Industries to fly and fall in 2011

After a return to positive economic conditions during 2010, we’ve compiled a list revealing the top sectors set to fly and fall in the year to come – some more surprising than others.

The “Top 5”

1. Organic farming

Demand for organic products in Australia has risen steadily over the last five years as consumers increasingly factor in the health benefits and environmental impact of their food choices. Strong growth has also been supported by major retailers – such as Coles, Woolworths and McDonald’s – promoting their organic lines, even though just 5.3% of industry revenue comes from supermarkets, compared with 11.4% from farmers’ markets and 10.2% from specialist organic retailers.

Higher disposable incomes, coupled with rising awareness of environmental sustainability – and the increased convenience of organic foods – all point to continuing growth in this industry. Australian organic farming will enjoy revenue growth of 14% ($58.35 million) in 2011.

Australian farmers are benefiting as a result of higher demand for organic produce (51.4% of which is made up of fruit and vegetables) since it attracts higher premiums, although as organic goods become more readily available, the price of certified produce should decline.

2. Video games

Once viewed as a teenage fad, video games continue to defy their doubters and are well and truly established as a booming part of Australia’s entertainment economy. Teenagers originally enamoured with video games are now adults continuing to play, and new generations of Australians continue to get involved with growth stemming from a variety of factors.

Older gamers are maintaining their interest at the same time as new gamers embrace industry products as a fresh form of entertainment, with female gamers opening up additional avenues for revenue as a burgeoning new audience.

These days cross-marketing of products and simultaneous releases of major entertainment franchises – such as Harry Potter – are a promotional must, attracting participants from outside the traditional gaming realm.

Growth in female gamers is of particular interest to the industry since key players have historically paid this segment of the market little attention. The stunning success of Nintendo’s Wii console and Xbox 360’s latest release Kinect highlights the potential of the female gaming market, intensifying competition in the industry and feeding gaming enthusiasts’ appetites for new technology – which in turn lead to higher revenue growth. Australia’s video games sector will grow by 11.9% ($433.85 million) in 2011.

3. Electricity distribution

Although stronger economic activity this financial year is leading to higher demand for electricity, revenue will be pushed up by higher retail electricity prices, with growth of 9.3% ($3.6 billion) in 2011.

Electricity prices will continue to increase due to strong investment in electricity generation and distribution networks, growth in more expensive renewable energy and increased production of electricity from gas-fired power stations.

The Australian Energy Market Operator (AEMO) has estimated that up to $130 billion is required to upgrade Australia’s electricity generation and distribution networks in the next 20 years.

It’s expected the retail sector to face tougher competition in 2011, especially in NSW, as consumers shop around for the best deal, however higher competition for retail customers and higher input prices will mean electricity retailers’ profit margins will decline this year.

4. Motor cycle dealing

Over the past five years, motor cycle dealers have been one of the few business sectors to thrive on the back of high fuel prices, with an additional 7.4% growth ($279.10 million) tipped for 2011.

In 2004, motorcycles accounted for just 2.4% of total vehicle registrations in Australia – by 2009 that figure had climbed to 4.0%.

With growth in demand for oil and a softening of the Australian dollar in the second half of 2011 will result in higher price at the pump for Australian motorists. This will be favourable for the motor cycle dealing industry as more people will seek a move away from traditional cars towards alternative means of transport as they try to cut costs and act upon mounting concerns over fuel efficiency and environmental impacts.

An ageing population would be conducive to boosting motorbike sales as baby boomers moving on from work and family responsibilities enjoy a lifestyle that is more suited to getting out of the family sedan and back onto the bike.

5. Domestic airlines

Australia’s domestic airlines were hit hard by the global financial crisis, when industry revenue plummeted 13% during 2008-09, and a further 6.8% last financial year. Poor demand, lower fuel prices and the rise of discount airlines such as Tiger Airways resulted in heavy fare discounting last year, and in 2009, it’s expected this trend to tail off in 2011 with prices drifting back to pre-GFC levels.

While domestic and international tourism remained weak in 2010, more stable global economic conditions will result in more international visitors this year, although more than half of the domestic airline industry’s revenue is from domestic travellers.

Although lower unemployment and steady economic growth will boost the number of Australians taking holidays in 2011, one factor limiting growth will be the large numbers of Aussies heading overseas to make the most of the soaring Australian dollar.

Growth of 6.8% ($814.90 million) is anticipated for the industry this year, with another prediction for 2011 being the return of the business traveller to Australian skies, representing 32% of industry revenue.

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