Theme: Productivity for profit (2014)
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Our fastest route to growth will be to make more money from those investments we have already made and those resources we already employ. Improve our profitability and new investment will follow. The Tourism 2025 framework prompts us to continue our search for new solutions to seasonality and new stimuli for regoinal spread and to individually find ways to improve our capability.
(This document was created for the launch of Tourism 2025 in March 2014. It is not updated. See Tourism 2025 - Two Years On for the latest information on the growth framework.)
The 2025 outcome
Individually and collectively, we're expanding the productive capacity of the industry, improving returns from the investments we have already made and attracting new capital investment in tourism.
How we're getting there
- Individually and collectively, we are addressing seasonality: identifying and pursuing opportunities that create demand outside our traditional peaks.
- Individually and collectively, we are promoting regional dispersal: encouraging visitors to see more of New Zealand.
- Individually, we are managing our enterprises in ways that continually improve our productivity.
Productivity: small decisions can deliver big gains
Productivity is about how effectively people bring together resources to make and sell goods and services. Like other industries, increasing productivity in the tourism sector means either:
- Providing more services with the same inputs, or
- Providing the same services with fewer inputs.
Increasing productivity lifts living standards through higher incomes and more leisure. There is no silver bullet. But getting right the small decisions that allocate labour, capital and other resources make for big improvements to how we produce goods and services.
Tourism can lift productivity, raising living standards for all New Zealanders
- tourism makes up 8.7% of New Zealand’s economy - lifting performance can help raise economic growth right across the economy
- performing better is about being more productive – making more with less through using resources more efficiently
- recent performance has been poor – there is much room for improving productivity.
Understanding and measuring productivity will be critical
- measuring productivity means measuring industry outputs and inputs
- but other industries’ standard classifications of inputs and outputs miss key features of tourism. This means moving beyond standard thinking about productivity
Tourism leverages New Zealand’s natural resources
- New Zealand’s size and distance are part of our appeal as a premium destination
- international and domestic travellers have different motives and travel to different places. Tourism 2025 can influence but not change consumers’ motivation
- regional resources entice visitors, enabling the industry to attract premium visitors to stay longer and enjoy more of what we have to offer
Breaking tourism productivity into key drivers is critical to understanding
- the tourism chain has three distinct products:
- activities and attractions, including retail
- there is scope to improve productivity for both domestic and international markets, by improving use of products that are underused, for example in the off season
Improving tourism productivity means reducing seasonality
- demand for transport and accommodation fall significantly in our low season - we need to attract capital investment to businesses that can build demand for off-season visits
- regions can use targeted marketing to add value, e.g. by encouraging domestic visitors during the low season
…and increasing intensity in the regions
- relative to New Zealand’s economic footprint, both international and domestic tourism activity is focussed in regions where our natural capital lies but large chunks of capital and labour are under-used
- international tourism also brings visitors from afar together with businesses in regional locations. That makes it hard for businesses to know the customer. So arming businesses with the right information about customers can lift productivity, particularly when regional footprints are rapidly changing
- so there is an opportunity to improve productivity by extending the reach of both domestic and international tourism into New Zealand communities, provided operators can understand visitors’ needs.
People and skills are critical
- increasing the skill level of workers as well as the available pool of people is critical to meeting the goals of Tourism 2025 - a better trained workforce is more likely to deliver a higher standard and more consistent level of service to meet the evolving and changing needs of our visitors
- producing a workforce with higher skill levels (backed by nationally recognised qualifications) is a fillip to both employee productivity and business profitability and ultimately increases the contribution tourism makes to the economy
Lifting skills levels can help to alleviate people shortages where in some areas employers have become dependent on migrant labour with temporary work permits to fill skilled positions.
There is much individual operators can do
- the tourism industry will continue to be affected by shocks that reduce the volume of visitors (for example, September 11, SARS or exchange rate shocks). While these directly impact the bottom line of businesses exposed to the tourism sector, shocks are part of normal business, and operators must be nimble to manage them
- operators need to focus on the one thing they control: how they use their resources to make the operation more productive
- as in other services, getting the right skill mix, adopting information and communication technology (ICT), and improving management practices look like possible areas for improvement
- operators who benchmark performance against competition and innovate to improve performance are likely to grow more quickly than their competitors, despite shocks to the overall tourism environment
Productivity: Making the most of what we’ve got
Productivity is about making more with less
Productivity is about making the most of our resources – the land, capital and labour we bring together to make goods and services. Productivity increases when we produce more with the same inputs or produce the same output with less input. So measuring productivity means measuring the ratio of outputs to inputs.
