MARKET BRIEFS

It didn’t make headlines, but should. 

JTB Managing Director Yamaguchi appeared before a Senate Committee in early September that was examining “developments in contemporary Japan and the implications for Australia”. He could been excused for not knowing, but his remarks comments went straight into Hansard. And they make interesting reading.

He cited three reasons for the decline in the Japanese market to Australia. (1) the Japanese recession; (2) the reduction in airline seats available; and (3) the Japanese are becoming bored with what Australia is offering. 

He then offered a number of remedies. First, increase airline capacity. Second, reduce costs;  “It is of tremendous importance that Australia’s inbound tourist market be GST  free,” he said. 

Third, “Australia needs to be better promoted to the Japanese market. We all appreciate the ATC’s marketing effort in Japan. However, their advertising products – especially their TV commercials – are not always of a good enough quality. Consumers will not pay any notice unless these campaigns have more impact.” He went on to cite a recent TV commercial in Japan showing “a young female tourist walking around the seaside, the Opera House or the Harbour Bridge. People’s reaction is not too positive because the commercial is too calm and a bit dull.”

Fourth, there was a need to introduce new destinations. “Tasmania and Ayers Rock have great potential to become popular…” he said. However, the high cost of domestic airfares – a theme he returned to several times – made it difficult to put these and other destinations into tour programs. (Mr Okuda, General Manager, Package Tour Division of JTB, who appeared with Mr Yamaguchi, named Tasmania, Darwin and Kakadu as places that had potential for future Japanese travel but which were hamstrung by lack of adequate runways and the generally high cost of domestic fares.)

When asked whether Australia was well marketed in Japan, Mr Yamaguchi said: “Each state based tourist commission is doing promotion very well but, as far as I am aware, industry’s opinion is that the New South Wales Tourism Commission’s activity is relatively low or slow”. Mr Okuda added: “The Queensland tourist commission is the best. It is doing the best.”

COMMENT: These refreshingly forthright responses hold no great surprises, but a timely reminder of the challenges facing Australia in the Japanese market – and a reminder that what is said publicly is not what is necessarily said behind closed doors. It reminds me that some years ago the then managing directors from JTB, KIE and JTA were interviewed by a Japanese-language golf magazine. Since their comments were published in Japanese they probably felt safe to express their real opinions. Well, it’s history now, but didn’t they get stuck into the Australian tourist product!

On to other matters…..

JATA (Japan Association of Travel Agents) has released results of its latest business forecast survey of leading tour wholesalers. Senior managers were asked to rate the present and future prospects for the main traveller segments – honeymoon, family, OL, Jukunen (50+), silver (60+), and incentives -  and for main overseas destinations – Hawaii, North America, Europe, Oceania (Australia, New Zealand & Fiji), Micronesia, China and Asia.

And it’s more bad news for Australia. There is negative sentiment about growth in every customer segment. Incentives are the worst performing and silvers the segment with the brightest prospects; the glimmer of hope is that the prospects for all segments have been steadily rising for the past 12 months. As for destinations, Oceania ranks least likely to. Asia is viewed as having the best growth prospects, followed by Micronesia, North America, Europe, Hawaii, China and then Oceania. 

1999 continues to witness steady growth in Japanese outbound travel. For the seven months to July, overseas travel is up 3.0%, with much of the growth being registered to Asian destinations, specifically China (+25%), Taiwan (+18%), Korea (+16%)  and Thailand (+13%). Europe (-1.1%), the U.S. mainland (-6%),  and Australia (-7%) continue to record negative growth for the year. Hawaii, one of Australia’s main competitors, is in real trouble; it’s down 10.3%. 

Narita’s second runway will finally be built, albeit in a scaled down version. The Airport Authority has just announced that construction of the second runway will begin by the end of the year, in preparation for the 2002 World Cup. The new runway will be 2,180 metres, long enough for Boeing 767 jets, but too short for 747s, which will continue to use the original 4,000 metre strip. A 2,500-meter runway was proposed then abandoned due to protests for farmers. The project is expected to cost US$409 million.

