How much does a weaker A$ help tourism?

There is a well held belief that if the Aussie $ continues to weaken that we will see direct positive flow-through into the tourism industry. It’s a belief that is founded on some sound, and apparently reasonable, assumptions based on the fact that as the A$ falls travel for non-A$ based visitors to Australia becomes cheaper, and that foreign travel for Aussies becomes more expensive and that, therefore, there will be a larger number of Aussies who will choose to holiday at home. That all makes perfect sense. However, does the actual evidence support the theory?

Over the past 14 years we have witnessed significant moves in the A$; and equally significant shifts in the travel patterns of both Aussies and visitors to Australia. The graph below makes that clear.


We are going to split this time series into 4 “eras”.

  • Era 1 is from March 2001 to June 2008. This was the run-up to the GFC. The Aussie appreciated strongly and Aussies began to travel abroad in large numbers
  • Era 2 is the GFC period from June 2008 to December 2009. The A$ crashed, then bounced strongly. Domestic travel fell sharply and international arrivals almost flat-lined.
  • Era 3 is the post-GFC period from December 2009 to June 2011 when the A$ rallied to its high of around US$1.10.
  • Era 4 is from June 2011 to June 2014 when the A$ started to weaken, but travel abroad, at home and from elsewhere all grew.

So what do we see when we consider international, domestic and foreign travel during these “eras”? The table below tells us by comparing the annualised growth rates for each of the indicators.

Era A$  International Visitors Domestic Travel Foreign Travel by Aussies
1 +9.7% +1.7% -0.3% +6.9%
2 -4.9% -1.3% -5.7% +10.5%
3 +13.1% +5.2% +4.9% +9.2%
4 -4.2% +3.5% +3.7% +6.7%

What we see is that during the period of strongest A$ appreciation (i.e. Era 3 from Dec ’09 to Jun ’11) all sectors of the tourism market grew at their fastest (or almost fastest) rates. Domestic tourism grew at a faster rate as the A$ appreciated 13.1% pa than it did when the A$ fell at 4.2% pa.

Also interestingly, Aussies travelling abroad actually grew at their fastest rate during the period of the GFC when the A$ depreciated; and foreign travel has continued to grow strongly even with the A$ weakening since June 2011.

There will of course be plenty of factors which we are not considering in this simple analysis (things such as the delay between the currency move and the actual travel caused by the fact that travel plans are often made well in advance of the actual travel). However, what it does demonstrate is that simple lines such as “the Aussie $ weakening will cause a boost to tourism”, or the converse “a strong Aussie $ will see tourism suffer”, are far too simplistic and may not actually be the case (at least in the short term). What the data shows us is that there are many more factors influencing peoples’ decisions to travel, both in and out of the country, than the level of the Australian dollar. The tourism industry would do well to remember that.

UPDATE: Mark Beath at Loose Change has also been looking at the exchange rate and tourism today (although from a very different angle). You can read his piece here.

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