Domestic tourism – the backbone of the industry (2014)

 

Executive summary

(This document was created for the launch of Tourism 2025 in March 2014. It is not updated. See Tourism 2025 - Two Years On for the latest information on the growth framework.)

In conducting this examination of the New Zealand domestic tourism market a number of key issues have become clear. If these issues are addressed nationally and regionally they provide opportunities for those working in domestic tourism to develop a more robust and cohesive approach to the sector, which in turn will grow business.

Domestic tourism provides critical support to tourism operators in several areas of industry performance:

  1. Seasonality: A vibrant domestic tourism industry can generate visitor spending in slower shoulder and off season months.
  2. Regional dispersal: Domestic visitors can be vital in providing an even greater level of spending in ‘emerging’ regions, i.e. smaller, remote or less developed areas of tourism.
  3. Increased spending domestically:  A compelling domestic tourism offering can motivate Kiwis to holiday in New Zealand rather than offshore. It can also encourage them to direct more of their discretionary dollars into domestic holidays.

The history of international tourism overall is one of growth interrupted by short to medium term crises. Countries with a weak domestic tourism sector are less able to withstand the impact of major crises in international markets, e.g. economic depression, terrorist attack, natural disaster. Conversely, countries with a strong domestic tourism sector are generally better equipped to withstand fluctuations in international demand.

 

Actionable initiatives

We propose four areas of further action to boost the performance of the domestic tourism sector. These should aim to better define the sector’s issues and opportunities. They should also suggest longer term actions and also offer immediate actions to improve seasonality and bolster visitor dispersal across New Zealand.

1. Insight into attitudes and behaviour of New Zealanders to domestic vs. international travel options

This insight should build on previous major studies, notably the Angus and Associates 2009 Domestic Travel Study, to better understand:

  • the motivations to travel internationally
  • the barriers to domestic travel, including perceptions of New Zealand as an aspirational destination
  • price and access issues

In particular, the insight should probe opportunities to move New Zealanders’ spending from international travel or other discretionary spending to domestic travel.

2. Domestic tourism leadership

A range of tourism businesses, regional organisations and local councils are involved in delivering domestic tourism. They often operate in silos with no national perspective or coordination. A national domestic tourism working group consisting of the major stakeholders could drive the development of better insight tools and understanding of the market through updated market segmentation. It could also encourage greater and more effective investment in the sector.

3. Resource constraint effect of TNZ regional activity support

Regional Tourism Organisations (RTOs) are regarded as the prime tourism industry organisation at the local level, and as such are called on to support and facilitate TNZ trade and international media activity in the regions. While RTOs welcome the opportunity to showcase their region to potential tourism advocates, providing this support can sometimes divert considerable resources away from core activities such as domestic marketing. TNZ could address this by allocating budget for regional resource support.

4. Regional Tourism Organisation (RTO) capability support

Local government as the primary investor in RTOs is fiscally limited in the level of support it is able to provide. Regional Tourism Organisations New Zealand (RTONZ) recommends local government establish a contestable fund to provide RTO insight and capability building.
 

 

Why is domestic tourism important?

Domestic tourism is a multi-billion dollar industry 

Domestic tourism has been increasing steadily in New Zealand over a considerable period of time. Today it is worth almost $14 billion dollars annually to the tourism industry and makes up 59% of total tourism earnings. Domestic visitors spend $39 million per day, benefiting cities, towns and communities throughout New Zealand.

Domestic tourism makes a substantial contribution to the industry’s overall financial resilience, sustainability and functionality – in fact many tourism businesses would not survive if it were not for the year round patronage of domestic visitors. Kiwis contribute more visitor nights and higher expenditure than international visitors and help address seasonality and regional dispersal challenges.

Domestic tourism contributes to regional economies

The differing travel patterns of domestic visitors mean that they are an important contributor to regional economies, generating wealth and vibrancy that many regions and places would otherwise lack.

We have created an indicator of regional impact based on regional gross domestic product data. Figure 1 shows a regional tourism expenditure comparison between international and domestic sectors as a proportion of regional GDP (year ended March 2010).

The pie charts show both the proportion of international and domestic expenditure in each region as well as the relative expenditure size. While most expenditure occurs in the gateway cities (larger pies), the impact of expenditure is more marked (heavier shading) in more sparsely populated regions (e.g. West Coast, Otago, Northland, Marlborough). Domestic expenditure dominates in all regions except for West Coast and Otago.

