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Tourism Industry as a Service Industry:
An Australian Perspective

By Doctor Roger March
Director, Inbound Tourism Studies Centre

A couple of years ago a former state tourism minister claimed that Australia earned as much from a Japanese honeymoon couple holidaying in Australia for a week as it did from selling 50 tonnes of coal.

There is an old saying that comparisons are odious and in this instance I tend to agree. For a start, I doubt whether Japanese people particularly appreciate being compared to lumps of coal. Imagine New Zealand claiming that an Australian's five-day business trip to the Shakey Isles contributes as much to the Kiwi economy as the export of 10,000 lamb chops.

The point of these comparisons is, of course, is to prove that tourism is an important industry in the Australian economy. But I wonder whether it isn't time to question the impact of the "cargo cult" mentality that grips much of the debate over tourism in Australia. Tourism has become the industry of hype. Our vision may becoming blurred as we perceive the world in terms of what is good for tourism and what is bad for tourism.

Let me give one example. You may have read in the newspapers a couple of weeks ago of the professional baseball team from Korea who were undergoing spring training on the Gold Coast. They were robbed on four separate occasions. Racist slurs were painted on the walls of their training centre. The Australian newspaper ran the following headline: "Racism puts Korean tourism at risk". The journalist assigned to this story was not, as you may expect, the newspaper's social affairs reporter but its tourism writer. In other words, the thrust of the story was not about the act of racism but about the impact of that act upon tourism. The issues of who the culprits might have been and why they might have perpetrated the act, were not raised. Local tourism officials, not the police, were interviewed.

The extent to which this incident reflects broader community attitudes toward the importance of tourism I will leave to your judgement. I, for one, however, feel that we have a problem when racist attacks on foreign guests are reported less as crimes and symptoms of social dysfunction but rather as impediments to the smooth growth in inbound tourism from an emerging market.

Clearly, the promotion of tourism as a major Australian industry over the past few years has been a success. But have we gone too far? Has our unrequited love affair with unbridled tourism blurred our reason and our objectivity?

For example, tourism is often touted as our fastest growing employment sector. We were told at the beginning of the 1990s by industry leaders and the Federal Government that tourism will generate 200,000 jobs during this decade.

Even the government would have to admit the chances of this figure being reached are slim. Moreover, the type of employment opportunities available are limited. Tourism is an industry typified by low-skill, part-time and poorly paid positions. The Department of Tourism admitted as such in a 1992 document which stated: "The industry's...capacity to employ those most affected by structural employment, such as unskilled and part-time, are industry attributes" ("Tourism: Australia's Passport to Growth", Dept. of Tourism, 1992, p.12).

Similarly, the March 1993 issue of Bureau of Tourism Research (BTR)'s Tourism Update newsletter, draws the following conclusion: "Recent data indicate that employment changes in tourism industries over the past year have been more in line with rest of the economy, in that the number of persons in full-time employment is decreasing, while part-time employment is increasing" (p.6). According to the BTR, two-thirds of employment in the 'restaurants, hotels and accommodation' sector, and ninety percent in the airline industry, is attributable to tourism. Moreover, in 1992, the number of full-time employees in 'restaurants, hotels and accommodation' industry declined.

Debate over the tourism industry is fraught with methodological landmines. The first concerns the definition and quantification of the tourism industry; the second relates to the nature of tourism as a service industry. I will now turn to these two issues.

Defining the "tourism" industry
In 1992, the Commonwealth Government released a national tourism strategy under the title, "Tourism: Australia's Passport to Growth". Then Minister of Tourism, Alan Griffiths, in his preface to the report, stated that tourism "has matured into a prominent, sophisticated industry...".

But what is the tourism industry? And who are its participants? The Australian Bureau of Statistics does not recognise tourism as a discrete industry and has no definition for "tourism". This should not surprise since tourism is not an industry to begin with. Rather it is an amalgam of diverse industries or sectors that directly or indirectly cater to the needs of the tourist.

It is this diversity that has proved the biggest stumbling block in the tourism industry's battle over the past ten years to legitimate itself in the eyes of the Australian public and governments (federal, state and local). Factors such as the diversity and geographical spread of the tourism product, as well as the competing interests among tourism sectors, are the main reasons for this constant struggle for recognition.

