resort tourism in australia
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FULL REPORTof the TTF Australia
2003 Hallmark Report
The full report is available free
of charge on the ttf website:
www.ttf.org.au
MAKING TOURIST RESORTS WORK IN AUSTRALIA
Resorting to ProfitabilityThe full report and this summaryare available free of charge on the website: www.ttf.org.au
While every care has been taken in preparing thisReport, TTF Australia Limited, the project SteeringCommittee (including its constituent organisations),and Ernst & Young (including its related entities,partners, staff and agents) each disclaims all liabilityhowever arising to the maximum extent permittedby law for any loss or damage (whether direct or indirect) incurred as a result of any person, company or other entity acting or relying on information in this Report. This report is general in nature and readers of this report should obtain independent advice specific to their own situation.
Sponsors
Federal Department of Industry Tourism & Resources
Tourism NSW
Tourism Victoria
Tourism Queensland
General Property Trust
Australian Ski Areas Association
Acknowledgments
Andrew Sudholz
Monika Dubaj
Paula Drayton
Jeffrey Blunden
Kristy Rodwell
Olivia Jenkins
Karl Flowers
MAKING RESORTS WORK IN AUSTRALIA
Resorting to Profitability
TTF Australia is the peak industrygroup developing tourism and infrastructure. It represents chief executives of the 200 most prestigiousinvestors, operators, regulators anddevelopers in Australia's tourism,transport and infrastructure industries.
TTF Australia Ltd
Level 10, Westfield Towers, 100 William Street, Sydney NSW 2011Tel 02 9368 1500 Fax 02 9368 0933 Email [email protected]
www.ttf.org.au
Key findingsThe future stability and development of the resortssector is an important issue for both industry andGovernment to consider, given the expected long-term growth in tourism in Australia and thepotential for resorts to act as catalysts for regionaldevelopment.
• The resorts sector has performed poorly over the last few decades when compared to city hotels, but has adapted to the Australian context and environment. New resort development has been characterised by smaller,niche style resorts including golf resorts, eco-resorts, safari resorts and health and spa retreats.
• The resort industry has experienced a period of consolidation in the last decade, following the 'hype' of the 1980s. A better understanding of demand and supply fundamentals, stronger management expertise and stringent financial requirements create a healthier platform for future resort operations and development in Australia.
• In the next 5-10 years the resorts sector should focus on refurbishment and re-positioning opportunities for existing resorts rather than on new developments.
ContentsForeword from the Minister 1Foreword 3Executive Summary 4 Background 22 The importance of tourism in Australia 22
The significance of the resort sector in Australia 23
The importance of tourism in Australia 22
The significance of the resort sector in Australia 23
Objectives of the report 23
Purpose of the study 24
Definition of resort 24
Scope of research 26
Methodology 26
Structure of the report 27Resort demand 28
Key demand challenges faced by resorts in Australia 28
Evolution of resorts in Australia 29
Tourism demand trends 36
Demand success factors 56
Resorts of the future 57
Demand and the industry response 59
Demand and the Government response 59
Resort operations performance 61The profitability of resorts 61
The fundamentals of how resorts operate 61
Key resort profitability issues 62
Resort operating performance analysis 62
Barriers to profitability 76
Key success factors and opportunities 77
Role of industry in resort operations 77
Role of government in resort operations 78
Resort development and investment 80Key impediments to resort development 80
Hotel and resort investment profile 81
Resort investment cycles in Australia 82
Resort investment returns 85
Resort development and investment issues 88
Development/investment success factors and opportunities 91
Role of industry in resort development 92
Role of Government in resort development 93
Case studies 94Appendices 140
Resorting to Profitability - Making Tourist Resorts work in Australia
Resorting to Profitability - Making tourist resorts work in Australia 1
Foreword from the Minister
esorts are often famous in their own right and can becomeinternational icons. As providers of integrated tourism facilities, resorts have a significant impact on visitor satisfaction levels for a destination. In this way, resorts make amajor contribution to the total tourism value of a destination.They can, quite literally, put a new destination on the map.
With the range of unique and stunning tourism destinations thatAustralia offers and the potential opportunities for new tourism productin Australia, particularly in the regions, developers and operators needto be armed with the best available knowledge of the costs and benefits, the suite of business tools, key success factors and performance forecasts for new and existing resorts.
Research into the demand patterns, operational and development success factors that enhance business performance and profitability isat the edge of innovation in the tourism sector and where we need tobe if Australia is to remain at the frontier of tourism, domestically andinternationally.
This report provides the framework that developers and operators needin order to find new and smarter ways of working with the domesticmarket and capturing a larger share of the international market.Product development and investment issues are closely related andgood quality data that can be used to refine the business case for anew project or development while defining and minimising risk is thepathway to successful and profitable resort operations.
Understanding the state of play of resorts in Australia will be made easier by this research report which uses a practical, jargon-freeapproach to analysing the performance and profitability of resorts, theroles of stakeholders, success factors and new opportunities. The casestudies enhance and help resonate the report’s basic message, which isto ‘do your homework, do it as thoroughly as possible, do it now, andthen do it again’; if you want to position a resort at the tourism frontierin terms of business capability and investment return maximisation.
HON JOE HOCKEY MPMinister for Small Business and Tourism
rHon Joe Hockey MPMinister for Small Business and Tourism
Ayers Rock Resort
Published May 2003.
The primary sponsors of this report were TTF Australia and the FederalDepartment of Industry, Tourism and Resources (through the RegionalTourism Program). Gold sponsors were General Property Trust, TourismQueensland, Tourism New South Wales, Tourism Victoria, and the silversponsor was Australian Ski Areas Association.
The executive summary and this full report are available for free download from www.ttf.org.au
Resorting to Profitability - Making tourist resorts work in Australia2
Forewordesorts are perceived by many in Australia as the 'glamorous'sector of the tourism industry. However, following the 'hype' ofthe 1980s, the resort industry has experienced a period ofconsolidation in the past decade and new resorts are sleekerand aimed more at niche market groups. This “consolidation” isa nice way of saying that there have been too many financialdisasters in the resort sector. “Ego” investments, dumb
planning and boosterism have led to some developments that were simply never going to return a profit. This has not been helped by somevery average commitment to public and private sector destination marketing that has let regional Australia down.
However, today we have a much healthier platform for future resortoperations and development, with a better understanding of demandand supply fundamentals, stronger management expertise and adherence to stringent financial codes.
This report investigates the success factors underlying resort profitability and sets an agenda for industry and government to follow torevive the sector. After all, resorts are by their very nature “regional” andAustralia has an obligation to its regional communities to encouragetourism development and the jobs and income that will flow.
"Resorting to Profitability", conducted by Ernst & Young for TTFAustralia would not have been possible without the engagement andco-operation of many people directly involved in the resorts sector,including those who build and create resorts, and those who operateand regulate them.
I would like to thank the many TTF Australia Members, and others, whogave their time to be interviewed and contributed to the ideas presented here.
My thanks also go to our sponsors, the excellent consulting team atErnst & Young, especially Andrew Sudholz, Monika Dubaj and PaulaDrayton for their rigour and commitment to the project, and to Karl Flowers and Dr Olivia Jenkins as TTF’s Project Managers.
Christopher BrownManaging Director and CEOTTF Australia
r
Resorting to Profitability - Making tourist resorts work in Australia 3
CHRISTOPHER BROWN
his report is the third in a series of regional tourism studiesconducted by TTF Australia. The first study focused onregional tourism employment and the second on regionaltourism success factors.
The focus for this study is the resorts sector. The future stability and development of the resort sector is an important issue for both industry and Government to consider, given the expected long-term growth of tourism in Australia and the potential for resorts toact as catalysts for regional development.
This study reviews current issues facing resorts in Australia and provides recommendations for the tourism industry and Governmentaimed at improving the demand, operations and development aspects of resort projects.
Why has the profitability of resorts in Australia fallen behind?
Despite the growth of domestic and international tourism in the last twodecades, resorts in Australia have performed poorly from a profitabilityand investment perspective. Unlike city hotels, resorts face additionalchallenges in the areas of demand, operations and development whichimpede their performance and act as a deterrent to future investment.
Why are resorts an important part of the Australian tourism landscape?
Australia’s tourism industry is gaining increasing recognition for its contribution to Gross Domestic Product (GDP). According to the latestavailable Tourism Satellite Account (TSA) data for 2000-2001, this contribution represented 4.7 per cent of GDP, a growth of 4.5 per centrelative to the first TSA estimate in 1997-1998.
The tourism sector employed 551,000 people in Australia in2000/2001, or 6 percent of the total workforce, demonstrating growthhigher than for overall national employment. Between 1997/1998 and2000/2001, the number of persons employed in tourism grew by 7.4per cent. Resorts located in remote or non-metropolitan areas aremajor contributors to regional and local economies. Moreover, with traditional industries in regional areas in decline, resort and tourismdevelopment is an alternative for employment and a means for ‘keepingthe bush alive’.
t
4
Definition of a resort
‘Tourist accommodationcatering primarily to leisure travellers, providing a range
of recreational facilities and differentiated by
experiential qualities in the context of a particular
regional destination’.
This definition focuses on the growing importance
of experiential tourism anddraws attention to the increasingly important
relationship between a resort and its surrounding
destination.
Resort development in Australia has undergone a cyclical shift in recent
decades from early retreat style guest houses, followed
by larger scale ‘integrated’ and ‘town’ style resorts to
return to smaller, more intimate ‘niche’ resorts.
Resorting to Profitability - Making tourist resorts work in Australia
Executive Summary
Travel for the purpose of holiday is the most significant component oftourism demand in Australia, both for domestic and international travellers. Resorts are primarily in the business of providing accommodation to holiday and leisure travellers and thus play an important part in Australia’s success as a holiday destination.
Resorts also play an important role in the high-yield meetings, incen-tives, conferences and events (MICE) market. The MICE business hasthe potential to create flow-on benefits not only to the accommodationsector but also for a range of other industries as a result of strong retailand leisure spending by delegates. Australia’s ability to grow as aninternational MICE destination will in part depend on its ability to provide quality resort accommodation to the MICE segment.
Finally, in many instances, resorts are located in close proximity to iconsof cultural and heritage significance and, as a consequence, have adirect involvement in natural and cultural resource presentation. In particular, bigger resorts link in with global distribution systems to selltheir product and as such have a significant impact on profiling a given destination.
Evolution of resorts in Australia
Early resorts were developed in locations within day tripping range ofcapital cities such as the Blue Mountains and Mornington Peninsula.Island and Outback resorts featured heavily in the Australian Resortlandscape from the 1950s to 1970s and in the late 1980s to early1990s, Australia’s glamour resorts were developed, combining resortswith mixed-use and residential components.
The second half of the 1990s witnessed new forms of development,characterised by smaller retreat or special interest style developments,and simultaneously, a wave of serviced apartment resort properties. Special interest style resorts include Spa Resorts, with a focus onhealth and rejuvenation, Eco-tourism Resorts, with a focus on educationand interpretation, Family Resorts with an emphasis on recreation, GolfResorts, often with a complementary themed experience in food andwine, Themed Resorts such as Palazzo Versace and Liberty Resort andSafari-style Resorts with a nature-based or culturally based experience.
Methodology
The findings of this report wereachieved through:
• Secondary data analysis, incorporating a review of relevant tourism statistics, such as the Roy Morgan Holiday Tracking Survey, and a literature review of relevant publications, journals and websites.
• Primary research, including 48 face-to-face or telephone interviews withowners, managers, developers and regulators of resorts and 5 case studies profiling existing resort developments. These involved site visits and interviews with resort owners, operators and stakeholders.
5Resorting to Profitability - Making tourist resorts work in Australia
Resorts scorecardThe key findings of the study present the following snapshot of the performance of the resort sector in Australia:
Resort profitability
• Resorts achieved significantly lower room yields of approximately $89, compared to $96 for city hotels and $95 for serviced apartments (2001, Andersen Hotel Benchmarking Survey).
• The profitability of resorts is significantly lower than that of city hotels, with resorts achieving a marginal Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) of 10 to 19 per cent, leaving a narrow margin to cover interest, tax and amortisationexpenses (2001, Horwath Survey of Hotel Operations).
Resort destination visitation
• Most Australian resorts are located in regional areas. However, capital cities of Sydney, Melbourne and Brisbane dominate the list of most visited tourism regions by international and domestic visitors alike. As a result, city hotels rather than regional resorts tend to benefit from the existing geographic demand spread.
• Regional visitation to resort destinations by international visitors is strongly correlated with visitation to tourism icons such as Uluru, the Great Barrier Reef, Wet Tropics World Heritage Area and FraserIsland World Heritage Area. Visitation to non-iconic resort destinations is limited, creating a disadvantage for resorts located in such areas.
Resort accommodation usage
• Usage of resort accommodation by international visitors is low, with resorts capturing only 1.2 per cent of total international visitor nights in Australia in 1999 (International Visitor Survey, 1999).
• The most popular form of accommodation for domestic and international visitors is staying with friends or relatives.
• Domestic usage of resort accommodation is also relatively low, withhotels and resorts together capturing just 24 per cent of total domestic visitor nights in 2001.
6
Resorts and hotels face strong competition from
private dwellings, servicedapartments, self-catering units,
caravan parks, backpacker and bed & breakfast
accommodation.
Hamilton Island in theWhitsundays, Ayers Rock
Resort in Uluru and ConradJupiters Hotel on the GoldCoast are the three largest
resorts in Australia.
Resorting to Profitability - Making tourist resorts work in Australia
Composition of resorts in Australia
• Major resort development in Australia took place in the 1980s, including the development of large, integrated resorts such as Ayers Rock Resort, Hyatt Sanctuary Cove, Hyatt Coolum, Sheraton Mirage Port Douglas and Sheraton Mirage Gold Coast. Many resorts built in Australia at that time were founded on unrealistic expectations of the strength of resort demand and poor under-standing of resort investment principles.
• Recent resort development has been limited almost exclusively to strata-titled, lifestyle developments such as Cypress Lakes in NSW, Outrigger Resorts in Queensland and the Sebel Heritage in Victoria.
• New resort development has also been characterised by smaller, niche style resorts including golf resorts, safari resorts and health and spa retreats.
Resort development and investment
• Several major resorts, including Ayers Rock Resort, Hayman Island and Daydream Island, have sold at a significant discount to their development cost, indicating sub-standard investment returns.
• Resort development continues to be plagued by lengthy and uncertain approval processes, extensive compliance requirements and high upfront capital costs.
• Listed resort stocks have performed poorly over the past five years compared to listed property trusts, with many major resort companies posting negative returns. This reflects the perceived riskand volatility associated with the resort sector.
Barriers to successOur study found that the poor performance of resorts in Australia canbe attributed to a range of demand, operational and development constraints. The most significant constraints are outlined below.
Demand
Following a period of optimism in the 1980s, there is now a realisationthat resort demand in Australia is constrained by a number of factors,particularly on the international front.
7
The resort industry has experienced a period of consolidation in the past decade, following the ‘hype’ of the 1980s. A better understanding of demand andsupply fundamentals, stronger management expertise and stringent financial requirementscreate a healthier platform forfuture resort operations anddevelopment in Australia.
Resorting to Profitability - Making tourist resorts work in Australia
8
The study suggests that the most significant demand constraints forresorts are:
• Australia’s small population base, which limits the pool of potential domestic resort consumers.
• Strong seasonality of the domestic market, most travel occurring during peak holiday periods (i.e. Christmas, January and Easter).
• Appeal of resorts to two segments only, being leisure and conference, exposing resorts to economic and business cycles.
• High cost of travel, with the cost of airfares to resorts and resort destinations being perceived as expensive compared to packages available for rival South East Asian, Pacific and Australian capital city destinations.
• Poor accessibility, with a lack of airline and other transport options acting as a barrier to demand.
• Increasing competition due to:
- Development of international standard resorts in destinations such as Bali, the Maldives, Middle East, South Pacific, Caribbean, Fiji and Thailand.
- Growth in supply in alternate forms of accommodation, such as serviced apartments and holiday units.
- Competition from domestic urban destinations such as Sydney and Melbourne offering a high standard of accommodation and infrastructure.
- Australia is ‘one big resort’ - witn public access to abundant natural resources, a broad range of leisure alternatives and relatively good weather all year round.
Operations
The findings of the study indicate that resorts in Australia underperformsignificantly compared to city hotels on key performance indicators ofoccupancy, average room rate and room yield.
• Resorts have historically achieved much lower occupancies than city based hotels.
• Resorts have historically achieved average rates in-line with, or slightly above, those recorded by city hotels.
• Resort room yields have historically been below those achieved by city hotels.
Despite strong long-term growth potential, international
demand for most resorts located in non-iconic
destinations is top-up demand only.
Resorting to Profitability - Making tourist resorts work in Australia
9
These results are presented in the table opposite
Resort operations incur much higher operating costs than city hotels,particularly in the following areas:
• Higher labour costs, due to the high cost of staff turnover, particularly for resorts in remote locations. Labour costs include Fringe Benefits Tax (FBT) paid on staff accommodation (except where the resort meets the definition of ‘remoteness’). This tax treatment is in line with other sectors such as mining and farming which are also conducted in remote areas.
• Higher administrative costs, reflecting additional costs of obtaining licenses and operating permits for supporting facilities (e.g. power, sewerage, transport vehicles) and ancillary facilities (e.g. tours, golf courses).
• Higher marketing costs, stemming from the greater effort and resources required to market to the leisure segment, particularly at an international level.
• Higher property, operations and maintenance costs, arising from thegreater cost of maintaining extensive grounds, recreational facilitiesand plant and equipment.
• Higher energy and utility costs, reflecting the additional cost of operating in remote, extreme weather or ecologically sensitive environments.
• Higher capital reserve requirements due to the greater wear and tear on facilities resulting from weathering effects and guest usage.
The weaker operating performance of hotels, combined with a higheroperating cost base, results in marginal profitability of 10 per cent to 19 per cent at the Earnings Before Interest, Taxes, Depreciation andAmortisation (EBITDA) level. This level of profitability is unacceptable,as it leaves a narrow margin to cover interest, depreciation and amorti-sation expenses, which are estimated at approximately 12 per cent.