Many associate productivity improvement with invention. For example, the steam engine meant transporting goods more cheaply, increasing what could be produced with the same labour and capital inputs.
But today productivity is much more about the production process, i.e. the way goods and services are produced and how innovation is commercialised into the production process. So don’t expect big gains from new technologies. Instead, improvement is likely to come from incremental gains in labour and how we organise the productivity process.
New Zealanders are among the hardest working people in the OECD. We work longer hours than most of our peers, including Australia. We have been working harder. Now we need to work smarter, so that means increasing productivity.
Productivity is difficult to measure
Standard measures of productivity isolate the impact of each input:
- labour productivity: output/labour
- capital productivity: output/capital
- multi-factor productivity: output/all inputs
But measuring outputs is not straightforward. To make comparison of outputs across time means tracking changes in quality and prices.
And measuring inputs accurately is more difficult. Measuring labour input accurately means moving beyond value-add per employee to measuring value-add per hour. And labour input needs to be quality-adjusted to make sure we compare apples with apples.
Productivity is doubly difficult to measure for tourism
Tourism is unique. The location of the activity – and not the type of good – defines tourism.
New Zealand’s Tourism Satellite Account defines tourism activity as purchases that take place when a resident is more than 40km away from their work or residence, or travel by a scheduled flight or inter-island service.
Measuring tourism outputs is difficult as tourism cuts across standard industry definitions.
Measuring tourism inputs is equally difficult. Many businesses and workers don’t know whether their customers are visitors. For example, service staff in restaurants may have difficulty discerning domestic travellers from local residents. That makes it very difficult to track the impact of tourism on the productivity of individual businesses.
And many businesses may operate several business lines (for example, Air New Zealand operates both freight and passenger transport). So distinguishing staff, management and capital inputs to tourism from other parts of the business is very difficult.
Productivity relates to other measure of success
Productivity is closely related to many other concepts of success or best practice. Figure 1 shows a stylised representation.
When productivity increases, the extra income from producing more with less is returned to either:
- labour as higher wages
- businesses as the return on capital assets and entrepreneurship; or
- to the government as increased taxes.
So increasing productivity increases business-level profitability, not counting changes in wages or taxes.
Increasing revenue will often increase productivity but only if inputs grow more slowly than revenue. Figure 2 shows this case, that economists label increasing returns-to-scale, since output increases by more than the proportional increase in inputs. Increasing returns-to-scale matters, since increasing volume means increasing productivity and most likely increased profitability for businesses in the sector.
Sustainability measures the likelihood of a process enduring. In productivity, sustainability recognises that productivity does not rise when we risk future resources.
Efficiency is related to productivity but is a much narrower concept. Efficiency asks: can a given set of inputs be used more effectively to increase production? Productivity allows that mix of inputs to vary to increase production. So increasing efficiency always increases productivity. Increasing productivity might not increase efficiency.
Robustness or risk management relates to the ability of a production process to avoid failure and resist change.
How do we lift productivity?
There is no silver bullet to increase productivity. Increasing productivity covers the entire range of players in the economy – workers, businesses, entrepreneurs and government. Ultimately, to improve productivity, we need to improve the quality of ideas, to add value to making goods and services. Then we need to work smarter at putting these ideas into action.
At the regulatory level
At a national level, the regulatory environment needs to be transparent, high quality and carry minimal compliance costs. Effective property rights are needed so returns from an asset are conferred to the owner.
At the industry level
At the industry level, many factors are important:
- Ambition – New Zealand businesses need the desire to create opportunities and achieve goals.
- Innovation – New Zealand needs innovators that can both generate ideas and implement them. Open, competitive markets help incentivise innovation and improve how labour and capital are allocated within the production process.
- The right skills – increasing the level of skills means labour can improve growth. But to add value to the economy, skills need to match business needs. New Zealand is relatively well educated compared to OECD peers, but the returns to workers from higher education are much lower. This suggests skills need to be better matched to industry requirements to boost wages. Simply raising the skill level will not be enough.
- The right investment – the right investment improves the stock of capital. That means more capital for each worker, improving the returns to labour and entrepreneurial efforts.
- Natural resources – standard productivity measures ignore the role of natural resources – our iconic scenery and culture that draw long-haul visitors. As demand rises, we need quality management of these resources to preserve their future. Using these natural resources better through the right regulatory environments and the right government interventions can help improve productivity.
But there are many factors influencing productivity that are beyond the control of business or government. For example, New Zealand’s economic geography and our distance from key markets impacts on our growth outcomes.
