the outlook for tourism in the auckland...

Final Report

The Outlook for Tourism

in the Auckland Region

Prepared for

Auckland Regional Council

June 2008

Covec is an applied economics practice that provides independent analysis and advice to a

broad range of companies and government agencies. We specialise in solving problems

arising from policy, legal, strategic, regulatory, market and environmental issues. Our delivery

of high-quality, objective advice has provided confidence to some of the largest industrial

and governmental organisations in the Asia-Pacific region.

Authorship

This document was written by Shane Vuletich. For further information email

[email protected] or phone (09) 916-1961.

Disclaimer

Although every effort has been made to ensure the accuracy of the material and the integrity

of the analysis presented herein, Covec Ltd accepts no liability for any actions taken on the

basis of its contents.

© Copyright 2008 Covec Ltd. All rights reserved.

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Contents

Executive Summary ............................................................................................................... 1

1. Introduction .................................................................................................................... 6

1.1. Overview: Bringing the World to Auckland............................................................6

2. Drivers of Tourism Demand ......................................................................................... 13

2.1. General Drivers of Tourism Demand..................................................................... 13

2.2. Specific Drivers of Tourism Demand in Auckland .............................................. 23

3. Economic Contribution ............................................................................................... 29

3.1. Gross Expenditure..................................................................................................... 29

3.2. Contribution to GDP ................................................................................................ 31

4. Economic Projections.................................................................................................. 33

www.covec.co.nz 1

Executive Summary

This report focuses on understanding:

• The structure and significance of the visitor economy in Auckland

• Recent trends in tourism

• The key drivers of tourism – both general and local

• The main constraints and opportunities for tourism in the Auckland Region

It also considers the future prospects for tourism in Auckland, and develops projections

of visitor activity. The projections are presented in a supporting spreadsheet entitled

Tourism GDP Projection Model.

Bringing the World to Auckland

Bringing the World to Auckland -The Case for Investment in Auckland’s Visitor Economy is

essentially a visitor strategy for the Auckland region that was developed by

AucklandPlus in 2007. The extensive stakeholder consultation that underpinned the

research confirmed three main things about Auckland:

1. The CBD is the focus of most visitor activity but in Auckland’s case delivers the

lowest quality of visitor experience compared to the rest of the region.

2. Auckland’s main strength is its hinterland which contains exceptional natural

attractions and offers outstanding experiences. But this strength is almost

entirely negated by the lack of transport to these areas.

3. Auckland has a rich and interesting history that distinguishes it from other

destinations

Accordingly, the research identified the following key success factors for Auckland as a

visitor destination:

• Revitalise the CBD, with a focus on pedestrian access and visitor (and resident)

amenity.

• Connect visitors to Auckland’s outstanding hinterland i.e. make it easy for

visitors to get from the CBD to key hinterland precincts, and to travel between

precincts.

• Tell Auckland’s stories to extract additional value from visitors and differentiate

it from other destinations.

The economic analysis conducted for Bringing the World to Auckland estimated that an

additional $1.65b of public sector investment was required to realise Auckland’s visitor

aspiration, and that this level of investment would result in a cumulative increase in the

Auckland visitor economy of $7.21b. The research concluded that Auckland’s visitor

economy is a premium investment opportunity for Auckland, and that it represents a

low risk investment because making Auckland a more compelling destination will also

make Auckland a better place to live, work and play. Investing in the visitor economy

will therefore effectively subsidise Auckland’s transformation into a world class city-

region.

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Drivers of Demand for Tourism in the Auckland Region

Consumer Demand

The short-term outlook for consumer demand is quite negative. The combination of

lower disposable income and higher airfares will most likely curb growth in tourism

demand in the next 12-18 months. The long-term outlook for consumer demand is more

optimistic, particularly since most of the factors that are currently having a negative

impact on consumer demand are cyclical in nature. Consumer demand is therefore

likely to rebound in the next 24-36 months as economic conditions improve and new

airline capacity is released. The key observations from the past 20 years, which could be

expected to apply to the next 20 years, are:

• Tourism is very resilient to economic shocks and changes in consumer demand

• Even large shocks such as September 11 and SARS had a relatively minor impact

on aggregate tourism activity

• Downswings in consumer demand are almost always followed by upswings,

and the gains in tourism during prosperous periods generally outweigh the

losses during the difficult periods; hence in the long-term tourism is expected to

continue growing even in the presence of regular downswings. This view is

supported by the World Tourism Organisation.

The Success of New Zealand as a Destination

Auckland’s success as an international visitor destination, at least with its current visitor

proposition, depends largely on New Zealand’s success as a destination. A key focus of

Bringing the World to Auckland is determining how Auckland can establish itself as a

more independent (mono) destination within New Zealand, but until the visitor

proposition is much more compelling international visitor activity in Auckland will

continue to depend on the strength and popularity of the New Zealand brand.

Auckland has experienced declining domestic visitation rates in recent years due to a

marked increase in outbound travel activity (which competes directly with domestic

tourism). The outlook for domestic tourism is relatively weak with the Ministry of

Tourism predicting average growth in domestic visitor nights of around 0.8% per

annum for New Zealand over the next 7 years, and just 0.6% for Auckland. The main

reason for the low expected growth rate is New Zealand’s slow rate of population

growth – less than 1% per annum. In addition, outbound travel is expected to continue

increasing, which will further suppress domestic demand.

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The Cost of Travel

Around 95% of all domestic travel in New Zealand is conducted using private vehicles –

mainly cars; hence fuel is a direct and significant component of the cost of domestic

tourism. Practically all international tourism involves a flight to New Zealand, and the

airfare can be anything from 20-60% of the total cost of a trip to New Zealand; hence

fuel is a direct and significant component of the cost of international tourism.

The general consensus among tourism operators in New Zealand is that we are entering

a period of high fuel prices that could persist for some time, and that the tourism

industry will need to find ways to reduce its consumption of, and exposure to, fossil

fuels. Persistently high fuel prices will reduce New Zealand’s competitiveness in long-

haul markets due to the large airfare component of a trip to New Zealand, but domestic

tourism is likely to increase as overseas travel becomes relatively more expensive for

New Zealanders.

Climate Change

The perceived threat to the New Zealand tourism industry created by climate change is

clearly emphasised by the prevalence of climate and environmental themes in the

recently released New Zealand Tourism Strategy 2015. The general consensus within

the tourism industry is that the issue of climate change is not yet having a material

impact on travel or consumption behaviour, but that it definitely has the potential to do

so. According to key industry stakeholders the main risk to New Zealand, and therefore

to Auckland, seems to be the perception that a lot of carbon is generated in getting to

New Zealand. A further risk is the impact that emission trading schemes may have on

the price of getting to, and travelling within, New Zealand.

The general view within the industry is that travel has become an important and

essential part of modern life; hence it is unlikely that increasing awareness of climate

change will curb aggregate travel activity. However, it is widely acknowledged that

climate change has the potential to alter the pattern of tourism i.e. it is anticipated that

consumers will choose destinations that are perceived to be relatively more

environmentally friendly than others.

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Aviation Capacity

Aviation capacity is currently constrained due to well documented wide-body aircraft

production delays in both the Boeing and Airbus plants. These delays are affecting

practically all major carriers, including Qantas and Air New Zealand. This has resulted

in higher load factors for airlines and, consequently, higher airfares for consumers.

Airlines will take delivery of pre-ordered A380s from late 2008 onwards, and pre-

ordered 787s from late 2009 onwards, assuming there are no further production delays.

