Economy

Tourism loses its way

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The SmartCompany Dun & Bradstreet Industry Growth List for the tourism sector reveals an industry not only already crunched by the economy but feeling the chill from the tough times ahead. By JAMES THOMSON

By James Thomson

 

The SmartCompany Dun & Bradstreet Industry Growth List for the tourism sector reveals an industry not only already crunched by the economy but feeling the chill from the tough times ahead.

The holiday season may be approaching fast, but it is unlikely that entrepreneurs in Australia’s tourism industry will be spending much time relaxing on the beach. As the SmartCompany Dun & Bradstreet Industry Growth List for tourism shows (see end of this feature), conditions are extremely tough in the tourism sector and most players are bracing for a horror 2009.

Of the 50 companies on the list, six companies actually saw revenue fall in the 12 months to 30 June 2008. The total revenue of the 50 companies was $8.5 billion, compared with $7.5 billion in 2006-07. The average growth rate of the companies on the list was 23.4%. (See table at below right for the top 10.)

The companies on the list reflect two trends that have changed the face of the tourism sector in the last decade – the rise of the internet, and increasing importance of focusing on specific niches.

The company on top of the list, online travel insurance provider WorldNomads, is an example of both. The company’s revenue soared from $1.5 million to $3.5 million in 2007-08, thanks in no small part to the company’s innovative – and dirt cheap – marketing strategy.

Co-founder Simon Monk, who immigrated to Australia in 1993, started the business in 2001 after working in internet consulting and web design. While Monk had no experience in the travel industry – other than being a keen adventure traveller – he and his partners saw an opportunity to provide travellers with global travel insurance that they could purchase online.

That wasn’t as easy as it sounds. Because insurance laws differ from country to country (and even within some countries) WorldNomads needed to put together a network of insurance underwriters in different countries to sit behind its insurance products.

“We are pretty much the only company that has stitched together a network of underwriters to provide a seamless global coverage,” Monk says.

The other key to the business has been its marketing strategy. Monk says search engine marketing has been crucial, and the fact WorldNomads was getting started just as Google was becoming the dominant search engine has helped focus the company on improving and maintaining its Google ranking. “Google has played a huge part in growing our businesses,” admits Monk.

Another strategy has been to build a network of partners – including Lonely Planet, National Geographic and Intrepid Travel – which receive a commission for driving customers to the WorldNomads site.

“It’s really a different approach to marketing,” Monk says. “Not having corporate budgets and trying to grow the brand on a shoe-string, you are trying to grow the brand through relationships with like-minded people. All that rubs off on our brand.”

The company has also invested heavily in building its online community by providing travel guides, blogs and other information on its website, setting up a charitable organisation and even offering special travel scholarships, such as an opportunity to go on assignment with a National Geographic photographer.

Monk says WorldNomads, which has customers in 150 counties, is still performing well despite the global economic downturn that has hit the travel sector hard. “So far everything’s good, really good – probably better than we would have expected three months ago.”

But he is under no illusions that 2009 will be difficult. “If we arrived at the end of 2009 and sales were flat or marginally up that would be a great result.”

Tim Lane, managing director of Travel Beyond, ranked fifth on the list with revenue growth of 65% to $19 million in 2007-08, is more pessimistic about conditions in the sector. He says colleagues in the industry are reporting sales are down 30% to 50% in the last few months.

“I think it’s pretty much survival for the next four months,” Lane says.

Travel Beyond has grown by focusing on the television and film production industry. When local or international film production companies need to fly to a location to shoot a commercial, movie or program, Travel Beyond will arrange everything from flights and accommodation to vehicle rental.

“It sort of just grew by referral. We’ve just picked up bits and pieces along the way,” Lane says.

While the entertainment sector has been hit hard in recent months because of the global financial crisis, Lane has managed to diversify the business in the last few months by focusing on the SME sectors, corporate travel for individuals and some government work.

“We’ve certainly diversified the business in the last 12 months,” Lane says. “Our theory is to create a lot of small businesses within one small business. The film stuff is just dead at the moment.”

But Lane is painfully aware that the SME market is susceptible to the slowdown and many will simply turn to internet travel booking sites such as Webjet (ranked eighth on the list with revenue growth of 44% to $25 million in 2007-08) and Wotif (ranked 11th with revenue growth of 40% to $94 million).

“The little SME businesses have been the goldmine for the industry. All the big companies have all done the same thing and said ‘we specialise in SMEs’. They’ve done really well out of those $50,000 to $100,000 accounts, but those SMEs will simply do it themselves as things get tough.”

While the rise of internet travel providers has been spectacular, Wotif chief executive Robbie Cooke argues that the industry remains very much in its infancy. Research shows that more than $10 billion worth of accommodation was sold in Australia in calendar 2007, but only $1.3 billion was sold online. Cooke says this 13.2% online penetration is low compared with US penetration of around 30%. As more and more individuals and businesses book their travel online, traditional travel agents are likely to suffer.