We need to know more about how to mitigate the factors that work against us, like the distance to our markets. We need policies that help mitigate economic distance by reducing the time and cost of shifting both products and people across the globe.
But constructing measures of the inputs of production in the tourism sector is very difficult in practice. Many businesses, Air New Zealand for example, operate business models that use staff for both transporting goods (cargo) and transporting people (tourism). So it is difficult to identify precisely which inputs matter for understanding productivity in the tourism sector.
Productivity is really all about better decision-making
Productivity is really all about better decision-making – how well can people bring together resources like land, labour and capital, managerial and financial capability to sell goods and services.
The right people and skills
As a service sector, tourism is a people business. The right people are the sector’s major asset and interactions between visitors and their hosts (manaaki) are arguably what visitors value and remember the most. The ability to grow the value of the sector and its contribution to the economy is dependent on the skills of the industry’s workforce.
In spite of comparatively high unemployment levels (6.2% in the September 2013 quarter), the industry still faces shortages of skilled, semi-skilled and even unskilled workers. With economic growth forecast to improve over the next few years, these shortages will become acute. If the aspirational goals of Tourism 2025 are to be realised, then the industry must move quickly to tackle the skills deficit and labour shortage.
While making wages more competitive is a critical part of attracting and retaining qualified and skilled workers, on its own it is not enough. It is also important to provide career options for employees that mean a job in the tourism industry can provide a rewarding and long term career.
Tourism as a Fantastic Career
To be internationally competitive, tourism needs top quality staff to deliver world class visitor experiences profitably each day. Behind the front line customer service teams, the sector needs well qualified people such as: accountants, analysts, business development managers, communications experts, engineers, events specialists, human resource and training people, IT professionals, lawyers, marketers, operations managers, strategists and yield managers.
To achieve its growth targets and build international competitiveness tourism needs to reposition itself and elevate its status as a valuable and valued sector of the economy. In this context, TIA has sought recommendations on educating and informing about careers in tourism. The reality is that career paths in tourism are not obvious; in the absence of a sector strategy, tourism’s goals are not clear and there is no coherent public promotion of jobs or careers in tourism.
TIA has started a project to drive a high-profile campaign to highlight tourism as a viable career for school leavers and those currently in the workforce. This project will work to coordinate training pathways, promote discussion amongst employers and influence those who are in a position to support candidates with the skills, aptitude and attitude that makes them vital to the future of the tourism industry.
But the tourism industry has some advantages that other industries don’t have. It can provide flexible options including part-time work, jobs for young and mature workers alike and employment in many of the smallest communities in New Zealand where work may not readily be available. This provides the sector with opportunities to find and employ the right people.
The take-up of training in the tourism industry is low compared to other industries. This is mostly down to the SME (small and medium sized enterprises) composition of the sector where owner operators are either reluctant to release staff from the workplace or perceive the cost of training to be too high to justify the investment. Changing this mind-set is needed to improve skills, drive employee productivity and increase business profitability, but also to enhance the overall visitor experience.
It is true that the skills and labour needs of the industry are not uniform either by region or sector and this will necessitate local solutions. We know, however, that unless we plan for the future labour requirements of our industry and invest in the skills owners/operators and staff will need to deliver outstanding visitor experiences, the goals that have been set in Tourism 2025 will be that much harder to achieve.
We are also going to continue to need temporary workers from offshore to help meet our labour needs. While New Zealand has active working holiday schemes in place with a number of countries, there needs to be more promotion of these programmes. Australia, for instance, actively markets its working holiday visas to support longer stays that drive economic value.
Service IQ Industry Training Organisation
ServiceIQ is the industry training organisation (ITO) that represents the tourism, hospitality and retail sectors. The organisation is charged with improving productivity and profitability through training while producing a workforce with nationally recognised qualifications. Service IQ’s 2014 Strategic Plan places a strong emphasis on skills leadership to improve the capability of people working in the tourism sector. In moving to implementation, it will be important to align Service IQ’s strategy with the actionable initiatives set out in Tourism 2025 so that the necessary labour and right skills are available to meet the aspirational goals set out in the framework.
Case Study: KJet Queenstown
Promoting tourism as a positive career choice, pioneering jet boat company KJet Queenstown has employed three graduates from the Queenstown Resort College (QRC) as jet boat drivers.
KJet Operations Manager Fraser Gordon said the decision to employ them at was because they were 'simply the best people for the job”. “We’re incredibly impressed with the calibre of these guys who stood head and shoulders above any other applicants,” he sa.
“They received a good theoretical knowledge of the adventure tourism industry at QRC and coupled with their fantastic problem solving and analytical skills, they’re a perfect fit for the KJet team.