DomesticTourismFig1.jpg

Domestic tourism supports commercial accommodation

The usage of commercial accommodation by domestic visitors is captured by the Commercial Accommodation Monitor. Figure 2 shows the volume change (from the same month in the previous year) in guest nights for both international and domestic visitors from September 2009 to September 2013. This data shows that for most of this time, domestic guest nights have demonstrated a more consistent pattern of growth than international guest nights. They therefore make an increasingly important contribution to accommodation operators’ financial sustainability, especially during shoulder and off-peak seasons.

DomesticTourismFig2.jpg

Domestic tourism supports seasonality

Domestic leisure travel is significant for most regions during the summer school holiday period. Other significant peaks during other school holiday periods and around public holiday weekends. A different pattern of domestic leisure travel is observed in large urban centres that have good air-links and where competition exists, e.g. on the main trunk route.

Most domestic leisure travel is made to places that are within easy driving distance (around three hours or less) or that have a competitively-priced air service. This means that for rural regions (e.g. Wairarapa and Coromandel) that are within easy reach of major urban centres there is good year round opportunity, while remote, less well connected regions (e.g. West Coast and Gisborne) have much less opportunity to grow domestic tourism.

Business and convention attendance travel patterns tend to reflect the opposite to domestic leisure travel, with significant peaks during the middle of the working week, during school term times and outside weeks that contain public holidays. Beyond this, New Zealand domestic business travel tends to reach its peaks at either end of the business year. 

Conventions

Meetings, Incentives, Conferences and Exhibitions (MICE) is a valuable niche market that generates domestic travel. Within the MICE sector, multi-day conferences are likely to have the greatest impact on the domestic tourism sector and visitor expenditure. A broad suite of activity is reported in the Convention Activity Survey, including single and multi-day duration events.

Events

In many regions, events maximise the visibility and the benefits of the visitor industry to communities. Events enable regions to offer a seamless experience to visitors as well as providing vitality and excitement for local residents.

black barn
Photo: The Secret Location Lunch with Black Barn - at F.A.W.C! 2013/
Hawke’s Bay Tourism/photographer Brian Culy

In the past decade, many regions have adopted strategies to invest in festivals and events, with a particular interest in those which provide potential to address seasonality and bring domestic visitors into a destination in a traditionally quiet period of the year.

Some key Taranaki events, for example, not only attracted more visitors to the region but revitalised community spirit. Similarly, the Whitianga Scallop Festival in the Coromandel region attracts a large number of visitors each year and provides a welcome boost to the visitor industry and to community spirit in the off-peak winter season.

Domestic tourism supports business success and develops capability

Success in the domestic visitor market provides businesses and communities with the opportunity to develop their product or experience so that it is of interest to the international visitor. While most businesses target both domestic and international markets, very few businesses or communities can rely solely on international visitors for commercial success.

Domestic tourism creates a platform for tourism businesses to become export ready by underpinning the international offering and providing year round cash flow. This has the effect of stimulating product and infrastructure development.

 

The value of domestic tourism

Domestic tourism expenditure has outpaced international spending

Domestic tourism delivers many benefits to the New Zealand economy and communities across our country.  The expenditure New Zealanders make on domestic travel is retained within the New Zealand economy and buffers businesses and communities from the vagaries of the global economy.

An appreciating New Zealand dollar over the last decade is reflected in the growth of New Zealanders holidaying overseas. Domestic tourism has also grown during this period, but not at the same rate.

Since 2003, domestic tourism expenditure has increased by 37% compared with 66% increase in New Zealanders overseas travel expenditure. Not only does a choice to travel overseas (rather than travel at home) impact on New Zealand's domestic tourism expenditure, it offsets New Zealand's international tourism income because Kiwis travelling overseas are ‘importing travel’. The more they import the lower New Zealand's 'balance of travel' (see Figure 3 below). This reinforces the importance of domestic tourism to our economy and the need for the industry to create compelling reasons to holiday in New Zealand.

Tourism’s Money Go Round

How we account for tourism depends on who is spending the money and where they are spending it:

New Zealanders spending their money in New Zealand:

When New Zealanders travel at home, the money they spend boosts our domestic economy (contributes to GDP) but has no effect on New Zealand’s trade balance with the rest of the world.