Both Qantas and Air New Zealand expect a large increase in wide-body capacity

internationally from 2010 onwards which should result in greater seat availability and

lower prices. The long-term outlook for aviation capacity is therefore very positive.

Exchange rates

The exchange rate affects inbound tourism by altering the price of a trip to New

Zealand. The exchange rate also affects domestic tourism by altering the price New

Zealanders pay for an international trip. The strength of the New Zealand dollar has

definitely played a part in the recent growth in outbound travel, and the corresponding

slowdown in international arrivals.

The New Zealand dollar is expected to weaken relative to major trading partners in 2008

and 2009 as economic growth slows and interest rates decline. A weak New Zealand

dollar is positive for tourism in New Zealand because it makes New Zealand a cheaper

destination for international travellers, and it makes outbound travel more expensive,

which induces more New Zealanders to travel domestically.

Major Events

Major events were identified as a key opportunity for Auckland in the Metro Project,

and subsequently in Bringing the World to Auckland. At present Auckland will be the

main host of two confirmed major events in the next decade – the Rugby World Cup in

2011 and the Cricket World Cup in 2015. In addition, there is a possibility that

Auckland will submit a bid for the Commonwealth Games in 2018. Auckland’s ability

to expand its major events portfolio beyond these events will depend on its ability to

invest in a dedicated regional major events office, develop the infrastructure required to

attract and deliver large scale major events, and present a united front when bidding for

major events.

Cruise Ship Industry

Recent analysis suggests that the development of a new fit-for-purpose cruise ship

terminal in Auckland has the potential to deliver major economic benefits to Auckland

and New Zealand. Consultation with Cruise New Zealand confirms that with a new

cruise ship terminal in Auckland, and with the existing facility at Princes Wharf used as

overflow capacity, it is likely that the major cruise lines would deploy more ships to this

region i.e. at present demand for cruises in New Zealand is constrained by Auckland’s

cruise infrastructure. This would have an immediate impact on the number of cruises

operating in New Zealand waters, and on the economic impact generated by the cruise

ship industry.

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National Convention and Exhibition Centre

Local tourism industry stakeholders unanimously support the development of an

internationally competitive convention and exhibition centre in Auckland to attract high

yielding visitors. A research report commissioned by Auckland City Council concluded

that a convention centre of suitable scale would increase Auckland’s GDP by $67m per

annum at operational maturity, and New Zealand’s by $72m per annum.

Low Cost Air Travel

A study conducted by BERL in 2002 concluded that significant economic

benefits would be realised from greater low cost airline activity in Auckland,

driven mainly by greater visitor numbers out of Australia. This analysis was

based on the development of a new commercial airport at Whenuapai Airbase,

but could just as easily apply to greater low cost airline activity at Auckland

International Airport.

Economic Contribution

Total visitor expenditure in Auckland was estimated by the Ministry of Tourism at

$3.745b in 2006, including GST. International visitors accounted for $2.52b of this

expenditure, with domestic visitors accounting for the remaining $1.22b. In total, gross

visitor expenditure in 2006 was distributed across industry sectors in the Auckland

Region as follows:

• Retail trade - $687m (18%)

• Accommodation, restaurants and bars - $1.43b (37%)

• Road transport - $415m (11%)

• Water and rail transport - $58m (2%)

• Air transport, services to transport and storage - $599m (16%)

• Education - $170m (4%)

• Cultural and recreational services - $391m (10%)

In aggregate, the $3.745b of gross visitor expenditure in the Auckland region (including

GST) generated total regional GDP of $2.994b in 2006. This implies an average

expenditure/GDP multiplier of around 0.80 i.e. on average every $1.00 of gross visitor

expenditure in Auckland generates around $0.80 of regional GDP, including indirect

and induced effects.

Economic Projections

Projections of regional GDP attributable to tourism are presented in a supporting

spreadsheet entitled Tourism GDP Projection Model.

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1. Introduction

The objective of the Economic Futures Project (EFP) is to estimate the possible

trajectories the Auckland regional economy might follow over the next twenty years.

The economic futures defined within the project will become a reference point for the

development of regional strategy and policy.

Three phases of work have been identified:

1. Information gathering

2. Development of scenarios and modelling

3. Identifying impacts and further work required

This report will contribute to Phase 1 of the EFP by providing a better understanding of

the contribution that tourism makes, and has the potential to make, to the Auckland

regional economy. It builds largely on the research, knowledge and relationships

created during the development of Bringing the World to Auckland -The Case for

Investment in Auckland’s Visitor Economy.1

In particular the research focuses on understanding:

• The structure and significance of the visitor economy in Auckland

• Recent trends in tourism

• The key drivers of tourism – both general and local

• The main constraints and opportunities for tourism in the Auckland Region

The research also considers the future prospects for tourism in Auckland, and develops

projections of visitor activity. These projections are presented in a supporting

spreadsheet entitled Tourism GDP Projection Model.

1.1. Overview: Bringing the World to Auckland

AucklandPlus completed what was essentially a visitor strategy for the Auckland region

in late 2007. An extensive amount of research and analysis was conducted to support

this work including interviews with key tourism stakeholders in Auckland, the

formulation of a comprehensive visitor aspiration for the Auckland region, the

development of a framework for action (including an investment platform) and detailed

economic analysis of the possible payoff from “getting it right”. The results of this work

are presented in Bringing the World to Auckland -The Case for Investment in Auckland’s

Visitor Economy. Bringing the World to Auckland focuses mainly on what the Auckland

region needs to do to establish itself as a legitimate world class visitor destination. It is

therefore concerned primarily with the supply-side of the visitor market i.e. the growth

and development of Auckland’s visitor proposition.

1 Go to http://www.covec.co.nz/pdf/Bringing_the_World_to_Auckland.pdf for the full version or

http://www.covec.co.nz/pdf/Bringing_the_World_to_Auckland_summary.pdf for the summary

document.

www.covec.co.nz 7

1.1.1. SWOT Analysis

Over 40 key regional and national stakeholders were interviewed during the research

process to identify Auckland’s current strengths and weaknesses as a visitor destination,

as well as the opportunities and threats that it faces. The results of these interviews are

summarised below.

Strengths and Weaknesses

The four key strengths of the Auckland region have been identified as:

• Landscape

• Coastal environment

• Safety and security

• Airport

These are all highly desirable qualities for a visitor destination to have; perhaps the most

desirable of all. Auckland has an enviable array of natural assets, a safe and secure

environment (by international standards) and is well connected both nationally and

internationally by a very good airport with no immediate capacity constraints.

The four key weaknesses of the Auckland region have been identified as:

• Public transport

• Road network

• Entertainment/nightlife

• Retail shopping

These are also highly desirable qualities for a visitor destination to have, and it is

arguably these qualities that attract visitors to an area and compel them to spend time

and money. Auckland is clearly lacking in these areas, and this failure to provide a

compelling visitor experience has contributed to Auckland’s wide recognition as a

gateway and staging area for the rest of New Zealand, rather than a visitor destination

in its own right.