“Jet boating is a valued and rewarding career and anyone considering a job in the industry commits to a two year contract which includes extensive mentoring and on the job training in all areas of the business.
“It’s testimony to the dedication, passion and maturity of these guys that they’ve committed to KJet and a career in jet boating, and QRC certainly helped them on that front.”
All the graduates and Fraser Gordon firmly see tourism as a “lifelong and worthwhile career” with opportunities here and abroad. “A Jet boat driver is 100% a valid career choice. It’s a full-time, year-round salaried role which provides stability and variety,” said Mr Gordon.
“Tourism used to be what people did before they got “a real job”, now thanks to institutions like QRC and its adventure course, they help raise standards in the industry,
“Kiwi Jet boat drivers are seen as the cream of the cropThey’re revered the world over as jet boating is known as a Kiwi activity. We look for drivers with practical, problem solving skills, and those who have the confidence and personality to ’hold the floor’ with a boat full of guests.”
QRC Internship Manager Ray O’Brien said the Adventure Tourism Management course was the “perfect result of private business and education collaboration” for a shared cause.
“The perception of tourism as a career is changing in many ways. The industry itself is now holding its head high as a true profession and as an education provider QRC has raised the bar,” he said.
“Our entry process is quite rightly very rigorous to ensure we attract the best candidates who’ll then go on to not only be the face of QRC but also an ambassador for New Zealand’s tourism industry.
Why is New Zealand so seasonal?
People decide when to holiday because of factors like climate and their local holiday seasons. Tourism destinations around the world struggle with seasonality, the pattern of high and low visitor numbers.
But New Zealand’s pattern of seasonality is extreme. The difference between visitor numbers in the high and low seasons is especially large for several reasons. Climate, the timing of holidays for schools and the workforce, and the concurrence of summer with Christmas and the New Year all contribute. Since much of New Zealand’s tourism experience is based on outdoor activities, we are particularly exposed to seasonality caused by weather and the general preference to take holidays in the summer (especially for temperate climate destinations).
Many tourism products are instantly perishable. Tonight’s seat on a plane or a sleep in a hotel room can be sold today but not tomorrow. That makes some elements of the industry extremely reliant on the seasonal visitor profile that drives the intensity of how hard capital is utilised.
This seasonality hampers the productivity of tourism businesses in two key ways:
- operators have capital and labour that are under-utilised in the low season
- operators are reluctant to hire labour or invest in capital that could help productivity.
There are no simple solutions to easing tourism seasonality. While the factors driving seasonality are well understood, effective solutions remain elusive and seasonality continues to be an issue for most destinations.
Extending the summer season will help
A longer summer season would improve productivity. To show the impact of seasonality for operators we use financial information on the accommodation sector from Statistics New Zealand’s Annual Enterprise Survey (AES) for 2011. That survey gives labour, capital and overhead inputs as well as revenue and profit measures.
If the summer season began three weeks earlier in October, and finished three weeks later in April, profit would increase by 33%, or by $650 per employee.
Development of new markets and new market segments will also help
New Zealand is set to benefit from growth in a range of new and emerging markets and market segments. China, India, Indonesia and other markets in the Asia-Pacific region will become an increasing share of our international visitor market.
These markets have a different seasonal profile to our traditional markets. As these markets start to grow in size, this different seasonal profile will help build the shoulder season (see figure 4).
More aggressive targeting of specific markets and market segments could develop the out-of-season market further.
Events can smooth seasonality
Staging events is a critical lever national and regional tourism organisations can use to help to shape seasonality. Smoothing seasonality helps operators by raising the utilisation of accommodation and transport infrastructure. That helps lift productivity since outputs increase without the need for additional capital investment.
While the productive benefits of smoothing the seasonal profile are clear, changing it is challenging. In terms of source market travel trade, a major challenge for New Zealand is to persuade the offshore travel trade to sell New Zealand outside peak season.
Other destinations are simply easier to sell – reinforced by travel media, such as Lonely Planet, that extol the virtues of travelling in the peak New Zealand period.
Baum and Hagen (Baum, Tom and Laura Hagen (1999), ‘Responses to seasonality: the experiences of peripheral destinations’, International Journal of Tourism Research, vol 1(5) pages 299-31) note that many marketing responses fail because they simply attempted to sell more of the same to the same people, but over a longer period of time. So successfully targeting shoulder and off-peak will require reallocation of marketing resources to new market segments, which may deliver lower return on investment in terms of arrivals and length of stay, but high productivity. That means focussing on market segments that have more flexibility about when they travel, i.e. not constrained by school or set holidays.
