Tourism sector bites the bullet

Profitability in the tourism sector has always been incredibly volatile, subject to the whims of wild weather and fickle fashion. Wander around Sydney’s Circular Quay or the Rocks, and little has changed for visitors over the last 10 years – apart from the upward march of prices, and the likelihood that you will be served lunch by a heavily tattooed waitress with a nose ring.

Across Australia, the 1980s experienced an investment boom in hotels and tourist attractions. This fundamentally changed the industry, focusing investments on the perceived needs of international visitors. Queensland was particularly successful in coaxing Japanese tourists and property investors into parting with their cash. Unfortunately, the Japanese “bubble economy” burst just a few years later, financially wiping out many tourism reliant businesses, and leaving the survivors to limp through the 1990s.

ABS - Tourism Figures from National Accounts Dec 2011

2011 was another year which saw enormous disruption in the tourism industry, with cyclone Yasi and the Brisbane floods devastating the summer peak season.

In combination with a drop in patronage by American and European tourists, influenced by shifts in currency exchange rates, many businesses went under.

In particular, Queensland island resorts fared poorly, with Bedarra, Dunk, Great Keppel, Brampton, Couran Cove on South Stradbroke Island, and Club Med Lindeman Island all closing.

While weather related damage was blamed in some cases for the business closures, I suspect that more proactive  management would have bitten the bullet years ago, and saved shareholders a lot of pain. Lets hope it was worth waiting for the insurance payouts.

Just before Christmas, the Australian Bureau of Statistics released updated figures for tourism related activities. The figures paint a picture of an industry in recovery. Direct tourism “gross value added” increased by 2.3% to $31.5b AUD. Tourism exports (which equates to the total consumption of international tourists while they are in Australia) rose by 4.4% to $23.6b AUD.

ABS Tourism Visitor Numbers Dec 2011

Contradicting much of the perceived wisdom spouted by the tourism lobby, the national accounts imply that the Australian dollar exchange rate has little impact on overall inbound tourism income.

Over the last 5 years the US dollar exchange rate has varied between 1.56 and 0.91 AUD to the USD, while foreign visitor revenue and arrivals have continued to grow steadily.

Unfortunately, the balance of tourism trade is negative, and has been for several years. This is simply due to the fact that Australian spending on foreign holidays is growing rapidly, and has been for the last 10 years. A sad state of affairs for an industry which was championed in the 1980s as the path to export driven economic growth.

But question marks still remain over the growth prospects for domestic travel in the longer term. Discount online travel sites such as Wotif and Webjet have helped lift volume by encouraging room and flight discounting, which is helpful for lifting occupancy rates. Unfortunately it has also shifted purchasing behaviour, putting the focus squarely on price.

When times get tough, the business travel budget is a predictable place for management to make cuts. ABS figures also show that significant dips in domestic “same day” trips occur whenever the local business cycle hits a rough patch. At the first blush of business improvement, travel budgets typically expand rapidly.

At the moment, the tourism sector can depend on the mining industry to champion fly in fly out (FIFO) work arrangements, which have already forced major airport upgrades, and generated a parliamentary inquiry.

It will be interesting to see whether managers in the wider business community choose to crank up their travel budgets again as they have done in the past, or whether the convenience and ease of telecommuting and electronic conferencing will finally start to bite into business travel.

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