Dransfield Hotel Futures 2019

Dransfield Hotel Futures are always worth a look with some interesting and sensible commentary related to Cairns and Port Douglas. There is a lot in there this year and much to come back to:

Conclusion
A moderate long term RevPAR outlook, slightly below inflation targets. The market will continue to be pinned to weather outcomes, with demand sentiment, particularly internationals hypersensitive to this. High quality new supply will generate interest and an exciting backdrop for visitors, including those who may not have chosen to holiday in Cairns previously
The Cairns and Port Douglas forecast represents a small downgrade to prior expectations, dragged by short term underperformance. Some of the gap is closed as development activity softens over the forecast period, albeit does not fully catch up • There is a large gap in performance metrics between large branded hotels and smaller independent stock in this market, with key indicators trading at considerably higher levels for branded stock who are typically members of the STR sample. This is likely to manifest in stronger rate growth as occupancy levels are constrained in high season, however will be offset by higher occupancy growth in the smaller independents as price elasticity comes into effect • Port Douglas hotels which typically outperform Cairns in terms of Rate whilst underperforming in occupancy, may feel some pressure from the new resort type stock coming into the Cairns market, competing for traditional luxury leisure guests • Over the period of the forecast, average occupancy levels of 75% are expected for this dataset which is 5 percentage points behind prior expectations. The reduction is a result of short term underperformance which carries through the life of the forecast. The occupancy position of the entire market, which includes a high number of smaller, unbranded and less regulated rooms sits approximately 10 points below this level
– Occupancy levels are forecast to fall 5 points in FY2019 as a combination of reduced wet season demand and new hotel rooms arriving in the low season
– Over the following two years to FY2021, we anticipate occupancy levels will largely stagnate in an environment of moderate supply arrivals
– Demand growth is expected to outstrip supply arrivals over the back half of the forecast with occupancy levels pushing above 76% in the latter years

Annual average rate growth of 2.6% is expected over the life of the forecast dragged by medium term underperformance
– Alternative destination opportunities tend to cap leisure market travellers capacity to increase price despite improved occupancy. This is more of an effect in Cairns as opposed to Port Douglas, although does limit the combined market from recording high rate growth in many instances • The arrival of new quality product may alleviate some of this historical effect in Cairns, however, perhaps existing market participants will discount to maintain occupancy • Our forecast is for a 3.5% decrease in average long-term real RevPAR compared to our previous forecast. The short term decrease, slowly catches up through the course of the forecast • RevPAR growth for the comparable period to FY2026 is inline with prior expectations, albeit from a lower base, and with a softer front end
– In FY2019 we expect 2.2% RevPAR decline as weather impacts demand – In the medium term to FY2021, average RevPAR growth of 0.7% p.a. is expected as moderate new supply enters
– Long-term expectations are for growth to accelerate over the back half of the forecast as new supply is absorbed and new development activity plateaus
– Full forecast expectations to FY2027 are for 2.6% growth p.a.

Apart from the conclusion there are aspects related to weather and tourism trends which relate to previous posts: Why does nobody look at this graph and the latest International Visitor Survey: International Visitor Survey shows TNQ continues to underperform

A bit hard to outperform when your key holiday sector is underperforming. Maybe someone should inform our tourism overlords because they don’t seem to know.

Previous Post: Hotel Futures 2019 Report; Source: Dransfield Hotels

 

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Reef Casino Sinking

17 April ASX announcement:

The Trust’s distributable profit* for the 1st half year from 1 January 2019 to 30 June 2019 is currently estimated to be between $1.7 million to $3.0 million. This current estimate is lower than the actual result for the same period last year. This is due to :-
 Softness in Cairns tourism – at a level not experienced for a number of years, made worse by an extraordinary wet season in the 1st quarter of the year.

 Short term variability in casino table gaming because of a soft gaming and Chinese tourist market including a soft Chinese New Year season, at a level not experienced in recent years.

 A subdued local economy due to soft tourism and increased local competition which has had an impact on casino slots gaming and to a lesser extent on hotel accommodation. A further update will be provided at the Annual General Meeting on 24 May 2019.

 

Then the AGM on May 24:

On 17th April 2019, a trading update advised that the Trust’s distributable profit for the 1st half year from 1 January 2019 to 30 June 2019 was estimated to be between $1.7 million to $3.0 million. Our current estimate of the distributable profit is between $1.2 million to $1.7 million.

Looks like this:

Reef Casino 1H18

The blue 2019 bar is the top end of the revised 2019 range.

How are the numbers on a global tourism hub anchored by a new casino working out again?

Airport April: dead cat bouncing?

April brought some respite for Cairns Airport with a positive growth number breaking a run of negative months. However we should recall our comments from last month:

There will be no excuses in April with the tailwinds into Cairns all positive from the later Easter shift and a scheduled domestic capacity increase from Qantas.

While international at 6.4% lifted total growth to 1.5% the concern is domestic at just 0.7% despite the Easter shift and capacity increase. That doesn’t look like a good number at all in context and also following this weeks profit downgrade and commentary from Experience Co. Annual growth remains negative at -2%.

Airport April 1Airport April 2Airport April 3

 

Numbers from Sydney airport next week should provide some benchmark comparison. Will have to wait a while for BITRE data for more detail on capacity and routes for April.

Update from Sydney Airport:

“Domestically, subdued load factors and continued capacity management by airlines drove a reduction in domestic passengers for the month despite the later Easter holiday.”

Maybe April wasn’t that bad at least in a relative sense with domestic down -1.3%.

 

Experience Downgrade

Experience Co has yet again downgraded profit guidance due to performance of the Cairns related businesses.  But, “considering the arrival of the late season Cyclone Ann which has temporarily grounded our adventure experiences and skydiving activities, we have revised FY19 guidance.” Cyclone Ann? Huh?