Staging major events can help
The Ministry of Business, Innovation and Employment (MBIE) contributed $7 million to stage 18 major events in New Zealand between September 2010 and April 2012. The government contribution returned approximately $32.1 million of net economic benefit. So staging major events makes a significant contribution to the economy.
But, as Figure 5 shows, most of the 18 major events were staged during the peak tourism season. Yet MBIE’s research shows that events staged in the off-season deliver greater benefits:“The meta-evaluation has not only confirmed disproportionately greater net economic benefits from off-peak and shoulder season events, but such active prospecting will deliver more optimal resource utilisation, e.g. infrastructure and assets, labour, tourism, accommodation and hospitality supply, and airline capacity.”
So MBIE’s approach is now to “actively prospect for events that take place in the shoulder or off-peak season”.
Larger regions have targeted ‘events’ as a ‘seasonality’ growth stimulator
Some of New Zealand’s larger regions such as Auckland and Wellington have long-since recognised the value of events, and calendar-year event portfolios as effective tools to stimulate economic, including tourism, growth and help address seasonality challenges.
Case study: Auckland using major events to enhance the visitor economy
Auckland is rapidly cementing its position on the world stage as a major events destination. Major events are fast, visible marketing vehicles that can make cities famous, while pumping money in to the local economy.
Auckland recognised the need to create a plan that incorporated a vision where all parties know and agree where they are going and which would bring people along on the journey. It was important to create cohesion, a ‘one’ Auckland environment where tourism and events is a priority for all. The focus was single minded and relentless and an opportunity to promote the value of the sector. The Auckland Visitor 10 Year Plan had two major aspirations –an ‘economic’ aspiration and a ‘place’ aspiration that highlighted the destination proposition.
The economic aspiration centred on doubling international tourism receipts from $2 billion in 2010 to $4 billion in 2021 and increasing domestic tourism receipts from $1.37 billion to $2 billion over the ten year period. This meaning that the value of the Auckland visitor economy will grow from $3.3 billion in 2010 to $6 billion in 2021, an 80% increase over 10 years or 5.5% per annum.
The key to success from leveraging off the economic opportunities presented by major events necessitated the importance of thinking of this opportunity in terms of an investment portfolio. The approach used was to decide on what targets the portfolio must deliver and to invest in a variety of events. Like any share portfolio, shares may do better at times, while some carry more risk. The key is that the bottom line is what counts.
Auckland focused on four main outcomes to measure the opportunity that major events created:
Economic growth – new money into Auckland: The key is that a solid return on regional investment is made. This was measured by determining the true net benefit which was derived from taking the difference from the total regional event investment away from money that has flowed in to the economy from outside Auckland through major events.
Visitor Growth: This is measured through the increase in visitor numbers, the length of stay of visitors and the increase in visitor spend. These measurements align with growth indicators that are used to measure the visitor economy at a national level.
International Exposure: Using events to create awareness of Auckland on the global stage, portraying the city as a ‘must see’ destination. This is a mechanism to showcase the breadth of experiences on offer and its points of difference.
Exposing the Liveability of Auckland: Through creating awareness of Auckland as a desirable place to live, in turn leveraging off investment opportunities and labour capital that can be injected in to the city.
All these factors are already leading to tangible economic and social outcomes. After just two years in action, the major events strategy is already showing significant success:
- visitor nights increased from 55,000 in 2010/11 to just under 300,000 visitor nights in 2012-13
- the impact on regional GDP is profound, moving from $14 million in 2010/2011 to $38.9 million in 2012-13
- the Rugby World Cup 2011 generated 114,000 international visitors and $512 million net additional expenditure for Auckland
- in the 2012-13 year, the staging of Mary Poppins generated 151,955 attendees with a GDP impact of over $7 million. In the same year, the ITU World Triathlon Championship Grand Final injected 55,992 visitor nights and a $7.4 million contribution to GDP
- also in 2012-13 36,883 more visitor nights were generated by the V8 Supercars ITM 400 Auckland adding a further $7.5 million to GDP in its first year
The future is looking extremely positive to grow the economic aspiration of Auckland through the following major events on the horizon:
- the IRB Junior World Championships 2014 is expected to bring in a further 46,000 visitor nights
- the NRL Auckland Nines 2014 is expected to add a further 32,800 visitor nights
- the Volvo Ocean Race in 2014-15 and 2017-18 is expected to see 18,800 more visitor nights generated in Auckland
- the Cricket World Cup 2015 is expected to generate a further 78,000 visitor nights
- the FIFA U20 Men’s World Cup 2015 is likely to add 44,478 visitor nights to Auckland’s visitor economy
- the World Masters Games 2017 is expected to generate just over 250,000 visitor nights
- collectively these events from 2014 to 2017 are expected to add around half a million visitor nights to the Auckland visitor economy
Photo: Stamford Plaza Exterior/Auckland Tourism, Events & Economic Development Ltd
Source: Rachael Carroll, General Manager Destination and Marketing, Auckland Tourism Events and Economic Development (ATEED) presentation 2013 TIA Summit
But much can also be done at a micro-level
It is not just larger events that stimulate economic growth and help with seasonality issues.
