In an exclusive interview with The Motley Fool, UNSW Professor of Economics Richard Holden is warning the tourism sector will struggle when the JobKeeper payment winds up at the end of this month.
As the government looks set to introduce an airfare ticket subsidy to soften the blow, Qantas Airways Limited (ASX: QAN) and Flight Centre Travel Group Ltd (ASX: FLT) shares are both surging higher in morning trade. Experience Co Ltd (ASX: EXP) shares have failed to respond to the news and are currently trading nearly 2% lower.
At the time of writing, the respective share prices of these companies are $5.35, $19.20 and 25 cents.
The federal government’s new domestic tourism program
Announced last night, the government is set to introduce a $1.2 billion package aimed at the domestic tourism sector as it weens the industry off of wage subsidies.
The proposal would see domestic airline tickets cut by 50% to the following regional centres:
- The Gold Coast
- The Whitsundays
- The Sunshine Coast
- Alice Springs/Uluru
- Kangaroo Island
As The Guardian’s political reporter, Amy Remeikis noted, most/if not all the towns listed are in marginal federal electorates.
What do these tourism areas all have in common? Oh nothing. Just that they’re seats the government either wants to win, or needs to keep 🤷♀️ pic.twitter.com/W8hCpIzmUM
— Amy Remeikis (@AmyRemeikis) March 10, 2021
As a part of the package, Qantas and Virgin will need to provide monthly reports to the Commonwealth on international flight readiness.
Professor Holden does not believe the package is adequate.
“It’s something but not nearly enough in my view.” He told this reporter.
“It relies on a strong response from the rest of Australians and that is highly uncertain. It’s very different [to] the kind of guarantee provided by JobKeeper.”
Professor Holden warned generally about the government’s proclivity for austerity.
“[The Morrison government’s] fiscal policy has too much emphasis on a budget surplus sooner rather than later.” “The economy [pre-pandemic] was not good. Per capita GDP growth was 0, inflation was below [RBA targets], and wages were stagnating.”
“Until the economy can really open up – we can’t be withdrawing fiscal policy. If anything, we should see more [government spending].”
Those in the tourism sector feel likewise. Talking to the Australian Financial Review (AFR), Tourism Australia and Experience Co. chair Bob East said he would prefer direct grants or a continuation of the subsidy.
“I’d love to say I’m hearing there will be direct grants for tourism operators, but I’m not.”
Part of the scheme also entails granting small and medium enterprises loans of up to $5 million.
Quoted in the AFR, Queensland Tourism Industry Council chief executive Daniel Gschwind says debt is the last thing these businesses want.
“We can’t get excited about no interest or low interest loans,” he said. “I can’t see a struggling tourism operator taking on more debt. The appetite for more loans is very low.”
The head of Accor Group Australia told ABC Radio National the proposal wouldn’t “deliver in a material way for the industry as a whole.”
We’ve asked the head of Australia’s biggest hotel group @Accor whether the Government’s cut-price flights will save the tourism sector? “Sadly I don’t think it will. It won’t deliver in a material way for the industry as a whole.” @RNBreakfast #auspol
— Julia Holman (@JulesHolman) March 10, 2021
Others are predicting up to 100,000 jobs may disappear when the $1,200 a fortnight wage subsidy ends.
Australia’s slow vaccine rollout
The Sydney Morning Herald (SMH)’s COVID vaccine tracker says around 86,000 vaccines have been administered in Australia as of writing. This is way down on Scott Morrison’s target of having 4 million arms jabbed by the end of this month.
Professor Holden says the economy cannot recover, and therefore JobKeeper cannot be withdrawn until we have a critical mass of vaccinations.
As we’ve seen many times over the past year, states and territories are ready to close borders on a moment’s notice.
“I worry about [another Melbourne/Northern Beaches like outbreak] a lot. We need to build confidence. “Every lockdown shatters business and consumer confidence.” “It’s incredibly shaky as it is now.”
“We can’t have [federal Health Minister] Greg Hunt saying we need to wait and see if the vaccine is killing people. That doesn’t build confidence.”
Share price snapshots
Qantas shares reached a 52-week low of $2.03 in March last year. Since then, the Qantas share price has rocketed 163%. Flight Centre shares reached a 12-month low at the same time – $8.56. While it’s more than doubled since then, it is still lower than its pre-pandemic price of $21.59.
The Experience Co share price one-year low was 3.3 cents. At their current valuation, Experience Co shares have gained more than 650% since then.
The respective market capitalisations of these companies are around $9.8 billion, $3.6 billion, and $141.7 million.
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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of EXPERNCECO FPO. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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