Tourism’s tenacity

The tourism industry has been severely hurt by the downturn but companies are managing to survive by watching their bottom lines closely and communicating openly with staff, the latest results of the SmartCompany Dun & Bradstreet Industry Growth List reveal.

But industry veterans are confident the next 12 months will provide some relief, with air fares set to rise and international and domestic traffic beginning to increase.

The average revenue of the top 50 companies comes in at $1.8 billion, a significant increase from the $941 million recorded the year before. Total revenue reached $66 billion, up from $48.9 billion.

A range of companies appear on the list, from large corporate such as Qantas Holidays with $145 million in revenue, to smaller operations such as the Broken Hill Legion Club at $3.3 million.

The companies which have managed to survive the downturn have focused mainly on reducing costs and keeping staff.

A resilient sector

The tourism industry has been hit hard by the downturn. While international and domestic air traffic is beginning to pick up, over the last 12 months flight bookings both home and abroad have plummeted, and air fares along with them.

But Nina Mistilis, from the tourism and hospitality program at the University of New South Wales, says the industry is used to this type of economic behaviour and will emerge relatively strong.

“The tourism industry is very resilient, it has taken a number of hits from various things beyond its control like terrorist attacks, flooding and so on. Having said that, there are a lot of businesses in the tourism industry during the crisis which were really hurting.”

Some of the biggest drops in profit and revenue over the last year have been from airlines and hotels. But Mistilis says many, including thousands of smaller businesses, have opted to take hits in profit in order to keep staff – a move which she says has kept them alive.

“You can respond to market forces, know your customers and be proactive in responding. All the usual management tasks apply when surviving a downturn. But I have to emphasise many of the tourism operators took a cut in profit and salary in order to keep people on board.”

“Tourism is a very people-oriented industry, putting people on and off is not very good for your product.”

However, despite good intentions Mistilis says the industry was hit due to a lack of innovative products and tourist attractions, coupled by an alleged shortage of Government support.

“Even the industry itself recognises it needs to be more innovative in their products. If you’re an international tourist it’s the same old, same old. There needs to be more attractions. And the second part is that there’s a lag of Government supply in infrastructure.”

“None of the Government spending was commercially directed to improve business infrastructure, it was all individuals based, so none of it was commercially directed.”

Mistilis says the industry’s downturn mightn’t have been as severe if the Government had begun to invest in travel infrastructure several years ago. “At the big end there could be docking facilities for big cruise ships in Sydney, on the smaller end it might be a better wharf in Botany Bay. The Government doesn’t necessarily think about that.”

Overall, Mistilis says the tourism industry is recovering. But if it wants to survive the inevitable disasters it will face in the future, businesses must continue to innovate and release new attractions and products such as tours at different locations.

“There definitely is a recovery occurring. Australia was well-placed during the global financial crisis, which didn’t impact things very much and internationally that’s the case.”

“Good management is important, plus luck, I mean if you’re in a flood prone area then that’s your bad lucky really. Tourism after the bushfires in Victoria, that’s a matter of luck that your location was there. But it’s always good management and that goes down to knowing your market, delivering a good product and having sufficient capital, and that’s what many companies have done.”

Wofit powers ahead

Hotel booking portal Wotif has managed to become one of the leading sites of its kind. While the downturn in hotel stays has crippled the industry, managing director Robbie Cook says the company survived through stringent cost cutting.

“This year has been very good for us, we’ve cracked a number of records. We sold half a billion dollars worth of accommodation for the first time, and processed nearly $560 million in transactions in a very strong performance for the group.”

Wotif managed to reach 12th on the list, with revenue of $121 million compared to the previous $93 million. Recent financial results for the first half of the 2009-10 year indicate Wotif recorded $69.7 million in revenue.

Cook says the downturn in hotel bookings, and the subsequent increase in domestic travel activity, has helped the company survive as more people are looking for online deals.

“Definitely in the downturn, people were still travelling, changing the way they were travelling. Particularly they cut out their international four week trip holidays and substituted it for shorter breaks domestically, more long weekends and extended weekends closer to home, or up to four hours away from home and things like that.

“People were very focused on hunting down value. With the realisation the online channels give you the best value, people flocked online trying to find a deal.”

Nevertheless, there have been issues. Cook says the business has been stringent in identifying areas where costs cuts can be made. But in a trend seen in other travel companies, Wotif has made a decision to hold on to as many people as possible.

Cook says this is because having good staff will provide benefits in other areas. “We’re a very cost-focused business, we are always watching the purse strings and we’ve never displayed any sort of corporate extravagancies. We were fairly well tuned to go through the downturn.”

“The biggest decision was involved in the world imploding, and had to decide not to lose our headcount. There was a lot of uncertainty regarding that but we always held firm to that strategy.”

Over the next 12 months, Cook says he expects the industry to recover but cannot predict when companies can begin to deliver pre-crisis results.

“Looking forward I suppose we’re a bit more optimistic about the outlook, and rates will improve for hotels in the next month, flight prices have definitely stabilised. But there are definitely some deals out there, pricing for international flights are still compelling.”

“Tourism, generally, we are well positioned as a marketplace. I think there is a strong appetite for Australian and New Zealand sites for people to travel. I think air fares are very compelling, especially for Asia, and I think as we go ahead the market will just continue to grow.”