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Figure 1 Auckland’s Strengths and Weaknesses as a Visitor Destination

1 2 3 4 5 6 7 8 9 10

LandscapeCoastal EnvironmentSafety and SecurityAirportFood and BeverageVisitor InformationHotelsCleanlinessBusiness EnvironmentLevel of ServiceUrban EnvironmentAttractions andRetail ShoppingEntertainmentRoad NetworkPublic Transport

Very Poor World Class

Opportunities and Threats

The key opportunities that stakeholders identified for Auckland were:

• Conference and convention market

• Major events

• Maori and Pacific experiences

• Greater amenity underwritten by visitor spend

• More vibrant and exciting region

• A unified region

These results suggest that Auckland has a lot of work to do in order to become a world-

class visitor destination. However, Auckland is fortunate that its strengths are very

difficult, and in some cases impossible to replicate, while its weaknesses can be

overcome with the right mix of leadership, planning and investment. Auckland

therefore has the potential to become a world-class visitor destination.

Practically all respondents felt that Auckland would benefit greatly from a convention

centre capable of attracting international conferences, conventions and exhibitions.

Major events were also seen as a key opportunity although respondents emphasised the

need to pursue events that were appropriate for Auckland. The Maori and Pacific

cultures were viewed by most respondents as major opportunities, particularly given

Auckland’s rich Maori history and current status as largest Pacific city in the world.

More generally, respondents felt that transforming Auckland into a world-class visitor

destination would underwrite or subsidise Auckland’s “renaissance”, and would lead to

a more vibrant, exciting, unified region.

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The key threats that stakeholders identified for Auckland were:

• Competition from other cities, particularly Australian cities

• Loss of identity

• Environmental sustainability

• Auckland’s own lack of belief

• Weak and indecisive leadership

• Lack of unity across the region

The key threat mentioned by most respondents was competition from other

international cities. This is a very real threat to Auckland, with cities such as Melbourne

and Sydney investing substantial amounts of money in convention centres, major events

and destination marketing. Auckland is probably 10 years behind Melbourne in terms

of reinventing itself as a world-class visitor destination. There was also some concern

that the transformation process could lead to Auckland losing its identity, although

others felt that it could help Auckland to reveal its true identity. The environmental

impact of greater visitor numbers was also cited as a concern. A common threat

identified by respondents was Auckland’s fragmented governance, and its inability to

work together for the good of the region. Many felt that Auckland could not succeed

without strong, decisive leadership and strong self belief in its ability to change.

Words that Describe Auckland in 2007

Some of the words that were used to describe Auckland during the interview process

include:

• Gateway

• Large and fragmented

• Cosmopolitan

• Beautiful natural environment

• Lacks a heart

• Confusing

• Relaxed

• Bland, generic, not distinctive

• Boring

• Untapped potential

These comments are consistent with Auckland’s strengths and weaknesses and

emphasise the fact that Auckland has a spectacular natural environment but currently

lacks the vibrancy and personality of a world-class destination.

A separate survey of around 900 Tourism Auckland subscribers suggests that Auckland

is average on a variety of levels. In aggregate the respondents did not find Auckland to

be particularly vibrant, exciting or friendly. They also thought that Auckland was quite

a stressful place to be and relatively difficult to access. This feedback supports the

general view that Auckland does not currently have a compelling visitor proposition.

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Figure 2 Auckland in 2007

1.1.2. The Aspiration

The following aspiration for Auckland was developed through input from regional and

national stakeholders:

“Auckland is an attractive, sophisticated and diverse region that is easy to

understand and move around in. It is exciting and vibrant with a distinctive

Maori and Pacific character and a pristine natural environment. Auckland is a

highly desirable place to live, work, visit and invest.”

The aspiration is underpinned by seven key themes:

• Vibrant CBD

• Amazing Hinterland

• Harbour City

• Cultural City

• Host City

• Easy to Understand

• Easy to Move Within

More detail on each of the key themes can be found in Bringing the World to Auckland.

SLEEPY VIBRANT

BORING EXCITING

UNFRIENDLY FRIENDLY

STRESSFUL RELAXING

SPRAWLING COMPACT

PROVINCIAL COSMOPOLITAN

BLAND DIVERSE

INACCESSIBLE ACCESSIBLE

DOWN-MARKET CLASSY

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1.1.3. Key Success Factors

The stakeholder consultation confirmed three main things about Auckland:

4. The CBD is the focus of most visitor activity but in Auckland’s case delivers the

lowest quality of visitor experience compared to the rest of the region.

5. Auckland’s main strength is its hinterland which contains exceptional natural

attractions and offers outstanding experiences. But this strength is almost

entirely negated by the lack of transport to these areas.

6. Auckland has a rich and interesting history that distinguishes it from other

destinations

Accordingly, the key success factors for Auckland are to:

• Revitalise the CBD, with a focus on pedestrian access and visitor (and resident)

amenity.

• Connect visitors to Auckland’s outstanding hinterland i.e. make it easy for

visitors to get from the CBD to key hinterland precincts, and to travel between

precincts.

• Tell Auckland’s stories to extract additional value from visitors and differentiate

it from other destinations.

1.1.4. Framework for Action

It is widely acknowledged that Auckland is not currently in a position to maximise the

value of the visitor economy. The research concluded that the following steps are

required to transform Auckland into a world class visitor destination:

1. Get organised for success – an appropriately funded and mandated regional

visitor agency is required to manage Auckland’s transformation from a gateway

into a world-class visitor destination.

2. Establish a long-term public sector investment platform – the success of the

Auckland visitor economy depends critically on the establishment of a public

sector investment platform comprising long-term commitments from:

a. Local authorities and ARC

b. Central government

3. Getting Auckland’s “fabric” right – creating a social and cultural environment

that is highly attractive to both residents and visitors.

4. Developing key attractors – Auckland needs a portfolio of attractors that draw

people to the region, particularly during shoulder and off-peak periods. The

key opportunities for Auckland are:

a. Conferences and conventions

b. Major events

c. Hinterland precincts

d. Signature attractions and experiences

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1.1.5. The Investment Proposition

The economic analysis conducted for Bringing the World to Auckland estimated that an

additional $1.65b of public sector investment was required to realise Auckland’s visitor

aspiration, and that this level of investment would result in the following outcomes over

the next 10 years:

• A cumulative increase in the Auckland visitor economy of $7.21b.

• A cumulative increase in central government income of $1.8b.

• An additional $2.79b of private sector investment, generating additional profit of

$279m per annum.

1.1.6. Conclusion

The broad conclusion is that Auckland’s visitor economy is a premium investment

opportunity for Auckland. It represents a low risk way of realising significant economic

growth while underwriting Auckland’s amenity. It is low risk because investments that

make Auckland a more compelling destination also make Auckland a better place to

live, work and play. An enhanced visitor economy would increase public sector income

and would also attract new commercial investment, effectively subsidising Auckland’s

transformation into a world class city-region.

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2. Drivers of Tourism Demand

The previous section outlines the key actions and investments identified in Bringing the

World to Auckland – a roadmap for the transformation of Auckland into a world class

visitor destination. Bringing the World to Auckland is concerned mainly with the supply-

side of Auckland’s visitor economy i.e. the adequacy and development of Auckland’s

visitor offering or proposition.

This section identifies and discusses the relevant demand-side drivers that are likely to

have an impact on tourism in Auckland in the future. The demand–side drivers of

tourism fall into one of two broad categories - those that are general and therefore apply

to all destinations; and those that apply more specifically to Auckland.

2.1. General Drivers of Tourism Demand

The main general drivers of tourism demand are:

• Consumer demand

• The success of the wider destination – in this case New Zealand

• The cost of travel

• Attitudes to climate change, and the likely impact of climate change on the cost

of travel

• Aviation capacity

• Exchange rates

These are discussed in more detail below.

2.1.1. Consumer Demand

Consumer demand is the main driver of tourism demand. When consumers are feeling

financially secure and positive about their future prospects they tend to spend more

time and money travelling, and vice versa. Consumer demand is highly cyclical and

tends to be influenced by shifts in macroeconomic variables and political environments.

