A recession-busting strategy
Darrell Wade is the head of Intrepid Travel, the adventure tour operator that is now a global business. He explains how tourism has been hit in the present economic climate, how he has restructured Intrepid (and why it has edged back into profitability) and why he is selling part of the business.
Amanda Gome: So tell me what's happening.
Darrell Wade: Well, it's an interesting time for tour operators. Twelve months ago we were perhaps in retrospect acceptably optimistic, and you know traditionally I guess we've grown between 20% and 30% every year.
So what's your revenue now?
Our revenue this year, as in finishing on 30 June, will come in at about $130 million, or a tad over.
What were you last year?
That was between $114 million and $115 million.
And what were you projecting?
We thought it would be closer to $142 million and $145 million, so we've got a bit of growth there, but not the growth that we were expecting to have that's for sure. And I think the year ahead will probably get a similar growth curve, as in we'll be more like the 8% to 10% rather than the 20% to 30%.
OK, so what happened, what were the barriers this year?
One, we lost a major offshore client through... let's call it a conflict of interest. We formed a partnership with another company, which they didn't like so they dropped us, so that was a pity.
Looking back could you have done anything about that?
Probably not. We signed a joint venture arrangement with Flight Centre to open a number of retail stores which we'd had in place. And because Flight Centre is listed, we'd signed a non-disclosure statement. And so we couldn't disclose to this particular partner what we were doing, and when they found out about it... spat the dummy, I guess you say.
That's hard, isn't it?
We couldn't do much about it. We had talked to the other partner, that we were entering discussions about our retail activities, but we couldn't obviously disclose who it was, and it was this particular partner with Flight Centre that they had the problem.
Was it worth it?
If we had the same circumstances again, we would still take the same action. It was just a very unfortunate fallout.
And what else?
There is a bit of a recession going on out there. And I guess we're luckier than most in the travel industry in that our clientele is probably a little bit younger. And it's that older market and premium market that's particularly getting hit hard. Whereas the younger, more value-driven product like the space that we are in, tends to be a little bit more resilient.
So the older market... do you mean the superannuation crowd? Aren't they the only wealthy people left?
But they're probably only half as wealthy as they were, and I think they're scared stiff. They're seeing that they had $1 million in superannuation and now they've only got $500,000 and they think well that $20,000 holiday I was going to take this year, maybe I'll put it off for a year and see what happens and see how the market rides out.
So that market is being hit very, very hard. I was with a wholesaler in Holland last week who is in exactly that space, and their business is 40% down on the same period last year.
So who is travelling?
It's very much the value-conscious markets, people are seeing airfares 40% or 50% less than they were this time last year, and they say great I can take advantage of that. Those people are obviously employed, they feel secure about their employment and they're under 40 years old.
Interest rates are down, petrol's down...
Yes, and if you're a teacher or a nurse or someone that hasn't got the threat of unemployment hanging over their heads, there is absolutely no better time. You've had tax cuts, as you say interest rates are lower, petrol's lower, their discretionary income has never been higher in fact.
Have you changed anything to get more of that discretionary dollar?
No we haven't. We've changed a lot of things in the business over the last four or five months just heading into a leaner period, because I think it is going to be a very long brutal road ahead, so yes we've re-looked at business and done a fair degree of restructuring.
While we've had a business that's been anticipating this relatively high growth rates of 25% to 30%, we can't assume that's going to happen. So we can't build in that expense if you like, of catering for that growth. That's been a bit of a painful period. Having said that I think we're through it, and that's probably why we're back in to profitability stage now.
So you're back into profit now?
I don't think any month we've had a loss, but we did in about January - we were anticipating having regular monthly loses from about March through June. Because of our restructuring process, and because business is holding up a little bit better than we expected... in fact our profitability won't be hit quite as badly as we were expecting a couple of months ago.
So what have you done? Tell us about your restructure plan?
We did some fairly extensive re-forecasting of actual revenues, where it's coming from, what the international markets are like and what all the different sectors are looking like.
How did you do that? A dart board?
You just go through sector by sector, and you look at all your distribution channels, and you just re-forecast what you think those channels are going to do. And some are going to hold up, some are not going to hold up.
The American market, which is about 20% of our business, is not holding up at all well. That's the most hard hit if anywhere, whereas the European market is holding up really well, and the Australian market is still pretty healthy.
The European market is very, very selective. Like the Dutch market is shocking, the German market and the Swiss market are still quite good.
So you just go through every country and then within each country, and so you just build it from the bottom up, from all your chains, and then you come up with a new figure. So we've done all that re-forecasting process just to give us a better feel for the future.
The next thing we've done is we have done a cost reduction program because as I was saying we've built forward in terms of the staff levels to cater for the growth that we expected to happen. That hasn't happened; so there's been a pretty extensive consultation process with staff just working out we want to do, and staff have been incredible.
And you've let some staff go?
Yes, there's been two phases. The first one was a consultation phase with staff where we just said look this is the plan that we thought we had (that they've all seen anyway), this is what we now think we'll do as a result of our re-forecasting.