Tourism firms need to 'take action to improve their adaptability'

Business / news

Westpac economists say many things need to change if the tourism sector is to thrive in the post Covid era

21st Jul 23, 5:00am by Eric Frykberg

The tourism sector needs many changes including more consolidation, according to a report by Westpac economists.

Westpac’s Industry Economist Paul Clark says the industry also needs better technology and better interaction with customers.

Before Covid-19, spending by tourists was worth $37 billion, of which about one fifth came from foreign visitors.

That made tourism a foreign exchange earner similar to the dairy industry.

Covid ended all that, but by early this year, there had been a two thirds recovery to pre-Covid levels.

To continue this trend, Clark says the industry needs to work had to improve its performance.

The report notes some positive aspects of tourism companies, including labour productivity in the upper third of the OECD, contrary to popular belief. But offsetting this advantage is under investment in technology and machines.

The Westpac report calls for this to be reversed. It also says tourism firms must be so aware of changes in customer tastes that they sense the emergence of new trends before they become well known in the market.

In other words they should be able to "detect weak signals before they become big signals."

"This is particularly relevant for the tourism sector, where margins are typically more volatile than in other sectors," Clark says.

"In part that reflects a heightened sensitivity to shifting customer preferences, changes in the economic cycle, and the impact of advances in technology. The sector is also vulnerable to unforeseeable shocks such as natural disasters, terrorist events and, of course, public health crises such as Covid."

The report suggests the New Zealand tourism industry is impacted by having large numbers of small companies without capital or managerial time available to make significant changes.

It says this problem could be overcome by a series of mergers or acquisitions or joint ventures within the tourism business.

"We think that industry consolidation could provide the economies of scale necessary for substantive investment in sensing capabilities and the technologies that underpin them," Clark says.

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14 Comments

by Flying high | 21st Jul 23, 7:00am 1689879655

Before covid... one fifth came from foreign visitors

20 percent of the tourist industry revenue from offshore visitors sounds too light. When on a attraction we are the only kiwis out of 20 others

There used to be stats of around 4 million (foreign) tourists in a year. If they spend 20 percent/one fifth then kiwis must do a lot of travelling and spending in the country.

Foreigners 7 billion

Nzers 30 billion

by Pa1nter | 21st Jul 23, 7:07am 1689880056

Good info in the article, I wasn't aware of how much money domestic tourism was worth. I spose tourism's still bad though, because who wants an economy with so much money wasted by its inhabitants journeying round and enjoying their own country.

The articles right though, as an experience tourism in NZ is fairly clunky and disjointed. Then again, maybe that's it charm and turning it into some sort of franchise business or large conglomerate would homogenise the experience.

This was interesting

The report notes some positive aspects of tourism companies, including labour productivity in the upper third of the OECD, contrary to popular belief

by redcows1 | 21st Jul 23, 9:43am 1689889391

Upper third of what? Are the OECD figures for overall productivity or just tourism productivity? Any figures I've ever seen tourism productivity is abysmal and unlikely to be in the top third of overall productivity.

by Advisor | 21st Jul 23, 10:03am 1689890589

Also, the article has labour productivity in tourism because the very next line says - the news is not so good, however, when capital and labour are combined. Capital in this regard refers to the infrastructure, machinery and equipment.

Yeah, we've generally had a poor track record on capital goods and infrastructure, tourism isn't probably the first place you'd see a lot of change happening.

I ran the numbers on tourism productivity per worker in NZ (arguably a better measure than breaking it down by capital and labour) and it is 33% lower than the NZ average; bearing in mind the NZ average is already fairly low by OECD standards.

by powerdownkiwi | 21st Jul 23, 9:15am 1689887723

In resource draw-down terms, it's a total negative. I enjoy travel, done it a lot, but that's the physics in a nutshell.

So this is a hype piece - what do banks want? The answer, always, is more people in debt, more.

Is that what the acquisitions angle is about?

by Advisor | 21st Jul 23, 9:48am 1689889726

Tourism contributes to 8% of global emissions, roughly the same as steelmaking. Long-distance electric airplanes are a distant dream with so much yet to be figured out in terms of capacity and battery performance and stability when subjected to a broader range of temperatures and pressures.

Even the most aggressive estimates suggest that the cost of biofuel can only come down to 2x of today's cost of jet fuel.

There isn't a place for long-distance travel to South Pacific from the Northern Hemisphere in a world trying to cut emissions drastically.

by Pa1nter | 21st Jul 23, 10:30am 1689892214

There isn't a place for 95% of current economic activity under that mandate. We'd all need to be lying down, VR on, with some sort of culture raised goo sustaining us through a tube.

So the entire future is either radically different (likely worse for most), or more of the same till something breaks.

by Noncents | 21st Jul 23, 1:21pm 1689902488

Wall-E is our future?

by GregF | 21st Jul 23, 1:53pm 1689904404

The Matrix.

by nktokyo | 21st Jul 23, 10:31am 1689892312

I don't think this is your argument, but just throwing it out there that I'm pretty sick of people refusing to make any change because some other XYZ industry doesn't have the capability to reduce yet.

I think we should go for solving the problems we can now, while working on the problems we can't yet in parallel.

So for example, old cars that produce a lot of emissions, coal powered greenhouses producing summer produce in the winter, single-use plastic used as food packaging. I did a thought experiment with my middle-school-aged son and came up with 3 ideas...

1. Add an increasing age tax to RUCs for cars older than 10 years that goes into funding free to use public charging stations and subsidises electrifying public transport.

2. Add a big label to produce grown out of season that requires fossil fuels. "Coal Tomatoes". Do nothing else and watch the market reaction.

3. Force supermarkets to collect and recycle all packaging for items they sell. There would be drastic changes overnight.

by sharetrader | 21st Jul 23, 10:30am 1689892258

why would you invest in tech and machines when all you need to do is lobby the government for cheaper workers, it is quite embarrassing as a country to see tourists guiding/serving tourists, some of the dribble that comes out about our country, fauna, wildlife is quite shocking but hey no fault of theirs many are on a working holiday so doing the best they can

by Advisor | 21st Jul 23, 11:01am 1689894078

Add investing in physical infrastructure to the mix. Our central government is a big beneficiary of the mass tourism we've seen in the last decade (nearly $4b in GST from international tourists at its peak in 2019 - PAYE, levies and company taxes must be multiples more in Crown revenue).

Yet councils of our major tourism centres have been drowning themselves in debt struggling to provide basic services in their overcrowded towns and cities, let alone being stuck with the bill for new expensive infrastructure with limited revenue sources.

To see what tourism's success looks like in Queenstown, look at QLDC's financial position having amassed one of the largest local government debt piles to income of 265.6% (Auckland has at ~250%).

by Kiwisaint | 21st Jul 23, 4:04pm 1689912250

I'd also suggest that as per some international students, many tourists have been deterred by the worsening crime/safety situation in New Zealand post COVID-19, and the use of much accommodation as emergency housing.

Inflation hasn't helped either - our food/fuel costs are insanely high compared to overseas (having just returned from travelling).

by DIYman | 24th Jul 23, 8:11am 1690143092

Detection of weak signals and taking appropriate action doesn't mean business need to big or small businesses need to consolidate. Where does that drivel come from.

Small tour operators are often family businesses located or operating in remote locations, with low gearing.

The news at the moment within the informal network of STOs is the US tourist market is going to be very weak for 2024.

The STOs have already reallocated resources for 2024, its the luxury accommodation providers who will be hardest hit.