States' wholesale exodus

The article below originally appeared in TravelWeekly Australia

State governments once saw owning a chunk of the travel distribution chain as the solution to domestic travel's woes. But as Justin Wastnage writes, history has shown private industry often does things better

Insulting your hosts is usually considered bad form when arriving at a party. But Margaret Jackson, most famous for staying in her post as Qantas chairman despite the failure of the private equity bid she engineered, is clearly a woman not afraid of ruffling feathers. It was hardly surprising, therefore, that Jackson showed up at the tourism industry's premier trade event, the Australian Tourism Exchange (ATE) with heavy criticism for the industry.

The industry faces serious long-term decline unless urgent and sustained action is taken, she said in a report as chair of the National Long-Term Tourism Strategy Steering Committee. Not only is the country losing overseas visitors, with a 14% drop in our global share between 1995 and 2008, but Australia's domestic tourism performance has "flat-lined over the past ten years, while outbound travel has soared". A generation of young Australians is only holidaying overseas, the report said.

The mood at ATE was downbeat. The challenges outlined by Jackson were well understood by the 1700 sellers inside the new Melbourne Conference and Exhibition Centre. This year was always going to be bad, but domestic travellers were supposed to ease the pain. Instead, the most recent domestic visitor night survey showed another 14% drop in domestic overnight stays for the first three months of the year.

Chris Brown, managing director of industry lobby group Tourism and Transport Forum puts the slide down to the cheap availability of international flights. "Australians are filling seats on outbound planes, especially to short-haul, Pacific rim destinations like New Zealand and Indonesia," he said.

The drop-off in domestic activity has already seen casualties. The well-liked Tasmania's Temptations Holidays was put up for sale by the Tasmanian government just before ATE. The state's tourism minister Michelle O'Byrne said the recent dramatic fall in sales was due to "significant changes to the tourism wholesale market in recent years". The business would lose $3 million this year and probably more in years to come, she said.

No buyer has been announced, although many delegates at ATE expected the AOT group to step in as the white knight. The wholesale giant has been on the acquisition trail in recent years, taking over both Queensland's Sunlover Holidays and New South Wales Holidays from their respective state governments last year. It is thought that both tourism boards garnered significant leverage over brochure content as part of their sell-offs.

Tasmania, by contrast, could have lost all bargaining power in pulling the plug before finding a buyer, an industry insider said. "It would have been worth more as a going concern," the source said. AOT was unavailable for comment, but its Travelpoint brand already brochures the state and it may wish to shy away from the inevitable meddling that any government pact may bring. The TTF, for example, has concerns that the Tasmanian government was looking at a quick fiscal fix in taking its decision, with little of the promised ongoing support for tourism in the sell-off announcement evident in its June budget.

Geoff Buckley, the outgoing managing director of Tourism Australia, cites the agency's own technology initiatives as having hastened the decline of state wholesalers. In 2007, the Australian Tourism Data Warehouse formed an alliance with software company V3 Leisure to create the Tourism Exchange Australia (TXA) booking platform. "Ironically the TXA has allowed operators to bypass state wholesalers and deal direct with agents," he said.

Governments are notoriously bad at running businesses. Public transport networks, utilities and lotteries that were once the fiefdoms of political powerbrokers are being sold off around the country. Oddly, as the Jackson report points out, this desire to run businesses extends to travel distribution; Australian state and territory governments tend to have far more ownership or control of tourism-related assets and expenditures than in other countries.

But most attempts to run wholesalers have been clumsy. Nathan Harding, group managing director of Discover West Holidays, the largest domestic wholesaler in Western Australia, says "whenever governments get involved in distribution, the costs go up". Worse still, private companies such as his shy away from those states where the government owns the main operator, meaning the government dollars have to go twice as far because third parties are not promoting the destination.

But recently the tide has turned in favour of state governments getting out of the distribution game. WA started the trend, offering its Best of the West to Discover West to operate under licence before scrapping the program in favour of joint marketing initiatives. Victoria has also preferred to work with established players.

With Tasmania out, all eyes have now turned on South Australia and the Northern Territory as the only states or territories still funding a wholesale arm. SA is bucking the trend, launching a new wholesale product, South Australia Holidays.

The NT, meanwhile, is continuing to run Territory Discoveries as a government business. Tourism NT acting chief executive Angela Collard said wholesale representation to retail travel agents is "particularly important for the increasing number of small to medium operators that offer unique tourism products and experiences in the Northern Territory, which are not otherwise sold by commercial travel agents."

Buckley expressed doubt that either SA or the NT could sustain their direct investment long-term into the future. "The NT is probably not now where they'll end up, but some political circumstances will mean small products will continue to be promoted," he said. Collard hinted that going forward; Territory Discoveries will "establish long-term strategic partnerships within the travel industry".

One of Jackson's key recommendations for fixing the problem that is domestic tourism is to rip Tourism Australia apart and restructure it. At Tourism Australia's ATE, this was akin to telling your hostess that her interior design needed serious work. Yet such is the slump in Australian tourism, that delegates seemed in a mood to listen. If that mood filters down to domestic tourism distribution, then travel agents will be the ones to benefit.

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