Tim Lane says the only way for travel management companies to compete is to offer more specialised and personal services that mass-market websites cannot match.

“It’s about getting the deals for the clients. That’s what has got us to here and that’s where we must continue to focus.”

Hotel operators have also been hit hard by the rise of companies such as Wotif. Because the sites allow consumers to compare hotel room rates quickly and easily, competition has intensified and margins have shrunk.

As in the travel agency business, specialisation is crucial for hotel operators. One of the more successful has been Marque Hotels International, which operates boutique hotels in Sydney, Canberra, Brisbane and Melbourne. It is ranked 15th on the SmartCompany Dun & Bradstreet Industry Growth List, with revenue climbing 30% to $19 million in 2007-08.

Alan Featherby, chief executive of Rendezvous Hotels & Resorts International, which owns Marque, says the philosophy behind the chain is to provide a hotel experience that is “a little bit edgier” than the average hotel group.

“We’re trying to provide a little bit different. A little bit more relaxed and less formal,” Featherby says.

Some of the methods used to create this feel include putting iPod docking stations in rooms and the Fashion TV channel on the in-house network.

Featherby says Marque has had a great response from industries such as fashion and advertising. “Industries that have some degree of flair and some degree of artistry about the way they do things. They just feel larger hotels are a bit of stereotype in the way they do things.”

Marque is set to open two hotels in China next year and Featherby has had approaches to take the brand to other overseas markets. “There’s a lot of demand. A lot of developers like the Marque as a concept.”

But quality control is important. A Marque hotel planned for the Middle East became so big and flashy that Featherby decided it did not fit Marque’s boutique ethos.

 

SmartCompany Dun & Bradstreet
Top 50 tourism companies 2008

 

Rank

Company

2008 revenue
($ ‘000)

2007
revenue
($ ‘000)

% change

1

World Nomads

3500

1500

133

2

Aerius Travel Holdings

22,692

11,000

106

3

Gran Emeral

540

299

80

4

Travel Beyond

19,000

11,500

65

5

Abercrombie & Kent (Aust)

25,500

16,007

59

6

Magic Tours International

7800

5000

56

7

Webjet

25,155

17,495

44

8

Travel Insurance Direct

15,300

10,700

43

9

Travel Maestro

10,000

7000

43

10

Wotif.com Holdings

93,996

67,310

40

11

Kiora Enterprises

6700

5000

34

12

Pacific Green Tours

8000

6000

33

13

Freedom Escapes

2400

1800

33

14

Macquarie Leisure Operations

325,772

247,511

32

15

Marque Hotels International

19,000

14,652

30

16

ANZ Travel Services

8500

6674

27

17

Intrepid Travel

101,210

79,935

27

18

Macquarie Leisure Trust

331,143

262,980

26

19

Atlantic & Pacific Business Travel

1638

1305

26

20

Flight Centre

1,407,484

1,121,832

25

21

Clenton

2500

2011

24

22

Australian Post-Tel Institute

16,997

14,266

19

23

Trailfinders

17,321

14,628

18

24

M.P. Travel

52,380

44,494

18

25

Stamford Hotels and Resorts

9745

8285

18

26

ALH Group

2,486,321

2,133,162

17

27

Creative Tours

270,000

233,427

16

28

ETM Travel

66,302

57,799

15

29

The Federal Hotels

464,137

420,213

10

30

Australia New Zealand Central Reservations Office

55,550

50,649

10

31

Viatour Travel

8200

7500

9

32

Cobbold Gorge Tours

700

641

9

33

Executive Travel

2796

2566

9

34

Jetset Travelworld

136,962

127,164

8

35

Ocean Capital

33,407

31,072

8

36

Rydges Hotels

161,581

152,322

6

37

The Sovereign Hill Museums Association

21,633

20,480

6

38

Couran Cove Management

16,090

15,249

6

39

C.H. Travel

9029

8800

3

40

Pacific Bay Investments

10,552

10,380

2

41

Skyrail

23,028

22,775

1

42

Barooga Sports Club

13,610

13,503

1

43

Adcorp

1200

1200

0

44

Mirvac Hotels

1,797,821

1,813,247

-1

45

Living and Leisure Australia

114,914

118,637

-3

46

AOT Holidays

23,050

24,090

-4

47

Sime Darby Australia

268,578

283,179

-5

48

Access Travel

500

549

-9

49

Jalpak International Oceania

14,336

15,892

-10

50

IHMS (Australia)

10,101,64

11,446,727

-12

 

Compiled by Dun & Bradstreet using information from its commercial database of more than 2.7 million companies.

 

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