Interventions at a regional level can also help boost capacity across the year.
Regions such as Taupo and Hawke’s Bay have both placed significant strategic focus on gradually evolving event portfolios which contain a mix of larger ‘anchor’ events coupled with regular, annual smaller events, all which provide flows and visitors and benefits to their respective visitor economies.
Methods regions can adopt to smooth capacity utilisation
Sequencing several smaller events
Trans-Tasman netball competition
Staging events that have numerous participants in addition to spectators
Promoting weekend activity to bolster cities that benefit from mid-week business travel
Case study: Hawke’s Bay seasonal events strategy
Many regions use events to extend the tourist season. Hawke’s Bay takes this a step further with a regional events strategy targeted at addressing seasonality by using events.
Domestic travel is 80% of the Hawke’s Bay visitor market and the strategy aligns campaign timing to specific market segments. That means market analysis sits alongside economic analysis – extending the season to work existing capital and infrastructure harder.
Their market strategy looks this:
Hawke’s Bay Tourism event planning calendar
To implement the strategy Hawke’s Bay Tourism has launched new events targeted at specific segments in the shoulder season and off-peak period. These events include:
- Labour Weekend 2013 sports weekend including Under 19 Football, Phoenix vs Newcastle Jets, netball test – Silver Ferns vs Malawi Queens
- F.A.W.C! Food and Wine Classic, summer (November) and winter (June) programmes
- Festival of Hockey, April, confirmed for the next 10 years
- Big Easy cycle ride, Easter
These activities help build a regional profile that promotes travel right across the season. This makes for a smoother visitor profile that means operators can expect higher capacity rates for longer, increasing the productivity of existing assets.
Photo: Cycle The Big Easy/Hawke’s Bay Tourism
Special interest and business event initiatives are another tool to address seasonality
Special interest activities such as those targeted by Tourism NZ (e.g. ski, golf and cycling ) can, with carefully long-term strategic planning and healthy stakeholder relationships and partnerships, help smooth seasonality.
Likewise, ‘business events, particularly conferences, are another seasonality-smoothing tool. A new convention centre in Auckland (from 2017) and possible new convention centres in Christchurch and Queenstown would position New Zealand well to grow this high-value market.
Case study: Building a niche market to fill capacity through collective marketing
Ski areas have been involved in collective marketing offshore since the early 1980s. During this time ski areas in partnership with Tourism New Zealand and Air New Zealand attended ski shows and promotions under the ‘New Zealand’ banner in the US, Japan and Australia. In the early 1990s the Ski Areas Association of New Zealand (SAANZ) entered into a partnership with Tourism NZ to focus its joint marketing efforts in the Australian market.
When Tourism NZ introduced Tourism Marketing Networks (TMN) for specific industry groups SAANZ supported the establishment of the Ski TMN comprising partners involved in the snow industry with an interest in the Australian market. The TMN partners formulate the annual promotional plan and budget at the end of each ski season. The plan incorporates Tourism NZ’s winter marketing efforts in Australia and comprises web, TV and print promotions including the visiting media programme.
The Ski TMN contracts a marketing manager for the campaign and SAANZ administers the contract and manages TMN finances. Collectively the Ski TMN raises $450,000 per year from partners which is matched by Tourism NZ, providing a collective marketing fund of $900,000 annually.
Currently the Australian market generates 28% of the total number of visits (1,364,000 in 2012) to New Zealand ski areas. This equates to 76,384 Australian visitors averaging five days per trip.
The most successful season for the Ski TMN was in 2009 when additional Tourism NZ funding for marketing in Australia coincided with a $900 tax bonus for all Australians.
Ski TMN demonstrates the value of operators collaborating to compete. Results include ski area turnover increasing from $6.2 million in 1980 to $75.5 million in 2006 and open days increasing from 781 to 1311 over the same period. The percentage of international visitors has more than doubled, from 15% of total skiers in 1990 peaking at 38% in 2008.