Overseas visitors spending their money in New Zealand:

When overseas visitors come to New Zealand the money they spend boosts GDP and also counts as an export (people from another country, buying something from New Zealand). Exports increase New Zealand’s trading income from the rest of the world.

New Zealanders spending their money overseas:

When New Zealanders travel overseas, they use New Zealand money to buy something from overseas. That means they are importing tourism. Imports reduce New Zealand’s trading income from the rest of the world.

When overseas visitors buy New Zealand tourism, we are exporting tourism. When New Zealanders buy tourism from another country, we are importing tourism. The more tourism we import (the more New Zealanders travel overseas) the more overseas visitors we need before New Zealand is better off.

 

DomesticTourismFig3.jpg

Domestic day trips and overnight trips

There has been a significant change in the make-up of domestic tourism activity over the last decade:

  • in the year to March 2012, New Zealanders took 34.1 million day trips and 18.6 million overnight trips
  • over the period from 2003 to 2012 the number of overnight trips taken by New Zealanders increased by 10% and the number of day trips decreased by 6%
  • domestic tourism activity accounts for more than half of the demand for overnight stays
  • international visitors account for 40% of all commercial guest nights and domestic 60%
  • some 57% of domestic visitors stay in private accommodation while 33.1% of international visitors list VFR as their primary purpose of visiting New Zealand

DomesticTourismFig4.jpg

 

Characteristics of the domestic traveller

The motivations of domestic travellers are typically very different to those of international visitors, although there are areas of overlap. 

Relatively few New Zealand residents travel within New Zealand simply to 'experience' a destination in the way that international visitors do (i.e. to sightsee, to learn or to discover something new, to see an iconic attraction or to participate in a 'must do' activity).  Instead, the motivations of domestic travel tend to be more specific and more 'transactional' in nature, i.e. New Zealanders travel to see a particular place or to do something specific (e.g. to ski, to cycle, to walk, to play golf); to attend a public or ticketed leisure/business event; to attend an event held by family or friends (a wedding, a birthday); simply to spend time with friends or family; to do business; to shop; to study.

venture taranaki
Photo: Venture Taranaki/photographer Rob Tucker

While New Zealanders are proud of their country and believe it has much to offer them, they are also of the view that it will always be there and the attractiveness of an overseas holiday can be stronger. This is why domestic tourism marketing activity comes with a very strong call to action and a compelling time-bound offer.

Despite the attractiveness of a holiday offshore, there are domestic opportunities. Turning VFR trips into leisure trips is a growing trend where people use family occasions as an opportunity to take a holiday.

Other motivations exist as well, and may help ensure that this trend becomes increasingly prominent even after the economic recovery.  

One of these motivations is New Zealand’s changing demographics – the number of New Zealanders aged 65+ has doubled since 1980 and by 2025 will be well on its way to doubling again. The vast majority of these people are healthy and active, with leisure time and money to spend. As more of New Zealand’s baby boomers move into retirement, we can expect them to travel more, internationally and domestically.

Different types of domestic leisure tourism can also benefit from wider trends. Health tourism (such as spa breaks), for example, will not only be driven by a generation of health-conscious baby boomers, but also by rising perceptions of time pressure and blurring distinctions between work and leisure – heightening consumer desire for treats and breaks. Similar trends in health consciousness and a desire for new experiences will also lead to the growth of active tourism.

 

Enablers of domestic tourism

Regional domestic marketing

Regions compete strongly to attract domestic visitors, so the development of domestic strategies that identify travel determinants, demands, market mix and segments is important.

Regional events and festivals enhance communities and are two of the most frequently utilised ways of stimulating domestic tourism growth. They are also a means of vitalising local economies and reducing the effects of seasonality that are often attributed more to international visitors.

The marketing efforts that attract domestic visitors to individual regions, often coordinated through RTOs, are also matched by individual businesses providing products and services which add to the appeal of a region.