The Australian Travel Industry Association, or ATIA, lists five direct commercial sectors under the tourism umbrella: accommodation, transport carriers, attractions, tour operators & wholesalers, promotions & distributions, and retail services (see Table). Yet even these categories are arbitrary. For example, the 1993 ATIA Award for "Best Major Attraction" was awarded to the National Art Gallery and the runner-up was Warner Bros. Movie World. Considering that Uluru falls under the attraction label, the definitions of tourist product types can become fuzzy indeed.

Tourism is our biggest foreign exchange earner but neither AUSTRADE nor JETRO has the expertise or capabilities to support tourism operators in the Japanese market. There are two reasons for this: first, tourism services are not consumed in Japan and therefore the benefits are less readily visible, and second, the Australian Tourist Commission is perceived as the government agency that assist tourist "exporters" in selling to foreign markets. But I ask the question: Is the geographical location of the transaction sufficient reason for government agencies to withhold assistance to Australian tourism operators? I would like to turn to the characteristics of the industry that we call "tourism".

Characteristics of Tourism as a Service Industry
The tourism industry, and the products and services that fall under its wide umbrella, are complex indeed. There are a number of features that make it unique.

Tourism is a subjective experience and an amalgam of products and services - not a single product

    * Tourism products, like all services, are intangible. A Sydney Harbour cruise, a stroll through a North Queensland rainforest or a champagne dinner at Uluru at sunset are intangibles. They cannot be seen, touched, felt or sampled before purchase.

    The selling of tourism is the selling of images. The Australian Tourist Commission in Japan does not sell Australian tourism products, it sells what we may call a shifting generic image of Australia. Today's images of Australia are the Great Barrier Reef and happy, smiling Aboriginals. A few years ago it was Paul Hogan's "throw another shrimp on the barbie". Next came Greg Norman who urged foreigners to swing on down to Australia. While the ATC sells images of Australia to attract Japanese to our shores, the delivery of the tourist product depends on the individual tourism operators and marketers. I will return to this subject later.

    * The tourism product is not a homogeneous product. We cannot standardise a service. Hotels attempt to standardise their room and service delivery as efficiently as possible through staff training and quality control procedures, but the human ingredient complicates the equation. As most services require interaction between the producer and consumer, each with their own set of expectations, it is highly unlikely that any product can ever be perceived equally by all customers. External factors can also affect the tourist experience. A bumpy flight can spoil an overseas trip and rain can ruin a Gold Coast stay.

    * Tourism products are perishable. An unsold Park Grand hotel room, an unused Qantas aircraft seat and a vacant Opera House concert seat is revenue lost. They cannot be stored for later use, as can tangible products. Hence the prevalence of discounting in services.

    * This leads to the major problem confronting the tourism operator: namely, demand fluctuation. Tourism is perhaps more vulnerable than any other industry to seasonal fluctuations in demand. Demand fluctuation can be unseen, sometimes due to natural causes, others man-made. Acts of God include climate and natural disasters (Guam was devastated by a typhoon and an earthquake within the space of a few weeks). Acts of Man include strikes (domestic pilots' strike) and international events (Gulf War) and murders (tourist murders in Florida). In the Australia-Japan context, you will remember the case of the disappearing honeymoon bride in Sydney and the enormous concerns that that generated among those involved in Japanese travel to Australia.

Small business industry
Tourism has been described as the classic small-business industry. According to the Dept. of Tourism, for example, more than 70 percent of businesses in the hospitality sector employ less than ten persons. One of the reasons for the small business concentration is the ease of entry into the industry. Anyone with a yacht, a farm, or a four-wheel drive can set up business targeting tourists. A very successful new entrant in the Sydney tourism scene is the company that takes tourists for city sight-seeing tours on the back of a Harley-Davidson.

Decentralised industry
Tourism is a diversified and decentralised industry, as I mentioned earlier. The commercial imperatives that drive tourism change according to the location; as do the environmental, social and cultural impacts of tourism on particular communities. Different tourism product have different trade associations, such as hotels, marine parks or inbound operators. Regional, as well as urban, areas have their own associations, as disparate as the North Queensland Conservation Council and the Darling Harbour Authority. Professional associations involved in tourism, such as the Professional Tour Guide Association of Australia, represent another interest group. And the list goes on.

