Chinese tourists are losing their taste for Australia and that poses a risk to a number of our ASX shares that were leveraged to this waning boom.
This is particularly significant for the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price with UBS warning that the company will need to trim its dividend payment in 2019 and 2020.
The silver lining is that UBS' forecast cuts to Sydney Airport's distributions are small at around 2%, but that could be enough to spook jittery investors who have little tolerance for bad news.
The news coincides with a 2% slump in the SYD share price to $7 in the last hour of trade even as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index jumped 1.2%.
The deflating Chinese tourism boom
UBS undertook a survey of 1,595 Chinese residents in tier-1 and tier-2 cities and found a sharp pullback in travel intentions to Australia and Sydney.
Our largest city used to be ranked number 2 on the list of travel destinations but it has now slipped into fourth spot.
"A further review of overall flight schedules reveals a moderation in capacity to Australia, with available seats to Australia only scheduled to grow by c.2% for 1H19," said the broker.
"Although further capacity could still be added and loads could rise, we now expect a more muted outlook which sees us reduce our international traffic growth to +4.8% in 2018 and +4.0% for 2019 onwards."
Dividend impact
The weaker outlook doesn't pose a threat to Sydney Airport's 2018 (its financial year ends in December) distribution of 37.5 cents a share, but UBS thinks the dividend increase in 2019 and 2020 will slow to 40 cents and 43 cents per share, respectively.
The slowdown in Chinese tourism to our shares are driven by two factors, according to UBS. The first is the weaker outlook for the Chinese economy while the uncertainty around the trade war between China and the US is also dragging on sentiment.
Chinese tourists are instead opting for nearer destinations in Asia to holiday as opposed to taking long haul flights.
This downturn hits Sydney Airport in other ways too as Chinese visitors spend three times more at the Airport's retail outlets than other nationals.
There are two other headwinds that is also likely to weigh on sentiment towards the Sydney Airport share price. Australian regulators may be considering changing the rules to lower the market power of airports while Sydney Airport is expected to start paying tax in 2021.
A fall in Chinese tourism can't be good news for some of our retailers either although that hasn't stopped the Myer Holdings Ltd (ASX: MYR) share price and Accent Group Ltd (ASX: AX1) share price from making gains today.
The same can't be said for theme park operator Ardent Leisure Ltd (ASX: ALG) though as the ALG share price eased 0.3% to $1.46 at the time of writing.
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