At present consumer demand is quite weak due to a variety of factors including:

• High energy prices

• Rising airfares

• High inflation (particularly among basic food items)

• High interest rates (particularly in New Zealand and Australia)

• The global credit squeeze

• Falling house prices

• Rising unemployment

Both domestic and international consumers are currently feeling the direct and indirect

effects of these factors on their disposable income. This negative “wealth effect” is

undoubtedly having an impact on both domestic and international travel behaviour.

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According to the Domestic Travel Survey (DTS) domestic travel activity fell sharply in

the last quarter of 2007 – around the same time as house prices started falling, interest

rates continued to rise, finance companies started failing and fuel and food prices

soared. The slump in domestic tourism is expected to continue well into 2008 as

disposable incomes continue to be eroded by higher living costs.

International visitor arrivals have also been affected by the economic downturn. Most

countries are experiencing similar conditions to New Zealand, particularly with respect

to higher energy prices, higher food prices and the global credit squeeze (triggered by

the sub-prime collapse). Data provided by Pacific Asia Travel Association (PATA)

suggests that people living in other countries are still travelling at least as often as they

used to, but there has undoubtedly been a substitution away from long-haul travel

(relatively more expensive due to the airfare component of the trip), and towards short-

haul travel (relatively less expensive due to the smaller airfare component and the

proliferation of low-cost airlines on short-haul routes). This shift has been clearly

evident in the visitor arrivals data for both New Zealand and Australia, with both

markets experiencing declines in visitor arrivals from traditionally strong long-haul

markets. For example, between 2003 and 2006 visitor arrivals to New Zealand from

short-haul markets (Australia and the Pacific Islands) increased by 8.5% per annum,

compared with an average 2.2% growth rate from long-haul markets. During the same

period short-haul arrivals to Australia increased by an average of 8.6% per annum,

compared with an average 4.5% growth rate from long-haul markets.

The current pattern of consumer demand is being driven by global factors that are

generally beyond New Zealand’s control. Many of these factors are cyclical in nature;

hence consumer demand will change constantly in response to different market

conditions. Current levels of consumer demand will therefore have relatively little

bearing on the long-term prospects for tourism in Auckland, but it is important to note

that at any given time the demand for tourism in Auckland will be strongly influenced

by the economic conditions affecting consumer demand both domestically and

internationally.

Outlook

The short-term outlook for consumer demand is quite negative. There is no indication

that energy prices or basic food prices are going to fall in the near future, and airfares

are gradually increasing in response to higher fuel prices. The high price of jet fuel

combined with limited airline capacity (due to new aircraft production delays) will

result in even higher airfares in the next 12-24 months. The combination of lower

disposable income and higher airfares will most likely curb growth in tourism demand

in the next 12-18 months.

All of these factors are considered to be relatively short-term in nature, although some

commentators believe that high energy prices will persist in the foreseeable future. The

long-term outlook for consumer demand is more optimistic, particularly since most of

the factors that are currently having a negative impact on consumer demand are cyclical

in nature. Consumer demand is therefore likely to rebound in the next 24-36 months as

economic conditions improve and new airline capacity is released.

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Consumer demand will undoubtedly rise and fall several times over the next 20 years as

economic conditions change, in much the same way as it has over the past 20 years. The

key observations from the past 20 years, which could be expected to apply to the next 20

years, are:

• Tourism is very resilient to economic shocks and changes in consumer demand

• Even large shocks such as September 11 and SARS had a relatively minor impact

on aggregate tourism activity

• Downswings in consumer demand are always followed by upswings, and the

gains in tourism during prosperous periods generally outweigh the losses

during the difficult periods; hence in the long-term tourism is expected to

continue growing even in the presence of regular downswings. This view is

supported by the World Tourism Organisation, which is continuing to predict

strong growth in global tourism despite challenging economic conditions.

2.1.2. New Zealand’s Success as a Destination

International

Auckland’s success as an international visitor destination depends, to a large extent, on

New Zealand’s success as an international destination. This is mainly because over 75%

of international visitors enter and/or exit New Zealand through Auckland International

Airport i.e. Auckland is the main gateway to New Zealand. The following graph

demonstrates the high degree of correlation between international visitor nights spent in

New Zealand and international visitor nights spent in Auckland.

Figure 3 International Nights in New Zealand vs. International Nights in Auckland 1999-2006

25

30

35

40

45

50

8 9 10 11 12 13 14 15 16 17 18

Mill

ion

s

MillionsInternational Visitor Nights in Auckland

Inte

rna

tio

nal

Vis

ito

r N

igh

ts i

n N

ew

Zea

lan

d

Distorted by export education

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Growth in visitor arrivals to New Zealand has slowed considerably in the last three

years after a period of unprecedented growth, averaging 1.7% per annum between 2004

and 2007 compared with 5.8% per annum between 1994 and 2004.

Figure 4 Growth in International Visitor Arrivals to New Zealand

0

500

1,000

1,500

2,000

2,500

3,000

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Th

ou

sa

nd

s

Vis

ito

r A

rriv

als

to

New

Ze

ala

nd

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Gro

wth

in

Vis

ito

r A

rriv

als

to

Ne

w Z

eala

nd

Growth in Visitor Arrivals to NZ

Visitor Arrivals to NZ

Part of the slowdown can be attributed simply to a much larger visitor base – a 5%

increase off today’s visitor base of 2.46m is equivalent to an 8.3% increase off the 1998

visitor base of 1.48m. However, the main issue is that New Zealand has lost market

share in the global tourism market in recent years, implying that New Zealand is not as

popular a destination as it was, say, five years ago. There are a number of reasons for

this. The first is that the period 1999-2004 was a golden period for New Zealand

tourism – the New Zealand dollar was relatively weak, airfares were falling, significant

international exposure was gained through Lord of the Rings, Whalerider and the

Americas Cup, the 100% Pure campaign was widely recognised as the best in the world

and the Australian tourism market was in a slump. Conditions could not have been

better for New Zealand during this period. Most of these advantages have dissipated in

recent years - the New Zealand dollar is very strong against the US and Japanese

currencies, the last major event was the Lions Series in 2005 (and the next one is the

Rugby World Cup in 2011), Tourism New Zealand is faced with growing concerns

about the carbon footprint of long-haul travel and Australia is investing a lot more in

international marketing.

In addition, a number of emerging destinations are competing for the same types of

tourists as New Zealand (Tourism New Zealand calls them “interactive travellers”) e.g.

South America, China, India, Africa and Norway. With a small marketing budget by

international standards, a general shift towards short-haul travel and significant

competition from destinations with much larger marketing budgets it could be argued

that New Zealand is actually doing quite well in the current environment.

www.covec.co.nz 17

The key conclusion is that Auckland’s success as an international visitor destination, at

least with its current visitor proposition, depends largely on New Zealand’s success as a

destination. A key focus of Bringing the World to Auckland is determining how Auckland

can establish itself as a more independent (mono) destination within New Zealand, but

until the visitor proposition is much more compelling international visitor activity in

Auckland will continue to depend on the strength and popularity of the New Zealand

brand.

Domestic

Auckland’s success as a domestic destination is greatly assisted by its scale relative to

the rest of New Zealand and the dominant role it plays in the New Zealand economy.