 

ASX RELEASE
16 May 2019
TRADING UPDATE AND REVISED FY19 GUIDANCE Experience Co Limited (“Experience Co” or “the Company”) (ASX: EXP) today announces the following trading update and revised FY19 guidance.
Softer trading conditions in Far North Queensland (FNQ) highlighted in our half year results announcement have continued to impact the region’s tourism market which is experiencing a pronounced challenging period of trading.
Market trends impacting tourism operators in the region include:

• Passenger volumes into Cairns airport are down on the prior year, with the year-on-year international volumes impacted by the reduction in services into the region by international carriers such as China Southern.

• Domestic airlines have reduced their capacity into Cairns and continue to operate high load factors impacting relative affordability compared to international destinations.

• FY19 total passenger numbers ex-Cairns to the Great Barrier Reef are projected to be more than 12% down on prior year with EXP Great Barrier reef volumes expected to be down circa 8% over the corresponding period.

These factors have impacted our earnings in the region, in particular higher yielding activities on the Great Barrier Reef, operated by our Big Cat, Reef Magic and Great Barrier Reef Helicopter brands, with revenue loss and mix relative to forecast, driving a decrease in EBITDA margin, given the operating cost leverage of the FNQ adventure experiences.

In our FNQ skydiving operation we have revised volume expectations down by approximately 4,000 (circa 20%) tandem jumps for 2H19, the decrease being predominately in the April to June period.

Following a review of our Easter holiday trading in late April and into early May and considering the arrival of the late season Cyclone Ann which has temporarily grounded our adventure experiences and skydiving activities, we have revised FY19 guidance.
As a result, revenue for FY19 is expected to be down by circa 4% compared to previous expectations and Underlying EBITDA is expected to be in the range of $27m to $28m.

The core skydiving business in Australia (excluding FNQ) and New Zealand remains solid and is tracking to expectation for the remainder of FY19. Our expectation for full year growth in tandem jump volumes is circa 5% on the prior period across these markets.

The medium-term outlook for the Cairns tourism market remains positive, however we expect the prevailing challenging trading conditions to continue into FY20. Given the fixed cost intensity of our FNQ operations, management is proactively reviewing its assets, product mix and ongoing strategies to increase its market share during this weaker trading period.

Fiona van Wyk Company Secretary f.vanwyk@experienceco.com

The changing demographics of Kennedy

We typically associate Cairns with the Federal electorate of Leichhardt. That is increasingly less so. The division of Kennedy has been intruding into the southern suburbs of Cairns for the last two redistributions because the population of Kennedy continues to decline relative to Leichhardt. Leichhardt is unique in only having a single boundary so there is only one way to balance numbers.

The most recent redistribution took out Bentley Park into Kennedy. The numbers as presented in the AEC determination based on electors at 6 January 2017:

Kennedy

This is SA2 so breaking this down by regional SA4: 60% of Kennedy electors are within Cairns SA4. 16% of Kennedy electors lived in the Cairns southern suburbs based on the new electoral boundaries. But wait there’s more!

The AEC projections there to 2021 look rather suspect. Since the last election ABS numbers indicate a population decline in Mt Isa and population increase in the Southern Suburbs which combined would indicate a total net relative shift in Kennedy including the Bentley Park annexation of 6-7 K electors to the Cairns suburbs from the outback.

Does this matter. Katter 2016 first preference by location for some larger booths:

Mt Isa 47%

Cloncurry 46%

Innisfail 40%

Atherton 39%

Mareeba 39%

Gordonvale 34%

Edmonton 34%

Mission Beach 27%*

Katter will be returned because everyone expects it and preference flows but he is not unassailable particularly as this trend continues with Cairns South the population growth centre of Kennedy. KAP candidates performed quite poorly in 2016 in both the neighbouring electorates of Leichhardt and Herbert.

*Mission Beach is included specifically for Pete Faulkner at Conus and is also the top Greens booth in Kennedy at 17%.

 

BITRE data update

BITRE airport data has been updated to January 2019:

BITRE 2019 1

You can go back and look at how much this has changed since my post last year Cruising just above stall speed.

Cairns is lagging in negative territory even before the shocking numbers for February and March, but poor Darwin. Proserpine is falling fast following the Cyclone Debbie wave and position in the top 20 is threatened. Who would have thought a few months ago that Karratha would now be in the middle of the list.

Route data from BITRE is more recent to February 2019:

BITRE 2019 2

Brisbane is a debacle at least until the Qantas capacity returns from March 31, Sydney has now rolled over slightly , Melbourne growth remains but with some questions on softer load factors in February.

Note: Sorry the series labelled Cairns should be Brisbane for the BNE-CNS route.

March quarter rental data

March quarter rental trends for Northern Queensland regional cities updated for the most recent bond data from the Residential Tenancies Authority:

Rentals march 3Rentals march 2Rentals march 1

A sharp jump in Townsville is almost certainly flood related which would have removed housing stock. The data is a median for the quarter with the flood at the beginning of February so may not fully reflect post flood rents. This will only reflect the median for new bonds lodged not the full stock of bonds where changes would be expected to lag. Something to watch in coming quarters.

This also closes the Cairns rent premium to the lowest margin in two years at $72.50 / week above Townsville for a three bedroom house. Cairns rents continue to rise slowly at around 2% p.a. roughly in line with CPI.

New bonds lodged during the quarter for 2 bedroom units in Cairns were down around 12% on the March quarter 2018 and 20% compared to March quarter 2017.  There is a similar trend in all categories of housing. Total rental bonds held by RTA for Cairns Regional Council at 31/3/2019 were 183 fewer than a year earlier.

Previous posts: Cairns rental bond dilemma; Moar rental bond stuff