These partnerships and collaborations enable regions to present a coordinated voice and facilitate opportunities for scaled investment in a highly complex and competitive environment, therefore increasing the likelihood of achieving positive outcomes.

lake rotoiti nelson
Photo: Lake Rotoiti, Nelson Lakes National Park, Nelson Tasman Tourism

Domestic Aviation

Domestic aviation links facilitate domestic business, holiday and VFR travel [1]. These aviation links currently can be categorised in the following way:

  • routes operated by two or more scale operators (trunk)
  • routes operated by a single scale operator (regional)

Domestic air capacity is an enabler of both domestic and international tourism.  As Figure 5 shows, there has been no material growth in total seat capacity between 2005 and 2013. Since 2005 trunk capacity has grown marginally while regional capacity has reduced slightly. In fact total air capacity in 2013 is well short of the peak capacity of 15.2 million turnaround seats in 2008.

Domestic air capacity growth has primarily been on trunk routes with demand mostly driven by the corporate and government sectors, with international visitors a small proportion of total traffic.

DomesticTourismFig5.jpg

This aggregate picture obscures significant change in domestic services throughout this period [2]:

  • Origin Pacific exited in September 2006
  • Pacific Blue commenced services in November 2007
  • Qantas exited and Jetstar entered the market in July 2009

Throughout this period Air New Zealand has been the predominant provider of capacity on both trunk and regional services. Jetstar has provided the bulk of the capacity increases on trunk routes since 2011. 

Wellington International Airport

Photo: Wellington International Airport

Domestic aviation demand stimulation

Infometrics has been monitoring trends in domestic air-travel over the course of 2013. They observe that:

  • The cost of domestic air travel has risen by only 3.3 % over the past four years. Over the same period general prices climbed by 8.8%, implying that the price of domestic air travel fell relative to most other expenses.
  • This relative improvement to the affordability of domestic air travel has massively expanded the size of the domestic market by bringing flying within the budgets of a wider cross-section of society.
  • Over the three years to June 2013, total domestic passenger numbers in New Zealand grew by 15%.

Enabling domestic air connectivity growth

The key question for the industry in this area is how it can stimulate market growth to ensure the sustainability of a multi-carrier domestic market (i.e. profitable airlines) in a manner which:

  • increases the likelihood that the positive growth trends since 2011 can be sustained on the trunk line
  • stems capacity reductions on regional services
  • stimulates underlying demand on today’s regional routes

Filling existing capacity is the quickest way to secure sustainable capacity. Opportunities to do so include but are not limited to:

  • targeting more domestic travel packages at times for which there is available air and complementary product (hotel, rental car) capacity, and
  • forming strong on-going collaboration between airports, RTOs and tourism providers and the airline(s) – e.g. the new Kapiti-Christchurch services collaboration by Christchurch and Kapiti Airport and local government

Continued focus on filling planes (both regionally and on trunk services) will improve the likelihood of sustaining and improving domestic air connectivity and tourism in the long-term.

The role of Regional Tourism Organisations

RTOs provide a critical role in the domestic marketing of their regions.  

47% ($7.04 million) of total RTO investment by the 29 RTOs is spent on domestic marketing, with the balance spent on international marketing.

RTOs are focused on delivering increased domestic visitation, length of stay and spend to generate greater economic returns for their regions. As lead organisations representing their regions, RTOs work in partnership with tourism businesses to achieve a single, collaborative voice and scale in the marketplace. This beneficial relationship is in many cases essential for success.  

For many micro and smaller operators, domestic marketing activities undertaken by the RTO may be the only vehicle through which they can take their product to the marketplace.

RTOs actively promote their regions domestically, through a variety of mediums, such as trade marketing, digital marketing, promotional collateral and media hosting. 

 

Challenges and Opportunities

Domestic segmentation provides opportunities to target niche markets

Domestic market segments are always changing. Almost half of all New Zealand adults take at least one short domestic breakeach year, but just one-quarter take a longer holiday(six nights or more) (Domestic Tourism Market Segmentation – Angus & Associates 2010).

Figure 6 shows the incidence of trips by types and purpose, comparing these to the incidence of international travel.

DomesticTourismFig6.jpg

Averages such as this disguise enormous variation in the travel patterns of New Zealand residents.

The qualitative research conducted as part of the Domestic Tourism Market Segmentation shows that both frequency and type of travel were likely to be shaped by an individual’s age, gender, lifecycle stage, interests, personal circumstances and priorities (i.e. by both demographic and psychographic factors). Economic and weather factors also come into play in the determination equation.

The incidence of domestic trips by type and purposevaries widely,with trips taken for business, events and VFR being major components of the domestic mix. Overall however, the leisure travel segment of the domestic market is a significant 49%.

