Australian and New Zealand Tourism Industry in Worse State that Most Realise

Both the backpacking industries in Australia and New Zealand have to date proved to be relatively resilient to the global economic disaster we are facing so far – or so it seems on the outside. But personally I don’t think this is the case and I think that we are about to see a house of cards within the industry.

In November last year Peter Ovenden from Global Gossip delivered a presentation at the ABiC conference which showed that from a survey of travellers within his Internet Cafes most did not intend changing or reducing their travel plans due to the economic crisis. But that was 6 months ago – those travellers were already on their big trips. In my opinion times have changed.

Despite what backpackers say the large majority will travel on their own financial merits but nearly always with some sort of financial backbone from home. I have employed heaps and heaps of backpackers over the years and inevitably all of them say that at some stage or other they will need to go home and pay back the money borrowed from their parents and/or credit cards. The tougher this financial crisis gets the less realistic this is going to be. We talk about sub-prime housing debt being the culprit of the current economic situation. Average people over leveraged on their mortgages and car loans. What would happen if the next round is credit card debt? It is still relatively easy to get a credit card with a high limit – this is surely the next thing to buckle under the pressure, which could dramatically impact the backpacking tourism market.

One argument is that travellers will still come to Australia and New Zealand but will be more careful on what they spend their money on; that the day of the “flash-packer” is gone. Perhaps, but I think the real truth is that yes, the higher spending travellers (the parent funded travellers) just won’t be there – it is the self-funding travellers that have always been more akin to the 10-bed dorm. But, worse – in case you have not noticed Australia and New Zealand are very expensive relative to elsewhere in the world despite the exchange rates. Bread and milk for example are 1.5 to 2 times more expensive in these countries than the UK and US. A common thought stream is that in times of downturn when graduates can not get a job paying as much as the previous few years they are more inclined to travel. In fact, I recently heard a first hand story of this – but the Cambridge Accounting and Finance Graduate was not travelling down-under, no, instead she was taking 3 months to train around Europe – it is closer to home in these uncertain times and it is cheaper!

There is also the question of work that is increasingly being asked. Australia has this advantage over New Zealand with the shear number and popularity of their working holiday visas, but in recent times I have heard and read travellers saying that getting the visas first and the work second is getting harder and harder. There are rumours on travel blogs that getting the second year visa extension in Australia is almost impossible now with increased paperwork and costs brought by an effort to discourage foreign workers due to rising local unemployment. These stories are exasperated by the face that Sydney (and in New Zealands’ case Auckland) is the first port of call for most travellers looking for work – and simultaneously it is these big cities that are the first places to lay off casual staff.

Finally, from my interpretation it seems that the tourism industry that I am exposed to are starting to rein in their spending with regard to advertising. Just a quick glance through TNT Magazine will show you how much less backpacking companies are spending on advertising. We are noticing it at Xebidy, we are getting less SwuzzleBucket enquiries, as well as large web projects. Andrew Paltridge of the Adventure Travel and Backpackers Expo recently said in a Backpackers Trade News that at the recent Expos in Sydney and Melbourne the most noticeable trend was that State Associations who usually take three or four stands were taking only one. I don’t think we are all being honest with each other when we all stand around saying everything is good. In New Zealand Magic Bus came out with their “$1 South Island” value-add promotion just before Christmas – that is, only weeks before the height of the money making season. This is an illustration of either a company that is in dire straits or a company that has been over-charging for the last few years on their product and making a fortune in my opinion. Kiwi Experience has also followed suit with free North Island – both now effectively discounting more than 50% (Stray is 30%).

This is quite surprising really as it my belief that during periods of downturn the one area of spend that should be maintained if not increased should be marketing spend. Further, I think that website spend and web marketing are the two places where businesses can make a cost effective difference. International spending to trade shows and agent training are expensive, especially when you add on the cost of commission, whereas effective web spend that focusses on direct sales will ensure a higher yield for tourism businesses immediately. If agent sales are to drop then a shift in marketing spend from brochures and agent commission to your website and web marketing could mean a short term and long term increase in profit. In the short term you have the opportunity to control your own destiny through sales efforts and the medium term when the economy bounces back you will enjoy much larger average yields as even when travel agent sales come back the increased direct sales are at a much better yield.

The economic situation is much worse than anyone could have perceived. I was talking to an Air Hostee on a flight last week and she said that Air New Zealand was massively cutting the amount of flights trans-Tasman – that simply means – less people flying. The overall impact of this on the tourism industry can not be underestimated. A few less travellers means a few less people in the hostel, so the hostel cuts one travelling staff member; that means a few less people doing the adventure activities and the operator cuts one less travelling staff member plus advertises less. Less people are drinking in the backpacker bars – a few less travelling staff are rostered on. Word is out, it is harder to get casual work – a few less people choose to come down-under. It becomes a self fuelling downward cycle. We potentially have long hard winter ahead of us – a Shakespeare might have said, it is the winter of our discount tents – but I hope like hell for the sake of all of us, we see some positive economic news out of the Northern Hemisphere sooner than later. In the meantime, refocussing marketing spend onto the web might be the best short term solution for many.