Tourism NSW has begun advertising in Japan’s leading Japanese-language travel industry magazine, Weekly Travel Journal. The first ad extolled the virtues of a Stadium Australia tour and the second introduced Fox Studios Australia. 

Australia’s excellent performance in the Japanese school excursion market has been one of the few success stories over the last few years. From 1993-1998, the market grew three-fold to 17,000 students last year. If we add exchange programs and short-term language study the overall student market is at around 30,000, according to the ATC. The growing appeal of farm stays and home-stays associated with these programs opens up opportunities for numerous enterprising Australian operators.

JAL is closer to joining oneworld. It already has marketing alliances with five oneworld members: BA, American, Qantas, Cathay Pacific and Canadian.

While on airline bedfellows, JAL and Japan Air System, Japan’s third major carrier, have agreed to code-sharing international services from late October, according to a report in the Yomiuri Shimbun. JAS will suspend three routes from Narita to China and Hongkong, and use the vacant slots to launch joint services with JAL routes to Korea and the U.S. It is believed JAS is also talking to ANA about a similar deal.

Internet travel agent travel.com.au has established a joint venture with two Japanese companies, trading giant Itochu and publisher Diamond Big, to form a Japanese online travel booking site. The venture will use  travel.com's Web booking system, Diamond's Chikyu no Arukikata brand name  and Itochu's Internet infrastructure. The web site is expected to be online by October. The online travel Web site, www.arukikata.com will be based in  Tokyo and will start of with 20 staff. The plan is to provide cheap airline  tickets with a range of add-ons such as accommodation, day tours and car rental primarily targetting Internet-savvy repeat travellers aged 20 to 35.

KOREA
In all the fuss over Japan’s recovery, we’ve forgotten Korea, still the world’s eleventh biggest economy. While Japan’s 1999 GDP growth looks good, consider Korea. Up 4.6% in the March quarter, the June quarter rose a wopping 9.8%. Private consumption in the June quarter leaped 9%. Unemployment is also heading in the right direction: down to 6.2% in June from 7.6% less than a year earlier. 

Official statistics for Korea show outbound travel is up 45% to 1,596,044 departures for the first five months of 1999. Even more encouraging is the higher increase in spending. For the first six months of this year, spending on overseas travel rose 61%, according to the Bank of Korea.

CHINA
Was I the only person who heard the news a couple of Saturdays ago about the Chinese holidaymakers who had overstayed their visas? The report was carried on ABC Radio but failed to make the Sunday newspapers. Are there spin doctors at work somewhere?

As mentioned last issue, Thailand is the most popular overseas destination for Chinese. And it’s here that the Australian tourism industry could learn a lot about the nature of the Chinese holiday market now beginning to arrive on our shores. Problems with the Chinese inbound market in Thailand have been around for years. A severe price-driven mentality, unethical practices centered around commissions, and unlicensed operators pervade the industry. A meeting was held recently chaired by the Association of Thai Travel Agents, Tourism Authority of Thailand, and the Professional Guides Association. Minimum tour fees and elimination of kickbacks were recommended.

TAIWAN
Tens of thousands of locals swarmed Taipei Zoo recently to view two newly arrived koalas (Harley and Patrick) from Australia. According to newspaper reports, visitors were forced to queue for up to four kilometres (!?) for a 20-second viewing. Two more koalas are due to arrive by the end of the year. Zoo officials estimate the koalas will draw upwards of one million visitors by the end of the year.

INDONESIA
ATC’s representative in Indonesia, Anthonius Thedy, forecast in late August that 90,000 visitors may visit Australia during 1999. The forecast is slightly below the 93,000 who visited in 1998, and well down from the peak of 160,300 in 1997. The subsequent human tragedy that has become East Timor can only dampen demand for travel to Australia.