This is reflected in the fact that more than 70% of visitations to Auckland are largely

autonomous or non-discretionary in nature e.g. visiting friends and relatives,

conducting business and attending conferences and conventions. In 2006 less than 30%

of visitors to Auckland cited holiday or leisure as their primary reason for visiting. On

average, over 50% of visitations to other destination in New Zealand were for the

purpose of holiday or leisure.

A study commissioned by the Ministry of Tourism in 2006 entitled Domestic and

Outbound Travel Patterns2 confirmed that domestic tourism in New Zealand has declined

quite significantly over the past decade. The study found that:

• New Zealand residents spent a remarkably consistent number of nights away

from home each year – around 22 in total – and that these nights were divided

between domestic travel and outbound travel.

• The price of outbound travel has increased by 9% between 1990 and 2005 while

the price of domestic tourism has increased by 44%. This has created a marked

shift in the relative price of outbound travel in relation to domestic travel, making

outbound travel a more attractive and attainable option for New Zealanders.

• Declining rates of domestic tourism are a global trend, driven by higher

disposable incomes and greater competition in the international travel market.

The decline in domestic tourism in Auckland has been more marked than the decline

experienced elsewhere in New Zealand, with domestic visitor nights in Auckland

falling by an average of 4.1% per annum since 1999 compared with a decline of 2.8% for

all other destinations in New Zealand. The rapid increase in outbound travel over the

past decade has undoubtedly had the largest negative impact on domestic visitor

activity in Auckland.

2 http://tinyurl.com/57jvmg

www.covec.co.nz 18

Figure 5 Domestic Visitor Nights in Auckland

0

1,000

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1999 2000 2001 2002 2003 2004 2005 2006

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Outlook

The outlook for international tourism in New Zealand is relatively positive. The

Ministry of Tourism’s forecasting programme is predicting average growth in visitor

arrivals over the next 7 years of around 3.6% per annum, although lower growth rates

are expected in 2008 and 2009, mainly due to low consumer demand and higher airfares.

The growth rate beyond 2014 is difficult to predict, but the general consensus within the

industry is that an average growth rate of 3% per annum over the next 20 years is

realistic.

The outlook for domestic tourism is less optimistic with the Ministry of Tourism

predicting average growth in domestic visitor nights of around 0.8% per annum for

New Zealand over the next 7 years, and just 0.6% for Auckland. The main reason for

the low expected growth rate is New Zealand’s slow rate of population growth – less

than 1% per annum. In addition, outbound travel is expected to continue increasing,

which will further suppress domestic demand.

2.1.3. Cost of Travel

The cost of travel is a key driver of tourism demand. Around 95% of all domestic travel

in New Zealand is conducted using private vehicles – mainly cars; hence fuel is a direct

and significant component of the cost of domestic tourism. Practically all international

tourism involves a flight to New Zealand, and the airfare can be anything from 20-60%

of the total cost of a trip to New Zealand; hence fuel is a direct and significant

component of the cost of international tourism. The rapid increase in the cost of

domestic fuel and aviation fuel has been well documented, and the price of oil, currently

sitting at a record $US140 per barrel, is not expected to drop for some time.

www.covec.co.nz 19

Outlook

The general consensus among tourism operators in New Zealand is that we are entering

a period of high fuel prices that could persist for some time, and that the tourism

industry will need to find ways to reduce its consumption of, and exposure to, fossil

fuels. At least one of the major airlines operating in New Zealand is actively

reconfiguring its network to combat the higher fuel prices by shifting more capacity to

short-haul routes.

Persistently high fuel prices will reduce New Zealand’s competitiveness in long-haul

markets due to the large airfare component of a trip to New Zealand, but domestic

tourism is likely to increase as overseas travel becomes relatively more expensive for

New Zealanders.

2.1.4. Climate Change

Climate change has received a lot of publicity in recent years and most people are now

aware of the “carbon footprint” associated with travel. The perceived threat to the New

Zealand tourism industry is clearly emphasised by the prevalence of climate and

environmental themes in the recently released New Zealand Tourism Strategy 20153. In

particular the Tourism Strategy identifies the following as critical challenges to the New

Zealand tourism industry:

• The growing concern globally about the impact of travel on climate change

• The environmental sustainability of tourism in New Zealand

The general consensus within the tourism industry is that the issue of climate change is

not yet having a material impact on travel or consumption behaviour, but that it

definitely has the potential to do so. At present it seems that while awareness of climate

change has increased significantly, most consumers still put price and convenience

ahead of environmental factors, as evidenced by the very small percentage of air

passengers that volunteer to offset their carbon emissions.

According to key industry stakeholders the main risk to New Zealand, and therefore to

Auckland, seems to be the perception that a lot of carbon is generated in getting to New

Zealand. This has the potential to undermine or at least tarnish Tourism New Zealand’s

reputation as a “100% Pure” destination. To date at least one destination in the

Northern Hemisphere (Norway) has used climate change in its marketing campaign to

position itself as a more environmentally friendly alternative to New Zealand.

A further risk is the impact that emission trading schemes may have on the price of

getting to, and travelling within, New Zealand. Domestic travel within New Zealand

will face an increased fuel price when transport fuels are included in the proposed New

Zealand Emissions Trading Scheme (ETS); this is currently proposed to be in 2011. In

contrast, emissions from international air (or sea) travel are not included in national

emission targets under the Kyoto Protocol, nor are they under the New Zealand ETS.

3 http://www.nztourismstrategy.com/

www.covec.co.nz 20

However, the EU has proposed to include aviation in its ETS. This would only cover

domestic and international flights between EU airports initially (from 2011), but from

2012, it would be extended to cover emissions from all international flights that arrive

at, or depart from, an EU airport. This will have the largest effects on travel to distant

destinations, such as New Zealand.

Outlook

It is almost certain that climate change will play an increasing role in the decision-

making behaviour of consumers, particularly in relation to travel. In response, many

tourism operators are putting measures in place to better manage the impact of their

activities on the environment e.g. the use of bio-fuels by airlines4, the establishment of

offset schemes, changes in vehicle fleet technologies and compositions, the use of

alternative energy sources such as solar and wind.

The general view within the industry is that travel has become an important and

essential part of modern life; hence it is unlikely that increasing awareness of climate

change will curb aggregate travel activity. However, it is widely acknowledged that

climate change has the potential to alter the pattern of tourism i.e. it is anticipated that

consumers will choose destinations that are perceived to be relatively more

environmentally friendly than others.

In terms of international tourism the future success of Auckland will depend critically

on the perceived environmental friendliness of New Zealand as a destination relative to

other international destinations. The key challenge in this regard is the airfare

component of a trip to New Zealand. While New Zealand’s remoteness has arguably

been a positive attribute in the past, the growing awareness of climate change is rapidly

turning it into a negative attribute. This shift will be exacerbated if airfares to New

Zealand increase disproportionately relative to other countries as a result of emissions

trading schemes.

2.1.5. Aviation Capacity

Aviation capacity has a major impact on both international and domestic visitor flows.

More seats on a route obviously enables more demand to be satisfied, and, assuming

there is adequate competition from other carriers, will generally impose downward

pressure on airfares (as observed on trans-Tasman routes in 2004/05).

Aviation capacity is currently constrained due to well documented wide-body aircraft

production delays in both the Boeing and Airbus plants. These delays are affecting

practically all major carriers, including Qantas and Air New Zealand. This has resulted

in higher load factors for airlines and, consequently, higher airfares for consumers. The

main threat to New Zealand in the short-term is the reallocation of aircraft to more

profitable routes in Europe and Asia.

