Global Pokie Hub?

Market announcement this morning from Reef Casino:

Dear Sirs,

QLD Government’s announcement regarding “Global Tourism Hubs”
We refer to the Queensland Government’s recent policy announcement regarding possible “global tourism hubs” which “focusses on tourism as a primary driver with gaming as a second” specifically in Cairns and the Gold Coast.
Given the size of Cairns with a population of approximately 150,000 people, it is our view that a second casino in Cairns would not be commercially and economically viable. However, as previously stated, it is the Trust’s intention to continue to invest in its main asset, the Reef Hotel Casino in Cairns. The Trust also continues to consider any further investment opportunity to expand its operations.
Following the Queensland Government’s recent announcement, the Trust will continue to work with the Government to further explore opportunities to expand the Reef Hotel Casino in Cairns on state-owned land in the Cairns City Port precinct identified by the Government which is located across from, and adjacent to, the Reef Hotel Casino so as to create a larger integrated resort encompassing the current Reef Hotel Casino complex and including public amenities.
The Trust has reinvested more than $55 million in the Reef Hotel Casino since its original investment of some $210 million in 1996. The Reef Hotel Casino continues to be the biggest single site employer in Cairns providing stable employment for approximately 500 Cairns residents.

Dear Sirs? Perhaps some in the Market Announcements Office at ASX  to which it is addressed are not Sirs but I digress. They are almost certainly correct that Cairns City would not be able to sustain two casinos. Despite their promotion as tourism assets Australian casinos remain heavily dependant on pokies.

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Employment Extravaganza

It was a big week for regional employment data to play with. The regional SA4 stats from ABS were out on Thursday as covered by Conus: Regional jobs data shows regional QLD employment growth at fastest pace in a decade

The same day saw updated quarterly numbers to June for the Queensland state public service. Nick Behrens has noted on Twitter that growth currently appears to be running ahead of population growth which may not be consistent with stated fiscal principles. Nick has previously posted on this and the public sector component of employment: Queensland Public Service Headcount: adhere to the sixth fiscal principle or jettison it; Debunking myths about public sector growth and Queensland’s jobs market.

Public service full time equivalent employment growth at the SA4 regional level looks like this:

PublicService1

Sunshine Coast Hospital opening during the year may be responsible for at least some of the outsized growth there. A direct comparison of Cairns and Townsville is interesting.

PublicService2

Ha! Take that Townsville and we will have a bigger Christmas tree too!

Friday and a belated release by Dept of Employment of Small Area Labour Market data, also quarterly to June: Dept of Employment SALM data confirms the improvement in the North

Insurance Imbroglio Inquiry #XLIV

ACCC: Northern Australia insurance inquiry

On 25 May 2017, the Australian Government directed the ACCC to conduct a wide-ranging inquiry into the supply of residential building (home), contents and strata insurance in Northern Australia.
Scope of inquiry
Matters to be considered by the inquiry shall include, but not be restricted to:
the pricing and availability of insurance to consumers in northern Australia;
the key cost components of insurance pricing in northern Australia and how they have changed over time, particularly catastrophe risk;
the terms and conditions on which insurance is supplied;
the competitiveness of markets for insurance in northern Australia;
the existence and extent of any barriers to entry, expansion and/or exit in the supply of insurance in northern Australia;
any impediments to consumer choice, including transaction costs, a lack of transparent information, or other factors;
identifying any regulatory issues, or market participant behaviour or practices that may not be supporting the development of competitive markets for insurance in northern Australia; and
the profitability of insurers through time and the extent to which profits are, or are expected to be commensurate with risk.
The inquiry commenced on 1 July 2017. The ACCC must submit interim reports to the Treasurer by 30 November 2018 and 30 November 2019. The inquiry is to be completed and a final report submitted to the Treasurer by 30 November 2020.
On 24 October 2017, the ACCC released an issues paper for public comment. Submissions are due by 5pm, 21 December 2017. 
The ACCC will host public forums across northern Australia in late November / early December.

Domestic growth descent at Airport

Cairns Airport numbers for September continue a softer domestic growth trend:

AirportBlog

Domestic growth for the month was 0.8% and International growth 1.8%. The airport noted that passenger growth aligned with seats so load factors were similar.

AirportBlog1

The numbers here are ex transfers and transits where it was also noted by the airport:

The 4% growth of transfer passengers includes strong growth in travel to Weipa related to expansion of Cape York mining activity. When measured by seat capacity, Weipa is Cairns seventh largest route with 16,200 available seats in September.

Source: Cairns Airport

Experience on Watch

The skydiving tragedy last week in Mission Beach placed ASX listed Skydive The Beach (SKB) back on my radar. SKB is the operator of Skydive Australia which conducts the tandem skydives in Mission Beach and Cairns. SKB has built a model aggregating this activity to a dominant position in Australia and NZ.

I did look quickly at SKB some time ago when it diversified with a takeover of local icon Raging Thunder. Then promptly forgot about it. Subsequently it has acquired Reef Magic cruises and is now in the middle of acquiring GBR helicopters which is due to complete November 1st.

Quick back of the drink coaster calculations these three Cairns based non-skydiving businesses look like comprising about a third or more of group revenue based on current corporate configuration and available information. So SKB decided on a name change and this week is now Experience Co (EXP) to reflect a broader adventure tourism strategy.

I always like ASX listed entities for the transparency and regular reporting requirements which can provide useful information where the activities are material for the group. This is why I will miss Mantra Group when it is swallowed by the Accor octopus.

So Experience Co is now on my watchlist and look forward to their future results and commentary.

Note: This is not investment advice but general commentary related to Cairns. I do not have any holding in EXP. Good research or advice is essential.