Impact of resort location on profitability
The findings of the study indicate that location has a significant impacton resort operations. Analysis of resort operations in secluded, coastal,accessible and island locations revealed the following operational challenges:
• Secluded resorts face additional costs of developing infrastructure in remote areas and need to manage the potential negative impact of tourism activity in environmentally sensitive areas.
Resorts 62.2 142.97 88.86
Hotels & 68.9 139.65 96.17Serviced
Apartments
Total Resorts, 67.7 140.17 94.93Hotels &Serviced
Apartments
Acc
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Ty
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Ave
rag
e D
aily
Ro
om
Occ
up
ancy
%
Ave
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e A
chie
ved
R
oo
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ate
$
Ave
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e D
aily
Ro
om
Yie
ld $
Australian Resort Sample vs. Hotel Sample
Year Ended December 2001
Source: Andersen Hotel IndustryBenchmark Survey 2002
Resorting to Profitability - Making tourist resorts work in Australia
10
• Yield management is critical for secluded resorts given the distanceto target markets.
• Secluded resorts face additional risk associated with heavy relianceon transport and natural attractions which are integral to the guest experience.
• Many accessible resorts have high costs of developing man-made attractions (e.g. golf courses, indoor spa facilities) in the absence ofnatural features.
• Accessible resorts have weaker barriers to entry and face strong competition from residential lifestyle developments offering a tourism component.
Impact of resort style on profitability
The study revealed that specific resort styles, including golf and wine,eco-tourism, safari and alpine resorts, face additional operational challenges which may act as barriers to profitability. The most significant challenges are:
• The need for strong collaboration with protected area agencies andindigenous societies.
• The high cost of development in environmentally sensitive areas.
• The need for highly skilled and knowledgeable staff to deliver nature-based and special interest activities.
• Exposure to risk associated with changes in the natural environment integral to the guest experience.
• The high cost of infrastructure, especially for sport based resorts such as ski and golf resorts.
Development
TTF Australia’s previous study ‘Keeping the Bush in the Game’ (TTF,2002) found that accommodation projects in regional Australia weremore difficult to develop and harder to sustain profitability than accommodation projects in capital cities. The findings of this study indicate that resort projects, similar to regional accommodation projects,face a range of development issues which impede their developmentviability. The main impediments to resort development have been identified as:
• Marginal and volatile operational profitability, requiring investors to
Location has a significant impact on resort operations.
Secluded resorts face additional costs of developing
infrastructure in remote areas and need to manage
the potential negative impact of tourism activity in
environmentally sensitive areas.
Resorting to Profitability - Making tourist resorts work in Australia
11
take a long-term investment view.
• Limited availability of excellent development sites which are accessible and have strong differentiating features.
• Prohibitive cost of infrastructure development for remote, nature-based sites.
• Greater risk of competition from additions to supply given the smaller size of resort markets and the longer period required to absorb new supply.
Key success factorsand opportunitiesBased on our analysis, we have identified several demand, operationaland development success factors which have the potential to improveresort performance and profitability.
Demand
Based on the predicted changes in the profile and needs of ‘new resorttourists’ (described at right), resorts in Australia will need to re-considertheir positioning, design, services and location.
Fun and exciting or secluded retreat?
Given the size of the Australian domestic holiday market, there will be a need for mid-market resorts with ‘no-frills’ or self catering facilities servicing the family market. These mid-market resorts will continue toface strong competition from the new generation of serviced apartments and holiday lettings.
Older, luxury resorts will need to re-vamp their conservative image to apicture of ‘active, fun and exciting’; a place where people ‘have fun’ and‘do things’, particularly if seeking to appeal to the family market. There will be a growing need for retreat style resorts given the significance of existing demand from the 35 - 49 year old segmentwithout children and the 14 - 34 year old singles segments. Existingresorts with extensive grounds have the potential to develop specialised‘product extensions’ within the existing resort, creating the opportunityto attract new market segments while capitalising on existing infrastructure.
Who are the future resort tourists?
Our findings indicate that thefuture resort tourists are likely to be:
• Australian families, with parents seeking opportunities to spend meaningful time with their children.
• Australian baby boomers in their 40s, 50s and 60s, with a growing interest in experiential based tourism, including sporting, culturaland health activities.
• Australian lone parent families and seniors, seeking value for money.
• Young singles, who are highly educated with a clear understanding of what they expect in terms of service and experience.
• International tourists from the US, Europe and New Zealand, seeking nature-based and cultural activities.
• In the longer term, Asian tourists may become potential resort guests as Asian markets mature in the level and depth of travel experiences they seek.
Resorting to Profitability - Making tourist resorts work in Australia
12
Collecting memorable experiences
The demand for experiential tourism is likely to grow from domestic andinternational markets and resorts of the future are likely to provide arange of activities which create learning and relaxation opportunities forguests seeking to experience something new or different e.g. the‘sounds of silence’ experience at Ayers Rock Resort or Heritage walksat Alpine resorts.
Hip, cool, pristine and safe
Resort positioning is likely to reflect the following attributes of Australiawhich are growing in prominence:
• The profile of Australia as a modern, ‘hip’, and ‘cool place to be’, enhanced by the recent popularity of Australian movies and actors.
• The purity, diversity and unique qualities of the Australian environment.
• The perceived safety and security of travel to and within Australia.
The bed is not the most important thing
Resorts will need to focus on the attributes of the entire ‘destination’and not just the resort product itself, creating a requirement for integrated destination planning. The regional destination profile will playan increasing role in growing the market profile for particular resorts. The importance of the destination may result in a scaling back in thelevel of facilities provided directly by the resort and an increased focuson tourist operators facilitating experiences within the surrounding destination or leveraging existing features in the natural environment todeliver the range of activities demanded by consumers.
Service and value for money
Resorts will need to focus on providing services and value for money toincreasingly sophisticated domestic and international consumers, in particular to emerging but potentially price-sensitive segments such asyoung singles, lone parent families and seniors.
Operations
Because resorts are often in the business of creating a unique andmemorable experience for a range of leisure travelers with diverseneeds, resort operations require careful planning, additional organisationand extra resources for operations. The study findings suggest thatcritical factors to resort profitability are:
‘Sounds of silence’ experience at Ayers Rock Resort
Resorting to Profitability - Making tourist resorts work in Australia
13
• The ability to recruit, train and retain staff at both management and operational levels.
• The ability to implement flexible staffing arrangements.
• Effective yield management to maximise revenue across peak and low seasons.
• Direct linkages to Global Distribution Systems, which cost-effectively distribute resort inventory nationally and globally.
• Strategic industry alliances with airline partners, hire car companiesand tour operators.
• Strong relationships with environmental and cultural stakeholders such as Aboriginal communities or National Park authorities.
Development
Given the marginal profitability and high failure rate of resort projects,factors and opportunities to improve the success of a resort project are:
• A concept which meets market demand, based on sound market and feasibility research.
• Design that reflects the resort’s environment and provides a point of differentiation.
• Location in a region, which has established demand and barriers to entry for competitors.
• Community support for the development.
• Control of construction costs.
• Partnership with flexible financiers who understand the ups and downs of resort operation and are prepared to take a long-term view.
• Creation of economies of scale by developing multi-tiered accommodation catering to different target markets such as Ayers Rock Resort, Kingfisher Bay Resort or Hamilton Island.
• Mixed use development combining land, residential, marina and retail facilities which have the potential to increase the project’s viability.
Location, location, location
The locations with the most potential for future resort development in Australia are likely to be:
• Accessible coastal and mainland regions, reflecting the holiday preferences and travel patterns of the Australian market.
• In proximity to unique natural or cultural heritage attractions which are a ‘must see’, particularly for international travellers.
• In destinations with established visitation patterns, good transport access and potential to collaborate with other tourism stakeholders or providers.
• On the fringe of wilderness areas, providing access to natural recreational opportunities in a protected environment in a controlled manner.
Mt Hotham
Resorting to Profitability - Making tourist resorts work in Australia
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Recommendations
1. DemandDemand and the industry response
We have identified the following opportunities for Australia’s resorts andbroader tourism industry to address demand challenges:
• Improving the sophistication of yield management within resorts to maximise revenue in peak demand and low season periods.
• Through State Tourism Organisations, identifying a way to reduce seasonality of demand by extending domestic travel periods. This may involve lobbying for the adjustment of school holiday periods.
• Resort owners and operators working more closely with destina-tions in their presentation of the ‘total destination’ to the consumer.
• Developing appropriate forms of accommodation that reflect the changing demographic and lifestyle profiles of international and domestic travellers.
• Supporting and facilitating the development of stronger airline networks to resort destinations.
• Review the level of aviation taxes and their impact on the competitiveness of domestic and international airfares.
• Monitor and forecast the impact of airline capacity and pricing on resort demand and performance.
• Explore the possibility of providing incentives to airlines servicing resort destinations.
• Undertaking co-operative marketing with airlines, particularly in off-peak seasons.
• Encourage collaborative planning and marketing opportunities between resorts and other sectors of the tourism industry on a destination basis.
Case Study 1
AlpineResorts
Managing seasonality
The five alpine resorts considered forthis case study (Thredbo, Perisher,Mount Buller, Mount Hotham and
Falls Creek) offer insights into howthe resorts sector can deal with
the issues of seasonality and utiliseyield management strategies
for profitability.
One of the key success factors identified in managing the operation
of Alpine resorts is to ‘keep the bedshot’, that is, to use every possible
accommodation unit (or bed) for asmuch of the time as possible.
Successful resort operators have a number of mechanisms that assist to keep the beds ‘hot’:
• Tiered pricing during peak
and shoulder periods.
• Providing tailored packages for different niche markets.
• Working in close co-operation with the accommodation
booking service providers.
• Ensuring there is a wide range of
accommodation types and prices
to suit different market segments.
• Marketing campaigns designed
to moderate the peaks and troughs
of visitation to alpine regions.
• Expanding off-season productse.g. ecotourism, heritage
interpretations, education, sight seeing, bushwalking, mountain
biking and rest and rejuvination.
Resorting to Profitability - Making tourist resorts work in Australia
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Demand and the Government response
We have also identified the following opportunities for Governmentresponses:
• In the Ten-year Tourism Plan, highlight the importance of regional marketing as a driving element of resort positioning.
• Encourage State and Territory Tourism Organisations to feature more ‘resort’ product in their marketing initiatives, both domesticallyand internationally.
• Continue to support the ‘See Australia’ domestic marketing campaign, given the highly competitive environment for resorts in Australia.
• Create ‘resorts’ as a niche market within the Australian Tourist Commission (ATC) Market Segment program.
- Encourage ATC research programs to identify demand trends and opportunities for resort markets and distribute such information to the resort industry.
- Enhance promotional effectiveness, through continued funding of the ATC in those countries that provide Australia with high yielding, longer stay international visitors that demonstrate a strong propensity for activities in regional destinations.
• Encourage co-operation between resorts and National Parks in the provision of tourist services and facilities in close proximity to National Parks and investigate the opportunity to create ‘edge’ or ‘gateway’ resorts adjoining National Parks, given the growing interest in activities and nature-based tourism pursuits.
• Support education program development and training subsidies for resort employees for advanced skills as well as basic skills especially given the increasing interest in nature-based and culturalexperiences, which require highly skilled and knowledgeable staff.
• Better inform resort industry stakeholders on the framework surrounding eligibility for the Export Market Development Grants (EMDG) scheme. This is the Commonwealth Government’s principal financial assistance program for businesses seeking to develop export markets, assisting small and medium sized resorts indeveloping export markets by partially reimbursing their expenditureon export promotion.
Case Study 2
CouranCove IslandResortEvolving strategic focus
Couran Cove Island Resort is anaccessible island resort situated on South Stradbroke Island just northeast of the Gold Coast. The property has had an evolving strategic focus since its inception, resulting in a significant upgrade of facilities and alterations in market positioning.
Originally conceived as an elite athletes’ training destination, thestrategic focus for the property shifted during the development phase and the resort was repositioned as an ecotourism resort.
Since opening, the resort has added significantly to its facilities and activities for the business market in an effort to diversify their market base and moderate the seasonality of demand.
Resorting to Profitability - Making tourist resorts work in Australia
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2. OperationsRole of industry in resort operations
Given the demand and operating cost constraints identified in ourresearch, it is evident that resorts in Australia operate in a tough environment. The low level of resort profitability seen to date hasresulted in limited interest and investment in the sector, leading to deterioration of resort stock and infrastructure.
Increasing the level of profitability of resorts in Australia is not only critical to the sector’s future success but also the competitive positionof Australia as a quality tourism destination. Based on our research of barriers to resort profitability, we have identified the following opportunities for resort owners and operators and other tourism stakeholders to improve the performance of resorts in Australia:
• Greater understanding and use of yield management techniques to maximise profitability during high and low periods of demand.
• Greater collaboration with local communities to develop effective human resource recruitment and retention initiatives to reduce labour costs.
• Increased collaboration with regional tourism stakeholders and operators, taking an ‘all for one’ approach.
• Greater focus on providing non-financial incentives to employees, such as improved housing accommodation or opportunities for education, particularly in remote resorts.
Role of government in resort operations
Based on our analysis, we have identified the following opportunities forGovernment to increase the operational viability of resorts in Australia:
Reduction of labour costs by:
• Relaxing the 3-month work permit restrictions on international working holiday maker visa holders willing to work in remote resorts.
Case Study 3
Ayers RockResort, NT
Operating in a remote iconic destination
Ayers Rock Resort is a secludedmainland resort bordering the
World Heritage-listed Uluru Kata Tjuta National Park.
Ayers Rock Resort has been highly successful in the creation of a unique experiential product
and brand. The resort’s positioning is based on the principles of
ecotourism, cultural tourism, softadventure, lifestyle, and the unique
physical icons situated close by.Experiential activities are facilitated
both within and external to the resort.
The resort’s three major operational challenges are driven
by its remote location. Specificallythe high cost of labour and training
required for a relatively transient pool of staff, the high cost of
providing employee accommodationand the costs of maintaining and
operating major infrastructure in a remote location.
Resorting to Profitability - Making tourist resorts work in Australia
17
• Expanding the working holiday program to other countries.
• Reducing the level of payroll taxes following the introduction of the GST.
• With respect to Fringe Benefits Tax on staff accommodation, ensure parity in the treatment of the tourism industry with other industry sectors.
• Continuing to provide staff accommodation incentives and allowances.
• Continuing to support regional training schemes to improve the skills-base of resort employees.
• Increasing remote area tax incentives for staff.
Reduction of uncertainty of cashflow from operations
• Providing access to income equalisation taxation adjustments (similar to those used for farmers who have large income variationsfrom year to year) given the sensitivity of resort income to natural, economic and political shocks.
Reduction of property operations and maintenance costs by:
• Reducing the number of licences and registrations required to operate plant and equipment.
• Extending the diesel fuel rebate for remote resorts.
• Providing incentives (such as tax concessions, rebates or higher depreciation rates) for use of environmentally friendly waste, water and energy management technology.
• Extending depreciation allowances to include ‘black hole expenses’ such as resort landscaping, site cleaning and golf course upkeep which form an integral part of resort facilities and are subject to obsolescence without significant upkeep.
Reduction of resort administration costs by:
• Reducing the number of licenses required to operate resort facilities.
• Extending the duration of licenses to reduce administrative costs and increase the certainty of operational continuity.
We suggest that seasonalresorts be given access to‘income equalisation’ taxationadjustments similar to thoseallowed for farmers and otherswho may have large variationsin incomes from year to year.
Water, sewerage and infrastructure design andoperation principles havemade Couran Cove IslandResort a world leader inrenewable energy design and application. These samefeatures also add significantcosts to resort developmentand operations, compliance,licence fees, maintenanceand repairs.
Resorting to Profitability - Making tourist resorts work in Australia
18
3. DevelopmentRole of industry in resort development
Resorts are not only complex to operate but also costly and uncertaindevelopment ventures. Reducing the cost and risk associated withresort development is a key factor in improving the development viabilityand investment performance of resorts in Australia. Based on ourresearch of impediments to resort development and key success factors, we have identified the following opportunities for resort developers and owners to improve the resort development process:
• Given the weak performance of resorts and the competitive nature of the resort environment in Australia, focus on refurbishment and re-positioning opportunities for existing resorts rather than on new development in the short to medium term.
• Undertake detailed market and feasibility analysis prior to undertaking development and understand the high degree of sensitivities associated with demand and supply.
• Only undertake development in areas where there is existing evidence of demand and a strong attraction base.
• Consult with development teams of State Tourism Organisations and State Development departments when undertaking new development.
• Fund research and data collection on resort supply, demand and performance and make this information available to local Councils, developers and other stakeholders to improve investment decision-making.
• Improve the integration of resort facilities with the destination and off-site attractions.
Case Study 4
Kingfisher Bay Resort
Managing the costs of compliance
Kingfisher Bay Resort is located adjacent to the World Heritage-listed Fraser Island
National Park. Barriers to entry for new developments in this
environmentally sensitive area are high, aiding the nature-basedniche positioning for the property.
Compliance costs are significant for Kingfisher Bay Resort on account of the infrastructure
required due to its remote location and the diversity of
operations. Both in the development phase of the resort,
and its current operation, compliance codes are imposedacross local, State and Federal
government tiers. These are particularly onerous in relation to plant and equipment, and to occupational health and safety.
Standards and procedures are alsosubject to review and alteration by
respective governing authorities and Kingfisher Bay Resort has in
several instances been required tosubstantially upgrade facilities or
processes to meet revised criteria.
Resorting to Profitability - Making tourist resorts work in Australia
Role of Government in resort development
Based on our research we have identified the following opportunitiesfor Government to facilitate the resort development process:
• Work with developers and investors to develop and fund infrastructure facilities, improving the feasibility of infrastructure development through the infrastructure bonds, tax concessions, grants or low cost loans.
• Ensure that development and planning legislation is manageable, easy to understand for developers and communities, and is applied equitably and with transparency across government jurisdictions.
• Provide certainty in relation to the approvals process, with accurate indication of time and process. Encourage bilateral arrangements between State and Commonwealth Governments under new environmental legislation to streamline approvals processes.
• Undertake economic impact assessments to understand the net and flow-on benefits of resort development to the greater community.
• Provide more certainty in relation to supply through destination master planning.
• Increase the level and quality of communications between State planning department representatives and local government officers responsible for tourism planning and development.
• Through the CRC for Sustainable Tourism, provide seed money or research and development grants for new technology, including transport and environmental management.
