(eTN) – Family-owned “lifestyle” tourism businesses are not the financial dogs that many think – as new research shows they are doing just as well as their more commercially focused rivals.
It has been hard to get good figures on the contribution and profitability of much of the tourism sector. Now a three-year joint venture research project between the Tourism Industry Association, Lincoln University and the Ministry of Tourism has filled the gap.
Sponsored by big tourism players – including Air NZ, Sky City and Budget Rent A Car – the study shows the sector has generally positive financial yields, but many are low compared with the cost of capital and other sectors of the economy.
It also shows “considerable management informality” – in areas such as pricing, financial management, human resources and planning. There is a lot of variation in yield within each part of the tourism sector – suggesting there “are no inherent structural reasons” for varying performance.
“Lifestyle businesses do not have lower financial yields than businesses with a stronger commercial focus, refuting the common misconception that these firms under-perform,” says the report.
With a partner, Neill Sperath runs a small Auckland tourism company called TIME Unlimited, specialising in personalised tours. He takes tourists on day trips doing such things as kite fishing and floundering.
He is surprised to see that big tourism operators are reporting the same kind of financial performance as smaller players.
With more staff, the big players can keep running their operations at full capacity while they travel overseas and meet the big wholesalers and travel companies. For Sperath, such travel means cutting back on operations.
The distinction between “lifestyle” and “professional” businesses can be misleading, he says, since the small size of his enterprise requires an even greater focus. Smaller players cannot afford to have assets sitting around unused, or to take large risks.
But Sperath says that the importance of committed staff in the tourism sector could be one reason why the bigger players sometimes find things difficult.
“A small company like ours, we’re incredibly passionate about what we do… The more employees you have the more difficult it is sometimes – especially when they’re short-term employees like they often are in the tourism industry. It is often very hard to motivate them.”
Smaller companies are often more focused on making sure every customer is happy, he says. Sperath supports the idea of New Zealand attracting a wide range of travellers, not just the well-heeled.
“If you concentrate on one part of the market there is the danger that when or if we become unfashionable, in the future, if we concentrate too much on one segment that the entire industry suffers more than we would if we spread it a bit more.”
Sperath says that five-star travellers and backpackers mix well on his kite-fishing tours and it is important to remember that the backpackers spread the word about New Zealand, often to their more wealthy parents and grandparents.
“Then they come here and love it too… I realise that the market is going more and more towards providing for luxury. It is important, but it’s also important not to forget your roots.”
One thing the industry is happy about seeing in the research is confirmation that central government is doing well out of tourism, with revenue exceeding its spending by $429 million in the 2003/2004 year.
Benefits are not so clear-cut for local government, with the report describing tourism as “largely cost neutral” for local authorities and varying results from four regions studied.
Despite an increasing emphasis on attracting high-end travellers, the research suggests that there is “no single ideal traveller type”.
“Each has merits against a variety of indicators (eg residual income, public sector costs, carbon emissions and regional dispersion). This highlights the importance of attracting a mix of travellers to enable New Zealand to meet its social, cultural, environmental and economic goals.”
Tourism New Zealand chief executive Fiona Luhrs says the research has challenged some common beliefs about the industry.
“To me, there’s always been an assumption in the industry that ‘lifestylers’ – those running lifestyle industries – weren’t interested in making money, that they were there for the lifestyle and as long as they were making an income and covering their costs and living the way they want to, then that was it.”
This research showed that making money was a motivation for them, although they ran their businesses in a very informal manner.
Luhrs says it’s the first time the industry has got good quantitative figures about performance. Previous research had concentrated on different components – not the whole – of tourism. It would look at accommodation, transport, food and beverage or retail, but it was not easy to get figures for the whole sector.
“This gives us something to use when we’re talking to Government about funding for Tourism New Zealand or support,” says Luhrs.
It shows that half the tourism sector is performing better than the average for all New Zealand businesses.
Prospects for this summer, Luhrs says, are “mixed”. Every year tourists are booking their travel closer and closer to the actual date of travel, which makes it difficult to get a clear picture on forward bookings. “October and November were quite quiet, so we’re going into summer with people needing to have a good summer really.”
FACTS & FIGURES
* Tourism is the world’s fastest growing industry.
* New Zealand tourism arrivals have increased by 61 per cent since 1999 to 2.4 million.
* Forecast annual growth is 4 per cent on average for at least the next five years.
* Tourism contributed $8.3 billion to the economy in the year ended March 2006. That is 19.2 per cent of exports.
* Domestic tourism contributes $10.3b to the economy each year.
* Tourism directly and indirectly employs 10 per cent of the country’s workforce.
* Tourism represents 8.9 per cent ($12.8b) of gross domestic product and generates $531m in GST returns from international visitors each year. Tourism is the only export sector whose international clients pay GST.
Source: Tourism Industry Association.