4 Air New Zealand says it expects to use at least one million barrels of environmentally sustainable fuel

annually by 2013. However, the anticipated impact of bio-fuels on basic food prices, particularly corn-

based products, could have an impact on the desirability and/or acceptability of bio-fuels.

www.covec.co.nz 21

Outlook

Airlines will take delivery of pre-ordered A380s from late 2008 onwards, and pre-

ordered 787s from late 2009 onwards, assuming there are no further production delays.

Both Qantas and Air New Zealand expect a large increase in wide-body capacity

internationally from 2010 onwards which should result in greater seat availability and

lower prices. The long-term outlook for aviation capacity is therefore very positive.

2.1.6. Exchange Rate

The exchange rate affects inbound tourism by altering the price of a trip to New

Zealand. As the graph below shows, the New Zealand dollar has increased in value in

the past two years relative to most of our major inbound markets, particularly in

relation to the US dollar and the Japanese Yen. This has increased the price of a trip to

New Zealand from these markets quite significantly, which has resulted in a reduction

in arrivals to New Zealand, and a corresponding reduction in visitations to Auckland.

Figure 6 Index of Value of New Zealand Dollar Relative to Currencies of Major Inbound Markets

50

70

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(Index =

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Australia USA Japan South Korea China UK Germany

The exchange rate also affects domestic tourism by altering the price New Zealanders

pay for an international trip. The strength of the New Zealand dollar has definitely

played a part in the recent growth in outbound travel, although the combination of

growth in disposable income and cheap airfares has undoubtedly been the primary

driver.

The current strength of the New Zealand dollar can be attributed to the strength of the

New Zealand economy and high domestic interest rates, both of which make New

Zealand an attractive place for foreigners to invest. The Reserve Bank has recently

announced lower than expected economic growth projections, and an intention to

reduce the official cash rate (OCR), both of which resulted in an immediate sell-down of

New Zealand currency.

www.covec.co.nz 22

Outlook

Exchange rates are highly volatile and notoriously difficult to predict. The New

Zealand dollar is expected to weaken relative to major trading partners in 2008 and 2009

as economic growth slows and interest rates decline. A weak New Zealand dollar is

positive for tourism in New Zealand because it makes New Zealand a cheaper

destination for international travellers, and it makes outbound travel more expensive,

which induces more New Zealanders to travel domestically. It is likely that the New

Zealand dollar will revert back to a more sustainable long-term average in the next year

or two, which many economists believe is around US$0.60.

www.covec.co.nz 23

2.2. Specific Drivers of Tourism Demand in Auckland

The factors that are expected to influence the demand for tourism in Auckland

specifically are:

• Major events

• The cruise ship industry

• A national convention and exhibition centre

• Low cost air travel

These are discussed in more detail below.

2.2.1. Major Events

Major events were identified as a key opportunity for Auckland in the Metro Project,

and subsequently in Bringing the World to Auckland under the strategic theme:

Host City – (Within 10 years) Auckland has the infrastructure, reputation and unity

to secure and host large scale conferences, conventions and major events.

The main body of work on major events was published in Positioning Auckland as a Major

Events Destination5, which is considered to be an appendix to Bringing the World to

Auckland.

According to the research Auckland could realise the following benefits by establishing

itself as a major events destination:

• Attract more visitors, particularly in the shoulder seasons

• Maximise the economic benefits arising from hosting major events

• Enhance Auckland’s international profile and reputation

• Bring certainty and coordination at the regional level in the competition for

major events

• Offer opportunity to cluster support events around a major event

• Maintain programming consistency (regularly scheduled dates/times of major

events each year)

• Centralise knowledge and expertise on securing, promoting and delivering

events

• Ensure infrastructure requirements are taken into account

• Create the critical mass to retain the skills and knowledge acquired from the

city-region’s investment in major events

5 http://tinyurl.com/4w685d

www.covec.co.nz 24

The following aspiration for major events was developed through consultation with key

industry stakeholders:

"Auckland has a portfolio of major events that showcase its unique landscape,

culture and lifestyle on the world stage. It has a strong international profile and

a proven track record in delivering large scale events. Major events add

significant value to the regional economy and enrich the lives of Aucklanders."

The aspiration is underpinned by six strategic themes:

• Regional Approach

• Exciting Place

• Quality Infrastructure

• Outstanding People

• Well Supported Events

• Sustainable

More detail on each of the key themes can be found in Positioning Auckland as a Major

Events Destination.

Example of a Successful Major Event

The Lions Series is estimated to have attracted an additional 20,000 international visitors

to Auckland in June and July of 2005 - traditionally the two slowest months for the

visitor economy. A formal economic assessment6 concluded that:

“The Lions Series generated an additional $53.0m of revenue in the Auckland

region which flowed through the Auckland economy and generated a total

regional GDP impact of $43.2m. This GDP would not have existed in the

absence of the Lions Series.”

The impacts of the event were widespread, with visitor demand increasing significantly

during a traditionally slow period for Auckland, and New Zealand. The impact was

well reflected in the monthly New Zealand Hotel Council statistics which showed that

revenue per available room – the standard yield measure in the hotel sector - increased

from $85 in July 2004 to $111 in July 2005 (the Lions effect), before returning to $84 in

July 2006. This had a marked impact on hotel earnings in 2005, and on the earnings of

many other businesses in Auckland and throughout New Zealand.

Outlook

Auckland has signalled a commitment to developing a sustainable and financially

viable portfolio of major events that attracts visitors, tourism spend and investment

from elsewhere in New Zealand and internationally.

6 “The Economic Impact of the 2005 DHL Lions Series on New Zealand”, October 2005.

www.covec.co.nz 25

At present Auckland will be the main host of two confirmed major events in the next

decade – the Rugby World Cup in 2011 and the Cricket World Cup in 2015 (to be jointly

hosted by New Zealand and Australia). In addition, there is a possibility that Auckland

will submit a bid for the Commonwealth Games in 2018.

Auckland’s ability to expand its major events portfolio beyond these events will depend

on its ability to invest in a dedicated regional major events office, develop the

infrastructure required to attract and deliver large scale major events, and present a

united front when bidding for major events.

Note on Feature Films

An iconic feature film can have a marked impact on tourism. Feature films tend to sit

somewhere between a destination marketing campaign and a major event in terms of

their effect, but can be very effective in showcasing a destination and enticing people to

visit. The obvious example for New Zealand is “Lord of the Rings”, which anecdotally

had a major impact on tourism. Australia had similar success in the 1980s with

“Crocodile Dundee” and is reportedly trying to replicate this success with a soon-to-be-

produced feature film entitled “Australia: The Movie”.

2.2.2. Cruise Ship Industry

Recent analysis conducted by Covec suggests that the development of a new fit-for-

purpose cruise ship terminal in Auckland has the potential to deliver major economic

benefits to Auckland and New Zealand.

As a transfer port (i.e. a port at which passengers start or conclude their cruise ship

voyages), it is critical that Auckland has the ability to handle two large cruise ships at

the same time. Consultation with Cruise New Zealand confirms that with a new cruise

ship terminal in Auckland, and with the existing facility at Princes Wharf used as

overflow capacity, it is likely that the major cruise lines would deploy more ships to this

region i.e. at present demand for cruises in New Zealand is constrained by Auckland’s

cruise infrastructure.7 This would have an immediate impact on the number of cruises

operating in New Zealand waters, and on the economic impact generated by the cruise

ship industry. According to a recent study of the cruise ship industry in New Zealand,

each cruise ship passenger currently contributes around $1,700 to New Zealand’s GDP

through their own expenditure while in port and the expenditure of cruise ship

operators in New Zealand. It is estimated that a new fit-for-purpose cruise ship

terminal in Auckland would result in 45 additional cruises each season by 2014/15

carrying 70,000 additional passengers. An increase in cruise ship activity of this

magnitude would contribute an additional $120m in national GDP and $26m to

government income each year. Approximately half of the economic benefit of a new

cruise ship terminal would accrue to Auckland, with the remainder distributed widely

across the remainder of New Zealand.

