Beyond COVID-19: Rise of domestic tourism in Australia

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01 February 2021

7 min read

Could COVID-19 unlock more of Australia’s passion for travel?

The tourism industry in Australia, which was already struggling as a result of the devastating summer bushfires, has been one of the sectors hardest hit by the COVID-19 pandemic. Restrictions on domestic and international air travel, as well as domestic border closures, the ‘ring of steel’ that separated regional Victoria from Melbourne and the recent outbreaks in Sydney and Brisbane have resulted in a significant decline in business and leisure travel in 2020. However, there are some positive signs for the industry, as our states and territories have improved processes to successfully contain outbreaks, the prospect of international travel bubbles and the commencement of the vaccine distribution both in Australia and globally.

Some parts of the tourism industry such as travel agents and international aviation have been disproportionately impacted and will struggle to recover until the end of the pandemic. But for others, there are opportunities to pivot to drive additional demand for domestic travel and make the most of restless Australian would-be travellers.

The good news is that Australians have the desire, the time and the means to fill the gap left by international tourists and the expected reduction in business travellers. Australians’ adventurous spirit could prove to be a lifeline for the industry, with the restrictions on international travel inspiring more Australians to explore their homeland, which could bolster the industry for years to come.

Australians' wanderlust | Local tourism | Domestic holidays | Business travellers | The winners

What we’ve learned

Australians’ wanderlust will drive domestic tourism

Australians have both the desire and the flexibility to grow domestic tourism in the wake of COVID-19.

Australians are well known for their wanderlust; it’s part of our national identity. In fact, Australians’ thirst for travel has grown rapidly over the last decade. And most of the growth has been within Australia – with over 90 percent of total trips by Australians remaining domestic.

Having spent most of 2020 at home, many Australians will be eager to escape their own four walls and taste some relative normality after a long and unusual year. In a recent survey conducted by KPMG, 61 percent of Australian respondents said they were planning on booking a holiday between January and June 2021 and 72 percent said they would book a holiday between July and December 2021.

Adding to this, many of us have newfound freedoms in how we work as a result of COVID-19. This makes working from holiday destinations acceptable as well – creating a new category of working holiday. These changes in consumer behaviour may provide welcome opportunities for tourism operators to capture a greater share of the Australian traveller’s wallet.

Local tourism could tread water once confidence returns

Many Australians also have the financial capacity and the time to close the gap
left by international tourists and reduced business travel.

Australians have been saving hard through the pandemic – and holidays are likely to be at the top of the treat list. Lockdown restrictions have also meant people are also likely to have accrued significant leave balances, so many Australians have both the time and money for holidays. However, to sustain the industry we need Australians to spend more on domestic recreational travel than they have in prior years to offset the lost revenue from international inbound tourists and a likely reduction in business travel.

The good news is that theoretically, if domestic borders stay open and if Australians are prepared to spend their international travel budgets on home soil this year, there is a possibility that the domestic industry could hold steady. To tread water, the domestic tourism industry would need to convince Australians to spend ~70 percent of what they spent overseas in 2019 on domestic trips instead. Not an easy task for the industry overall, but individual operators may succeed through bold and forward-thinking strategies that recognise and cater to the changed consumer.

Bridging the gap in domestic tourism spend

The shape of domestic holidays could change

Recreational travellers could spend 2021 ticking off their backyard bucket list, experimenting
with working holidays, and romancing with the great Aussie road trip.

Our research has uncovered several key trends relevant to the domestic tourism industry, all of which will continue to evolve in response to the global health crisis. We believe that recreational travellers will be driven by three key mindsets over the next 12-24 months:

Ticking off the backyard bucket list – There is a tendency among young Australians to travel overseas in their younger years and wait until they have a family or even until retirement before taking the time to really explore Australia. The pandemic may force this trend to be reversed.
Experimenting with the working holiday – The recent prevalence of flexible working brought about by the pandemic and made possible by technological developments is providing an opportunity to travel for more nights and not be constrained by annual leave or public holidays.
Romancing with the great Aussie road trip – Given that much of the growth in domestic travel will be shorter, more frequent and more affordable holidays, it is likely that many of these trips will be taken by road. The profile of road trippers in 2021 may include more young professionals, older families, cruise enthusiasts and backpackers who would otherwise be overseas.

The new business traveller

Business travellers may reduce commute-style trips but increase conference-style trips that more
purposefully bring teams together in response to the shift towards remote working.

The drastic reduction in business travel as a result of COVID-19 may not take long to resume but could take longer to recover. The global remote working experiment now brings into question the need for some business trips. It is likely that shorter business trips could remain suppressed following the pandemic.

Employers are now facing an interesting dilemma which could create new reasons for business trips – how to create a culture that enables flexible working but also builds a strong sense of team. Employers need to effectively flip the office, whereby most work is done at home and most work-related socialisation is done at work. One possible solution could be to increase the frequency of conference-style events or team gatherings that more intensively build communities and trust.

Winners will adapt to follow the money

Where the money is spent across the industry will shift and players that quickly adapt
to compete in surging sectors have the potential to emerge stronger.

Three subsectors which we believe are in a strong position to capitalise on the current environment are:

Affordable accommodation – Think caravan and camping, bed and breakfasts, holiday parks, short term rentals and home stays or swaps with friends or relatives. Digital platforms connecting consumers to low-cost accommodation are also likely to grow, such as AirBnB, HomeAway and HomeExchange.
Rural and regional businesses – Tourism businesses and hotels in rural and regional destinations are tipped to be winners. The expected government stimulus to encourage people to visit regional and rural areas will help kick start their recovery. Anecdotally, many Australians talk about extensive travel in Australia in their grey nomad years – perhaps they will bring it forward.
Digitally savvy businesses – As was the case prior to the pandemic, great digitally enabled customer experiences are key to attracting and engaging young Australians and busy families. The use of digital booking tools, social media and influencers, and availability and access to technology at tourist locations will be critical to making the most of the expected domestic travel blitz.

Be prepared and responsive

Domestic travel and tourism businesses will need to pivot quickly to capitalise on these.

Divert marketing spend from international to domestic markets, encouraging would-be international travellers to tick off their Australian holiday bucket list.
Create promotions, packages and experiences to attract and grow the working holiday crowd.
Upweight marketing to younger Australians who have been forced to change their plans from backpacking overseas to staying local.
Consider how to work with employers to provide facilities and services that purposefully bring teams together frequently through offsites or co-working days.
Use digital services to improve the customer safety experience and adapt quickly if the health context in your area changes.