• Provide funding for management plans for protected natural areas, which have strong tourism appeal, possibly incorporating gateway or local resort facilities.
• Investigate innovative sources of funding for National Parks and other heritage attractions, especially for the development of visitor facilities in National Parks.
19
Case Study 5
HeritageGolf &CountryClubPersistence in achievingthe development vision
The Heritage Golf and Country Club is an accessible mainland resort located in Victoria’s YarraValley and Australia’s newest regional golfing resort. From inception to completion of Stage 1,including the Sebel Lodge YarraValley, the development processspanned a nine year period, with the hotel commencing operations in April 2002.
Since the development crossed two local government areas, local government liaison was particularlyintensive and required ongoing management. Persistence on behalf of the developer in navigatinga range of rezoning, community consultation and approvals processesacross numerous State and local government authorities was a criticalsuccess factor in achieving a development to meet the originalvision for the resort.
The full report and this summary are available free of charge on the website: www.ttf.org.auExpanded versions of the case studies are included in the full report.
Resorting to Profitability - Making tourist resorts work in Australia
21Resorting to Profitability - Making Tourist Resorts Work in Australia
RReessoorrttiinngg ttooPPrrooffiittaabbiilliittyy Making TouristResorts Work inAustralia
22 Resorting to Profitability - Making Tourist Resorts Work in Australia
Given theincreasing
interest in thedevelopment of
tourism resorts inthe Asia-Pacificregion,it is nowtimely to reviewthe commercialand regulatory
factors thatimpact financial
returns for resortowners andoperators in
Australia
BackgroundTTF Australia is the only national advocacy body representing the interests of the many
sectors that comprise the tourism, transport, leisure and infrastructure industries. A key
role of TTF Australia is in-depth research of current issues affecting the performance of the
industry. Given the increasing interest in the development of tourism resorts in the Asia-
Pacific region, TTF Australia believes it is now timely to review the commercial and
regulatory factors that impact financial returns for resort owners and operators in Australia.
This report is the third in a series of regional tourism studies conducted by TTF Australia.
The first study focused on regional tourism employment and the second on regional
tourism success factors. The focus of this study is on the resort sector. It builds on the
previous reports by focusing on regional tourism resorts.
TTF Australia has requested Ernst & Young to conduct a study to examine the operations,
development and demand issues facing resorts in Australia and provide recommendations
aimed at enhancing the profitability and investment viability of the resort sector.
The importance of tourism in Australia
Australia’s tourism industry is gaining increasing recognition for its contribution to Gross
Domestic Product (GDP). According to the latest available Tourism Satellite Account (TSA)
data for 2000-2001, this contribution represented 4.7% of GDP, and growth of 4.5%
relative to the first TSA estimate in 1997/98. The faster growing international tourist market
accounted for 24% of visitor consumption, whilst domestic demand accounted for the
remaining 76%. The tourism sector employed 551,000 people in Australia, or 6% of the
total workforce, demonstrating growth higher than for national employment. In regional
areas, tourism employs (35)% of the total workforce (TTF Australia, 2001).
Beyond the traditional economic gauges for tourism performance, increasing regard for
environmental, heritage and social impacts of the industry have been identified as critical
success factors in industry and Government strategic planning. On 11 February 2002, the
Minister for Small Business and Tourism, the Hon Joe Hockey MP, initiated the
development of a comprehensive 10-year Strategic Plan for Tourism. Currently in
progress, the plan was conceptualised to identify opportunities and obstacles to
sustainable tourism growth and encourage partnerships between the various sectors of
the industry and Governments.
23Resorting to Profitability - Making Tourist Resorts Work in Australia
Resorts locatedin remote or non-metropolitanareas are majorcontributors toregional and localeconomies andhave thepotential to actas catalysts forregionaldevelopment
The significance of the resort sector in Australia
Despite the growth of domestic and international tourism in the last two decades, resorts
in Australia have performed poorly from a profitability and investment perspective. Unlike
city hotels, resorts face a series of unique challenges in the areas of demand, operations
and development which impede their performance and act as a deterrent to future
investment.
Travel for the purpose of holiday is the most significant component of tourism in Australia,
both for domestic and international travellers. Resorts are in the business of primarily
providing accommodation to holiday and leisure travellers and thus play an important part
in Australia’s success as a holiday destination.
Resorts also play an important role in the high-yield meetings, incentives, conventions and
exhibitions (MICE) market. The MICE business has the potential to create flow-on benefits
not only to the accommodation sector but also for a range of other industries as a result
of strong retail and leisure spending by delegates. Australia’s ability to grow as an
international MICE destination will in part rely on its ability to provide quality resort
accommodation to the MICE segment.
In many instances, resorts are also located in close proximity to icons of heritage
significance and, as a consequence, have a direct involvement in natural and cultural
resource presentation. In particular, bigger resorts link in with global distribution systems to
sell their product and as such have a significant impact on profiling a given destination.
Finally, resorts located in remote or non-metropolitan areas are major contributors to
regional and local economies. A previous study conducted by TTF Australia, titled
“Keeping the Bush in the Game” indicated that in 1997-98, there were 207,000 jobs
regional Australia directly due to tourism. Moreover, with traditional industries in regional
areas in decline, resort and tourism development is an alternative for employment and a
means for “keeping the bush alive”. The future stability and development of the resort
sector is an important issue for both industry and Government to consider, given the
expected long-term growth in tourism in Australia and the potential for resorts to act as
catalysts for regional development.
Objectives of the report
Given the challenges facing the resort sector, the objective of this study is to examine the
demand, operational and development issues faced by resorts and to identify
opportunities for industry and Government to increase the profitability of resorts in
Australia.
24 Resorting to Profitability - Making Tourist Resorts Work in Australia
A Resort is:Tourist
accommodationcatering primarily
to leisuretravellers,
providing a rangeof recreational
facilities anddifferentiated by
experientialqualities in the
context of aparticular regional
destination
The study also seeks to identify the unique challenges and opportunities specific to
emerging resort styles, including eco-tourism, golf tourism, cultural tourism and alpine
tourism and to explore the influence of geography, including island, coastal, outback and
inland locations, on resort operations and development.
The specific objectives of the study are to:
• Identify opportunities to capitalise on emerging demand trends to enhance future
resort profitability and performance.
• Identify opportunities to improve the existing regulatory environment (State and
Federal Government level) for resort development and operations.
• Develop a set of success factors and recommendations for existing and future
resort development and operations.
Purpose of the study
The information from this report will be used to inform current and potential resort
developers, owners and operators and will be a guide for TTF Australia lobbying.
Definition of resort
In defining a resort, we have consulted a range of sources, including the Oxford
Dictionary, the Australian Automobile Association, and the Horwath Survey of Hotel
Industry Operations.
Our analysis suggests that:
• A resort is a place frequented by holiday or leisure guests for tourism or
recreational purposes, although meeting business is also a significant focus for
resorts;
• A resort is expected to comprise a wide range of recreational facilities; and
• A resort forms part of a destination, whose underlying natural or cultural attributes
are a motive for travel.
Accordingly, for the purposes of this study, we have adopted the following
definition of resort:
“Tourist accommodation catering primarily to leisure travellers, providing a range of
recreational facilities and differentiated by experiential qualities in the context of a
particular regional destination”.
25Resorting to Profitability - Making Tourist Resorts Work in Australia
There is anincreasinglyimportantrelationshipbetween aresort and it’ssurroundingdestination
This definition focuses on the growing importance of the experiential nature of tourism and
draws attention to the increasingly important relationship between a resort and its
surrounding destination.
Taking into account the objectives of TTF Australia, the study examines development,
operational and demand issues of four styles of resorts prevalent in Australia:
• Secluded island resorts (for example: Kingfisher Bay Resort, Daydream Island,
Hayman Island);
• Secluded mainland resorts (for example: Ayers Rock Resort, Gagadju Crocodile
Resort, Thredbo Alpine Resort);
• Accessible coastal resorts (for example: Couran Cove Resort, Sheraton Mirage
Port Douglas); and
• Accessible inland resorts (for example: Sebel Heritage Resort, Cypress Lakes
Resort).
The following matrix presents a visual representation of the four resort styles that form the
focus of this report. The factors of seclusion and accessibility were primarily derived in
response to findings from the TTF Australia “Keeping the Bush in the Game” study (2002),
which indicated that the performance of regional tourism destinations in Australia was
falling behind mainstream city and urban destinations.
The study also explores changing consumer values and the emerging demand patterns
for tourism forms and associated resort styles. These include:
• Eco-tourism;
• Golf tourism;
• Food and Wine tourism;
• Cultural tourism;
Outback
Inland
Island
Coastal
Secluded
Accessible
26 Resorting to Profitability - Making Tourist Resorts Work in Australia
• Alpine tourism; and
• Safari tourism.
Scope of research
Our research is primarily focused on the 4 and 5-star resort sector due to the availability of
data. The lack of available data on the performance of other resort grading or classes
precludes an in-depth study of emerging forms of resorts such as, for example,
backpacker resorts, and is a limitation of this study.
Methodology
To accomplish the objectives of this study, we undertook the following tasks:
• Developed the research design and framework methodology in conjunction with
the Project Steering Committee, comprising private and public sector resort and
tourism industry experts.
• Secondary data analysis, including:
- Review of relevant tourism statistics, including Australian Bureau of Statistics
(ABS) Tourist Accommodation Statistics, Bureau of Tourism Research (BTR)
statistics (National Visitor Survey and International Visitor Survey) and Roy
Morgan Holiday Tracking Survey; and
- Literature review of relevant publications, journals and websites. A literature
review list is attached as Appendix 1.
• Primary research including:
- 48 face-to-face or telephone interviews with selected industry leaders (see
Appendix 2); and
- 5 case studies profiling existing resort developments based on site visits and
interviews with resort owners, operators and stakeholders.
Following the secondary and primary data gathering, we analysed the results of the face-
to-face surveys and identified the main themes in the areas of resort demand, operations
and development.
Steering Committee members reviewed the preliminary findings and provided feedback.
27Resorting to Profitability - Making Tourist Resorts Work in Australia
Based on the identified themes, we prepared a set of recommendations in the areas of
resort demand, operations and development for Government and resort industry
stakeholders.
Structure of the report
The report is structured in three main parts:
• Analysis of resort demand;
• Review of resort profitability; and
• Analysis of resort investment and development.
Each section presents a summary of the main issues, identifies key success factors and
presents recommendations for Government and resort industry stakeholders.
28 Resorting to Profitability - Making Tourist Resorts Work in Australia
Australia’s smallpopulation base
limits theavailable pool of
potential resortconsumers
Resort demandResorts in Australia rely on domestic and international visitors to generate room nights
demand. The discretionary nature of travel, combined with the small size of the Australian
population base and the long distance between Australia and key source markets such as
Europe and the USA, create a highly competitive and sometimes volatile demand
environment for resorts in Australia.
In this section of the report we identify the existing demand fundamentals specific to
resorts in Australia and review key drivers influencing resort demand. Changing consumer
holiday and leisure values and the implications for existing and future resort supply in
Australia are reviewed. We then analyse resort demand challenges, success factors and
opportunities and provide recommendations for the tourism industry and Government in
addressing demand issues.
Key demand challenges faced by resorts in Australia
Our research and analysis identified a number of key issues for resorts in Australia from a
demand perspective. The most significant demand constraints for resorts are:
• Australia’s small population base, which limits the available pool of potential resort
consumers.
• Strong seasonality of the domestic market, with most travel occurring during peak
holiday periods.
• Limited market appeal of resorts, with leisure and conference markets being the
main two sources of demand.
• Distance from international source markets, with time and distance being major
inhibitors for international visitors. Despite strong long-term growth potential,
international demand for many resorts is top-up demand only.
• High cost of travel, with the cost of airfares to resorts and resort destinations being
perceived as expensive compared to rival South East Asian and Pacific
destinations.
• Poor accessibility, with lack of diversity in airlines and other transport options acting
as a barrier to demand.
29Resorting to Profitability - Making Tourist Resorts Work in Australia
Australia hasundergone acyclical shift inrecent decadesfrom early retreatstyleguesthouses,followed by largerscale ‘integrated’and ‘town’ styleresorts to returnto more intimate,smaller “niche”resorts
• Increasing competition, with:
- Development of international standard resorts in destinations such as Bali, the
Maldives, Middle East, South Pacific, Caribbean, Fiji and Thailand;
- Growth in accommodation supply in alternate forms of accommodation, such
as serviced apartments;
- Competition from domestic urban destinations such as Sydney and Melbourne
offering a high standard of accommodation and infrastructure; and
- Public access to abundant natural resources and all year round good weather
– Australia is “one big resort”.
We discuss these challenges in more detail in the subsequent sections of the study.
Evolution of resorts in Australia
As a background to our analysis, we have undertaken a review of resort supply in
Australia. We examine the changes in resort types in the last decade, review trends in
resort styles and positioning and identify the “resorts of the future” based on the
anticipated tourism and consumer trends.
Our research suggests that resort development in Australia has undergone a cyclical shift
in recent decades from early retreat style guesthouses, followed by larger scale
‘integrated’ and ‘town’ style resorts to return to more intimate, smaller “niche” resorts.
The early days
The first resorts in Australia were regional resorts located within the day trip range of
capital cities. These were developed in the early twentieth century to cater for demand
arising from the nearby population centres and include properties such as the Hydro-
Majestic, Medlow Bath in the Blue Mountains and Delgany on the Mornington Peninsula.
These properties were essentially retreat style developments, characterised by elements
of seclusion and escape with some recreational activities available, usually based on the
attributes of the natural environment within which the resort was developed.
Island and outback resorts
Island resorts featured heavily in the Australian resort landscape from the 1950s to the
1970s, including Daydream Island, Hayman Island (developed by Ansett Airlines) and
Great Keppel Island (developed by TAA). Due to their remote locations, these resorts
evolved primarily as town resorts, combining land uses and activities of a town community
with a primary economic focus on resort activities and containing other types of
accommodation and tourist facilities and services.
30 Resorting to Profitability - Making Tourist Resorts Work in Australia
The second halfof the 1990s
witnessed newforms of
development,characterised by
smaller retreator special
interest styledevelopments on
the one hand,and a new wave
of servicedapartment resortproperties on the
other hand
The development of Hamilton Island and Ayers Rock Resort are prime examples of
Australia’s more iconic town resorts, combining a wide range of infrastructure and facilities,
including airport, retail, housing and medical facilities.
Developments during this era were not commercially focused and in many instances
driven by investment from airlines seeking to generate airline demand via resort product,
Government investment and private developer real estate motives.
Glamour resorts
The late 1980s and early 1990s saw a proliferation of integrated resorts throughout
Australia, with the Mirage properties, Hyatt Regency Sanctuary Cove and Hyatt Coolum
combining mixed use and residential components. The design of these resorts, including
expansive grounds, extensive recreational facilities and opulent fit-out embodied the
“glamour and glitz” of the 1980s era.
The evolution of Integrated Tourist Resort legislation facilitated increased foreign investment
in Australia’s resort sector at this time, which was predominately Japanese led. Integrated
resorts are planned for virtually exclusive use by tourists and oriented towards particular
destination features such as the beach or marine recreation areas. These vary in size from
one to several hotels and are typically self-contained, including various tourist facilities and
services of a commercial centre and a broad range of recreational facilities.
The second half of the 1990s witnessed new forms of development, characterised by
smaller retreat or special interest style developments on the one hand, and a new wave of
serviced apartment resort properties on the other hand.
Niche resorts
Special interest style properties developed during the late 1990s share similarities with
those originally conceived at the turn of the century, being smaller and more intimate in
design, although locationally, the new developments span a broader cross section of
environments, located in more remote areas such as small islands or mountains regions.
These include:
• Spa resorts with a primary or secondary focus on health and rejuvenation such as
the Golden Door Health Retreat, Gold Coast and Cypress Lakes Resort and Spa,
Hunter Valley.
• Eco-tourism resorts with a focus on integration with and interpretation of the
physical environment such as Peppers Casuarina Lodge, Byron Bay.
31Resorting to Profitability - Making Tourist Resorts Work in Australia
Substantialservicedapartmentdevelopment hastaken placewithin Australia’sholiday andcapital cityregions since thelate 1990s
• Family resorts that are usually a lower priced alternative to mainstream town or
integrated resorts with an emphasis on recreation such as the range of family
resorts that have evolved from Caravan Parks on the New South Wales south
coast, such as the Boathaven Holiday Park, Edben (Wodonga).
• Golf Resorts, with their primary focus being golf and in some instances, wine and
food pursuits as compatible activities, such as Joondalup Resort in Perth and the
Sebel Heritage Yarra Valley.
• Themed resorts, themed and positioned to attract a niche market of consumers,
such as Liberty Resort, Kuranda, aimed at the gay and lesbian market.
• Safari-style resorts based on special interest demand, such as Paperbark Camp
near Jervis Bay, NSW and Longitude 131 near Uluru, providing a nature or
culturally based experience.
Serviced apartment resorts
Substantial serviced apartment development has taken place within Australia’s holiday and
capital city regions since the late 1990s. Serviced apartment projects usually comprise a
higher number of rooms, incorporate recreational amenities such as swimming pools and
restaurants and are in close proximity to other regional attractions and service centres.
The following graph illustrates the growth of the serviced apartment accommodation
category in Australia during the period from 1998 to 2001:
0
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20011998
Australian Accommodation Mix - by type of accommodationYear Ended December 1998 and 2001
Source: ABS Tourist Accommodation Australia 8365.0 1998/2001
Room
nig
hts
avai
labl
e
Serviced Apartments 8,692,811 12,638,413
Motels & Guest Houses 30,648,128 30,748,835
Hotels & Resorts 25,584,761 28,515,870
32 Resorting to Profitability - Making Tourist Resorts Work in Australia
The previous table illustrates that:
• Serviced apartment style accommodation experienced dramatic growth during the
4-year period, with a 45% increase in the number of room nights available, albeit
off a smaller base. The growth in serviced apartment style accommodation in both
city and resort locations have created a highly competitive trading environment for
hotels and resorts.
• The number of hotel and resort room nights available increased by 11.5%. This
increase reflects new hotel additions in capital cities such as Sydney and
Melbourne rather than new resort supply.
Overview of resort supply in Australia
The table below provides an overview of major resort supply in Australia for the period
from 1946 to 2002. The table illustrates the resort trends discussed in the previous
section and highlights emerging resort trends.
