Interest rate decision impacts tourism

Monday, 8 March 2010  Features

The Australian dollar has continued to push higher following the Reserve Bank's decision to increase interest rates to four percent in its March meeting. The Dollar is the best-performing major currency in the past year, and is now at a 25 year high against Sterling.

Professor Larry Dwyer, Qantas Professor of Tourism and Travel Economics at the Australian School of Business comments on the effect of the dollar's performance on Australian tourism, and the economy of tourism development.

He says "There is now doubt that exchange rates do have an effect. The strength of the dollar is already having an impact, and we should expect more erosion of overseas tourist numbers." However he provided some comfort for Australia's tourist sector "Australia is seen as a value destination. It's isn't bargain basement, and has the sights that tourists will make an expensive long haul trip for. It isn't such a price sensitive market but tourists are now definitely seeking value for money in their travel experiences."

However Sterling is now at a 25 year low against the Australian dollar, with one pound fetching only AU$1.66. Not long ago one pound bought well over two and a half dollars. Professor Larry Dwyer says "For UK backpackers stepping off the plane, they'll get a shock. Younger travellers do count the pennies, and they may not want to spend them Down Under. Brits are a considerable part of the Australian backpacker market and we may not see so many in the future."

The surge in the value of the dollar to 60.2 pence and 89.9 US cents may see Australians looking for the value they get by travelling overseas. "Exchange rates are favourable for travellers to Britain, the US and Europe - many destinations look like a bit of a bargain," he says. "Australians look for value for money – and currency swings like this do effect where people go. The higher the value of the Australian Dollar, the greater the amount of outbound travel. We are likely to see many more people travelling overseas because it is so much cheaper. This will adversely affect an already depressed domestic tourism market."

For Australians staying in the country for their holiday, he says higher interest rates are having an impact on prices. Professor Larry Dwyer adds "People are price sensitive, and tourism stakeholders need to strategically fashion the product to ensure they are adding value to their proposition."