.

Tourism Holdings said it had a "major negative impact" on its operations in the South Pacific. Net profit of $2.56 million was 61% lower than in the first six months of the previous year.

Auckland International Airport was an obvious barometer of world reaction to the attacks. The company's interim report said the direct effects did not have an adverse impact until mid-October.

"Until that point, international passenger movements were approximately 10% ahead of the same period last year. From mid-October to early December the level began to fall below the previous year."

There was an overall rise in the six months and a marginal increase in January.

The airport company said the major areas of decline were visitors from the US, Japan, Germany and Taiwan while increases were evident from Australia, China, South Korea, France, Fiji and India and travelling New Zealanders.

Official figures show a big improvement in US citizens visiting New Zealand in January when compared with the same month in 2001, but the question is whether the increase would be more without the attacks.

The effect of September 11 events could last for some time, but they are essentially short-term dips on a graph which has been projected to show constant upward trends in terms of visitor numbers and foreign exchange earnings.

Both matters may bring benefits, even short-term, to the country. Translation into corporate profitability is another matter, as is the long-term sustainability of more tourism, given rosy projections of visitor growth.

The industry is fragmented, a point made in The National Business Review many times. There are hundreds of one or two-person businesses associated with tourism for every Tourism Holdings.

They come and go, with some probably being a misuse of resources in an economic purist's bible, irrespective of how many US dollars, yen and marks were converted to New Zealand dollars and spent of their goods and services.

Revenue does not necessarily result in profit, a point applicable as much to the national and regional economies as to companies in the private sector.

The euphoria currently attached to tourism has disguised current and potential problems associated with growth.

Tourism growth may run ahead of the resources to service it and of the desire of potential visitors to become part of a possibly tarnished experience. There were two contrasting examples of the problem last week.

A National Radio Insight programme on March 10 gave vivid oral descriptions of uncontrolled daily shambles at Milford Sound with massive numbers of buses polluting (in several ways) idyllic surroundings.

Similar shambles, although with kayaking operators and their customers, were seen on the shores adjacent to Tasman National Park.

Paradoxically, Submarines Australasia decided to stop operating its submarine Antipodes in Milford Sound after April 7.

There were several reasons for the decision but one was the significant downturn in the company's target of "high-yield" American tourist numbers,, a jargon term for people loaded with money.

Someone, somewhere may have to make tough decisions one day, even non-egalitarian.

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