The latest Victorian Tourism Industry Council (VTIC) survey of tourism operators across the State reveals an improved trading performance in the February quarter 2006, with a further improvement expected in the May quarter 2006.
"Compared with the previous quarter, respondents reported improved general business conditions, sales, selling prices and profitability. However, many respondents have also experienced the impacts of increases in fuel costs, the cost of insurance, business taxes and charges and wages and other labour costs", says VTIC Chairman Jeremy Johnson.
"Tourism operators remain optimistic that this performance will improve further over the next 12 months, with 60 per cent of all businesses surveyed indicating that they anticipate an improvement in business performance.
"Oil prices were a significant factor constraining business growth during the February quarter, particularly in regional and rural areas - however, it should be noted that the increase in petrol costs only represents a small addition to the cost of a holiday and holiday-makers should not be deterred from travelling.
"Forty percent of respondents expected the Commonwealth Games would have a positive impact on their business, down from 73 percent in the previous quarter. This may be in line with the realisation among some businesses that the immediate benefits of the Games would be more concentrated in closer geographical proximity to where the Games are being held.
"Business taxes and charges were a significant constraint on performance and Governments can assist in this respect, particularly in the upcoming Federal and State Budgets in May.
‘Government agencies can also display more consideration of how their actions impact on businesses, particularly at the smaller end. The Australian Taxation Office's move to hit small businesses with new GST charges will hurt cashflow in the Victorian tourism industry. The ATO's ruling, which took effect last week, compels businesses to pay the full GST on the cost of goods and services sold, before full payment is received.
"Around 90 percent of Victoria’s tourism operators are small to medium businesses without the huge profit margins of bigger businesses - they do not have the same ability to absorb new costs if they are forced to pay the full GST on services such as tour bookings. The cashflow impacts will be considerable", says VTIC Chairman, Jeremy Johnson.
Survey Results in Detail:
Business conditions remain strong
On a net balance basis, 31 percent of respondents reported an improvement in general business conditions in the three months to February 2006. This compares with the 32 percent net balance reporting improved business conditions in the corresponding period last year.
Sales have been strong with a net balance of 34 percent reporting increases, along with improved selling prices (net balance 19 percent). However, many respondents also experienced increases in wages and other labour costs (net balances of 18 percent and 25 percent respectively), although wage pressures have eased slightly when compared with the results of previous surveys. Looking forward, the industry is expecting improved conditions to prevail in the three months to May 2006. General business conditions are expected to remain strong, with high expectations for further growth in sales, selling prices and profitability. However, wage costs and other labour costs are also expected to rise over this period.
An optimistic mood is expected to characterise trading over the next twelve months with 60 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 is consistent with the result reported in the previous quarterly survey. Metropolitan businesses were generally more optimistic than their regional and rural counterparts.
Rising cost of oil - a perceived constraint to business performance
Increased oil prices (and the corresponding rise in petrol prices) was identified as a perceived constraint on business performance in the three months to February 2006. It was rated as a ‘significant’ or ‘critical’ constraint by 45 percent of respondents, and was particularly of concern to respondents in regional and rural areas, although petrol price rises represent only a small addition to the cost of a holiday. Other factors identified as key constraints include: the cost and availability of insurance; business taxes and government charges; and government regulations. Increasing wage costs was also identified as an issue, although the level of concern has eased since the last survey.
Commonwealth Games to boost tourism
On balance, respondents are generally confident that the Commonwealth Games will provide a boost to their business, although the overall level of confidence has fallen since the previous survey. In total, 16 percent believe it will be a significant or moderate benefit (down from 41 percent in the previous quarterly survey) with a further 24 percent rating it as a mild benefit (down from 32 percent). A small proportion of respondents (14 percent) see the Games as having a negative effect, which may in part be explained by their businesses not being located in close geographical proximity to where Games events will be held. Metropolitan-based businesses are much more confident that the Games will have a positive impact on their business than their regional and rural counterparts.
Background - what is VTIC
The Victorian Tourism Industry Council (VTIC) is the peak policy council for the Victorian tourism industry. Jeremy Johnson chairs the Council, which represents key industry associations and operators, providing one united industry voice.
