InvestNow News – 19th June – Milford – What does a Trans-Tasman bubble mean for NZ?
Michael Luke – Investment Analyst – May 18, 2020
The COVID-19 pandemic has had a significant impact on economies across the globe. One of the sectors most impacted has been tourism. Not many companies can endure revenues being cut to zero for an extended period, regardless of risk management. Without the government wage subsidy, a lot of our tourism companies (which are predominantly small businesses), would have shut their doors. Even with the subsidy there has been significant layoffs and the outlook remains uncertain. With domestic tourism reopening, we look at the road to recovery and what a Trans-Tasman bubble might look like.
Domestic Tourism is a key part of the recovery
Tourism is a $40.9bn industry for New Zealand, contributing 5.8% directly to GDP, and directly employing 230k people or 8.4% of our workforce.[i] Domestic tourism makes up 60% of this and will be the major source of income for the tourism sector until borders are reopened. Domestic travel is allowed under level 2 and should bounce back as restrictions ease and confidence improves. In 2019 Kiwis spent $6.7bn[ii] on travel overseas which could help stimulate domestic tourism as Kiwis holiday locally instead, however discretionary spending is also likely to be weaker due to the impact the pandemic has had on jobs and households.
Implications of a Trans-Tasman Travel bubble
After domestic tourism, the next biggest contributor to NZ tourism is Australia, who made up 40% of visitor arrivals during 2019 and 23%[iii] of visitor spend. With both countries showing signs of getting the virus under control, politicians from both countries are discussing opening a Trans-Tasman bubble. What this looks like is yet to be seen with uncertainty on quarantine measures required and what flights would cost given social distancing measures (having an empty seat between travellers), and health requirements at airports.
In addition to supporting the tourism industries in both countries, a successful Trans-Tasman bubble would prove both countries are safe travel destinations, generating travel demand and showing the way to open borders with further countries.