7 This assumes that the cruise ship infrastructure in Sydney, which is the main Australian node of the

trans-Tasman swing, is capable of handling the additional activity.

www.covec.co.nz 26

The results of the research conducted by Covec suggest that there is a clear and

immediate business case for developing a new cruise ship terminal in Auckland. The

case for a new purpose-built cruise ship terminal in Auckland is very compelling. The

value creation opportunity is significant, as is the risk to the existing flow of value from

cruise ships if Auckland were to lose its status as a transfer/hub port.

2.2.3. National Convention and Exhibition Centre

Local tourism industry stakeholders unanimously support the development of an

internationally competitive convention and exhibition centre in Auckland to attract high

yielding visitors. The favoured site at present is the land bordered by Albert St and

Mayoral Drive, which is owned by Auckland City Council. A report entitled New

Zealand Convention Centre – Business Case and Facility Recommendations was

commissioned by Auckland City Council in 2005 to investigate the commercial viability

of a national convention centre located in Auckland. The report concluded that a

convention centre of suitable scale would cost around $200m to develop (excluding

land, which would be gifted by Auckland City Council), although $300m is now

considered to be a more realistic estimate. It is estimated that such a facility would

increase Auckland’s GDP by $67m per annum at operational maturity, and New

Zealand’s by $72m per annum. The estimates of economic impact were independently

reviewed by Covec on behalf of Auckland City Council in May 2008, and were found to

be reasonable.

A national convention and exhibition centre located in Auckland’s CBD would benefit

Auckland, and New Zealand, in a number of ways:

• Financially – on average conference and convention delegates spend 3-4 times

more money per night than typical visitors.

• Conferences and conventions are generally held during off-peak periods; hence

a convention and exhibition centre in Auckland would help to reduce

seasonality both locally and nationally (since a reasonable percentage of

delegates will travel more widely within New Zealand before and/or after their

event).

• By allowing New Zealand to promote and showcase its industries to the world,

as well as bringing some of the world’s most influential business and industrial

leaders to New Zealand.

www.covec.co.nz 27

2.2.4. Low Cost Air Travel

A low-cost airline is an airline that offers generally low fares in exchange for eliminating

many traditional passenger services. The concept originated in the United States before

spreading to Europe in the early 1990s and subsequently to much of the rest of the

world.

Typical low-cost carrier business model practices often (but not always) include:

• A single passenger class

• A single type of aeroplane (commonly the Airbus A320 or Boeing 737), reducing

training and servicing costs

• A minimum set of optional equipment on the aeroplane

• A simple fare scheme, such as charging one-way tickets half that of round-trips

• Unreserved seating

• Flying to cheaper, less congested secondary airports and flying early in the

morning or late in the evening to avoid air traffic delays and take advantage of

lower landing fees

• Fast turnaround times

• Simplified routes, emphasizing point-to-point transit instead of transfers at hubs

• Encourage the use of direct flights. Luggage is not automatically transferred

from one flight to another, even if both flights are with the same company.

• Generation of ancillary revenue from a variety of activities, such as a la carte

features and commission-based products

• Emphasis on direct sales of tickets, especially over the Internet

• Employees working in multiple roles, for instance flight attendants also cleaning

the aircraft or working as gate agents

• A disinclination to handle Special Service passengers, for instance by placing a

higher age limit on unaccompanied minors than full service carriers

• Aggressive fuel hedging programs

The main low cost airlines operating to and within New Zealand at present are:

• Jetstar, which is a subsidiary of Qantas that flies from various Australian ports

to Christchurch (generally via Brisbane).

• Pacific Blue, which is a subsidiary of Virgin that flies from various Australian

ports (generally via Brisbane) to Auckland, Wellington and Christchurch.

Pacific Blue also flies domestically in New Zealand, offering flights between

Auckland, Wellington, Christchurch and Dunedin.

www.covec.co.nz 28

A study conducted by BERL in 20028 concluded that significant economic benefits

would be realised from greater low cost airline activity in Auckland, driven mainly by

greater visitor numbers out of Australia. The BERL study concluded that:

“Even a moderate market response to [a low cost] airline would bring visitors

to stimulate the regional and local tourism industry and generate increased

employment in tourism of 1,000 FTEs in the region, and 2,500 FTEs

nationally. This would be additional regional GDP of $50m per annum and

national GDP of about $100m per annum. In 10 years time, the expected

expansion of tourist markets would increase these impacts by 50% to 100%.”

This analysis was based on the development of a new commercial airport at Whenuapai

Airbase, but could just as easily apply to greater low cost airline activity at Auckland

International Airport. A study published by Auckland International Airport in March

2006 entitled Auckland Airport Masterplan: 2025 and Beyond9 confirms that airport

capacity is not a major constraint on airline activity at Auckland International Airport.

This implies that greater low cost airline activity could be accommodated at Auckland

International Airport, particularly outside peak time-slots.

8 A Rejuvenated Whenuapai Airport – A Focus for North/West Auckland’s Balanced Growth and Economic

Development (http://www.waitakere.govt.nz/abtcit/whenuapai/pdf/rejuvenatedairport.pdf)

9 http://www.auckland-airport.co.nz/MasterPlan/summary.php

www.covec.co.nz 29

3. Economic Contribution

3.1. Gross Expenditure

Total visitor expenditure in Auckland was estimated by the Ministry of Tourism at

$3.745b in 2006, including GST.10 International visitors accounted for $2.52b of this

expenditure, with domestic visitors accounting for the remaining $1.22b. In total, gross

visitor expenditure in 2006 was distributed across industry sectors in the Auckland

Region as follows:

• Retail trade - $687m (18%)

• Accommodation, restaurants and bars - $1.43b (37%)

• Road transport - $415m (11%)

• Water and rail transport - $58m (2%)

• Air transport, services to transport and storage - $599m (16%)

• Education - $170m (4%)

• Cultural and recreational services - $391m (10%)

Figure 7 Gross Visitor Expenditure x Industry Sector in Auckland in 2006

$0

$200

$400

$600

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Domestic $333 $445 $108 $15 $204 $8 $109

International $354 $980 $307 $43 $395 $163 $282

Retail tradeAccommodation,

restaurants and barsRoad transport

Water and rail

transport

Air transport,

services to transport

and storage

EducationCultural and

recreational services

Source: Ministry of Tourism and Covec Limited

Holiday travellers spent the largest amount of money in the Auckland region at $1.44b,

followed by travellers visiting friends and relatives (VFR) at $964m and visitors

engaging in educational activities ($350m). Visitors travelling for other reasons

(including business) accounted for the remaining $992m of expenditure.