Private-sector driven
Governments provide relatively little assistance to the tourism industry. The hotel industry has staged a long, hard battle to gain recognition as a service exporter such that it can be deserving of export grants. In general, the entrepreneur is left to fend for himself or herself. Having said that, it is governments that shape the environment in which the industry operates. They provide much of the infrastructure and services used by tourists and the industry generally - these include promotion and information services, the provision of roads, airports, railways and harbours, the management of national parks, visas and customs services, research and statistical data, education and training programs and various public amenities. Similarly, the ATC plays the critical role of promoting travel to Australia in overseas markets. No single private tourism operation, with exception of Qantas, could afford to market directly to the foreign consumer.

The problem of over-consumption
Tourism must be one of the few industries in which too many customers can be detrimental. This can apply to the social and environmental impact on local communities, as this quote from the Economist indicates.

The argument can be extended to other areas. It is well known that several leading hotels and resorts in Australia have a policy of restricting the number of Japanese guests in their properties. The concern of course is that the property will be seen as "too Japanese". Let me add hastily that Japanese travel companies often support such policies because Japanese travellers themselves often complain of seeing too many other Japanese.

High inter-depedendency among sectors
A feature of tourism is its high degree of inter-relatedness. For example, resort or hotel development cannot begin without adequate airports and roads to bring tourists to those properties. The explosive development of Cairns, for example, was sparked by the purchase of the airport by a private consortium with vision. This situation is a classic chicken-and-egg scenario. A topical example is the development of the Northern Territory as a northern gateway into Australia and as a tourism attraction in its own right. In Darwin, tourist infrastructure is insufficient for large numbers of tourists from Japan and investment in accommodation facilities in the Top End will depend heavily on strong signs of demand.

Tourism and profitability
An irony of the hype surrounding tourism is that many sectors under the tourism umbrella complain of poor profits. A 1991 survey of hotels around the world by consultants Horwath and Horwath showed that Australia's hotels had the worst profit record. Australian hotels returned -3.3% on funds invested, Asian hotels had 27.1%, Europe 16.6% and even a high-cost country such as Canada had 12.1%.

Ross Woods, one of the most respected analysts in tourism development was quoted in the Business Review Weekly as arguing that the Australia tourism industry still has not tackled the three issues that most affect profitability. These are: firstly, higher building costs than Asia or the US, such that the capital outlay per room or bed is much higher; secondly, hotel and resorts operating costs are too high, especially compared with competing resorts in Asia and the Pacific; thirdly, Australian hotels and resorts have very seasonal and highly unpredictable occupancies and cash flows.

The investment disasters of the 1980s were chastening experiences, to say the least, for local banks who became involved in the tourism industry. Since then, banks have become extremely wary about any project that smacks of tourism. A couple of years ago a function was held in Sydney to raise the problem of a lack of investment funds in the tourism industry. Government officials and financial executives were invited. No banks or institutions attended. When asked why he did not attend, a finance executive said his organisation was not prepared to spend $68 to attend the seminar because "it wasn't willing to invest this much on tourism."

The Dept. of Tourism, in an attempt to coax institutional investors back into the muddied waters of tourism investment, established the Tourism Forecasting Council in 1993. Its primary aim is to convince bankers that tourism has a future and a profitable one.

The Australian tourism industry today the biggest buzz word is "yield". Many operators are concerned that the increase in inbound tourists, for example, has not been paralleled by a rise in revenue and profits. One senior tourism executive coined the phrase "profitless volume" to describe this situation. Concerns over yield are not limited to Australia. In Japan the big wholesalers such as JTB face a similar predicament.

Seller's market
Two tourism academics make the interesting observation that tourism is one of the last industries to experience the change from a seller's to a buyer's market. As a result, they argue, "marketing techniques...are still less advanced than those in branded goods industries, where managers have been accustomed to a fastidious and discriminating customer for years." Plainly, in the Japanese outbound market, the shift from a seller's to a buyer's market is taking place right now. Japanese travellers' interests and needs are changing rapidly and the major wholesalers are struggling to respond effectively. Increasingly, today's Japanese traveller wants to make his or her decision about tourist activities, wants more free time and less expensive accommodation. As a result, the wholesalers are finding their market shares under threat from emerging discount travel companies.

