There are a couple of areas around Australia that I consider interesting microcosms of the risks of non-diversified long term investment portfolios. There are obviously some regions in Australia, such as mining towns, that are currently booming and you would probably be laughed at to suggest that these places are in danger of having their economies collapse which, at least for now, is the case.
Back in 2007 if you went to a place like Airlie Beach in North Queensland and made the same gloomy statements you would have received a similar laugh. Today, however, that is not the case:
You know things are bad when even Oprah Winfrey can’t wave her magic wand and work wonders.
The American talkshow queen made the Whitsundays in north Queensland first port of call on her “Ultimate Australian Adventure” tour last December.
Oprah was blown away and with good reason. With its 74 islands, tropical climate, magnificent beaches, ideal sailing and access to the wonders of the Great Barrier Reef, the picture-perfect paradise is on a par with anything the Mediterranean, Caribbean or any of the rest of the planet has to offer.
But even the endorsement of the world’s most watched woman has not been able to turn around the fortunes of a region smashed by a global financial crisis keeping foreign visitors away, a high Australian dollar sending domestic travellers overseas, and the impact of cyclones and floods.
Today Airlie Beach, the mainland gateway to the Whitsundays, is more like Airlie Bleak.
The town is dotted with empty buildings, the result of about 40 business closures during the past year or so.
“One in five would be empty,” says Main Street Traders Association member Stacey Harvey who owns five businesses including shops, a cafe, motel and nightclub.
“It’s pretty bad.” Harvey estimates turnover for most businesses has dropped by about 40 per cent.
Unit prices in Airlie, which surged from a median $420,000 to $620,000 between 2006 and 2008, are now back to the same level they were five years ago.
Actually it is more like 8 years ago – 2003 – I checked. On top of those price drops there have also been some recent developmentsfall into receivership:
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The Queensland Government says there was nothing it could do to prevent one of the biggest tourism developments at Airlie Beach, in the Whitsundays region of the state’s north, from going into receivership.
Administrators took control of Meridien Marinas’ Port of Airlie project earlier this week.
The development includes 56 apartments, 15 beachfront land lots, marina berths and a retail and dining precinct.
In a statement, Meridien Marinas said the project, in which it had invested $200 million, moved into receivership because of a combination of the global financial crisis, cyclones, the strong Australian dollar, and the tourism downturn.
I think it it is probably safe to conclude that the local tourism downturn and the strong Australian dollar are related. A long term view of both the AUD/USD exchange rate and the Australian outbound travel data gives a fairly clear indication that Australians are taking advantage of their new found spending power in foreign destinations.
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A recent study by Tourism Research Australia (below) provides some more detail on this point.
For these destinations, for the period year ending September 2005 and the year ending September 2010, travel almost doubled—from 315,000 to 618,000 trips—while the number of domestic holiday trips fell 114,000 (or 18.0 per cent). While this is not an equal transfer (of trips), it does indicate that a high level of substitution did occur – away from domestic travel towards outbound
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Cairns, Airlie Beach and the Gold Coast are all target areas. Airlie Beach, being the smallest economy amongst them, is most at risk because of the total lack of any other independent industries. Once the demand for tourism services falls then this has an immediate flow-on effect to the rest of the economy because there is nothing else available to supplement demand:
Federal Government figures show spending by international tourists fell by almost 30 per cent in the year to the end of March. The Whitsundays fell from 10th most popular Australian destination for overseas tourists to 16th place and dropped out of the top 20 for domestic visitors.
For an area rated the third most tourism-dependent region in Australia in a report released by Tourism Minister Martin Ferguson in April, that is devastating.
As tourist numbers dwindled, new development ground to a halt, delivering a double-whammy to the local economy as about 1000 building workers left town.
With Europe looking shaky and commodities under pressure tourist areas may get some reprieve from the high Australian dollar shortly. Obviously those scenarios all come with their own risks, but until such a time Airlie Beach has little choice but to follow Gerry Harvey to the quarry:
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It’s the mining industry that local politicians, tourism leaders and businesspeople are looking to as Airlie’s saviour.
They believe the town and surrounds are ideally located to become a coastal home base for workers in the booming Bowen and Galilee Basins mining regions and at one of the world’s largest coal ports at Abbot Point in nearby Bowen.
“I think it’s inevitable,” says O’Reilly. “We only have about 34,000 people spread over the whole region. I don’t see it becoming a dormitory-type suburb but a base for families and executives.”
There is general support for that sort of approach, but also concern that Airlie could become a playground for thousands of single miners keen to let off steam on their days off, which could lead to conflict with tourists when they return.
Stacey Harvey says the two can co-exist happily and is keen to promote Airlie’s attractions to young cashed-up miners and those who might like to meet them.