10 Refer http://www.covec.co.nz/pdf/ForecastsBooklet2007.pdf, page 27.

www.covec.co.nz 30

Figure 8 Gross Visitor Expenditure x Purpose of Travel in Auckland in 2006

$0

$200

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Domestic $398 $360 $17 $446

International $1,008 $612 $334 $570

Holiday VFR Education Other

Source: Ministry of Tourism and Covec Limited

Table 1 Visitor Expenditure x Purpose of Travel x Sector in Auckland in 2006 ($NZm including GST)

Holiday VFR Education Other TOTALInternational Visitors

Retail trade $111 $112 $27 $105 $354

Accommodation, restaurants and bars $386 $220 $83 $291 $980

Road transport $177 $74 $16 $40 $307

Water and rail transport $22 $10 $3 $8 $43

Air transport, services to transport and storage $187 $118 $10 $81 $395

Education $0 $0 $163 $0 $163

Cultural and recreational services $125 $78 $33 $46 $282

TOTAL $1,008 $612 $334 $570 $2,524

Domestic Visitors

Retail trade $125 $111 $4 $93 $333


Road transport $37 $28 $1 $43 $108



Education $2 $2 $3 $2 $8


TOTAL $398 $360 $17 $446 $1,221

All Visitors

Retail trade $235 $224 $31 $198 $687

Accommodation, restaurants and bars $536 $334 $88 $466 $1,425

Road transport $213 $102 $17 $83 $415



Education $2 $2 $165 $2 $170


TOTAL $1,439 $964 $350 $992 $3,745 Source: Ministry of Tourism and Covec Limited

www.covec.co.nz 31

3.2. Contribution to GDP

In aggregate, the $3.745b of gross visitor expenditure in the Auckland region (including

GST) generated total regional GDP of $2.994b in 2006. This implies an average

expenditure/GDP multiplier of around 0.80 i.e. on average every $1.00 of gross visitor

expenditure in Auckland generates around $0.80 of regional GDP, including indirect

and induced effects.

Figure 9 GDP x Industry Sector in Auckland

$0

$200

$400

$600

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$1,000

$1,200

Gro

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Domestic $299 $332 $98 $12 $136 $8 $86

International $318 $732 $278 $35 $264 $173 $223

Retail tradeAccommodation,

restaurants and barsRoad transport

Water and rail

transport

Air transport,

services to transport

and storage

EducationCultural and

recreational services

Figure 10 GDP x Purpose of Travel in Auckland

$0

$200

$400

$600

$800

$1,000

$1,200

Gro

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Exp

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($N

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Domestic $344 $282 $14 $331

International $790 $481 $309 $444

Holiday VFR Education Other

www.covec.co.nz 32

Table 2 GDP x Purpose of Travel x Industry Sector in Auckland ($NZm including GST)

Holiday VFR Education Other TOTALInternational Visitors

Retail trade $99 $101 $24 $94 $318


Road transport $160 $67 $14 $36 $278



Education $0 $0 $173 $0 $173


TOTAL $790 $481 $309 $444 $2,023

Domestic Visitors

Retail trade $112 $100 $4 $83 $299


Road transport $33 $25 $1 $39 $98



Education $2 $2 $3 $2 $8


TOTAL $344 $282 $14 $331 $971

All Visitors

Retail trade $211 $201 $28 $178 $617

Accommodation, restaurants and bars $401 $249 $65 $348 $1,064

Road transport $194 $93 $15 $75 $377



Education $2 $2 $176 $2 $182


TOTAL $1,133 $763 $323 $776 $2,994

www.covec.co.nz 33

4. Economic Projections

See ‘Tourism GDP Projection Model.xls’ for more detail. Examples of the outputs

generated by the model are shown below. The default assumptions that drive these

projections are:

• Annual average growth in international visitor spend of 4.5% per annum

• Annual average growth in domestic visitor spend of 1.0% per annum

• A national convention centre built and fully operational in the CBD by 2013

• A new purpose built cruise ship terminal built and fully operational by 2011

• A significant increase in low cost airline activity in the Auckland region from

2015 onwards

• Auckland hosting the Rugby World Cup in 2011, the Cricket World Cup in 2015

and the Commonwealth games in 2018.

The assumptions driving the GDP projections can be altered in ‘Tourism GDP Projection

Model.xls’.

Figure 11 Projected GDP Derived from Tourism in the Auckland Region 2006 - 2031

YearBaseline Tourism

Convention Centre

Cruise Ship Terminal

Low Cost Air Travel

Major Events TOTALAnnual

Growth Rate

2006 2,994 0 0 0 0 2,994

2007 3,095 0 0 0 0 3,095 3.4%2008 3,200 0 0 0 0 3,200 3.4%

2009 3,309 0 0 0 0 3,309 3.4%2010 3,423 0 0 0 0 3,423 3.4%

2011 3,542 0 8 0 150 3,700 8.1%2012 3,666 0 16 0 0 3,682 -0.5%

2013 3,794 28 23 0 0 3,845 4.4%2014 3,929 41 29 0 0 3,999 4.0%

2015 4,069 55 29 31 75 4,258 6.5%2016 4,215 55 29 49 0 4,347 2.1%

2017 4,367 55 29 62 0 4,512 3.8%2018 4,525 55 29 62 150 4,821 6.8%

2019 4,691 55 29 62 0 4,836 0.3%2020 4,863 55 29 62 0 5,009 3.6%

2021 5,043 55 29 62 0 5,189 3.6%2022 5,230 55 29 62 0 5,376 3.6%

2023 5,426 55 29 62 0 5,572 3.6%2024 5,630 55 29 62 0 5,775 3.7%2025 5,842 55 29 62 0 5,988 3.7%

2026 6,064 55 29 62 0 6,210 3.7%2027 6,296 55 29 62 0 6,441 3.7%

2028 6,537 55 29 62 0 6,683 3.7%2029 6,789 55 29 62 0 6,935 3.8%

2030 7,052 55 29 62 0 7,197 3.8%2031 7,326 55 29 62 0 7,471 3.8%

www.covec.co.nz 34

Figure 12 Projected GDP Derived from Tourism in the Auckland Region by Sector 2006 - 2031

Year Retail TradeAccomm.

Restaurants

& Bars

Road Transport

Water & Rail Transport

Air Transp.

Services to Transp. &

Storage

EducationCultural &

Recreational

Services

TOTAL

2006 617 1,064 377 47 399 182 309 2,9942007 638 1,099 389 49 413 188 319 3,095

2008 660 1,137 402 51 427 194 330 3,200

2009 682 1,176 416 52 441 201 341 3,3092010 706 1,216 430 54 456 208 353 3,423

2011 763 1,314 465 59 493 224 382 3,7002012 759 1,308 463 58 491 223 380 3,682

2013 792 1,366 483 61 513 233 397 3,8452014 824 1,420 503 63 533 242 413 3,999

2015 878 1,513 535 67 568 258 439 4,258

2016 896 1,544 547 69 580 264 449 4,3472017 930 1,603 567 71 602 274 466 4,512

2018 994 1,713 606 76 643 292 497 4,8212019 997 1,718 608 76 645 293 499 4,836

2020 1,032 1,779 630 79 668 304 517 5,0092021 1,069 1,843 652 82 692 315 535 5,189

2022 1,108 1,910 676 85 717 326 555 5,376

2023 1,148 1,979 701 88 743 338 575 5,5722024 1,190 2,052 726 91 770 350 596 5,775

2025 1,234 2,127 753 95 798 363 618 5,9882026 1,280 2,206 781 98 828 376 641 6,210

2027 1,328 2,288 810 102 859 390 665 6,4412028 1,377 2,374 840 106 891 405 690 6,683

2029 1,429 2,463 872 110 925 420 716 6,935

2030 1,483 2,557 905 114 960 436 743 7,1972031 1,540 2,654 939 118 996 453 771 7,471

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