Overview of Resorts in Australia
Property Location No. Year Ownership Resort Resortof rooms began structure style location
operations
1 Mt Buller Resort Mt Buller, VIC 3,500 beds 1946 Various Integrated Accessible inlandalpine resort
2 Falls Creek Resort Falls Creek, VIC 4,200 beds 1948 Private Integrated Accessible inlandcompany alpine resort
3 Perisher Blue Resort Perisher Valley, NSW 3,114 beds 1952 Public unlisted Integrated alpine Accessible inlandcompany resort
4 Dunk Island Resort Whitsunday Islands, 148 1956 Private company Conventional Accessible inlandQLD resort Island
5 Thredbo Resort Thredbo, NSW 4,200 beds 1962 Public listed Integrated alpine Accessible inlandcompany resort
6 Great Keppel Island Whitsunday Islands, 192 1967 Independent Conventional IslandQLD Resort resort
7 Alice Springs resort Alice Springs, NT 144 1967 Public real Conventional Remote mainlandestate trust resort
8 South Molle Whitsunday Islands, 200 1970 Private company Integrated resort IslandIsland Resort QLD
9 Lizard Island Resort Great Barrier Reef, 40 1974 Private company Retreat resort Island QLD
Total Pre-1980s 724 (rooms excluding beds)
1 Heron Island Resort Whitsunday Islands, 117 1980 Private company Eco-tourism Island QLD resort
2 Bedarra Island Resort Whitsunday Islands, 15 1981 Private company Retreat resort Island QLD
3 Hamilton Island Resort Whitsunday Islands, 754 1981 Public company Conventional IslandQLD resort
4 Silky Oaks Lodge Daintree, QLD 60 1983 Private company Retreat resort Secluded mainland& Healing Waters Spa Eco-tourismSpa (recent addition)
5 Ayers Rock Resort Yulara, NT 805 1984 Public real estate Conventional resort Remote mainlandtrust Safari resort -
new addition
33Resorting to Profitability - Making Tourist Resorts Work in Australia
Overview of Resorts in Australia
Property Location No. Year Ownership Resort Resortof rooms began structure style location
operations
6 The Lakehouse Dayelsford, VIC 33 1984 Private company Retreat resort Accessible mainland
7 Brampton Island Whitsunday Islands, 108 1985 Public unlisted Conventional IslandQLD company resort
8 Conrad Jupiters Broadbeach, QLD 609 1985 Public listed Casino resort Accessible coastalHotel & casino company
9 Novotel Palm Palm Cove, QLD 342 1986 Private company Conventional coastal Cove Resort resort Accessible
10 Rydges Capricorn Yeppoon, QLD 280 1986 Private company Integrated resort Secluded coastalResort Golf
11 Peppers Fairmont Leura, NSW 210 1986 Public listed company Retreat resort Accessible mainlandResort
12 Courtyard Surfers Surfers Paradise, QLD 405 1986 Private company Conventional Accessible coastalParadise Resort resort
13 Sheraton Mirage Gold Coast, QLD 312 1987 Public unlisted Integrated resort Accessible coastalResort company
14 Sheraton Mirage Resort Port Douglas, QLD 294 1987 Public unlisted Integrated resort Secluded coastalcompany
15 Hayman Island Resort Whitsunday Islands, 214 1987 Public unlisted Conventional Island QLD company resort
16 Sea World Nara Resort Surfers Paradise, QLD 405 1987 Public real Conventional Accessible coastalestate trust Themed resort
17 Burswood Hotel & Perth, WA 417 1987 Public listed Casino resort Accessible coastalCasino company
18 Hyatt Regency Hope Island, QLD 247 1988 Public unlisted Integrated resort Accessible inlandSanctuary Cove company Golf
19 Hyatt Regency Coolum Coolum, QLD 324 1988 Private company Integrated resort Accessible coastalSpa, golf
20 Cypress Lakes Resort Hunter Valley, NSW 180 1988 Strata title Integrated resort Accessible mainlandGolf, wine, spa
21 Rydges Reef Resort Port Douglas, QLD 299 1989 Private company Integrated resort Accessible coastal
22 Cable Beach Club Broome, WA 263 1989 Private company Integrated resort Secluded coastal
23 Cumberland Resort Lorne, VIC 99 1989 Timeshare & Conventional Accessible coastalPrivate company resort
Total 1980s 6,672
1 All Seasons Premier Coffs Harbour, NSW 226 1990 Public real estate trust Conventional Accessible coastal Pacific Bay Resort (in process of resort
being strata titled)
2 Royal Pines Resort Gold Coast, QLD 329 1990 Private real estate Integrated resort Accessible coastal company Golf
3 Sheraton Resort Noosa Noosa, QLD 169 1991 Public listed Luxury retreat Accessible coastalcompany
4 Parkroyal Surfers Paradise, 379 1991 Private company Conventional Accessible coastalSurfers Paradise QLD resort
5 Kings Canyon resort Kings canyon, NT 164 1991 Private company Integrated resort Remote mainlandEco-tourism
6 Novotel Twin Mudjimba Beach, QLD 368 1992 Strata title Integrated resort Accessible coastal Waters Resort Golf
7 Kingfisher Bay Resort Fraser Island, QLD 192 1992 Private company Integrated resort Island Eco-tourism
8 Club Med Whitsunday Islands, 104 1992 Proprietary Retreat resort IslandLindeman Island QLD company
9 Lilianfels Blue Katoomba, NSW 86 1992 Public real estate trust Retreat resort Accessible mainland Mountain Resort
34 Resorting to Profitability - Making Tourist Resorts Work in Australia
Overview of Resorts in Australia
Property Location No. Year Ownership Resort Resortof rooms began structure style location
operations
10 Marriott Surfers Surfers Paradise, QLD 330 1992 Public listed Conventional Accessible coastalParadise Resort resort company
11 Laguna Quays Resort Proserpine, QLD 150 1993 Private company Integrated resort Secluded coastalGolf
12 Novotel Opal Coffs Harbour, NSW 136 1993 Private company Conventional Accessible coastal Cove Resort resort
13 Radisson Treetops Port Douglas, QLD 305 1995 Public listed company Eco-tourism Accessible coastalresort
14 Mercure Resort Surfers Paradise, QLD 405 1995 Strata title Conventional Accessible coastalresort
15 Joondalup Resort Joondalup, WA 70 1996 Private company Retreat resort Accessible mainland
16 Radisson Palm Gold Coast, QLD 280 1997 Strata title Golf resort Accessible coastalMeadows
17 Oasis Resort Cairns Cairns, QLD 314 1997 Public listed Conventional Accessible coastalcompany resort
18 Novotel Vines Resort Swan Valley, WA 139 1997 Public unlisted Golf and Accessiblecompany wine resort mainland
19 Outrigger Mooloolaba Mooloolaba, QLD 204 1998 Strata title Serviced Accessible coastal apartment resort
20 Couran Cove Resort Stradbroke Island, QLD 356 1998 Strata title Integrated resort Coastal/island Eco-tourism
21 Broadwater Dunsborough, WA 180 1999 Private company Retreat resort Secluded mainlandSanctuary Resort
22 Novotel Barossa Valley Barossa Valley, SA 140 1999 Strata title Conventional Accessible mainlandresort
23 Beach Club Resort Hamilton Island, QLD 55 1999 Public company Retreat style Island addition to Hamilton Island Resort
Total 1990s 5,083
1 Outrigger Beach Coolangatta, QLD 130 2000 Strata title Serviced AccessibleResort apartment resort coastal
2 Outrigger Reef Resort Cairns, QLD 90 2000 Strata title Serviced Accessible apartment resort coastal
3 Pacific International The Entrance, NSW 145 2000 Strata title Serviced Accessible Waterfront Resort apartment resort coastal
4 The Mansion Hotel Werribee Park, VIC 92 2000 Private company Retreat resort Accessible mainland
5 Sebel Resort Noosa Noosa, QLD 84 2000 Strata title Serviced Accessible coastalapartment resort
6 Peppers Links Port Douglas, QLD 66 2000 Strata title Serviced Accessible coastal apartment resort
7 Pacific International Broadbeach, QLD 167 2001 Strata title Serviced Accessible coastalBel Air Resort apartment resort
8 Peppers Hidden Vale Lockyer Valley, QLD 30 2001 Private company Retreat resort Accessible mainland
9 Aqualuna Resort Coffs Harbour, NSW 90 2001 Strata title Serviced Accessible coastal apartment resort
10 Peppers Casuarina Byron Bay, NSW 18 2001 Private company Retreat resort Accessible coastal Lodge
11 Daydream Island Daydream Island, QLD 296 2001 Private company Conventional Island resort
12 Erskine House Lorne, VIC 120 2001 Strata title Serviced Accessible coastalapartment resort
13 Liberty resort Kuranda, QLD 64 2002 Strata title Serviced Accessible mainlandapartment resort
35Resorting to Profitability - Making Tourist Resorts Work in Australia
There has beena recent shiftfrom island andsecludedmainland resortdevelopment toaccessiblemainland resorts
Overview of Resorts in Australia
Property Location No. Year Ownership Resort Resortof rooms began structure style location
operations
14 Sebel Heritage Lodge Yarra Valley, VIC 102 2002 Strata title Serviced Accessible mainlandapartment resort
15 Outrigger Beach Club Palm Cove, QLD 65 2002 Strata title Serviced Accessible coastalapartment resort
Total 2000s 1,559
Total 14,038
Source: Ernst & Young Research
The information in the table above indicates the following resort supply trends:
• No major resorts were developed during the period from 1994 to 1996.
• The information in the table above indicates the following resort supply trends:
• No major resorts were developed during the period from 1994 to 1996.
• There has been a recent shift from island and secluded mainland resort
development to accessible mainland resorts. This is likely a reflection of consumer
preferences for short breaks, rather than holidays of significant duration.
• The majority of resorts continue to be developed in coastal locations, reflecting
continued popularity of the traditional “beach and sun” holiday.
• Serviced apartment resorts have been the dominant new form of development.
The majority of these developments are larger scale, comprising in excess of 100
rooms. Serviced apartments, being strata titled by design, have been easier to
finance, since they are sold as units to individual investors. This reduces the risk
for the developer and enhances the short-term profit gain from the project itself.
• The average size of resorts is much smaller compared to the 1980s, with
Daydream Island being the largest resort to have opened (post refurbishment) in
2001 with 296 rooms.
• There has been an emergence of special interest resort styles, including golf, wine,
eco-tourism and safari resorts in response to increasingly sophisticated consumers
demanding more experiential holidays. Retreat and niche style developments,
being smaller scale are not as capital intensive as their larger integrated resort
counterparts and are less costly to develop.
36 Resorting to Profitability - Making Tourist Resorts Work in Australia
Leisure relateddemand is a
function ofincome levels,
the price ofairfares,
exchange ratesand the cost of
goods andservices in
Australiacompared with
alternativedestinations
Tourism demand trends
Resort demand is strongly linked to the level of domestic and international tourism flows in
Australia. In this section of the report, we examine economic, market and political factors
influencing tourism demand. We also review the historical and forecast domestic and
international tourism trends and assess the implications for resorts.
Factors influencing tourism in Australia
In general, leisure related demand is a function of income levels, the price of airfares,
exchange rates and the cost of goods and services in Australia compared with alternative
destinations. Business traveller demand, also including meetings demand, which is of
relevance to resorts, is particularly influenced by levels of economic activity, both in
Australia and abroad.
Economic factors
The long-term outlook for domestic and international tourism in Australia is positive based
on the following anticipated trends:
• A forecast modest recovery in world growth to around 2.8% in 2002, with a further
pick-up to the long-run average of 4% in 2003 (IMF and consensus forecasts).
• Strong domestic economic fundamentals, supported by expected low interest
rates, increased household wealth, higher consumer confidence levels and strong
growth in employment (Access Economics forecasts).
Despite a positive long-term outlook, both domestic and global economies have
experienced a period of contraction and uncertainty during 2001 and 2002. The risks to
tourism and resort demand growth are:
• Continued global softening, especially further declines in key global economies.
• Potential further appreciation of the Australian dollar, which is likely to increase the
propensity of Australians to travel overseas. An appreciation of the dollar also has
the potential to lower the price-value perception of international visitors travelling to
Australia.
Other factors
In addition to the macro-economic environment, recent events in the Australian aviation
landscape and world political scene are of significance to the Australian resort sector.
These are discussed below.
37Resorting to Profitability - Making Tourist Resorts Work in Australia
Vast distances toand withinAustralia and thecountry’s limitedpopulation basecreate uniquechallenges fortourism anddestinationconnectivity
Political and International events
The terrorist attacks in the US in September 2001, the Bali bombings in October 2002,
the recent Afghanistan conflict and the 2003 War in Iraq have impacted travel patterns
around the world. Terrorism against international tourism has impacted global travel
patterns and medium to long-term effects on travel demand are not clear. The additional
deterring impact of the SARS (severe acute respiratory syndrome) crisis has further
threatened international travel uptake, by both Australians and inbound tourists alike. In
response to such volatility, domestic tourism to resorts might increase in the short-term,
as travellers steer from political and health-related danger zones.
Aviation
Vast distances to and within Australia and the country’s limited population base create
unique challenges for tourism, destination connectivity and the potential profitability of any
airline operating within the country. Australia’s limited population and current low rate of
carrier competition forces the cost of air travel upwards according to the supply and
demand equation. Higher airfare costs further prohibit the bulk of the population from
frequent access to air transport as an alternative to private vehicle or train. As airlines
strive to maintain profitability levels and business viability, they naturally focus on those
routes and markets that are high yielding – such as flights between Sydney, Melbourne
and Brisbane and the less price sensitive corporate market.
The Australian aviation environment has seen several airlines come and go, including:
• Compass Airlines;
• Impulse Airlines; and
• Ansett Airlines.
The launch and demise of airlines within Australia has significantly affected Australian
resort operators, particularly those dependent on air transport as a primary means of
transporting guests (such as Ayers Rock Resort). Fluctuations in prices, service frequency
and certainty in flight schedules are factors built into the cost and accessibility equation for
consumers. As these change, price-based competition from South East Asian and South
Pacific destinations intensifies by default.
For consumers themselves, the perception of rising costs, infrequent services, and more
recently, doubts as to the viability of airlines themselves at the time of travel, create an
undercurrent of doubt and uncertainty. Consumer behaviours such as short booking lead
times, an increased tendency to purchase distressed or short notice inventory via the
internet, and in 2001, a reversion to travel by private vehicle are responses to such
uncertainties.
38 Resorting to Profitability - Making Tourist Resorts Work in Australia
Guaranteed airaccess is a
critical issue inimproving resort
profitability
Since September 2001, Qantas has strengthened its position as Australia’s dominant
domestic carrier and has endeavoured to pick up lost Ansett capacity through larger
aircraft and increased flights. Budget airline Virgin Blue has expanded rapidly since
September 2001 and the combined Hazelton and Kendell Airlines, renamed Regional
Express Airlines (Rex) was created in 2002 and is currently servicing 35 South East
Australian destinations.
The success of the Virgin Blue budget airline model and the growth potential exhibited by
several Asian markets contributed to the development of Australian Airlines, a subsidiary of
Qantas. Australian Airlines commenced operations in October 2002 and will initially service
Osaka, Nagoya, Singapore, Taipei, Hong Kong and Fukuoka, non-stop from Cairns – the
new Northern “hub”. Australian Airlines have rapid expansion plans and expect to be
offering services between most Australian capital cities by the end of 2003.
International capacity has also been affected by the worldwide downturn in aviation travel
post September 11, 2001. The reduced capacity on routes to Australia, has proved
problematic for inbound group and incentive travel organisers trying to secure volume,
discounted seats for their clients and as such has constrained some hotel and high
yielding resort demand.
Guaranteed air access is a critical issue in improving resort profitability. There remains a
perception that the focus on developing high yielding corporate business routes is at the
expense of leisure routes, leisure destinations and as such, resorts.
Domestic tourism
Domestic visitor nights
Domestic visitors are the foundation of the Australian tourism industry, generating 76% of
all revenue flows in 2000/01. Despite its dominance, the growth rates recorded for
domestic tourism have been below those of international tourism, albeit from a much
larger base.
The Tourism Forecasting Council predicts domestic visitor nights will grow at a compound
annual growth rate of 0.5% from 2002 through to 2012. This conservative grow rate is a
concern for resorts relying on the domestic market to provide the majority of room night
demand.
Purpose of visit
The majority of Australians travel for the purpose of holiday and leisure, which accounted
for 46% of total visitor nights in the year ended December 2002.
Visiting friends and relatives was the next most important reason for domestic travel,
accounting for 31% of total visitor nights. Travel for business related purposes accounted
for 15% of domestic visitor nights.
39Resorting to Profitability - Making Tourist Resorts Work in Australia
With internationalvisitors typicallydisplaying lowdispersal rates toregional areas,the resortindustry may notbenefit asstrongly from theforecast inboundvisitor growth
Long-term forecasts for domestic visitor nights by purpose of travel provided by the
Tourism Forecasting Council (TFC) in May 2003 are as follows:
• Compound annual growth rate of 0.4% is forecast for the domestic holiday
segment from 2002 to 2012, representing an increase of 5.1 million visitor nights
over the forecast term;
• Business visitor nights are expected to grow at a faster pace than any other
domestic segment, increasing by a compound annual growth rate of 1.1%; and
• Visiting friends and relatives (VFR) market has a forecast growth rate at 0.5% per
annum over the period from 2002 to 2012.
The following graph presents the historical and forecast level of domestic visitor nights by
purpose of visit for the period from 1995 to 2012. Significant movement between 1997
and 1998 indicates a break in series, when ABS regions and sample inclusions were
adjusted.
The above graph illustrates that domestic tourism is forecast to grow at a very
conservative rate of approximately 0.5% per annum in the next decade. Accordingly, by
the year 2012, domestic visitor nights are expected to account for 68% of total visitor
nights in Australia. In 2001, domestic visitor nights represented 71% of total visitor nights.
The increasing share of international visitor nights as a component of total tourism visitor
nights will more than likely benefit hotels located in capital cities and iconic regional
destinations. With international visitors typically displaying low dispersal rates to regional
areas, the resort industry may not benefit as strongly from the forecast growth.