SKi TMN is a very tangible example of building a niche market that effectively fills capacity in the winter season, stimulating economic activity, improving airline economics through better capacity utilisation and creating jobs. It is clear that this opportunity also created concentrated regional dispersal with 15 commercial ski areas positively impacted. This includes an indoor facility in Auckland, Mt Ruapehu, Canterbury, Mackenzie Basin, North and Central Otago.
Source: Ski Areas Association of NZ (SAANZ)
Photo: Family enjoying the view from the slopes/Destination Queenstown
Boosting regional spread
Encouraging visitors into New Zealand’s regions offers the opportunity to better utilise their natural features, capital (such as accommodation) and labour.
Managing the visitor flow will take effort. Not all capital is under-utilised and many regional areas are already stretched at specific times of the year. For example, in Queenstown seasonal demand for labour is very high. And visitor flows stretch local infrastructure in areas without strong rating bases, such as Tekapo.
As Figure 6 shows, many regions already benefit from tourism and there are good opportunities for other regions to grow their tourism earnings.
The Chinese FIT footprint is rapidly spreading
A focus on free independent travel (FIT), high-value Chinese visitors is supporting regional spread.
Domestic tourism is a major catalyst for dispersing visitors
Domestic tourism can play a key role in boosting visitors to the regions. Figure 8 shows that domestic expenditure is typically larger than expenditure by international visitors for all but five locations that service international markets (Auckland, Rotorua, Queenstown, Fiordland and Otago). Lifting the size of the domestic tourism sector broadens tourism’s regional profile.
Regions are often in competition for the domestic tourism dollar. That means that increased marketing and infrastructure spend at a local level can make for a zero sum game that leaves nobody better off at a national level. The key investor in domestic tourism – local government – is motivated by growing regional GDP, together with leveraging the social and community outcomes that a vibrant visitor economy can bring to their region.
Case study: Cruise – helping seasonality and regional spread
Across the 2012/13 season, 37 cruise ships visited New Zealand on 129 voyages. There were 211,430 passenger arrivals, of which around 68,000 were fly in and/or fly out passengers and therefore counted by the official statistics. In addition to this, there were 82,368 crew arrivals, Market Economics estimated that cruise created $310 million in economic value added in 2012 (Regional Economic Impact of the New Zealand Cruise Sector Report Summary, August 2013). [Visit Cruise New Zealand's website for up-to-date cruise insight].
At a time of relatively weak growth for the industry, Figure 6 shows that over the past eight years, cruise voyages have grown at 13% a year and passengers at 23% a year. So the cruise industry is now a major component of the tourism industry.
Note: Since the definition of an arriving or departing passenger is limited to passengers who arrive in or depart from New Zealand by air, the cruise sector is not adequately recorded in national tourism statistics. Better measures are needed to capture the influence of cruise on the industry.
How the cruise sector can help lift productivity
Relative to other tourism sectors, much of the returns to the cruise sector flow to source markets outside New Zealand with a relatively smaller fraction accruing to New Zealand-based businesses.
However, the cruise industry comes with many benefits. New Zealand businesses do not need to provide the capital that brings visitors to New Zealand. Cruise companies also market the product, reducing the marketing outlay to the New Zealand tourism industry.
The cruise industry also has two features that help translate revenue to profitability:
- A large regional spread (see Figure 10).
- An extended season (October to March).
That helps translate visitor revenue into profitability while limiting the need for businesses to invest in capital to help meet visitor demand.
Next steps for New Zealand’s cruise industry
Auckland received $116 million in revenue in the 2012/13 season from hosting cruise ships. But this is modest. In comparison, Figure 11 shows Sydney generates four times the economic benefit accruing to Auckland.
Sydney faces significant capacity constraints. Deloitte (The economic contribution of the cruise sector to Australia by Deloitte Access Economics for Carnival Australia 29 February 2012) shows the cruise industry could be worth more than $1b to Sydney’s economy but failing to provide adequate supply risks that economic opportunity. For example, Australian Government Independent Review of the Potential for Enhanced Cruise Ship Access to Garden Island Sydney, February 2012 recognises at page ii, that the full economic benefits from the cruise ship sector will only be realised through supporting infrastructure for large cruise vessels.
Ports that can develop their proposition as an exchange port, that facilitates hubbing and servicing of cruise ships, have the potential to materially benefit from both the economic value of selling services to the operator and passengers and crew.