Each segment has a different driver of demand and requires different marketing approaches to attract visitation.

Despite its size, significance and the stated importance of domestic tourism, the industry has grappled with a range of challenges and barriers to its growth as noted in this paper.

Aspirational destination

For many Kiwis, New Zealand is not the exciting destination they aspire to visit or brag about with friends and family on their return. Domestic travel is often deferred, with New Zealanders believing that they can see their own backyard when they are older. This is likely a long term issue that the industry and country will need to address gradually over many years. It is a product of New Zealand’s geographical isolation and a historical perception that the most exciting events happen overseas.

Expensive vs. the rest of the world

Partly as a result of the issues of connectivity and lack of affordable and compelling domestic tourism offers, Kiwis perceive New Zealand as an expensive destination compared with a holiday overseas. In Hawaii, for example, local rates (kamaaina) are a widespread and effective tool that aim to boost domestic tourism spend. The lack of differential pricing here means that New Zealand visitors often need to pay the ‘walk up rack rate’ without the benefit of accessing deals or offers.

Cohesive domestic tourism marketing lacks budget and capability

In the absence of a central coordinating agency, domestic tourism marketing is left to each individual RTO, most of whom have neither the budget or capacity to mount domestic tourism marketing campaigns. For many RTOs, international tourism marketing and supporting TNZ’s programmes are the major focus of their limited time and resources. Only the largest RTOs have a significant domestic marketing budget. To boost New Zealand visitor dispersal, many of the smaller regions also need effective domestic marketing.

Connectivity and infrastructure

As with international tourism, the lack of strong infrastructure and transportation links are a challenge facing domestic tourism. This includes capacity and/or competition on transportation routes (road, bus, rail, air) to some centres and also limited facilities (e.g. accommodation, meetings and event facilities) in some destinations.

Market distortion effect

TNZ’s significant marketing budget and activities attract industry investment and resources into international marketing. This has many positive elements but also some unintended, negative consequences. For smaller operators and many RTOs with limited resources, it likely moves money and activity from the lower cost, more accessible domestic market into international marketing activities. The unintended consequence of TNZ’s international marketing investment is therefore to dampen domestic marketing activities and constrain the resource and focus given to this market. The extent and nature of this ‘market distortion’ effect needs to be reviewed.

 

Gaps in insight

While major international markets have been widely researched there are gaps in understanding the domestic tourism market. To achieve the domestic tourism growth aspiration to 2025, it is essential these gaps are addressed in order to obtain a full picture of the domestic sector from which stakeholders can make informed investment decisions.

Many complex factors come into play when people weigh up decisions to travel domestically, some of which have not been researched or uncovered.

A number of areas for investigation are immediately apparent and include:

  • changing holiday patterns – the traditional Christmas/New Year shutdown has dissipated and school holiday breaks have been revised
  • regional events – what effect does the growing number of regional events and festivals have on longer domestic holidays vs. weekends away
  • bigger regions are more resourced – how does this affect smaller regions wishing to attract domestic visitors

Barriers to domestic travel also need to be also examined to determine if any interventions can be used to make it easier for New Zealanders to travel domestically.

Factors impacting on the decision to travel domestically include:

  • uncompetitive domestic accommodation
  • high fuel costs
  • international travel relatively cheaper/more attractive and easier to book
  • ease of entry to other countries – particularly Australia
  • ‘go now’ factor – lower costs for international travel may not last
  • domestic travel seen as ‘boring’ relative to international

Limited insight is currently available. As a first, urgent step, stakeholders should collate what is available from private and public sources. Various commercial organisations have domestic research programmes and findings from these may help build greater understanding (commercial sensitivities can be worked through on a case-by-case basis). Non-commercial research datasets could also be included. A domestic tourism research framework should also be developed, given the significant size of the market and the potential to increase value.

 

 


[1] Indirectly the quality of domestic aviation links can influence the ease with which international tourists can reach regions, over and above car and rail travel which they may also have access to.

[2] A handful of other small operators connect a small centre to a main ‘hub’ airport (e.g. Air Chathams/Great Barrier Airlines/Sounds Air) or connect two small centres (e.g. Air Napier: Napier-Gisborne). However, these are very small volumes compared to the jet and turbo prop networks of nationwide operators.