Seasonal Cyclone Outlook

Australian Tropical Cyclone Outlook for 2017 to 2018

The Northern region outlook suggests an average number of tropical cyclones with a 53% chance of more tropical cyclones than average and a 47% chance of fewer tropical cyclones than average. In a typical year the Northern region experiences around three cyclones, and one or two tropical lows that later become cyclones after moving into the Western or Eastern regions. About three-quarters of the tropical cyclones in the Northern region impact coastal regions. Outlook accuracy for this region is very low.
The Eastern region outlook shows a near average season is most likely, with a 54% chance of more tropical cyclones than average and a 46% chance of fewer. About a quarter of tropical cyclones in the Eastern region make landfall. Outlook accuracy for this region is low.

There have been some reports of a mild La Nina event developing in the Pacific such as this recently at the AFR:  Meet La Niña, the little girl spreading fear in commodity market

The BOM do cover this possibility at the Weekly Tropical Climate Note:

Sea surface temperatures (SSTs) across the equatorial Pacific Ocean have warmed marginally in the last week as a result of weakened trade winds. The SST pattern across the equatorial Pacific Ocean is currently indicative of an ENSO-neutral state. Atmospheric indicators also depict an ENSO-neutral state.
A majority of international climate models surveyed by the Bureau suggest further cooling of the tropical Pacific Ocean is likely. Five of the eight models suggest SSTs will cool to La Niña thresholds by December 2017, but only three maintain these values for long enough to be classified as a La Niña event.
It is not unprecedented for La Niña to develop this late in the year, however it is unusual. Of the four late-developing La Niña events on record, three have coincided with above-average wet-season rainfall across northern Australia.
See the Bureau’s current ENSO Wrap-Up for more information

Tinaroo Falls is currently at 42% capacity so would probably appreciate a somewhat wetter than average season. Rainfall down at Cairns Aero has trended below average for several years now following the severe 2011 La Nina period.

Cairns Rainfall

Don’t start me on the period used by the Commonwealth Actuary for his insurance study. Probably worth keeping a weather eye on global catastrophe reinsurance markets also following the US hurricane season.

September Rental Data

September quarter rental data from the Residential Tenancies Authority generally continues recent trends with some recovery from a base in Mackay now evident.

Rents1Rents2

The rental gap between Cairns and Townsville continues to widen.

Rents3

Regional building approvals data was also released yesterday and it finally looks like the initial stage of the proposed Nova development has quietly fallen into the ABS data in August  includes the apartment component of the GA Group development on Abbott St with 110 units approved in Cairns City SA2 with a nicely rounded $50 million building value. This could create some interesting statistical challenges going by this Cairns Post report:

Statistics from Master Builders Queensland shows the number of dwelling approvals leapt 44.9 per cent in three months.
Approvals for houses grew 10.4 per cent over the same time period and grew two per cent over a 12 month period.
In the past year unit approvals dropped 7.9 per cent but over the past three months, they skyrocketed 621.1 per cent.

Apart from Nova GA Group unit approvals so far in the first months of FY18 have totalled four (4) in Manoora. The Post would probably be wise to stick to Conus for the statistical commentary: Building Approvals jump in the Far North

Corporate action in accommodation

The ASX listed Mantra Group (MTR) has announced an “indicative and non-binding” proposal from French global giant Accor. A combined group would be dominant in FNQ with both groups having a significant presence in Port Douglas, Palm Cove and Cairns.

Mantra branded accommodation properties:

  • Mantra Esplanade (Cairns)
  • Mantra Trilogy (Cairns)
  • Breakfree Royal Harbour (Cairns)
  • Mantra Amphora (Palm Cove)
  • Peppers Beach Club (Palm Cove)
  • Peppers Beach Club (Port Douglas)
  • Mantras Aqueous, Heritage, Village, Inlet and Portsea (Port Douglas)

 

Accor branded accommodation properties:

  • Pullman International (Cairns)
  • Pullman Reef Casino (Cairns)
  • Harbour Lights (Cairns)
  • Novotel Oasis (Cairns)
  • Ibis Styles (Cairns)
  • Reef House Sofitel (Palm Cove)
  • Pullman Sea Temple (Palm Cove)
  • Sebel Coral Coast (Palm Cove)
  • Pullman Sea Temple (Port Douglas)

 

I may have missed some. Accor brands also include Mercure but don’t think there is any longer a presence in Cairns. Accor also has a controlling interest in Reef Casino Trust (RCT) via a joint holding with Casinos Austria. This holding is under review by Casinos Austria.

The non-binding indicative proposal is also subject to the usual conditions and regulatory approvals.

 

Airport Comparisons FY17

Cairns Airport data for August didn’t really provide anything worthy of new comment. So have finally updated some graphs and BITRE data at the Cairns Airport page.

Most recent comparative BITRE data for the top 20 airports is updated to June 2017. Growth leaders for FY2017 are dominated by tourism related destinations along with Canberra and Williamtown (Newcastle).

AirportBlog

The obvious trend anomaly there is Hamilton Island where traffic plummeted in the final months of the year following the impact of Cyclone Debbie. Not sure what the current status is of  Whitsundays tourism and construction recovery.

BITRE have further updated separate city-pairs data for July with Sydney-Hamilton Island down 34.1% for the month and Brisbane – Hamilton Island down 13.1%. However Brisbane – Proserpine is +26.5% and Brisbane – Mackay +4.5%.

Previous declines in resource destination routes will eventually wash through the data. Brisbane – Moranbah (+12.1%), Emerald (+7.8%), and Mt Isa (+6.2%) were all promoted to the city-pair growth first eleven for July.