Marketing Australian Tourism To The Japanese
This discussion about the shift in consumer preferences leads me to the issue of how we market Australia tourism products to the Japanese.

Tourism is a relatively young industry and the learning curve for many practioners is understandably steep. There are only a handful of tourism practioners in Australia with more than a few years experience in the Japanese market. These men and women have extensive contacts in Japan, which they visit regularly; they are sensitive to the needs of their Japanese customers, both the consumer and the wholesaler, and they are open-minded to change and to new ideas. For the relative newcomer, however, things are tougher.

The challenge facing the industry problem is the lack of marketing orientation by tourism promoters and suppliers. Here I identify several main areas. First, there is an emphasis on sales and promotion at the exclusion of a thorough understanding of the distribution systems in outbound Japanese tourism. Second, fierce price competition among individual suppliers, particularly in the hotel sector, is widespread. Third, there is an underutilization of market research into the changing trends in Japanese tourism to Australia. The Japanese market is fundamentally different from our other major inbound markets. Different questions need to be asked, different solutions need to be found. Fourth, there is a reliance on simplistic forms of demographic segmentation, such as honeymooners, OLs and silver market. Tourism managers need to adopt more sophisticated approaches to market segmentation that bundle together travellers' interests and motivations.

The second issue about marketing to the Japanese traveller concerns what I call the "black box" phenomenon. The Australian Tourist Commission (ATC) promotes Australia to the Japanese through visual images. The ATC's primary role to get the Japanese traveller to decide to travel to Australia. In so doing, the ATC takes no responsibility for either price or the delivery and quality of tourism products; it does assume some responsibility for distribution. It remains the task of the individual suppliers to satisfy the needs of Japanese travellers once that decision to travel to Australia has been made.

Here a problem arises. Since tourism is a small business industry, most tourism operators do not have the financial or managerial capability to take full advantage of the opportunities in the rapidly diversifying Japanese travel market. There is a yawning marketing gap between ATC's promotional activities and the capability of Australia to offer Japanese, and indeed any international visitor, the full range of tourism product available around Australia. I believe we need an intermediary promoting body in Australia that is charged with the responsibility of ensuring the offer and delivery of quality tourism product to all international travellers, including the Japanese. The state tourism organisations have entered into an agreement with the ATC under a scheme called Partnership Australia to jointly promote Australia overseas and in Australia, but it remains to be seen how effective it is in overcoming resistance to cooperative marketing by our leading tourism states of NSW and Queensland.

Finally, I would like to offer some observations about trends in Japanese travel to Australia.

Overseas travel was the last industry in Japan to be affected by the current Japanese recession. Japanese outbound growth turned negative from late 1992 through the first half of 1993. Since August last year, however, growth has recovered. (While the first six months of last year saw a 5.3 percent drop in outbound travel, the second half was up 7.3 percent on the same period in 1992.)

Travel to Australia, however, has remained firm throughout. In 1993, 671,000 Japanese travelled to Australia, an increase of some 6.5 percent over 1992. Although this is less than the ATC's bullish target of a 16 percent increase for Japan, the good news is that Australia managed to increase its market share of the total outbound market (5.3 percent to 5.6 percent).

In closing let me say that the future of Japanese travel to Australia remains bright. The economic benefits accruing to Australia through international tourists such as the Japanese are undeniable, even if some of the claims made about tourism are overly optimistic. My concern is that we are in danger of losing sight of the more qualitative benefits of tourism, namely, increased cultural understanding through greater human interaction.

Australia and Japan have always had a complementary relationship. Before World War II, we supplied wool for the Japanese textile industry. After the war we supplied raw materials for Japan's value-added products. Now in the 1990s we are supplying tourism and leisure products for Japanese tourists.

Hopefully neither side will forget that tourism relies, ultimately, on people. It is people who produce and deliver tourist products and services and it is people who consume them. In that interaction lies the great challenge for tourism managers. And in that interaction lies the potential of a memorable tourism experience for Japanese and indeed all travellers to this land of ours.

Copyright © Roger March 2003

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