SOUTH AFRICA
The ATC has opened up a representative office in Johannesburg amid growing optimism about the potential of the country’s outbound market. A PATA survey into the South African market predicts the Asia-Pacific region will attract healthy growth through the medium term, with departures rising 80% between 1995 and 2000. The ATC will introduce its ‘Aussie Specialist” program later this year; it already operates successfully in New Zealand, the U.S. and Asia. Research has shown that South African travellers rate Australia highly for its beaches, safety and sightseeing. 
 

TOURISM ISSUES:

With the GST coming into effect from July 1 next year, tourism suppliers and ITOs around the country are engaged in a Mexican stand-off amid uncertainty about the impact of the new tax system on costs and rates. To shed some light on the issue, Peter Shelley’s new-look ITOA organised a very timely one-day seminar titled ‘GST and International Rate Setting’ in Sydney on August 18th. 

The day began with plenary session presentations by tax consultants from Deloitte Touche Tohmatsu (Stephen Holdstock and Tony Rose) and solicitors from Ebsworth & Ebsworth Solicitors (Lyn Nicholson and James Law). This was followed by four concurrent Q&A workshops led by industry practitioners (Jorge Viegas, Carmel Mulqueeny, Andrew Yell, Aileen Cobern, Allison Haworth, Denis Pierce, Sandra Swan and Bee Ho Teow). The program closed with a 90-minute open session. 

It was a long day – seven hours – and while the plenary sessions and Q&A workshops clarified many issues, a number of questions remain remained unanswered. Or perhaps unanswerable would be closer to the mark. For on numerous occasions, questions were raised that the panel of tax and legal experts simply had no definitive answer. I’ll cite one example. The most bizarre discussion centered on whether hot-air ballooning would be GST-exempt. Though GST will apply to transportation there was the suggestion that since hot-air ballooning involved going up and coming down on the same spot this did not constitute transportation, since the common law definition of transport was moving from Point A to Point B. 

There are many gray areas in the legislation which will only be clarified once the new system is up and running. While the lack of definition on some issues clearly displeased a small number of people in the audience, the assembled experts could say little else. 

Of course, the critical question most suppliers wanted an answer to was not about accounting and the law but about pricing strategy. In short, “How much should I add to existing rates?” Most suppliers appear unable, unwilling or incapable of estimating by how much the new tax system will reduce costs. (During the program, one supplier claimed to have done the numbers on the impact of the GST. This was a leading Sydney cruise operator who determined that the savings from the removal of the wholesale sales tax and increased diesel fuel concessions will amount to a reduction in costs of just 1%. In other words, their rates are going up 9%.)

It is not surprising, therefore, that many are opting to simply add the 10% for GST and not bother about tinkering at the edges. (Given human nature, there must also  be a powerful temptation to bump up rates by the 10% GST and dare ITOs – and the Australian Competition and Consumer Commission – to prove the rise is unjustified.)

Of course frustrations over how to calculate the impact of the new tax system is not the only reason for suppliers being slow to provide rates to ITOs. Guessing what the competition will do is the other impediment. Though a major supplier like Hilton Hotels has gone ahead and released rates with the 10%-GST  and no cost reductions, other less powerful operators have been more cautious. “What happens if we raise rates 10% and our competition down the road only raises their prices 5%?” was a widely held view. (Another group of suppliers say that many ITOs have actually asked them to hold off giving rates.)

The whole situation is muddied by the attitude of at least one major inbound tour operator who is refusing to accept quotations from suppliers who raise rates 10% but fail to make any deductions for tax savings. Whatever the reason, suppliers are slow in providing rates. Southern World Vacations’ Andrew Yell told the gathering that he had received rates from just 10% of his contracted suppliers. 

The confusion has enormous implications for the health of the inbound industry next year. The ATC is telling the world that some prices will rise and some will fall. Yet the clear message from the seminar was that from 1 July 2000 most prices will rise by 10%. Overseas wholesalers and other outbound agents will not be impressed.

