The 2005 Victorian Tourism Industry Council (VTIC) survey of tourism operators across the State reveals an improved trading performance in the September quarter 2005, with a further improvement expected in the December quarter 2005.

“Compared with the previous quarter, respondents reported improved general business conditions. Sales have been strong along with improved selling prices.  However, many respondents have also experienced increases in wages and other labour costs, which is impacting on profitability”, says VTIC Chairman Bob Annells.

“Tourism operators remain optimistic that this performance will improve further over the next 12 months, with 57 per cent of all businesses surveyed indicating that they anticipate an improvement in business performance.

“Wage costs was the most significant factor constraining business growth during the second quarter, Wage costs have concerned business in the sector in recent surveys as the move from State to Federal awards has increased wage bills for many operators.  The other major constraints identified were skill shortages and rising fuel prices (the subject of a special supplementary survey).

“A massive 72 percent of respondents rated the Commonwealth Games as having a positive impact on their business - the introduction of Virgin Blue was rated as a positive by 36 percent of respondents and the introduction of Jetstar rated as a positive by 27 percent of respondents.

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

Survey Results in Detail:

Business conditions improving

On a net balance basis, 4 percent of respondents reported an improvement in general business conditions in the third quarter of 2005.  This compares with the 7 percent net balance reporting deteriorating business conditions in the corresponding quarter last year, indicating a moderate improvement in conditions over the last twelve months.  

Sales have been strong with a net balance of 11 percent reporting increases, along with improved selling prices (net balance 16 percent).  However, many respondents have also experienced increases in wages and other labour costs (net balances of 19 percent and 11 percent respectively), which has translated into flat profitability.

Looking forward, the industry is expecting improved conditions to prevail in the fourth quarter.  General business conditions are forecast to rise by 35 percent, with strong sales and selling prices expected to drive a positive profitability result (11 percent net balance). 

An optimistic mood is expected to characterise trading over the next twelve months with 57 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 45 percent.

These survey results are broadly consistent with Australian Bureau of Statistics (ABS) data which shows that the seasonally adjusted estimate for short-term visitor arrivals during August 2005 (466,700 movements) increased by 1.9% compared with July 2005. This followed monthly increases of 2.3% for June 2005 and 1.1% for July 2005.

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

Fifty-nine percent of hotel/motel operators expect their business to experience either much stronger or somewhat stronger growth over the next 12 months, while 46 percent of caravan parks share this view. 

Wage costs and skill shortages pose the most significant constraints to business performance

Wage costs (37 percent of respondents rated this a ‘significant’ or ‘critical’ constraint) were the most significant factor constraining business growth during the third quarter.  Wage costs have concerned business in the sector in recent surveys as the move from State to Federal awards has increased wage bills for many operators.

Another ongoing concern is skill shortages in the sector, with 33 percent of respondents rating it as a ‘significant’ or ‘critical’ constraint.  

Access to finance remains a major concern for business with 25 percent identifying it as a constraint. 

Insufficient domestic demand and competition from other operators are also constraining operators in the sector (both 21 percent).

Drought the most significant negative shock

The drought is the most significant shock constraining the industry, with 26 percent identifying it as a moderate to critical constraint.  Global economic conditions were also identified by 17 percent of respondents as constraining the industry.  

Thirty-six percent of respondents cited Virgin Blue’s introduction as having a positive effect on their business (up from 12 percent last quarter) with 27 percent citing Jetstar’s introduction as a positive development (up from 17 percent).  

Commonwealth Games to boost tourism

The survey also asked respondents to quantify the expected impact of the upcoming Commonwealth Games on their business.  On balance, respondents are confident the Games will provide a boost to their business:  46 percent believe it will be significant or moderate benefit with a further 26 percent rating it as a mild benefit.  A proportion of respondents (18 percent) see the Games as having a negative effect, in part this may be explained by their businesses not being located in close geographical proximity to where Games events will be held.  

Petrol price rises hurting industry

Due to concern over the impact of rising petrol prices on the tourism industry, a special supplementary survey was carried out to ascertain the impact on business sales, costs and profitability.  In terms of the impact on sales, 45 percent of respondents rated rising petrol prices a critical to moderate constraint, while 20 percent said it posed no constraint.  The impact was greater on costs, with 49 percent rating it a critical to moderate constraint, with only 9 percent saying it is of no impact.  Respondents were also asked to Asses the impact on profitability, with 47 percent saying it was a critical to moderate constraint and 11 percent saying it posed no constraint.

Respondents were also asked to rate a range of potential policy responses to alleviate the impact of rising petrol prices on industry.  Forty-nine percent favoured a cut in fuel excise tax, 20 percent favoured ACCC action to investigate petrol pricing, 18 percent favoured a reduction in other Government charges/taxes for tourism operators and 11 percent favoured increased Government marketing of tourism.  

Background - what is VTIC

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.