Australia has gone from being a net exporter of tourism to a net importer. This has had a huge impact on Australia’s economy. A report in 2010 by Goldman Sachs concluded that one of the key reasons that Australia’s retail sector was in such dire straits was this change. Growth in visitor numbers slowed down and expenditure stabilised or fell back.
When you listen to the tourism industry, the villain of the piece seems to be the Australian dollar. Until this week’s financial roller coaster, the Aussie was riding at historic highs against major currencies like the dollar, the euro, and the pound. Given how many emerging markets peg their currency to the dollar, this effectively made Australia a more expensive destination than formerly. The general industry conclusion seemed to be that this is an act of god for which we can do nothing except asking the government for handouts.
Tourism Research Australia (with help from the Tourism Forecasting Committee and others including Tourism Australia) has just examined the relevance of exchange rates to what is happening to both inbound travel and the travel decisions of Australians. I’d recommend highly reading both reports: Factors Affecting Inbound Tourism and What is Driving Australian’s Travel Choices.
Although these should be essential reading for everyone in Australian tourism, the language of economists can sometimes be a little dry so I’m going to try and decode this into speak that is a little more lively (and doesn’t have to worry about offending anyone).
Basically, both reports conclude that exchange rates do have an impact on travel behaviour for both inbound and outbound behaviour. In the case of inbound behaviour, it says that longer-term those effects are potentially quite strong because over time the reputation for being expensive deters people from considering Australia.
Now to the kicker. The reports both conclude that exchange rates are not the primary determinant of travel to or from Australia.
Income levels (and proxies for income levels like consumer confidence) are far more important in determining whether overseas visitors will come here or whether Australians will stay home.
This could be a so what – as income levels are not really in our control any more than exchange rates are. But in a way they are….. We can choose our customers – we can choose to market to those who are seeing rises in income. The focus on emerging markets especially China, India (and I hope over the long term Indonesia) by Tourism Australia is recognition of this. But it also needs to be recognised by the rest of us in our marketing and our products. Do we have the potential to attract these visitors, or can we reach those pockets of Western markets that still feel confident (of note is that VFR traffic continues and has the potential to generate opportunities for all)?
Even more importantly, the report notes that for outbound travel the value equation of Australian accommodation costs has nearly as much relevance to determining whether Aussies will go overseas or stay home as exchange rates. This is something I hear time and time again in consumer forums from rigorous market research (TRA notes this in its NVS for example) to the responses to David Dale’s column in the Fairfax press. With a few shining exceptions (mostly beyond the price range of ordinary Aussies) Australia’s accommodation offer is tired and bland relative to what your dollar can buy you elsewhere. Incidentally, I first heard this 5 years ago, when the exchange rate was about .75 so the problem was already waiting for us.
Now the interesting thing here is that when the exchange rate was in our favour – we didn’t use that time of plenty to upgrade our offer – leaving us vulnerable now the dollar works against us. We have a tough environment and a poor offer – not really a hard decision for customers.
So before we point the finger at exchange rates, let’s look at the villain in the mirror first. We can optimise the business we can have by looking at our product and at our marketing strategies and finding those opportunities. It is a cliche to mention it but the Chinese characters that represent crisis include the one for opportunity. I think it is worth bearing in mind that Nokia created the small portable mobile phone in response to the sudden and complete collapse of the market for its products at the time (mostly gumboots and toilet paper) with the collapse of the Soviet Union. The journey to our smartphones today began with that – surely we in the travel industry can do just as well.
[icon name=”fighter-jet” class=””] Do you want to hear more from us?
Want to be kept up to date with the latest travel and tourism insights? Join Our Mailing List. Every 2 weeks, we send the latest practical insight for you to apply to your business and destination marketing.