Bright side of the tourism trade

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The Australian, 24 June 2011

After being in charge of one of the nation’s fastest-growing businesses for years, you could forgive the bosses at online accommodation site for cursing recent events that have hurt profits. Floods and cyclones in Queensland, an earthquake in New Zealand and the Japanese tsunami have disrupted domestic and inbound tourism, on top of a surging Australian dollar that is encouraging travellers to head overseas.

Chief executive Robbie Cooke is upbeat, however, despite Wotif reporting an 8 per cent fall in first-half net profit.

“Those international shock events tend to make people think, ‘Where am I going to travel, and do I feel comfortable going offshore?’ ” he says. “So I think in a way recent events have probably reinforced that travelling domestically is the way to go.”

While Wotif sells accommodation through hotels in about 60 countries, Cooke admits the business is skewed to the Australian market. So a domestic rebound is critical. He is reporting stronger recent sales and believes Wotif’s strong brand helps mitigate the effects of the dollar and the downturn.

“People see us as the place to go when booking accommodation.”

With the Australian dollar breaking through the $US1.10 barrier against the greenback in early May and hitting a 26-year high of 66.4p against the British pound about a week later, the currency has delivered a double-whammy hit to our tourism market: it is persuading Australians to head overseas as well as discouraging inbound tourists.

A recent Roy Morgan survey highlights the problem, indicating 70 per cent of Australians aged 14 or older plan to take at least one holiday in the next 12 months. The percentage of people thinking of holidaying domestically comes in at a new low of 56 per cent.

Anthony Hayes, chief executive of Tourism Queensland, admits the high dollar is a blow to the sector on the back of the devastating January floods and Cyclone Yasi. “[But] if we’re going to sit here and wait for the perfect environment, we might be waiting for some time,” he says. “So there’s not much point whingeing about it. We just have to get on with it.”

Hayes says an aggressive marketing campaign to woo travellers and let them know “we are open, we didn’t get washed away” has paid dividends, with strong Easter bookings. The ad blitz, on the back of additional state and federal funding after the floods, has also given the industry a morale boost.

“A lot of people were really on the edge over the last few months, doing it so tough, so I think the strategy of being really aggressive and getting out there and spending a lot of money in the domestic market, in particular, has served us well.”

Looking for positives from the surging dollar, Hayes says at least tourism marketing dollars have been getting extra bang for their buck in foreign target markets. “That’s the only good news about the Aussie dollar being as high as it is.”

According to Hayes, the industry must look to the long term, accept dollar fluctuations and ensure foreign tourists see an Australian vacation as value for money, not cheap. “We have never been seen as a particularly cheap destination [so] the Australian dollar is just not that important in the overall scheme of the world.”

Not all tourism sectors are suffering. Rutger Smits, national leader of tourism, hospitality and leisure at Deloitte Touche Tohmatsu, says a distinction should be made between leisure tourism and business-related travel.

“Like we have a multi-speed economy, the same applies to the tourism industry,” he says. Smits notes that continuing strong demand for accommodation in the business sector has pushed up hotel occupancy rates to “historic highs” of more than 80 per cent in Melbourne, Sydney, Perth and Brisbane. The leisure market, on the other hand, is suffering from “the perfect storm” on a number of fronts.

The natural disasters in New Zealand and Japan have ravaged two inbound tourism markets. The resources boom is keeping the dollar high and driving up inflation, which has put pressure on interest rates. And energy, food and petrol costs are also rising.

“So the household wallet is under pressure,” says Smits.

For hotels or resorts with conference facilities, he believes there is the prospect of shifting focus from the leisure market to business travel. However, such facilities typically have to be close to capital cities to capture the executive market.

Smits says destinations that offer a unique experience are best placed to weather present conditions. Think BridgeClimb in Sydney, for example.

Elite properties such as the Southern Ocean Lodge on Kangaroo Island in South Australia and Capella Lodge on Lord Howe Island in NSW also fit the bill, because they offer a wilderness experience in a luxury setting.

The owner of these two lodges, James Baillie, agrees that tourism operators need a special product. “You’ve got to build them right and they’ve got to be unique,” he says.

Despite the lingering effects of the financial crisis and the dollar spike, the six-star Kangaroo Island property has built its occupancy rates significantly in the past couple of years. Capella Lodge is also enjoying a record year.

With strong international demand from markets such as the US, Britain and parts of Europe, Baillie says it is hard to tell whether the dollar has had an impact on his businesses. “In hindsight, we don’t know what it would be like if it wasn’t for the dollar. That said, we still have very good support from our high-end domestic clients, and they’re the ones [who] are in theory going overseas. And we also have continuing growth from inbound [guests] in the high-end experiential market.”

Another business with a point of difference is award-winning adventure tourism company Jungle Surfing Canopy Tours, which offers a flying fox ride through the Cape Tribulation rainforests in far north Queensland.

“We’re in the very lucky situation of being a unique tour,” says founder Sheena Walshaw. “It does make a huge difference.” The business has experienced a tough few months because of the Queensland floods, Cyclone Yasi and falling international tourism as a result of the high dollar. “Certainly the strength of the dollar has [affected] the markets coming into tropical north Queensland,” Walshaw says.

Jungle Surfing has “still weathered the storm better than most”, she suggests, and has benefited from a marketing campaign that has focused on attracting more of a mainstream domestic clientele, not just foreign backpackers.

Walshaw believes selling an unusual product such as jungle surfing has been a saviour in difficult times.

“Regardless of what’s going on in the world — in fact more so when there is a financial crisis — people still need things to which they have an emotional attachment. They need enriching experiences, whether that’s just buying bright-coloured lipstick which is going to make them feel better or some small luxury product.

While Deloitte’s Smits favours innovative strategies to win over new customers in a downturn, he warns against engaging in a discounting war

“Discounting is easy to do,” he says. “Trying to bring that price back up is a very long and painful process.”

The other danger is that lowering prices can alienate former clients who might feel that they were gouged when they paid the standard rate.

“It might have a short-term impact in driving business, but I think they will lose a lot of business longer-term.”

The anti-discounting policy has the backing of Walshaw, who says Jungle Surfing has resisted the temptation to cut prices this year. “It’s really important to the customers who continue to come and visit us that they have an understanding of the value of this product, and we certainly understand it. And to undercut that value in anyone’s eyes is a bad move long-term.”

With a stay at Southern Ocean Lodge costing up to $2700 a night for a single room, Baillie is certainly not offering discount deals. However, he says luxury resorts still have to deliver value for money “and much more than a room”. For example, his lodge’s rates include all meals, an open bar and exotic wilderness experiences.

“So while our products can be regarded as expensive, most would agree that [taken together it is] great value.”

Baillie is confident of even better business performance when markets turn and the dollar’s value drops.

“I look at the positives and say, ‘Hey, if we are doing well now, it can only really get better’.”

At Wotif, Cooke also has an eye on the positives and believes domestic tourism momentum is starting to turn as destinations offer great deals to woo back customers: “A lot of our leisure destinations in Australia have had to adjust their pricing and have some absolutely fantastic deals on offer.

“That’s starting to get a bit of traction now. I think a lot of Aussies did the overseas trip last year. They’ve got that out of their system and they’re starting now to look [domestically] at where their next set of holidays will be.”

Rutger Smits was the National Leader for Tourism, Hospitality and Leisure at Deloitte until October 2011. He now manages his own hotel consulting business, AHS Advisory

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