Policing of GST

The Australian Competition and Consumer Commission (ACCC) will be charged with policing the compliance of GST transactions. This includes ensuring that firms pass on the full benefits of reductions in tax charges (such as the wholesale sales tax and the diesel fuel levy). However, the ACCC will consider companies attempting to maintain margins and/or to recover compliance costs associated with the introduction of the GST system. See the ACCC’s website for details:   http://www.accc.org.au

Information Details

The Australian Tax Office is operating a number of call centres to answer queries on the GST.  The Tax Reform Infoline (8am-6pm Mon-Fri) is 13 24 78. You can ask questions about the GST and the Australian Business Number you need to have to handle GST payments and credits. Meanwhile, the Wholesales Sales Tax Reduction Infoline (8am-6pm Mon-Fri) is 1800 634 905. The Diesel Fuel Infoline (8am-6pm Mon-Fri) is 1300 657 162.

The ATO will be providing information to different industry associations around Australia from late September. At the same time, a booklet, “Travel and Tourism and the GST” will be released. Inquiries to the ATO failed to clarify either the exact depth of information contained in the booklets.  Last Saturday’s newspapers carried information on free GST seminars to be held in October. In the meantime, check out the ATO’s excellent website: http://www.taxreform.ato.gov.au . 
 

PART 2: ATC, THE OLYMPICS AND YOU

Bill Calderwood, Deputy Chief at the ATC, gave an upbeat ATC speech at the New South Wales Tourism Conference last week at, of course, Stadium Australia. In a short speech he managed to touch upon the Y2K, the GST impact, the ATC’s new Australia 2000 strategy, the new Olympics-dedicated web site (http://www.2000.Australia), the forecast for inbound in 2020, Bill Gates, new consumers such as babyboomers and Generation X, the critical importance of the Net to your business, and the heroes (new segments) of the new Millenium – new 50s, experiential hedonists, core high-yield long-haul markets and the emerging ‘giants’  of China, India and South America. Barely pausing for breath, he closed with appeal to operators to become sophisticated in their marketing approach. He cited segmented marketing, database communication, the internet and building new high-yield markets. “Don’t be afraid to be a visionary, dare to be different” he urged the audience. “Look forward ten years and ask yourself, where is my business going to be.”

While Calderwood talked of 2000 as being ‘fun and games’ for the Australian tourism industry, few in the tourism industry are getting out the party hats just yet. There are widespread concerns that many overseas operators think Australia will have the ‘House Full’ sign up next year and that tourists will avoid Sydney if not Australia because of perceived high prices and tight accommodation. 

To gauge the seriousness of the problem, ITOA will soon release a monitor of inbound booking trends that will provide an excellent gauge for the health or otherwise of the inbound industry in the short-term. 
 

COMPETITORS’ WATCH

NEW ZEALAND
Unless you’ve been in hibernation during winter, you will have noticed the “100% Pure New Zealand” ad. The radical warm and fuzzy image will be NZ’s positioning statement for the next three years in the international market. Meanwhile, Air New Zealand is increasing flights to the Japan from November. Daily flights will begin Auckland and Tokyo as the company looks to millennium and  the America’s Cup to raise interest in the Shaky Isles. 

THAILAND
Siam has become the top low-cost destination in Asia. It’s new “The Way of Genuine Thais” campaign has been a successful follow-up to “Amazing Thailand”, with strong appeal especially among European backpackers, a major Australian market.

HAWAII
As mentioned above Japanese inbound to Hawaii is down 10% in the seven months through to July this year. This is nothing new; Hawaii has been out of favour in Japan for much of the 1990s. Like  Australia, Hawaii has suffered in the washout from the big-spending 1980s.  Japanese investors are unloading properties at a fraction of the purchase or construction price. There’s even desperate talk of reinvigorating the agriculture industry, Hawaii’s main  industry prior to tourism.