The 2005 Victorian Tourism Industry Council (VTIC) survey of tourism operators across the State reveals a sluggish trading performance in the July quarter 2005, with a similar performance expected in the October quarter 2005.

 

“Compared with the previous quarter, respondents reported deteriorating general business conditions with declining sales and increases in wages and other labour costs resulting in decreases in profitability”, says VTIC Chairman Bob Annells.

 

“Tourism operators remain cautious that this flat performance will improve over the next 12 months, with 45 per cent of all businesses surveyed indicating that they anticipate an improvement in business performance.

 

“Insufficient domestic demand - reflected in intensified competition among operators - was the most significant factor constraining business growth during the second quarter, evidence that the slowing economy is restricting turnover.  The other major constraint identified was wage costs. 

 

“The issue of wage costs largely reflects the growing impact of skills shortages and the fact that Victorian employers were brought within Federal Award coverage from the beginning of 2005.

 

“Most tourism businesses are small businesses, and could benefit from the Federal Government’s recently-announced industrial relations reform package, particularly those operators reluctant to hire because of punitive unfair dismissal laws,” says Mr Annells.

 

Survey Results in Detail:
Activity may be slowing, as costs rise

On a net balance basis, 1 percent of respondents reported a deterioration in general business conditions in the second quarter of 2005.

Many respondents have also experienced increases in wages and other labour costs (net balances of 30 percent and 14 percent respectively), and a reduction in sales (net balance of 2 percent), which has translated into a decline in profitability (negative net balance of 1 percent).
Looking forward, the industry is expecting similar conditions to prevail in the third quarter.  Flat business conditions are forecast, with sales and selling prices expected to rise.  Profitability is expected to be lower (negative net balance of 7), partly due to an expected continuation of increases in wages (net balance of 20) and other labour costs (net balance of 4).
A cautious mood is expected to characterise trading over the next twelve months with over 45 percent of all businesses surveyed indicating that they anticipate either a ‘much stronger’ or ‘somewhat stronger’ business performance compared to the previous twelve months.   This compares with the previous quarter’s result of 50 percent.

These survey results are broadly consistent with Australian Bureau of Statistics (ABS) data that shows a decrease in international arrivals of 2.7 percent over May 2005.  This decrease follows on from increases in short-term visitor arrivals recorded in March (1.0 percent) and a decrease in April (1.6 percent).  The decrease follows a steady upward trend since mid 2003 and may be a sign of a plateau in the growth of international arrivals. 

Excluding those sub-sectors yielding insufficient returned surveys to derive statistically valid results, bed and breakfast operators expressed a slightly more optimistic outlook than did their caravan park counterparts. 

Fifty four percent of bed and breakfast establishments expect that their business will experience either much stronger or somewhat stronger growth over the next 12 months while 45 percent of caravan parks share this view. 

Insufficient domestic demand and competition from other operators (29 percent of respondents rated this a ‘significant’ or ‘critical’ constraint) were the most significant factors constraining business growth during the second quarter, as the slowing economy begins to restrict turnover. 

Wage costs (28 percent) have concerned business in the sector in recent surveys as the move from State to Federal awards has increased wage bills for many operators.

Access to finance remains a major concern for business with 25 percent identifying it as a constraint in the wake of the March 2005 interest rate increase.  Respondents also identified business taxes and Government charges (25 percent) as a significant constraint.

Insufficient international demand (22 percent) and Government regulations (21 percent) also continue to constrain the sector.

Effects of negative one-off “shocks” dissipating

The drought is the most significant shock constraining the industry, with 23 percent identifying it as a moderate to critical constraint.  Global economic conditions were also identified by 16 percent as constraining the industry.   

Respondents have indicated that the effects of a number of other shocks are gradually dissipating over time.  Most of these posed less of a constraint this quarter compared to the previous quarter, including international terrorism (9 percent, down from 14 percent), SARS (9 percent, down from 16 percent) and the war in Iraq (nil, down from 7 percent).

The entry of Virgin Blue and Jetstar are having less of a positive effect, than in the previous quarter with only 12 percent of respondents citing Virgin Blue’s introduction as a positive effect on their business (down from 31 percent last quarter) and 17 percent citing Jetstar’s introduction as a positive (down from 41 percent).   . 

 

The Victorian Tourism Industry Council (VTIC) is the peak policy council for the Victorian tourism industry.  Bob Annells chairs the Council, which represents key industry associations and operators, providing one united industry voice.