Additionally, there will be increasing competition in the resort industry to capture the
shrinking domestic component of visitor demand.
Domestic Visitor Nights by Purpose of Visit (millions)Year Ended December 1995 to 2012
Source: Tourism Forecasting Council, May 2003Note: Break in series in National Visitor Survey and Domestic Tourism Monitor data collection ini 1997 to 98. 2003 forward are forecasts.
0
30
60
90
120
150
201220112010200920082007200620052004200320022001200019991998199719961995
Business Holiday VFR Other
40 Resorting to Profitability - Making Tourist Resorts Work in Australia
The censusportrays an aging
populationincreasingly livingalone, a middle-aged populationdeciding not to
have children orforced by divorce
to bring upchildren aloneand a younger
populationincreasingly
choosing to livealone
Domestic visitor accommodation preferences
The most popular choice of accommodation for overnight visitors in the year ended
December 2002 was a friend’s or relative’s property, accounting for 41% of total visitor
nights. Accommodation in a hotel, resort, motel, motor inn was the next most popular
choice, representing 23% of total visitor nights. Self-catering accommodation and caravan
parks remain popular types of accommodation for domestic travelers and together
accounted for 20% of total visitor nights.
The following table illustrates the share of domestic visitor nights in selected types of
accommodation by purpose of visit:
Share of Domestic Visitor Nights in Selected Types of Accommodation by Purpose of VisitYear Ended December 1999 and 2001
1999 2001
Holiday VFR Business Total Holiday VFR Business Total /Leisure /Leisure
Hotel, resort, motel, 26% 7% 54% 24% 26% 7% 56% 24%motor inn
Self catering cottage 14% 2% 7% 9% 16% 2% 7% 10%or apartment
Friend’s or relative’s 21% 87% 18% 41% 21% 85% 15% 40% property
Caravan park, 19% 2% 3% 11% 17% 2% 4% 10% commercial camping group
*VFR = Visiting friends and relativesSource: BTR Travel by Australians 1999 and 2001
The above table indicates that:
• Business travellers have the greatest propensity to utilise hotel accommodation,
representing 56% of total business visitor nights in 2001. This is a positive trend for
city hotels but likely of lesser consequence for the resort sector.
• Leisure travellers displayed much lower usage of hotel and resort accommodation,
which accounted for 26% of total holiday visitor nights in 1999 and 2001. Staying
in a friend’s or relative’s property, caravan park or self-catering accommodation are
popular accommodation choices for holiday travellers, presenting a high degree of
competition for the hotel and resort sector.
• The VFR segment has the lowest propensity to utilise hotel and resort
accommodation.
Demographic trends
2001 Census data published by the ABS in 2002 revealed a number of important
demographic changes in the Australian population. The census portrays an aging
population increasingly living alone, a middle-aged population deciding not to have
children or forced by divorce to bring up children alone and a younger population
increasingly choosing to live alone.
41Resorting to Profitability - Making Tourist Resorts Work in Australia
The latest census statistics that are of most relevance to this study are summarised
below.
Changing family structure
There have been substantial changes in the family structure in the past 30 years. While
the proportion of couples with children and couples without children has remained
relatively stable over time, the proportion of lone parent families and lone person
households has increased over time. Divorce and the ageing of the population are two
factors that are thought to be contributing to this trend.
• Australia is no longer a country of “mums, dads and kids”. Couples with children
now represent 47% of households, down from 50% in 1996.
• Lone parent families represented 15.4% of all families in 2001, increasing from
5.7% in 1971.
• The proportion of couple families without children has increased to 35.7%, up from
34.1% in 1996. This can be attributed partly to the ageing population, with the
older “baby boomers” becoming empty nesters as their children leave home and to
the trend towards remaining childless or having children later in life among the
younger age group.
• Australians are delaying marriage, with 75% of 20 to 29 year olds describing
themselves as “never married”, compared to 35% in 1971.
Living alone
• The number of people living alone is growing and is an important indicator of social
change in Australia.
• The proportion of lone dwellings has increased to 23%, compared to 22% in 1996
and 18.1% in 1971.
• Older people are more likely to be living alone, however, more younger people are
likely to be living alone than in the past.
Greater education
The number of Australians with a higher education (bachelor degree or above) has
increased to 17%, up from 9% in 1991.
Losing the faith
The proportion of people who described themselves as having no religion increased to
25% in 2001, compared to 11% in 1961. The number of “non-believers” is another
indicator of social change in Australia.
42 Resorting to Profitability - Making Tourist Resorts Work in Australia
Getting older
The Australian population is getting older, with the median age of the total population in
2001 recorded as 34, compared to 32 in 1991. This can be attributed to longer life
expectancy and lower fertility rate.
The following graph provides an overview of the size of the Australian population by age
category in 2002 and the expected changes in the next 18 years to 2020.
The above table indicates that:
• The younger population is expected to get smaller by 2020, with all age groups
from 0 to 19 forecast to decrease.
• The 20 to 44 age group is expected to display conservative growth in the next 18
years to 2020.
• Strong growth is anticipated in the 45 to 59 age groups.
• The most significant growth is expected to occur in the 60 to 74 age groups, albeit
from a smaller base.
Implications of demographic changes for resorts
Based on the above analysis, the implications of the demographic and social changes
that are taking place in the Australian population for resorts are set out below.
Projected Population Growth - Australia2002 to 2020
Population
2002
2020
Age
Cate
gorie
s
0 200000 400000 600000 800000 1000000 1200000 1400000 1600000 1800000
85+
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
24-29
20-24
15-19
10-14
5-9
0-4
Source: ABS Population Projections 3222.0 1999-2101
43Resorting to Profitability - Making Tourist Resorts Work in Australia
The rise in thenumber ofyounger andolder peopleliving alone maycreateopportunities forresorts to act asa platform forsocial interaction,offering specialinterest, retreatstyle experiencesappealing toparticular groups
• While dual parent families with children are no longer a majority, they continue to
account for a significant proportion of the population. Demand for family holidays is
likely to continue and thus will be an important consideration for resorts. The
provision of facilities and experiences that allow families to spend time together in
a fun and meaningful way is likely to be of increasing importance.
• The rise in lone parent families may be an opportunity for resorts, as spending time
with children is likely to be an important consideration for single parents. Additional
research on the needs and spending capacity of this segment could be beneficial
to resorts, allowing for the tailoring of services and marketing initiatives.
• The growth in couples with no children is a positive factor for resorts, particularly in
the “Double Income No Kids” (DINKS) category. DINKS tend to have stronger
spending capacity and are likely to seek indulgence, retreat or nature based
activity style resort experiences.
• The rise in the number of younger and older people living alone may create
opportunities for resorts to act as a platform for social interaction, offering special
interest, retreat style experiences appealing to particular groups.
• An increase in the number of Australians with a university education is resulting in
more educated consumers with well-defined expectations of what they seek from
a holiday experience. Better-educated consumers are likely to require a high level
of services and activities that create opportunities to experience, learn and grow.
• The shift in religious beliefs may be considered an indication of a less conformist
society, where people are happy to “make their own rules” and feel capable of
organising their own life. At the same time, there has been a growing interest in
alternative philosophies, for example Buddhism, which incorporates “lifestyle”
elements such as yoga, meditation and nutrition. These changes create a range of
opportunities for resorts, including:
- Re-positioning resorts as a place where people can relax and have fun rather
than conform to a rigid experience;
- Providing flexibility so that guests can “do as little or as much as they want”;
and
- Creating lifestyle experiences where people can re-connect with “the basics”,
re-energise the “body and mind” and gain a greater sense of well being
through retreat style facilities and activities.
44 Resorting to Profitability - Making Tourist Resorts Work in Australia
Strong growthanticipated in the
45 to 59 agegroup is a
positive factor forresorts,
especially if thissegment were tocomprise a large
proportion ofDINKS, with
relative strongspending
capacity andinterest in travel.
• Growth in the 20 to 44 age group is a positive factor for resorts; however, the
expected small growth may not suffice to create incremental demand growth as
the rise in the propensity to holiday overseas is likely to continue. The conservative
growth in this segment signals the need for destinations and resorts in Australia to
remain competitive with their overseas counterparts through product and marketing
initiatives. It also highlights the importance of attracting international guests to
resorts as a means to drive future demand growth.
• The strong growth anticipated in the 45 to 59 age group is a more positive factor
for resorts, especially if this segment were to comprise a large proportion of
DINKS, with relative strong spending capacity and interest in travel.
• The significant growth forecast in the 60 plus age group is both an opportunity and
a threat for resorts. While the older “Grey Nomads” have typically retired, are “time
rich” and have a strong propensity to travel, their spending capacity can be limited
by lack of income. Accordingly, resorts wishing to cater to this growing segment
will need to re-evaluate their positioning and service delivery strategies to appeal to
older Australians.
Psychographic trends
In addition to the National Visitor Survey, we have also examined the accommodation and
activity pattern preferences of domestic travellers using data obtained from Roy Morgan
Research.
Roy Morgan data has been gathered through the Holiday Tracking Survey (HTS), an
ongoing measure of holiday and leisure travel. The HTS provides comprehensive and
detailed information on travel preferences, intentions and behaviour, holiday types and
attitudes towards holidays and travel for the Australian population.
Life SatisfactionIndividualismQuality Expectations
Price ExpectationsInnovationProgressiveness
Roy MorganValue SegmentsDeveloped with Colin Benjamin. The Horizons Network
VisibleAchievement
SomethingBetter
Look at me
FairerDeal
BasicNeeds
RealConservatism
TraditionalFamily Life
ConventionalFamily
YoungOptimism
SociallyAware
45Resorting to Profitability - Making Tourist Resorts Work in Australia
Roy Morgan Value Segments
Roy Morgan Value Segment data is widely used by Australian State and Territory Tourism
Organisations as a guide in developing marketing strategies. It provides an insight into
consumer purchasing decisions and activities. The Roy Morgan segmentation divides
Australia’s population into ten separate categories based on their patterns of thinking,
demographic characteristics and travel behaviour. A detailed description of the ten
segments is attached at Appendix 3. Our analysis indicates that the most significant value
segments for resorts are:
• “Socially Aware”;
• “Visible Achievement”; and to a lesser extent
• “Traditional Family Life”.
Together these three segments account for approximately 50% of the domestic
population. The Socially Aware and Visible Achiever segments account for approximately
30% of the population.
The segments demonstrate:
• The most frequent rate of holiday travel;
• A higher propensity to utilise luxury 5 and 4-star hotel and resort accommodation;
• Strong holiday spending capacity; and
• Interest in undertaking activities.
The following table provides a summary of the three Value Segments:
46 Resorting to Profitability - Making Tourist Resorts Work in Australia
Roy Morgan Value SegmentsYear Ended December 2001
Value Segment Approx. Pattern of thinking Travel Behaviour% of /demographic characteristicspopulation
• Personifies middle-aging Australian homeowners with arelatively stable income. §Reflects a household wheredependents have moved out to start their own familiesand lifestyles.
• Energies revolve around them becoming grandparents orgetting children home for visits or at least to keep intouch.
• Health and spirituality dominate sense of meaning andpurpose in life and being well-respected in thecommunity is very important.
• This pattern of thinking is associated with the proof ofhaving made it up the seemingly never ending socialladder, demonstrated by the swimming pool, the Jaguaror Mercedes and an exclusive private school educationfor their children.
• Personal recognition, higher incomes, job satisfaction andother tangible
• rewards of success such as travel, recreation and highquality homes, vehicles, holiday locations provide the verybest of visible good living.
• This pattern of thinking is usually associated with thehighest socio-economic group in the community.
• Most often associated with public servants, pressuregroups and politicians of all political persuasion.
• Addicted to finding out, or trying, anything that's new ordifferent. Don't make decisions lightly, argue the factsand figures - but end up buying the latest, and thebrightest, anyway - just because they have to have it.
• Keen holiday tourers, which is reflected in the high use of caravans andcampervans.
• A planned itinerary is a priority, hence the greater use of package tours andbookings through tour operators.
• Tend to stay in comfortable but good value accommodation, such asstandard hotels and motels - they don't want any surprises.
• Sightseeing is an important aspect of their holiday experience, with agreater tendency to visit museums, art galleries, historical places, andwineries.
•Visiting friends or relatives is also an important aspect of the TFL's holidayexperience.
• Travel frequently.
• Spend a lot on holiday.
• As with other purchases, they look for quality and value for money in theirholidays.
• For those with family, the holiday is a chance to spend time together doingactivities with the children.
• Enjoy holidays that provide the opportunity to play golf and tennis. Generallystays in luxury hotels, serviced apartments, and bed and breakfastaccommodation.
• Show the highest frequency of travel amongst the Values Segments.
• Spend a lot on holidays.
• Frequency of overseas travel is higher than that among other segments.
• Travel to destinations such as Tasmania and the Northern Territory that offerthe opportunity to explore and have new and different experiences.
• Enjoy planning the holiday and value flexibility, hence they book transport,accommodation and other services directly with the service provider.
• Enjoy boutique accommodation such as bed and breakfasts and luxuryhotels.
• Like to experience cultural activities, such as musical and theatreperformances, and enjoy restaurants, arts festivals, wineries galleries andmuseums, outdoor and nature activities on holiday.
Traditional Family Life
Visible Achievement
Socially Aware
20
18
13
Source: Roy Morgan Holiday Tracking Survey
47Resorting to Profitability - Making Tourist Resorts Work in Australia
Who are the Resort users?
Using Roy Morgan data, we have undertaken an analysis of the use of 4 and 5-star hotel
and resort accommodation by each value segment. Our analysis indicates that the
Socially Aware and Visible Achievers are the top users of 5 and 4-star hotels, resorts and
serviced apartments. The results of our analysis are presented below:
• “Traditional Family Life” and “Young Optimists” are the next most significant users of
5-star resorts, followed by “Look at Me” and “Conventional Family Life” segments.
• Luxury 5-star resort and hotel users had a slightly higher weighting towards female
visitors.
• 14 to 34 year old “single” travellers showed a relatively strong preference for luxury
5-star resort and hotel accommodation. This supports broad demographic shifts in
the greater population, whereby more people in this age category are opting to
remain single.
Luxury 5-star hotel and resort demand by value segment
Source: Roy Morgan Research
Basic Needs A Fairer Deal
Traditional Family Life
Conventional Family life
Look at Me
Something Better
Real ConservatismYoung Optimism
Visible Achievement
Socially Aware
4-star hotel and resort demand by value segment
Source: Roy Morgan Research
Basic Needs A Fairer Deal
Traditional Family Life
Conventional Family life
Look at Me
Something BetterReal Conservatism
Young Optimism
Visible Achievement
Socially Aware
48 Resorting to Profitability - Making Tourist Resorts Work in Australia
The similaritiesbetween
users of 4-staraccommodationand luxury 5-staraccommodationdemonstrates ahigh degree of
competitionbetween theseforms of hotel
and resortaccommodation
• Traditional Family Life has a stronger propensity to utilise 4-star hotel and resort
accommodation, likely reflecting their propensity to seek value for money
accommodation.
• The similarities between users of 4-star accommodation and luxury 5-star
accommodation demonstrates a high degree of competition between these forms
of hotel and resort accommodation.
• Relative to 5-star and 4-star hotel and resort demand, serviced apartment
accommodation reflects the highest level of demand from Socially Aware and
Visible Achiever segments, accounting for 48% of total serviced apartment
demand.
• As with 4 and 5-star hotel and resort accommodation, Traditional Family Life
represents the third most significant source of serviced apartment demand.
Our analysis suggests that the characteristics of serviced apartment, 5-star, 4-star and
standard hotel and resort users are similar in terms of demographic and psychographic
profiling. Shared traits for users of luxury 5-star resort or hotel, 4-star resort or hotel,
serviced apartment and standard hotel,motel or resort were:
• Married, 35 years and older with children or married, 35 and older with no children.
• Most likely to be aged 35 to 49 or 50 to 64.
• Equally likely to be male or female.
• Likely to be ranked in the top 20% of the nation in terms of income, education and
profession, termed the “AB Quintile”.
Rented Serviced Apartment demand by value segment
Source: Roy Morgan Research
Basic Needs A Fairer Deal
Traditional Family Life
Conventional Family life
Look at Me
Something Better
Real ConservatismYoung Optimism
Visible Achievement
Socially Aware
49Resorting to Profitability - Making Tourist Resorts Work in Australia
There areopportunities forresorts to providepampering orrejuvenationopportunities forshort breakvacations andsimultaneouslyprovideopportunities foroutdoor pursuitsfor longervacations
• Most likely to be in the Socially Aware, Visible Achiever or Traditional Family Life
value segments.
This indicates that the respective forms of accommodation are likely in strong competition
for the same demand base.
Activities undertaken
In addition to accommodation preferences, the Roy Morgan data also surveys the activity
preferences of holiday makers. Our analysis of Roy Morgan profiles indicates the
increasing significance of activities for domestic vacation takers. Results show that both
the Visible Achievers and Socially Aware segments demonstrate increasing demand for
experiential style holidays and seek a range of physical and cultural activities, including:
• Restaurants and international food and wine;
• Golf and tennis;
• Wineries and vineyards;
• Rest and relaxation;
• Social and other activities;
• Special interest activities; and
• Total outdoor activities.
Given the high propensity of these segments to utilise resort accommodation, the ability to
either provide or facilitate the above experiences is an important consideration for resorts.
Analysis of the profiles of the most important domestic segments supports the opportunity
for resorts to:
• Take advantage of the short-term deterrents to overseas travel, particularly
following the SARS outbreak and international political conflicts, to capture the
overseas travel leakage.
• Cater for a range of lifecycle stages, including the needs of families with children
and increasingly, the growing single population.
• Provide pampering or rejuvenation opportunities for short break vacations and
simultaneously provide opportunities for outdoor pursuits for longer vacations.
• Provide high quality, stylish and personalised facilities for the Socially Aware
segment.
50 Resorting to Profitability - Making Tourist Resorts Work in Australia
Peak travelperiods in
Australia arestrongly
correlated withthe occurrence
of school andpublic holidays
• Provide value for money accommodation for the “Traditional Family Life” segment,
which is likely to increase in size as the population ages.
• Cater to guests who are likely to be well educated and as such interested in
interpretation experiences, seeking to understand the context of their travel.
• Facilitate recreation opportunities in wilderness or areas of the natural environment.
