ACCC Petrol Report

Report on the Cairns petrol market:

The value chain shows in broad terms the elements of the price of a litre of petrol from the imported refined petrol price through to the pump. Analysis of the value chain in Cairns and Brisbane in 2015–16, for those companies that operate in both markets, indicates that there are four main influences which explain the higher prices in Cairns. These are:

• higher costs of getting petrol to Cairns (accounting for around 1 cpl)

• higher wholesale costs and margins (around 2 cpl)

• higher operating costs at the retail level (around 2 cpl)

• higher retail margins and profits (around 3 cpl).

The Cairns Post front page splash has claimed the ACCC found that petrol prices in Cairns were 11c per litre too high. That is not accurate reporting of what they found. The 11c is the historical differential above the average for the 5 largest cities. As demonstrated above from the report costs in Cairns are going to be higher than those cities. The ACCC also found that prices in Brisbane were above the capital city average which will be subject of a further report.

The introduction of new players into the market, particularly those that price competitively, could lead to increased competition. Local governments may wish to consider promoting new entry into the market and ensuring that unnecessary planning or infrastructure barriers do not restrict or impede new entrants. As discussed above, the entry of the United site in the Innisfail market in February 2016 has had a downward effect on petrol prices in Innisfail. In the first nine months of 2016–17 Innisfail prices were on average 2.3 cpl lower than Cairns prices.


Curious Contradictions

Who knows?

Cairns Airport Commentary:
The Asian Lunar New Year was celebrated on January 28th, but last year it fell on February 8th. In Korea, the Lunar New Year is celebrated as Seollal. The demand for Seollal travel helped successfully fill Jin Air’s charter flights.
Reef Casino Commentary:
A complete absence of charter and direct flights from China and other parts of Asia into Cairns resulted in an ordinary Chinese New Year trading season in January and February 2017 for Cairns as a whole.
We can only hope one of the two more significant business institutions in Cairns are simply mistaken rather than misleading.

Reef Casino: Updated

I had wondered when the Reef Casino (RCT) AGM was called for a Friday afternoon. Wonder no more:

Reef0117*RCT preliminary forecast based on initial 4 months trading

What was effectively a profit warning was delivered to ASX an hour or so before the meeting:

Our current estimate of the distributable profit* for the first half year from 1 January 2017 to 30 June 2017 is approximately $3.5 million.
The Trust’s main revenue is rent from the Reef Hotel Casino.  The first half year is the low season for Cairns. For the first 4 months, rentals paid to the Trust was 17% below last year.
A complete absence of charter and direct flights from China and other parts of Asia into Cairns resulted in an ordinary Chinese New Year trading season in January and February 2017 for Cairns as a whole.  So far this year, Cairns’ economy has been quiet and softer than the previous year. Local slots competition from clubs and hotels/pubs remain strong. The major clubs had renovated their premises some 2 years before us as our own renovation plans were delayed by the takeover bid in 2013/14.
Trust depreciation is higher than the previous year following the refurbishment of level 1 of the complex.
Our new facilities on level 1 of the Reef Hotel Casino complex have been well received by our patrons and our ongoing challenge will be to leverage complex patronage into casino slots patronage.  Already we are seeing increased patronage and revenues from our new BAR36 and expanded Tamarind Restaurant.
We will further update unitholders about the Trust’s likely first half year results and any use of the undistributed income account which has a balance of 12.11 cents per unit or $6.03 million as at 31 December 2016 in late June, about 4 weeks from now, when we release our unit distribution announcement.

In the broader economic context the two key points from this emphasised at the meeting were tourism issues in the initial months of the year, mostly but not solely the charter flights from China, and a generally softer local economy. Whether that is correct or the profit warning is related to business or sector issues will only be clear in hindsight. However the key casino business sector under pressure has been pokies which could be interesting.

In the narrow business context the commentary around depreciation and competition from clubs on pokies is noted. Who would have thought these facilities required continual capex to maintain their position? The alternative way to look at this is that the delayed capex inflated prior year reported profits.

The announcement was a revenue fall of 17% for the first 4 months. This translates into a distributable profit decline of 38% on my numbers and the RCT profit guidance provided for 1H. Will have to await further detail and breakdown analysis relevant to the RCT trust structure.

Rental Affordability

There has been media coverage following recent release of the Rental Affordability Index from SGS Economics. Most commentary has related to the capitals. The Cairns region displays in the acceptable to affordable range with numbers apparently not far out of line with Townsville and Mackay despite the rental gap which has opened up.

However it isn’t quite so positive at the alternative Queensland Rental Vulnerability Index from UNSW: Two pictures of rental housing stress and vulnerability zero in on areas of need.

Mapping this out we see that rental vulnerability in Queensland is highest in the regions. In particular, it is high around Bundaberg, Fraser Coast and Gympie, with a band of vulnerability skirting the regions west and south of Brisbane. Cairns also has several highly vulnerable postcodes.



