Wednesday, 14 October 2020

The tourism industry has been hit hard by the coronavirus pandemic, with the combination of national lockdowns, social distancing and closed borders hobbling many city and regional businesses.

The Australian tourism sector was already reeling from the impact of the Summer bushfire tragedy when the coronavirus outbreak dealt an additional blow, forcing the en masse shutdown of hotels, caravan parks, airlines, and resorts. This had a devastating flow-on effect to the broader tourism ecosystem — the network of regional restaurants, cafes, galleries, stores, and pubs that rely on a steady influx of visitors.

In the years preceding the pandemic, tourism was the heart and soul of our nation’s SME business community. The tourism sector made up around eight per cent of national employment, with approximately 660,000 Australians working across more than 250,000 tourism businesses. 

Domestic tourism accounted for $105 billion in spend each year, while international visitors spent roughly $45 billion on the nation’s hotels, airlines, and restaurants per annum. China made up the largest number of international tourists from a particular country at 1.4 million last year, with visitors generally staying for up to 10 days and usually only visiting the eastern seaboard. New Zealanders and Europeans were also major contributors to  international travellers to our country, with visitors from these regions generally staying for longer and travelling beyond the eastern seaboard and into the regions.

With both international and much domestic travel at a standstill, some businesses are experiencing revenue downturns of 80 and 90 per cent and are almost entirely reliant on government support and rent deferrals to stay afloat. 

Look inside the business 

Despite the bleak conditions, tourism businesses have a once-in-a-lifetime opportunity to optimize their market offering and right-size their business so they emerge, in phase 2.0, stronger and leaner. Many SME businesses in this sector are sitting on cash reserves owing to payment deferrals and government assistance, and it is imperative this hibernation period is put to effective use as additional cash reserves can offer optionality and greater flexibility. 

Analysis and questions to challenge the status quo that tourism businesses should be asking include:

  • Can I renegotiate contracts with suppliers?
  • What is my cash flow position?
  • Should I right-size my workforce? 
  • Can I renegotiate workforce agreements? 
  • Do I change my online offering and bolster my e-commerce presence? 
  • What adjacent and/or complementary markets have emerged during the pandemic that I can use to my advantage?
  • Do I find new partnerships? Do I find new alliances?
  • Should I adapt my premises?
  • Am I accessing all available Government assistance programs or grants?
  • What is the best way to market my 2.0 business? 

This analysis must be buttressed by a cogent plan for re-emergence. Businesses must consider these challenges as part of a holistic and fulsome strategy – not in isolation. Maintaining an open line of communication with financiers and other key stakeholders is a vital component of this process.

Moving forward through community 

It is most likely that domestic travel will resume before the return of international travel, and businesses therefore need to think domestically to identify and focus on their near term revenue and the strategy to recover after hibernation. 

There is pent up travel demand. Australians spent about $65 billion overseas in 2019, and this represents a chance for local tourism businesses to capture a slice of that expenditure as more Australians travel locally rather than internationally. 

Businesses that build an online presence and market directly to their identified domestic audience are likely to do well once interstate border restrictions ease. Travellers are also likely to be highly safety conscious, and tourism operators need to clearly communicate the social distancing and hygiene measures they have put in place.

Many of Australia’s regional centres have been struggling in recent decades, and with international borders closed, it is the perfect time to explore initiatives to bolster these areas and make the tourism experience even more magical. Government assistance should involve a two-fold approach of reducing red tape and approval hoops to fast-track infrastructure projects and initiatives beyond the cities, as well as partnering with and supporting entrepreneurs who wish to privately invest and launch projects within the regions.

The future of travel

There is no doubt that the tourism sector is undergoing a major shake-up and facing plenty of challenges. However, there are reasons to be confident over the medium to longer term, owing initially to the pent-up demand in the local economy and then subsequently being a safe location of choice for international travellers when the borders are open. And this is supported by recent M&A activity.  Even though it is tough going, we recently saw private equity firm BGH Capital buy Village Roadshow, which owns Gold Coast theme parks SeaWorld and Movie World, while Experience Co in Queensland recently sold off their Great Barrier Reef Helicopters business.
Australians are a nation of travellers, it is in our DNA, and as state borders re-open it will provide many people with the opportunity to explore their own backyard — the Great Barrier Reef, perhaps, instead of Bali. The positive news is that those businesses that are honing their 2.0 offering — perfecting their systems, streamlining their business and identifying their domestic customer base — will meet strong demand when border restrictions ease.

The introduction of a vaccine will mark yet another step-change towards an improved sector, as those countries that adroitly managed COVID-19 become attractive destinations for a broad swathe of visitors. Australia is already well-regarded among international tourists, and our expert handling, for the most part, of the pandemic will further enhance our international esteem. New Zealand is already the second-largest source of inbound travellers, and the creation of a mini-bubble across the Tasman Sea will also be highly advantageous to both countries.

We are a resilient nation, in business and in life, and we have weathered previous tourism storms. Tourism operators who take this opportunity to rebuild and optimize their business model — while planning a business model for the path out — will be in an enviable position when the pent-up demand for travel is un-bottled and the pendulum swings the other way. 

It’s just a matter of time.