• Integrate food and beverage facilities into their product offering.
Seasonality
According to data analysed from the 2001 National Visitor Survey, the most popular month
for travel by Australians domestically during 2001 was January, with 10.8% of total visitors
undertaking travel in this month. The next most popular months for travel were April,
October and July.
Peak travel periods in Australia are strongly correlated with the occurrence of school and
public holidays. Analysis of 2002 school holiday schedules for New South Wales, Victoria
and Queensland indicates that at least two states are having holidays at the same time for
ten weeks of the school year. All three states are on school holidays at the same time for
seven weeks of the school year. The table below summarises the 2002/03 school holiday
schedule.
NSW, VIC, QLD School Holiday Schedules
2002/03
NSW VIC QLD
Easter holidays 15 April 8 April 1 April 14 April 1 April 7 April
Winter holidays 8 July 21 July 1 July 14 July 24 June 7 July
Spring holidays 30 September 13 October 23 September 6 October 23 September 6 October
Summer 23 December 26 January 23 December 26 January 16 December 26 January holidays
Source: Ernst & Young ResearchNote: Dates represent the first and last days of the school break.
The seasonality of demand is a key constraint for resort properties, which are heavily
reliant on domestic holiday travel. Reducing the overlap in school holiday periods among
the States may have the potential to extend the peak holiday period for resorts and
reduce seasonality of demand.
Top 20 domestic visitor destinations
During 2001, capital cities dominated the list of most visited tourism regions. Sydney,
Melbourne and Brisbane ranked 1, 2 and 3 respectively for the number of overnight
domestic visitors. Among regional destinations, the Gold Coast, the Hunter Region, the
South and North Coasts of NSW and the Sunshine Coast were among the most popular.
The following table presents a ranking of the top 20 domestic visitor destinations:
51Resorting to Profitability - Making Tourist Resorts Work in Australia
Overnight Visitors: Top 20 Tourism Regions VisitedYear Ended December 2000 and 2001
2000 2001
Tourism Region Rank ‘000 Percent Rank ‘000 Percent
Sydney, NSW 1 8,293 11 1 8,355 11
Melbourne, VIC 2 6,233 8 2 6,416 9
Brisbane, QLD 3 4,410 6 3 4,514 6
Gold Coast, QLD 4 3,341 5 4 3,542 5
Hunter, NSW 5 2,697 4 5 2,835 4
South Coast, NSW 10 2,342 3 6 2,657 4
Perth, WA 9 2,415 3 7 2,503 3
North Coast, NSW 6 2,695 4 8 2,494 3
Adelaide, SA 7 2,563 3 9 2,286 3
Sunshine Coast, QLD 8 2,467 3 10 2,242 3
Canberra, ACT 11 2,128 3 11 2,107 3
Explorer Country, NSW 12 1,922 3 12 1,919 3
Northern Rivers, NSW 13 1,800 2 13 1,843 2
Western, VIC 14 1,768 2 14 1,694 2
Big Sky Country, NSW 16 1,431 2 15 1,565 2
South West, WA 15 1,528 2 16 1,457 2
Central Coast, NSW 18 1,370 2 17 1,395 2
Peninsula, VIC 19 1,121 2 18 1,347 2
Tropical North Queensland, QLD 17 1,430 2 19 1,325 2
Darling Downs, QLD 20 1,118 2 20 1,221 2
Total (top 20 destinations) 52,177 71 53,717 72TOTAL 73,771 100 74,585 100
Source: BTR, National Visitor Survey 2001Note:The regions are ranked according to the number of visitors in 2001.
The popularity of urban destinations among domestic travellers creates additional
competitive pressures for resorts and resort destinations. The recent investment in tourist
and accommodation infrastructure in the capital cities is likely to contribute to their future
appeal as leisure destinations. The “Keeping the Bush in the Game” study recently
undertaken by TTF Australia states, “in recent years the capital cities have seen substantial
increases in both cultural and sporting infrastructure. This infrastructure has made the
capital cities a more desirable location and it is common for capital city residents to have
an overnight stay in the same city”.
International tourism
Australia experienced double-digit growth in international visitor arrivals during the 1980s,
with Japan being the primary new source of visitor arrivals. The growth in international
visitor arrivals slowed in the 1990s, particularly in the second half of the decade. The most
significant trends in the level and composition of international arrivals to Australia are:
• The 1997 Asian Crisis resulted in a fall in visitation levels from key Asian source
markets of Japan, South Korea and Other Asia. Visitor numbers have however
been more than restored to pre-Asian crisis levels.
• The strong depreciation of the Australian dollar (as well as targeted marketing
initiatives) following the Asian crisis resulted in an increase in visitation levels from
Europe and the United States.
52 Resorting to Profitability - Making Tourist Resorts Work in Australia
• A record 4.9 million international visitors came to Australia in 2000, coinciding with
the staging of the Olympic Games in Sydney.
• International visitor levels have been below expectations since 2001, dampened by
global economic uncertainty and a disruption to travel patterns following the
terrorist attacks in the United States on 11 September 2001, Bali bombings, the
2003 War in Iraq and the SARS outbreak.
• International visitor arrivals are expected to grow at 4.6% per annum in the next
decade (TFC May 2003).
• The fastest growing source markets are expected to be China (12.6%), South
Korea (8%), Other Asia (5.4%) and Other Europe (5.1%).
• Arrivals from the United Kingdom and North America are expected to display more
moderate growth rates of approximately 4% per annum.
The following graph presents a summary of historical and forecast international visitor
nights by source market to Australia:
International Visitor Nights by Source Market (millions)Year Ended December 1993 to 2012
Mill
ions
Source: Tourism Forecasting Council, December 2002Note: Other Asia includes all Asian countries except Japan, China, South Korea and Singapore. Other Europe includes all of Europe.Note: 2002 forwards are forecasts.
0
5
10
15
20
25
30
North AmericaOther EuropeUnited KingdomOther Asia
South KoreaSingaporeChinaJapanNew Zealand
20122011201020092008200720062005200420032002200120001999199819971996199519941993
53Resorting to Profitability - Making Tourist Resorts Work in Australia
Resortaccommodationaccounted foronly 1.2% of totalinternationalvisitor nights, ofwhich 87% wereholiday visitornights
The fastest growing inbound markets predicted by the TFC for the next decade are from
non-Japan Asia, such as China and South Korea. Tourists from these markets have
shown lower dispersal rates to date (ATC). For example, Chinese visitors spent 93% of
their nights in Australia’s capital cities, the Gold Coast and Tropical North Queensland in
1999 and this trend is expected to continue in the short to medium-term.
In contrast, the more mature markets of United Kingdom and North America, which have a
high participation rate in regional activities and a greater propensity to utilise hotel and
resort accommodation, are expected to grow at more moderate levels of approximately
4% per annum for the next decade.
With inbound visitor nights from non-Japan Asia forecast to increase from 19.7 million in
2002 to 42.3 million in 2012, the threat to growth in regional dispersion rates and thus
regional resort demand could be significant until the market matures.
Purpose of visit
Data from the International Visitor Survey (IVS) for the year ended September 2002 shows
that the main reason for traveling to Australia was for the purpose of a holiday (54%),
followed by visiting friends and relatives (20%) and for business (15%). Visitors on holiday
spent an average of 20 nights in the country while those travelling with the primary
purpose of visiting friends and relatives spent 25 nights in Australia. The dominance of the
holiday/leisure traveler is important for the broader accommodation industry, as these
visitors generally require commercial accommodation as opposed to staying at the home
of a friend or relative. Furthermore, the holiday market has the greatest propensity to stay
in resort accommodation during their stay.
The TFC predicts that international visitor arrivals for the purpose of business will grow
most strongly in the next decade at a compound annual rate of 9.0%. Holiday arrivals are
forecast to grow at 7.9% per annum during the period from 2002 to 2012 while inbound
arrivals for the purpose of VFR travel are predicted to show growth rates of 5.8% annually.
While VFR arrivals are not forecast to grow as strongly as business and holiday arrivals,
regional dispersal rates are a lot higher for VFR travellers. This is a potential benefit for
regional tourism operators but not necessarily accommodation providers.
International visitor accommodation preferences
Our research indicates that resort accommodation accounted for only 1.2% of total visitor
nights, of which 87% were by holiday visitor nights. The relatively low usage of resort
accommodation by international visitors is a negative factor for the resort sector.
The following graph illustrates the share of international visitor nights in selected types of
accommodation by purpose of visit:
54 Resorting to Profitability - Making Tourist Resorts Work in Australia
Dispersal ratesfor different
markets may beconsidered an
indicator ofdemand for
regionaldestinations and
resort styleaccommodation
Of the total international visitor nights spent in Australia during the year ended June 2000,
accommodation in the home of a friend or relative was the most popular (33%), followed
by rented house or flat (24%) and hotel (14%) regardless of the purpose of visit. The
popularity of alternative forms of accommodation by international visitors points to a
competitive trading environment for resorts.
Data available on accommodation used by international visitors between 1996 and 1999
shows Japan to be the highest user of resort accommodation in Australia, followed by the
United Kingdom, United States, Other Europe and New Zealand. This correlates strongly
to arrivals weightings for the same period, with the top five arrivals markets being Japan,
New Zealand, the United Kingdom, Other Europe and United States.
The expected moderate growth in international holiday nights in the top resort source
markets over the long term should translate to growth in resort demand. Despite the
recent strong growth rates recorded for numerous Asian inbound markets, their propensity
to utilise resort accommodation has been low. The challenge for resort operators will be to
tailor and distribute their product to new and emerging markets to capitalise on potential
inbound Asian demand from Korean and Chinese visitors.
Activities undertaken by international visitors
Leisure activity preferences are an important factor in influencing visitors’ choice of
destination and accommodation. The level of interest for sporting, cultural and nature-
based activities is strongly correlated to visitor dispersion rates, which refers to the
percentage of nights spent outside of the top eight tourist regions (Sydney, Melbourne,
Brisbane, Perth, Adelaide, Canberra, Gold Coast and Tropical North Queensland). The
dispersal rates for different markets may be considered an indicator of demand for
regional destinations and resort style accommodation.
Share of International Visitor Nights in Selected Types of Accommodation by Purpose or VisitYear Ended June 2000
Holiday VFR Business
Perc
ent
*VFR = visiting friends and relativesSource: BTR International Visitors in Australia June 2000
0
20
40
60
80
100
Caravan, cabin or tent
Home of a friend or relativeRented house or flat
Backpacker/youth hostel
Resort
Motel
Hotel
55Resorting to Profitability - Making Tourist Resorts Work in Australia
The provision ofa range ofactivities is animportantconsideration forresorts seekingto attract marketswith a highpropensity toengage in naturebased, culturaland sportingactivities
A review of international visitor preferences indicates that the five most popular activities
during their visit to Australia were:
• Go shopping (for pleasure);
• Go to the beach;
• Visit friends/relatives;
• Visit National Parks; and
• Visit Botanical or other public gardens.
While the data indicates strong interest in nature based activities, such as visiting national
parks and beaches, these activities can be accommodated in Australia’s capital cities and
do not necessarily translate into regional visitation.
The source markets with the highest propensity to engage in nature based, cultural and
sporting activities are the United Kingdom, Europe, Japan and New Zealand, with the
United States displaying moderate activity levels. This is a positive factor for the resort
sector, in that these markets account for a significant proportion of international visitor
nights to Australia and (with the exception of Japan) are forecast to grow at a moderate
level in the long term. The provision of a range of activities is an important consideration
for resorts seeking to attract these markets.
A significant proportion of inbound demand from Asian destinations such as Singapore,
China and Hong Kong, display low levels of interest in nature based, cultural and sporting
activities. These markets are likely to visit mainstream capital city destinations and utilise
conventional hotel accommodation. Although, as these markets mature, the level of
interest in a wider range of activities and destinations is likely to increase.
Sydney, Melbourne and the Gold Coast held the top three places as the most popular
Australian destinations for international travellers (1999). The list is dominated by capital
cities, however, Tropical North Queensland, Petermann (Ayers Rock), the Sunshine Coast
and the Whitsunday Islands are regional areas that were among the most popular.
The following table presents a ranking of the top 20 international visitor destinations:
Overnight Visitors: Top 20 Tourism Regions VisitedYear Ended December 1998 and 1999
1998 1999
Tourism Region Rank ‘000 Percent Rank ‘000 Percent
Sydney, NSW 1 2148.4 56.2 1 2275.6 55.5
Melbourne, VIC 2 983.3 25.7 2 997.7 24.4
Gold Coast, QLD 3 855.9 22.4 3 875.8 21.4
Tropical North Queensland, QLD 4 704.2 18.4 4 755.8 18.4
56 Resorting to Profitability - Making Tourist Resorts Work in Australia
Overnight Visitors: Top 20 Tourism Regions VisitedYear Ended December 1998 and 1999
1998 1999
Tourism Region Rank ‘000 Percent Rank ‘000 Percent
Brisbane, QLD 5 631.8 16.5 5 704.4 17.2
Perth, WA 6 487.2 12.7 6 519.2 12.7
Adelaide, SA 7 279.8 7.3 7 296.8 7.2
Petermann, NT (Ayers Rock) 8 248.6 6.5 8 254.8 6.2
Alice Springs, NT 10 204.8 5.4 9 211.1 5.2
Sunshine Coast, QLD 11 180.2 4.7 10 199.6 4.9
Whitsunday Islands, QLD 12 176.3 4.6 11 197.7 4.8
Northern Rivers, NSW 13 167.2 4.4 12 182.6 4.5
Canberra, ACT 9 207.8 5.4 13 180.7 4.4
Darwin, NT 14 158.2 4.1 14 179.2 4.4
Hervey Bay/Maryborough, QLD 15 158.2 4.1 15 177.9 4.3
Northern, QLD 16 128.5 3.4 16 146.3 3.6
Fitzroy, QLD 17 110.2 2.9 17 121.2 3.0
Western, VIC 18 101.4 2.6 18 107.7 2.6
Kakadu, NT 20 83.7 2.2 19 98.9 2.4
Hunter, NSW 23 77.1 2.0 20 88.4 2.2
Total (top 20 destinations) 3825.4 100.0 4096.7 100.0
Source: BTR International Visitors in Australia 1999
Note:The regions are ranked according to the number of visitors in 1999.
Similar to domestic visitors, the popularity of capital city destinations among international
visitors creates additional pressures for the resort industry, typically located in regional
areas. However, the regional destinations such as Petermann with iconic attractions such
as Ayers Rock and Kakadu National Park do feature on the list. For NSW, the lack of
international drawcards, outside of Sydney, is evident with only two regional areas
featuring amongst the most popular destinations. Queensland dominated the list and this
is reflective of the demand for tourist icons such as beaches, the Great Barrier Reef, Wet
Tropics World Heritage Area and Fraser Island World Heritage Area.
Demand success factors
Based on our research, we have identified several success factors that have the potential
to improve resort performance from a demand perspective. These factors can be
summarised as follows:
• Location in a destination which has convenient access by air and road;
• Proximity to unique tourism demand generators such as the Great Barrier Reef,
Uluru, Kakadu National Park;
• Opportunities for genuine interaction with local culture and environment;
• Location in a destination or market with high barriers to entry, including
environmental restrictions, limiting further development;
• Differentiated product with unique features;
57Resorting to Profitability - Making Tourist Resorts Work in Australia
Older, luxuryresorts will needto re-vamp theirconservativeimage to apicture of “active,fun and exciting”;a place wherepeople “havefun” and “dothings”
• Appeal to multiple sources of demand, which may be created through integrated
leisure, conference, business and recreational facilities;
• Potential to create a “resort within a resort” in the form of a personalised product
offering with appeal to different target markets i.e. eco-tourists or special interest
tourists;
• Diverse range of facilities and activities such as spa facilities or 4WD tours, which
can be a lucrative source of revenue; and
• Utilisation of market intelligence to shape new product evolution.
Resorts of the future
Based on our analysis of existing demand constraints, success factors and anticipated
changes in tourism patterns, we have identified a range important considerations for
resorts in Australia. These factors are described below.
Fun and exciting or secluded retreat
Given the size of the Australian domestic holiday market, there will be a need for mid-
market resorts with “no-frills’ or self catering facilities servicing the family market. These
mid-market resorts will continue to face strong competition from the new generation of
serviced apartment resorts.
Older, luxury resorts will need to re-vamp their conservative image to a picture of “active,
fun and exciting”; a place where people “have fun” and “do things”, particularly if seeking
to appeal to the family market.
There will be a growing need for retreat style resorts given the significance of existing
demand from the 35 to 49 year old segment without children and the 14 to 34 year old
singles segments. Existing resorts with extensive grounds are likely to develop specialised
“product extensions” within the existing resort, creating the opportunity to attract new
market segments while capitalising on existing infrastructure.
Collecting memorable experiences
The demand for experiential tourism is likely to grow from domestic and international
markets and resorts of the future are likely to provide a range of activities, which create
learning and relaxation opportunities for guests seeking to experience something new or
different.
58 Resorting to Profitability - Making Tourist Resorts Work in Australia
Resorts willincreasingly
focus on theattributes
of the entire“destination” and
not just the resortproduct itself,
creating the needfor integrated
destinationplanning
Hip, cool, pristine and safe
The positioning of resorts is likely to reflect the following attributes of Australia, which will
continue to grow in prominence:
• Profile of Australia as a modern, “hip”, and “cool place to be”, enhanced by the
recent popularity of Australian movies and actors.
• Purity, diversity and unique qualities of the Australian environment.
• Perceived security of travel to and within Australia.
The bed is not that important
Resorts will increasingly focus on the attributes of the entire “destination” and not just the
resort product itself, creating the need for integrated destination planning. The regional or
destination profile will play an increasing role in the growing profile for particular resorts.
The importance of the destination may result in a scaling back in the level of facilities
provided directly by the resort and an increased focus on facilities within the destination or
existing features in the natural environment as a means of delivering a range of activities
demanded by consumers.
Service and value for money
All resort types will need to focus on providing services and value for money within the
resort or in the destination to increasingly sophisticated domestic and international
consumers.
Location, location, location
The locations with the most potential for future resort development in Australia are likely to
be:
• Accessible coastal and mainland regions, reflecting the holiday preferences and
travel patterns of the Australian market.
• In proximity to unique natural or cultural heritage attractions, which are a
“must see”, particularly for international travellers.