There is also a report from Anglicare Australia released last month which includes commentary on Cairns: Rental Affordability Snapshot

The Snapshot highlights very little change from the 2016 Snapshot in terms of the statistics relating to affordable and appropriate household type. The findings indicate that approximately 6.3% of advertised properties were available (47 properties) to households on income support and approximately 25% of the advertised properties (188 properties) were available to households on a minimum wage.
The 2017 Snapshot reveals 72 fewer properties listed from the previous Snapshot in 2016 and again 61 properties down from 2015. Cairns is experiencing a housing shortage overall, and a gradual decrease in available private rental stock more specifically.
The Rental Affordability Snapshot for the Cairns Regional Government Area for 2017 evidences three key issues:
 The rental market is priced beyond the means for household types with income less than that of a couple with two children, where both adults earn the minimum wage and are in receipt of FTB (A).
 The Snapshot evidences a consistent decline in available properties for rent. This is certain to be putting even more downward pressure on household types with low incomes in Cairns.
 There is insufficient social housing stock within the Cairns Regional Government Area.

I haven’t had time to look through the different methodologies which may have to wait for the next round of rental data.



A quick peek at rental bonds data

The Residential Tenancy Authority rental data includes historical numbers on rental bonds. Have always wanted to look into this more deeply but a very quick look on a 5 year perspective of total rental bonds lodged for the northern tropical cities:

2012 2017 Growth
Cairns Regional Council 22668 23871 5.3%
Townsville City Council 20409 24165 18.4%
Mackay Regional Council 9768 12443 27.4%

Total bonds lodged includes some minor sectors where reporting may have changed. This has also been adjusted for Douglas de-amalgamation. Something doesn’t look right so hope I haven’t got something wrong.


Airport halts descent in April

Cairns Airport passenger numbers halted the recent descent in April and recovered some altitude assisted by a seasonal Easter tailwind.


Attempting to derive a trend without an adequate lunar monthly seasonal adjustment in the earlier months of the year is probably pointless with some recent commentary around this appearing confused.

BITRE airport traffic data updated to February confirms previous relative weakness at Cairns in that month. However Cairns does remain among the leading group of tourism related destinations for growth over the full year to February.


A sign of the times in the BITRE top 20 airports summary data has removed Port Hedland and Gladstone for the inclusion of Ballina and Hamilton Island.

Further data and graphs will be updated imminently at Cairns Airport

How will penalty rates play out in the Far North?

A report from the McKell Institute has attracted media attention with particular relevance for the Far North: Seats held by Warren Entsch and George Christensen hit hard by penalty rate cuts

New research suggests the key Coalition-held Queensland electorates of Leichhardt and Dawson will be hit hard by the decision of the Fair Work Commission to cut Sunday penalty rates for workers in hospitality, retail, fast food and pharmacy.

Modelling undertaken by the McKell Institute examining the impact of the penalty rates decision in regional Australia finds the federal seat of Leichhardt, held by the veteran Liberal MP Warren Entsch on a margin of 5.7%, will lose the most in disposable income courtesy of the decision – approximately $21m.

With a response from the business lobby: Regional penalty rate claims ‘flawed’: ACCI

The research has fundamental flaws that damage its credibility and relevance,’ the peak body said. It says the McKell analysis ‘wrongly assumes that no shops, cafes or pubs will open for additional hours following a moderate reduction in Sunday penalty rates’ and deliver more jobs.

Straddling competing claims could be a nasty positon akin to the proverbial barbed wire fence. The business community and Entsch would want to be able to point to expansion of hours and business with increased employment to avoid cynicism.

The McKell report is over here:

Unfair Burden: The Impact of Sunday Penalty Rate Reductions on Regional and Rural Australia

Budget Sleepers

The budget seems to have gone down in a rather subdued way this year. Even the annual Bruce Hwy funding bitch-fest has been somewhat muted.

Having just this week travelled the entire Qld stretch of east coast highway any complaints from FNQ would appear lacking in credibility. My proprietary Roadworks Delay Index* was heavily weighted Far North on current works. Meanwhile not even a 5:30am start from the Gold Coast could prevent a congestion full stop by Logan!

However if all we have is anecdotes then we have nothing. So among the more disappointing budget sleepers was funding for the ABS: Cuts to ABS funding likely to make better regional data a pipe-dream

One of the less publicised elements of the 2017-18 Budget released on Tuesday was the decision to slash funding to the Australian Bureau of Statistics (ABS). Tucked away in Budget Paper 4; Agency Resourcing is a reduction in funding for the agency of some $218m (33.6%) for the next financial year. Further cuts are projected in 2018-19 and 2020-21 to bring expenses down to $375m by 2020-21 from $622m 2016-17.

The general budget measures included restrictions on some of the more blatant negative gearing rorts. Particularly this: Landlords lose travel claims in negative gearing crackdown

Australia’s million-strong contingent of negatively geared landlords will no longer be able to claim travel expenses for inspecting their properties, boosting the budget by $540 million.

While this rort is indefensible it is sometimes used to fund holidays in attractive locations so could also more impact Cairns.

Otherwise some interesting budget commentary today at Queensland Economy Watch


*may be unreliable and/or unduly influenced by personal temperamental factors