Two key infrastructure developments will progress this expansion for Auckland by providing certainty for the cruise lines that Auckland has a plan towards full capability for the large ships:
- dredging to increase the “pocket” alongside Shed 10
- add structural strength to Queen’s Wharf
Tourism 2025, within its ‘Target For Value’ – Cruise initiative, identifies the strategic opportunity for relevant industry organisations to undertake the necessary work to fully understand the economic value potential and longer term infrastructure requirements for Auckland with a view to unlocking Auckland’s position as an exchange port.
What can individual operators do?
Competition increases productivity by shifting resources from low to high productivity businesses. Generally competition increases the incentive to continually innovate, helping build better and new products that make for better value-for-money that can help grow the sector as a whole.
Within the tourism sector, the product is highly perishable since today’s seat on a bus or night in accommodation cannot be sold tomorrow. So there are returns from scaling up production.
The right skills
Worker turnover is very high in the accommodation and food and beverage sectors compared to the rest of the economy (see figure 12). The tourism sector is characterised by high turnover of workers that have low entry-level wages with little distinction between wages for new workers and continuing employees (see figure 13).
Just like other service sectors, tourism could improve productivity with faster take-up of information and communications technology (ICT). The 2013 Productivity Commission study, Boosting productivity in the service sector, identifies ICT take-up as likely to boost productivity across a number of service industries. The Business Operations Survey (BOS) 2011 survey shows that the tourism sector is likely to identify poor ICT as a barrier to growing profitability (see figure 14).
Most likely this points to the wide array of IT systems across inbound tour operators and local providers. Synchronising these systems would improve productivity, both through pricing management and reducing the time sales staff spend on administration. So investigating technologies that can cut across different operating systems is likely to increase profitability to the sector.
Benchmarking enables operators to assess and monitor performance
Benchmarking allows businesses to conduct their own diagnosis for improving performance. That might mean improving the business as a whole or one part of the business. The best benchmarking practices include comparison with competitors and comparison over time. Benchmarking provides businesses with the feedback to raise productivity at the operator level.
The best performing businesses are continuously engaged in benchmarking. Multinational companies continuously seek to improve what they do, comparing performance across hotels for example, often across countries.
Setting up a benchmarking exercise requires thinking about providing businesses with the right set of information on what is controllable within their business operation, data that gives the right comparators (for example, within similar regions) and takes a stand between what information will be produced from the survey and what information will be provided after processing the survey.
Many benchmarking tools are available
Some tools already exist within the tourism industry. Statistics New Zealand provides a set of standard industry benchmarks using data from Inland Revenue, the University of Waikato Management Research Centre promote the New Zealand Business Benchmarking Survey, the Tourism Industry Association benchmarks hotels and Hospitality New Zealand runs the Hospro tool that provides benchmarking for cafes and restaurants.
As part of its Tourism 2020 plan, Tourism Australia runs a Small-Scale Accommodation Survey for hotels, motels, serviced apartments, caravan parks and visitor hostels. The survey aims to produce a better understanding of trends but also revenue and yield data.
Tourism operators are often small in scale and lack the time to think strategically about business operations. So benchmarking exercises for tourism need to simple, easy-to-understand and require minimal time investment.
Case study: TIA’s hotel benchmarking
The Tourism Industry Association (TIA) benchmarks hotels across eight regions – Auckland, Rotorua, Central Park (Taupo, Tongariro, Napier and Gisborne), Wellington, Nelson/Marlborough, Christchurch, Dunedin and Queenstown.
How the benchmarking works
Each month all TIA Hotels feed their month end results across occupancy, Average Daily Date (ADR) and Revenue per available room (RevPar) and also the Average Room Rate (ARR) by market segment, share of room nights by market segment and share of guest nights by origin into a centralised dataset. The response rate on a monthly basis is 95-100%. The information is aggregated before being fed back to participating hotels via a website.
One useful feature of the benchmarking programme is customising outputs. Participants can compare performance against regional benchmarks and also against a customised selection of competitors. A TIA Hotel can select up to six hotels to benchmark themselves against on a monthly basis. Figure 15 shows an example.
In addition to the monthly benchmarking exercise, TIA also conducts an Annual Operating Survey and an Annual Hotel Salary Survey. These benchmarking exercises help the sector compare operating expenditure and salary levels.
Case study: Hospitality New Zealand’s Hospro tool
Hospitality New Zealand’s Hospro tool allows businesses to compare their revenue and costs across the business with a range of businesses across New Zealand. Hospro tracks wages, capital inputs and a host of other business factors.
The tool suggests a range of options to investigate for performance below the industry range. Figure 16 shows a hypothetical example for a bar in central Wellington. When performance slips outside agreed benchmarks, industry organisations can help access a range of options for businesses that want to make changes to their operations.