• In destinations with established visitation patterns, good transport access and
potential to collaborate with other tourism stakeholders or providers.
• On the fringe of wilderness areas, providing access to natural recreational
opportunities in a protected environment in a controlled manner.
59Resorting to Profitability - Making Tourist Resorts Work in Australia
Demand and the industry response
Based on our research on emerging demand challenges and opportunities for Australian
resorts, we have identified the following opportunities for Australia's resort and broader
tourism industry. These include:
• Improving the sophistication of yield management within resorts to maximise
revenue in peak demand and low season periods, for example through seasonal
pricing;
• Through State Tourism Organisations, identifying a way to reduce seasonality of
demand by extending domestic travel periods. This may involve lobbying for the
adjusting of school holiday periods;
• Resort owners and operators working more closely with destinations in their
presentation of the "total destination" to the consumer;
• Developing appropriate forms of accommodation that reflect the changing
demographic and lifestyle profiles of international and domestic travellers;
• Support and facilitate the development of stronger airline networks to resort
destinations;
- Review the level of aviation taxes and their impact on the competitiveness of
domestic and international airfares;
- Monitor and forecast the impact of airline capacity and pricing on resort
demand and performance; and
- Explore the possibility of providing incentives to airlines servicing resort
destinations;
• Undertaking cooperative marketing with airlines, particularly in off-peak seasons.
Demand and the Government response
Based on our research on emerging demand challenges and opportunities for Australian
resorts, we have identified the following opportunities for Government:
• In the 10-year Tourism Plan, highlight the importance of regional marketing as a
driving element of resort positioning;
• Encourage State and Territory tourism organisations to feature more "resort"
product in their marketing initiatives, both domestically and internationally;
• Continue to support the "See Australia" domestic marketing campaign, given the
highly competitive environment for resorts in Australia;
60 Resorting to Profitability - Making Tourist Resorts Work in Australia
• Encourage collaborative planning and marketing opportunities between resorts and
other sectors of the tourism industry on a destination basis.
• Create "resorts" as a niche market within the Australian Tourist Commission (ATC)
Market Segment program.
- Encourage ATC research programs to identify demand trends and opportunities
for resort markets and distribute such information to the resort industry.
- Enhance promotional effectiveness, through continued funding of the ATC in
those countries that provide Australia with high yielding, longer stay international
visitors that demonstrate a strong propensity for activities in regional
destinations.
• Encourage co-operation between resorts and National Parks in the provision of
tourist services and facilities in close proximity to National Parks and investigate the
opportunity to create "edge" or "gateway" resorts adjoining National Parks given the
growing interest in activities and nature-based tourism pursuits.
• Support education program development and training subsidies for resort
employees for advanced skills as well as basic skills. Especially given the
increasing interest in nature-based and cultural experiences, which require highly
skilled and knowledgeable staff.
• Better inform resort industry stakeholders on the framework surrounding eligibility
for the Export Market Development Grants (EMDG) scheme. This is the
Commonwealth Government's principal financial assistance program for
businesses seeking to develop export markets, assisting small and medium sized
resorts in developing export markets by partially reimbursing their expenditure on
export promotion.
61Resorting to Profitability - Making Tourist Resorts Work in Australia
Resorts inAustralia haveearned areputation forbeing “inherentlyunprofitable”
ResortoperationsperformanceThe profitability of resorts
Resorts in Australia have earned a reputation for being “inherently unprofitable”. In this
section of the study, we examine the fundamentals of how resorts operate and analyse
the operating and profitability results of resorts in Australia compared to standard central
city hotels. We discuss the operational challenges faced by various styles of resorts
operating in a uniquely Australian environment and identify a range of key success factors.
We conclude this section with a discussion of the role of Government in resort operations
and provide a set of recommendations aimed at enhancing the operational viability of
resorts in Australia.
The fundamentals of how resorts operate
Even standard hotels with a relatively simple product offering are service intensive, multi-
faceted operations comprising a wide range of facilities and services which operate 24
hours a day, 365 days a year. In addition to providing accommodation, resorts are often in
the business of creating a unique and memorable experience for a range of leisure
travellers with diverse needs, ranging from families to couples. The staging of an
experience requires careful planning, additional organisation and extra resources, which
add another layer of complexity.
The operating structure of a resort depends on the type and style of the resort and the
guests to which it is catering. Factors which drive the operation of a resort and its
profitability typically, include:
• The type of resort, with “Do It Yourself” resorts such as caravan parks typically
having less facilities and services and a simpler operating structure than a
conventional resort with a wide range of accommodation and recreational facilities.
62 Resorting to Profitability - Making Tourist Resorts Work in Australia
Given thecomplexity of
their operations,resorts are
perceived tounder-performrelative to city
hotels
• The style and positioning of the resort, with “No Frills” resorts having lower staff to
guest ratios compared to “experience” style resorts which require more and higher
skilled staff to deliver customised services and experiences. The degree of
specialisation is also an important factor impacting on the operations of a resort.
The more customised the experience, the higher the service requirement and the
narrower the target market for the product.
• The location of the resort, with resorts located in remote areas having to deal with
additional challenges relating to transportation, labour supply, infrastructure and
environmental issues.
Key resort profitability issues
Given the complexity of their operations, resorts are perceived to under-perform relative to
city hotels. A comparison of key performance indicators of market mix, rate, occupancy
and room yield achieved by resorts and hotels indicates that:
• Resorts rely heavily on leisure related demand, which is generally more price
sensitive than corporate travellers, which make up the majority of city hotel
demand;
• Resorts have historically achieved much lower occupancies than city based hotels;
• Resorts have historically achieved average rates in line with or slightly above those
recorded by city hotels;
• Resort room yields have historically been below those achieved by city hotels;
• The observations presented above are discussed in detail in the remainder of this
section.
Resort operating performance analysis
Source of business
The market mix of a resort is an important factor, which dictates the operating strategy of a
resort and impacts on profitability.
The table on the following page presents a comparison between the sources of business
for resorts and hotels.
63Resorting to Profitability - Making Tourist Resorts Work in Australia
Strong pricesensitivity ofdomestic leisuredemand, limitsthe ability ofresorts toachieve rategrowth
Market Mix - Resorts and Hotels2001
Market Segment Resort Market Mix % Hotel Market Mix %
Business Traveler 5.9 31.8
Leisure FIT 54.3 32.7
Tour Groups 15.7 14.2
Meeting Participants 17.9 6.7
Government 2.0 4.6
Airline Crew 0.3 4.7
Other 3.9 5.3
Total 100.0 100.0
Source: Horwarth Hotel Industry Survey of Operations 2002
Note: FIT = Free Independent Travellers
The above table indicates the greater dominance of the individual leisure traveller for the
resort market and less reliance on business demand, relative to hotels. Meeting
participants are also a significant source of demand for resorts as most businesses and
organisations look to hold retreat style conferences away from the usual place of
business.
The business composition outlined in the table above has the following characteristics
which impact on resort operations and profitability:
• High seasonality of domestic leisure demand, strongly favouring the summer and
school holiday periods, which diminishes the operational efficiency of a resort in
low demand periods; and
• Strong price sensitivity of domestic leisure demand, limiting the ability of resorts to
achieve rate growth.
Increasing seasonality of conference demand, with a growing preference of businesses to
hold meetings during the weekend rather than mid-week is resulting in displacement of
weekend demand and creating operating inefficiencies during the weekdays.
Occupancy and room rate performance
Occupancy, average rate and room yields (revenue per available room) are the key
indicators used to measure hotel performance. We have undertaken a comparative
analysis of hotel and resort performance benchmarks based on Andersen Hotel Industry
Benchmark Survey results for 2001.
The total sample comprised hotels, serviced apartments and hotels representing 4 and 5-
star branded quality supply in Australia. The resort sample included 49 properties,
accounting for 17% of total room nights in the sample. A detailed list of the resort
properties included in the sample is attached at Appendix 4.
64 Resorting to Profitability - Making Tourist Resorts Work in Australia
The significant underperformance
of resorts relativeto hotels in terms
of occupancywhich is offset by
a marginalpremium in room
rate is of particularconcern
Australian Resort Sample vs. Hotel SampleYear Ended December 2001
Accommodation Type Average Daily % Average Achieved Average Daily Room Occupancy Room Rate $ Rooms Yield $
Resorts 62.2 142.97 88.86
Hotels & Serviced Apts. 68.9 139.65 96.17
Total Resorts, Hotels & Serviced Apts. 67.7 140.17 94.92
Source: Andersen Hotel Industry Benchmark Survey 2002
The data in the table above indicates that:
• Resorts achieved weaker occupancies of approximately 62.2% in 2001,
significantly below the 68.9% achieved by the sample of hotels and serviced
apartments;
• Resorts achieved a slight room rate premium of approximately $3.32 compared to
the sample of hotels and serviced apartments;
• Resorts achieved room yields of $88.86, approximately $7.30 below room yields
achieved by the sample of hotels and serviced apartments.
The significant underperformance of resorts relative to hotels in terms of occupancy which
is offset by a marginal premium in room rate is of particular concern given the higher
capital investment and higher operating costs associated with resort development and
operations.
Seasonality of demand
In addition to analysing the annual performance of resorts, we have also reviewed
occupancy levels on a monthly basis to assess the seasonality of demand. As an
example, we have analysed a sample of 15, 4 and 5-star resorts located in New South
Wales and is based on the Andersen Hotel Industry Benchmark Survey results for 2000
and 2001. A detailed list of resorts included in the NSW resort sample is attached in
Appendix 4.
The results of our analysis are presented in the following graph:
65Resorting to Profitability - Making Tourist Resorts Work in Australia
The above graph indicates the following trends:
• The resort sample achieved an occupancy level in excess of 70% in one out of 12
months only (January); and
• February, April and October are relatively strong months, with the sample of resorts
achieving occupancies ranging from 68% to 69%.
• Despite rate discounting and promotional campaigns, the sample of resorts
achieved occupancy levels ranging from 54% to 67% during the remaining
months. This is indicative of the difficulty of stimulating demand in off-peak periods,
resulting in profits earned in peak season being “eaten up” during periods of low
demand.
Profitability analysis
Following our analysis of resort operating performance, we have also reviewed the
revenue and expense results of resorts compared to hotels using the Horwath Survey of
Hotel Operations. An explanation of the operating departments and undistributed
expenses is included in Appendix 5.
Resorts have historically achieved lower income before fixed costs (IBFC) levels compared
to both hotels and serviced apartments. The following table provides a summary of the
IBFC performance of resorts:
NSW Resort Sample Average Monthly OccupancyYear Ended December 2000 and 2001
Source: Andersen Hotel Industry Benchmark Survey 2000 and 2001Note: OCC=Occupancy
76.7% 68.8% 67.7% 62.0% 54.2% 58.2% 66.5% 58.3% 61.3% 68.3% 64.6% 61.4%
80.0% 69.6% 66.2% 68.9% 56.1% 57.2% 67.0% 56.0% 64.1% 69.4% 66.0% 67.4%
0
10
20
30
40
50
60
70
80
90
100
DecNovOctSepAugJulJunMayAprMarFebJan
2001 OCC
2001 OCC
Perc
ent
66 Resorting to Profitability - Making Tourist Resorts Work in Australia
The greaterspend on foodand beverage
can be primarilyattributed to the
captive nature ofa resort.
Income before fixed costs - Serviced Apartments, Hotels and Resorts
Accommodation type 1997 (%) 1998 (%) 1999 (%) 2000 (%) 2001 (%)
Serviced Apartments 38.1 41.8 39.6 NA NA
Hotels 28.8 25.1 27.3 28.0 27.3
Resorts 19.3 18.3 16.3 19.2 19.7
Source: Horwath Hotel Industry Survey of Operations 2002
As the table above indicates, resorts have consistently performed at the bottom of the
scale in terms of profitability.
We review the revenue and expense performance of resorts and discuss the profitability
constraints faced by resort properties in more detail in the remainder of this section.
Revenue analysis
Typical sources of revenue for resorts and hotels include room sales, food and beverage,
telecommunications (telephone calls made by guests) and revenue from other
departments, which may include tour activities, sports activities and spa/health club.
The revenue results for resorts and hotels are summarised in the table below:
Profit and Loss Ratio Analysis - Revenue Analysis2001
Resort Market Hotel Market
Department Revenues % %
Rooms 52 - 60 57 - 65
Food and Beverage 35 - 39 30 - 38
Telecommunications 1 1 - 3
Other Operated Departments 3 - 6 2 - 3
Rentals & Other Income (Net) 1 - 2 1 - 2
Total 100 100
Source:Horwath Hotel Industry Survey of Operations 2002
Rooms revenue
Rooms revenue accounts for a lesser proportion of total revenue for resort properties
(52% to 60%) compared to hotels (57% to 65%), indicating the greater revenue generating
potential of resort departments such as food and beverage outlets and other operated
departments.
Food and beverage revenue
Food and beverage revenue accounted for 35% to 39% of total revenue for resorts,
compared to 30% to 38% for hotels. The greater spend on food and beverage can be
primarily attributed to the captive nature of a resort.
67Resorting to Profitability - Making Tourist Resorts Work in Australia
Telecommunications revenue
Revenue from telecommunications accounted for 1% of total revenue for resorts,
compared to 1% to 3% for hotels. This reflects the lower usage of telephone and data
services by holiday resort guests relative to corporate hotel guests.
Other operated departments revenue
Resorts generated a much higher proportion of revenue from other operated departments,
representing 3% to 6% of total revenue compared to 1% to 3% for hotels. This is a result
of a captive guest market, particularly in remotely located resorts, as well as a growing
propensity of tourists to engage in recreational activities.
Rental and other income
Rental and other income accounted for approximately 1% of total revenue for resorts,
which is in line with the result achieved by hotels.
Expense analysis
The expense performance of resorts and hotels for each operating department is
summarised in the table below:
Profit and Loss Ratio Analysis - Expense Analysis2001
Resort Market Hotel Market
Department Expenses % %
Rooms 29 - 34 33 - 36
Food and Beverage 78 - 83 82 - 85
Telecommunications 89 - 96 60 - 81
Other Operated Departments 74 - 78 60 - 76
Total 47 - 55 51 - 53
Gross Operating Income 44 - 53 47 - 49
Source: Horwath Hotel Industry Survey of Operations 2002Note: Departmental expense ratios are based on their respective departmental revenues.
Rooms expense
Rooms expense in resorts accounted for approximately 29% to 34% of room revenue,
slightly below the levels recorded by hotels. This result is surprising, given the higher
costs of servicing rooms, particularly in low rise, villa style properties.
Food and beverage expense
Resorts achieved a food and beverage expense ratio of 78% to 83%, slightly below the
expense levels recorded by hotels. This result is indicative of the greater profitability of
resort food and beverage outlets stemming from a captive market. However, resort
operations incur higher food costs associated with transport expenses.
68 Resorting to Profitability - Making Tourist Resorts Work in Australia
Our analysisindicates thatresorts incursignificantly
higher payrollcosts than city
hotels in thecourse of
operations
Telecommunications expense
Resorts show lower telecommunications costs, which is a result of the lower volume of
calls by leisure guests compared to guests travelling on corporate or government related
business.
Other operated departments
Other operated department expenses are slightly higher for the resort sector, again
representative of the greater services and facilities usually provided.
Labour costs
Labour costs are typically one of the highest costs of operating a resort. Our analysis
indicates that resorts incur significantly higher payroll costs than city hotels in the course
of operations. The following table presents a summary of historical payroll costs for hotels
and resorts:
Payroll and Related Expenses - Hotels and Resorts
Accommodation type 1997 (%) 1998 (%) 1999 (%) 2000 (%) 2001 (%)
Hotels 34.3 NA 35.6 35.5 36.8
Resorts 38.3 NA 38.6 37.5 39.4
Source: Horwath Hotel Industry Survey of Operations 2002Note: Payroll and related expense ratios are based on total revenue.
Gross operating income
Resorts achieved a gross operating income of approximately 44% to 53%, which is in line
with the range achieved by hotels.
Undistributed operating expenses
The undistributed operating expenses for resorts and hotels are summarised in the table
below:
Profit and Loss Ratio Analysis - Undistributed Operating Expenses Analysis2001
Resort Market Hotel Market
Undistributed Operating Expenses % %
Administrative & General 7 - 11 8
Marketing 5 - 6 4 - 6
Utility Costs 3 2 - 3
Property Operation & Maintenance 5 - 8 4
TToottaall 2233 -- 2244 1188 -- 1199
IInnccoommee BBeeffoorree MMaannaaggeemmeenntt FFeeeess && FFiixxeedd CCoossttss 2200 -- 2299 2299
Management Fees (Base + Incentive) 2 2
IInnccoommee BBeeffoorree FFiixxeedd CCoossttss 1188 -- 2277 2277 -- 2288
Furniture, Fittings & Equipment Reserve* 6 4
Income After FFE & Before Fixed Costs 12 - 21 23 - 24
Income After FFE & Before Fixed Costs 12 - 21 23 - 24
Source: Horwath Hotel Industry Survey of Operations 2002Note: Undistributed operating expense ratios are based on total revenue.Note: * Ernst & Young Estimate.
69Resorting to Profitability - Making Tourist Resorts Work in Australia
The exposure ofresort buildingsand plantequipment toharsh outback orislandenvironmentsresults in highercapitalexpenditurelevels to maintainthe asset,requiring resortsto maintainhigher FF&Ereserves
Administrative & General, Marketing and Property Operation & Maintenance Expenses
Total Undistributed Operating Expenses (UOE) accounted for 23% to 24% of revenue in
resorts, compared to 18% to 19% achieved by hotels.
Factors which contribute to higher UOE include:
• Higher administrative and general expenses (7% to11% compared to 8%)
associated with:
- recruiting and retaining management staff in resort locations; and
- administrative costs such as operating licences and environmental permits.
• Higher marketing expenses (5% to 6% compared to 4% to 6%) due to extensive
marketing campaigns that are required to attract leisure business in both domestic
and international markets; and
• Increased property operations and maintenance (POM) costs (5% to 8% compared
to 4%) associated with operating and maintaining resort buildings, recreational
facilities, gardens and equipment.
Furniture, fittings and equipment (FF&E) costs
The exposure of resort buildings and plant equipment to harsh outback or island
environments results in higher capital expenditure levels to maintain the asset, requiring
resorts to maintain higher FF&E reserves of approximately 6% of total revenue compared
to 4% for hotels.
Income after FF&E and before Fixed Costs
The higher FF&E requirement for resort properties increases the performance gap
between resorts and hotels. Resorts achieved an Income after FF&E and before fixed
costs of 12% to 21% compared to 23% to 24% achieved by hotels.
Earning before Interest, Depreciation, Taxes and Amortisation (EBITDA)
The following table provides a summary of fixed expenses for resorts and hotels:
70 Resorting to Profitability - Making Tourist Resorts Work in Australia
Resorts are onlymarginally
profitable at theoperating level
EBITDA - Resorts and Hotels
Resort Market % Hotel Market %
Income After FF&E & Before Fixed Costs 12 - 21 23 - 24
Fixed Expenses
Property Taxes 0.3 - 1.0 0.3 - 1.0
Insurance 0.2 - 0.7 0.2 - 0.7
Other (i.e. Equipment or Ground Rent) 0.0 - 0.4 0.0 - 0.4
Total 1 - 2 1 - 2
EBITDA 10 - 19 21 - 22
Source: Ernst & Young ResearchNote: Fixed expense ratios are based on total revenue.
Property taxes and insurance
Fixed costs account for approximately 1 to 2% of revenue for both resorts and hotels.
EBITDA
The table above indicates that resorts achieved estimated earnings before interest, taxes,
depreciation and amortisation (EBITDA) of 10% to 19% in 2001, compared to a level of
21% to 22% recorded by hotels.
While the result is positive, the degree of profitability achieved by resorts is marginal in
that:
• Wide range in the result reflects the greater variability and risk associated with
resort operations.
• According to the 2000/01 ABS Accommodation Industry Survey, hotels recorded
interest, depreciation and amortisation expenses of approximately 12% of total
revenue. Accordingly, an EBITDA of 10% to 19% is at the lower end of the scale of
profitability benchmarks, and points to a narrow margin to cover interest and
depreciation costs.
Barriers to profitability
Our analysis indicates that resorts are only marginally profitable at the operating level. The
reduced level of profitability can be attributed to the following range of revenue constraints
and expense factors which act as barriers to profitability.
Revenue constraints
Despite a diversified source of income, the resort demand fundamentals in Australia
constrain the ability of resorts to maximise their revenue generating potential. These
fundamentals are discussed in detail in the previous section and include:
71Resorting to Profitability - Making Tourist Resorts Work in Australia
Labour costs areby far the highestexpense incurredby a resort
• Limited demand base, with resorts relying in most part on one to two target
markets;
• High seasonality of the domestic market;
• High price sensitivity of the domestic leisure market, limiting the ability of resorts to
drive room rates;
• The cost of airfares and transport, which must be factored into the resort holiday
for both domestic and international travellers;
• Competition from alternate destinations and products, including serviced apartment
style resorts and resorts in neighbouring Asian destinations;
• Long distance to and within Australia, resulting in lower dispersal rates to resort
destinations.
Operating cost factors
The location and complexity of resort operations results in greater operating costs. The
most significant costs of doing business for a resort in Australia are as follows:
Labour costs
Labour costs are by far the highest expense incurred by a resort. The ability to control
labour costs in a resort environment is severely limited as a result of:
• Greater number of staff required to provide requisite services and stage
specialised experiences for resort guests;
• Difficulty of retaining staff, particularly for resorts located in remote areas, resulting
in high staff and management turnover;
• Higher cost of recruitment and training associated with high turnover;
• Additional cost of staff housing for resorts located in remote areas;
• Difficulty of adjusting staffing levels to meet fluctuations in demand; and
• Relatively high cost and inflexibility of wage structures in Australia.
72 Resorting to Profitability - Making Tourist Resorts Work in Australia
The location ofresorts in
environmentallyand culturally
sensitive areasresult in a range
of additionaladministrative
and compliancecosts
Labour costs include FBT paid on staff accommodation except where the resort meets
the definition of remoteness (This means it is 100km or more from a town of 130,000
people and 40km or more from a town of 30,000 people, or employees are able to
submit a declaration stating that they are paying rent or own a home in their usual place of
residence). This tax treatment is in line with other sectors such as mining and farming
which are also conducted in remote areas.
“Resort employees are as transient as guests and managers frequently go troppo.”
Property operations and maintenance costs
The costs of operating and maintaining resort facilities is a significant expense, stemming
from:
• Inability of resorts to share in the infrastructure of metropolitan areas, such as
sewerage and power systems; and
• Expansive nature of resort grounds, facilities and high cost of operating equipment,
which must be maintained in frequently harsh environments.
“A broken sewerage pipe can wipe out a year’s profits.”
Utility costs
Utility costs form a major expenditure for resorts as a result of:
• Higher water and energy usage by guests;
• Higher energy costs (heating, air conditioning) in extreme environments;
• Higher energy and water costs associated with operating recreational facilities; and
• Higher energy costs associated with extensive built facilities and landscaped
grounds.
Administration costs
The location of resorts in environmentally and culturally sensitive areas result in a range of
additional administrative and compliance costs, including:
• Planning and environmental permits;
• Licences to operate facilities, activities, plant and equipment; and
• Costs associated with undertaking community and indigenous consultation.
73Resorting to Profitability - Making Tourist Resorts Work in Australia
Accessibleresorts haveweaker barriersto entry and facestrongcompetition fromresidentiallifestyledevelopmentsoffering a tourismcomponent
Marketing costs
Marketing expenditure is a significant cost of doing business for resorts as a result of:
• Extensive marketing campaigns that are required to attract leisure business in both
domestic and international markets;
• Heavy reliance on wholesale agents to package and distribute the product,
incurring substantial commission rates of between 25% and 30%; and
• Greater importance of marketing collateral.
The impact of location on resort profitability
In addition to the general barriers to profitability identified above, we have analysed the
performance issues of a resort operation in the context of its location. Our analysis is
focused on the four types of resorts under consideration in this study:
• Secluded mainland resorts;
• Secluded island resorts;
• Accessible coastal resorts; and
• Accessible mainland resorts.
In considering the operational issues that are unique to the above set of resorts, we have
identified a range of barriers to profitability arising from locational factors. The most
significant factors are:
• Secluded resorts face additional costs of developing infrastructure in remote areas
and need to manage the potential negative impact of tourism activity in
environmentally and culturally sensitive areas;
• Yield management is critical for secluded resorts given the distance to target
markets;
• Secluded resorts face additional risk associated with heavy reliance on transport
and natural attractions, which are integral to the guest experience;
• Accessible resorts have high costs of developing man made attractions in the
absence of natural features;
• Accessible resorts have weaker barriers to entry and face strong competition from
residential lifestyle developments offering a tourism component.
74 Resorting to Profitability - Making Tourist Resorts Work in Australia
The locational challenges as well as opportunities for each location type are detailed in the
following table:
Resort Location Challenges Opportunities
- Heavy reliance on infrastructure, which is costly todevelop and operate.
- Access by air and road is critical.
- Reliance on specific attractions to deliver desired guestexperience and the need to manage the associated risk(for example potential impact of global warming on snowconditions).
- Need to manage the potential impact of tourist activity onan environmentally sensitive location.
- Need to work with and manage the tourism impact ontraditional societies.
- Yield management is critical given the distance to targetmarkets and seasonality of demand.
In addition to above
- Access by boat or airplane only
- High cost of development in sensitive environment.-Limited size of market due to specialization for retreatstyle resorts
- High cost of providing personalised service and activitiessuch as fishing expeditions or spa treatments, requiringcareful organisation and knowledgeable staff.
- Additional cost of providing and managing staffaccommodation.
- Compliance with strict coastal development andmanagement policies
- Competition from serviced apartment and residential styledevelopments.
- Potential lack of differentiation due to lack of uniquenatural features.
- Potential lack of natural attractions
- Land-locked environment.-Need to create and operatecapital-intensive attractions such as golf courses or spas.
- Potential lack of differentiation.
- Increased revenue potential from captive guests
- Natural features offer strong point of differentiation.
- Strong barriers to entry given higher set up and operating costs.
- Natural and resort design features provide a point of difference.
- Potential to charge a premium for retreat style experience.
- High barriers to entry due to environmental restrictions and cost ofdevelopment.
- Potential to build operating efficiencies of scale in integrated resorts.
- Potential to reduce risk by through provision of a broader range of facilitiesappealing to several target market in integrated resort such as
dormitory style accommodation to 5-star.
- Opportunity to diversify investment through timeshare or strata titlestructures.
- Proximity to leisure and conference sources of demand, reducingseasonality
- Good access to labour supply.
- Potential to reduce investment risk by timeshare or strata title structures.
- Same as above.
Secluded mainland resort• Ayers Rock Resort
• Perisher Blue Resort
• Thredbo Village
• Mt Buller
• Mt Hotham
• Falls Creek
Secluded island resortIsland retreat resorts:
• Lizard Island
• Heron Island
Bedarra IslandIntegrated island resorts:
• Hayman Island
• Fraser Island
• Dunk Island
• Brampton Island
• Kingfisher Bay Resort
Accessible coastal resort• Couran Cove Resort
• Hyatt Regency Coolum
Accessible inland• Hyatt Sanctuary Cove
• Cypress Lakes Resort
• Sebel Heritage Yarra Valley
75Resorting to Profitability - Making Tourist Resorts Work in Australia
Resorts havehad to adapt to agrowing interestof travellers in“special interest”tourism
Implications of resort style on profitability
Resorts have had to adapt to a growing interest of travellers in “special interest” tourism.
While this demand has created opportunities for new and existing resort operators, it has
also generated a range of challenges. Our analysis is focused on the different styles of
resorts under consideration in this study, including:
• Golf and wine resorts;
• Eco-tourism resorts;
• Alpine resorts; and
• Safari resorts.
In considering the operational issues that are unique to the above set of resorts, we have
identified a range of barriers to profitability relating to the style of the resort. The most
significant factors are:
• Need for strong collaboration with protected area agencies and traditional
societies;
• High cost of development in environmentally sensitive areas;
• Need for highly skilled and knowledgeable staff to deliver nature-based or special
interest activities;
• Exposure to risk associated with changes in natural environment which is integral
to the guest experience; and
• High cost of infrastructure, especially for sport based resorts such as ski and golf
resorts.
76 Resorting to Profitability - Making Tourist Resorts Work in Australia
The challenges as well as opportunities for each resort style are detailed in the following
table:
Resort Style Challenges Opportunities
- Requires careful coordination and collaboration withtraditional societies or protected area agencies.
- High cost of development in environmentally sensitiveareas.
- Requires skilled and knowledgeable staff to deliver naturebased or educational activities.-Need to manage potentialnegative impact of guest activity in environmentallysensitive areas
- Need to manage potential negative impact on traditionalsocieties.
- In addition to above:
- Requires specially trained and experienced guides
- Need to provide specialised equipment for tours andactivities.
- Need to obtain licenses and permits.
- High cost of providing and managing staffaccommodation.
- High cost of infrastructure.
- Yield management ("keeping the beds hot") is criticalgiven the high seasonality of demand.
- Exposure to risk of global warming and the potentialnegative impact on snow conditions.
- Mature market in Australia with limited growth potential.
- Strong competition from other leisure/sport basedactivities.
- High cost of developingman-made attractions.
- Special interest activities require skilled staff.
- High cost of operating golf courses.
- Increased revenue potential from captive guests
- Does not require large scale or expensive facilities and infrastructure.
- Ability to charge a premium for tours and activities.
- Strong barriers to entry due to increasing environmental restrictions.
- Growing demand for nature based travel.
- Same as above.
- Advances in snow making technology reduce the risk of poor snowconditions.
- High barriers to entry as a result of high set up costs and stringentenvironmental protection regulations.
- Opportunities to create operating efficiencies of scale through verticalintegration of associated resort facilities and services.
- Good access to demand sources and labour pool.
- Need to provide premium quality accommodation and food and beveragefacilities.
- Opportunity to combine residential and resort accommodation.
Eco-resorts• O'Reilly's Rainforest Retreat
• Silky Oaks
• Heron Island
• Kingfisher Bay Resort
Safari resorts• Longitude 131 (Ayers Rock Resort)
Alpine resorts• Thredbo Village
• Mt Hotham
• Mt Buller
• Falls Creek
Golf and wine resorts• Cypress Lakes Resort
• Sebel Heritage Yarra Valley
Source: Ernst & Young Research
77Resorting to Profitability - Making Tourist Resorts Work in Australia
The low level ofresort profitabilityseen to date hasresulted in limitedinterest andinvestment in thesector, leading todeterioration ofresort stock andinfrastructure
Key success factors and opportunities
Based on our analysis, we have identified several operational success factors, which have
the potential to improve resort profitability. These factors can be summarised as follows:
• Strong relationships with environmental and cultural stakeholders such as
Aboriginal communities or national parks authorities;
• Strategic industry alliances with airline partners, hire car companies and tour
operators;
• Drect linkages to Global Distribution Systems, which cost effectively distribute
resort inventory nationally and globally;
• Ability to recruit, train and retain staff at both management and staff levels;
• Ability to implement flexible staffing arrangements; and
• Effective yield management to maximise revenue during peak and low seasons.
Role of industry in resort operations
Given the demand and operating cost constrains identified in our research, it is evident
that resorts in Australia operate in a tough environment. The low level of resort profitability
seen to date has resulted in limited interest and investment in the sector, leading to
deterioration of resort stock and infrastructure.
Increasing the level of profitability of resorts in Australia is not only critical to the sector's
future success but also the competitive position of Australia as a quality tourism
destination. Based on our research of barriers to resort profitability, we have identified the
following opportunities for resort owners and operators and other tourism stakeholders to
improve the performance of resorts in Australia:
• Greater understanding and use of yield management techniques to maximise
profitability during high and low periods of demand;
• Greater collaboration with local communities to develop effective human resource
recruitment and retention initiatives to reduce labour costs;
• Increased collaboration with regional tourism stakeholders and operators, taking an
"all for one" approach; and
• Greater focus on providing non-financial incentives to employees, such as
improved housing accommodation or opportunities for education, particularly in
remote resorts.
78 Resorting to Profitability - Making Tourist Resorts Work in Australia
Role of government in resort operations
Based on our analysis, we have identified the following opportunities for Government to
increase the operational viability of resorts in Australia:
Reduction of labour costs by:
• Relaxing the 3-month work permit restrictions on working holiday maker visa
holders willing to work in remote resorts;
• Expanding the working holiday program to other countries;
• Reducing the level of payroll taxes following the introduction of the GST;
• With respect to Fringe Benefits Tax on staff accommodation, maintain parity in the
treatment of the tourism industry with other industry sectors;
• Continuing to provide staff accommodation incentives and allowances.
• Continuing to support regional training schemes to improve the skill-base of resort
employees; and
• Increase remote area tax incentives for staff.
Reduction of uncertainty of cashflow from operations
• Provide access to income equalisation taxation adjustments (similar to those used
for farmers who have large income variations from year to year) given the sensitivity
of resort income to natural, economic and political shocks.
Reduction of property operations and maintenance costs by:
• Reducing the number of licenses and registrations required to operate plant and
equipment;
• Extending the diesel fuel rebate for remote resorts;
• Providing incentives (such as tax concessions, rebates or higher depreciation
rates) for use of environmentally friendly waste, water and energy management
technology; and
• Extending depreciation allowances to include "black hole expenses" such as resort
landscaping, site cleaning and golf course upkeep which form an integral part of
resort facilities and are subject to obsolescence without significant upkeep.
79Resorting to Profitability - Making Tourist Resorts Work in Australia
Reduction of resort administration costs by:
• Reducing the number of licenses required to operate resort facilities; and
• Extending the duration of licenses to reduce administrative costs and increase the
certainty of operational continuity.
80 Resorting to Profitability - Making Tourist Resorts Work in Australia
The resortdevelopment
process isperceived to be
unnecessarilycomplex, costlyand fraught with
uncertainty
Resortdevelopmentand investmentThe marginal profitability of resorts in Australia identified in the previous section of this
study has been a major impediment to new resort development. Furthermore, the resort
development process is perceived to be unnecessarily complex, costly and fraught with
uncertainty. The lack of profitability and development hurdles has resulted in historically
poor investment performance of resorts in Australia and a lack of investor confidence in
the resort sector.
In this section of the report, we review investor attitudes towards hotel/resort investment
and analyse historical hotel/resort returns in Australia. We then discuss the main
development and investment issues identified in the course of our research and review the
key success factors for resort development. We conclude with a review of the role of
Government in facilitating future resort development.
Key impediments to resort development
A 1998 study conducted by Arthur Andersen, for TTF Australia and Planning Australia,
titled “Developing Viable Tourist Accommodation in Regional Areas”, found that tourist
accommodation projects in regional Australia were more difficult to develop profitably and
harder to sustain in profitability than accommodation projects in capital cities.
Our research indicates that little has changed four years later, with resort developers and
investors identifying a range of development issues, which impede the viability of resort
development. The main impediments to resort development have been identified as:
• Marginal and volatile operational profitability, requiring investors to take a long-
term investment view;
• Limited availability of excellent development sites which are accessible and have
strong differentiating features;
81Resorting to Profitability - Making Tourist Resorts Work in Australia
• Prohibitive cost of infrastructure development for remote, nature-based sites; and
• Greater risk of additions to supply given the smaller size of resort markets and the
longer time required to absorb new supply.
The issues presented above are discussed in detail in the remainder of this section.
Hotel and resort investment profile
“Public and Private Hotel Investment”, produced by Jones Lang LaSalle Hotels (March
2002) has identified that private investors on a global basis dominate investment in the
hotel sector. The level of public investment is low for the US, Europe and Australasian
hotel markets, with publicly traded companies accounting for approximately 20% of total
investment:
• USA 18.9%
• Europe 21.5%
• Australasia 19.4%
The public investor profile in hotels in Australasia is as follows:
• Listed hotel owner/operators 6.8%
• Listed investment companies 11.1%
• Institutional investors 1.5%
In contrast, private investors account for the majority of hotel investment:
• USA 81.1%
• Europe 78.5%
• Australasia 80.6%
Some of the reasons for the low level of public interest in hotel investment have been
identified as follows:
• Service intensive nature of hotels, with hotels comprising a unique hybrid of
business and real estate. As a business concern, the asset is exposed to
business and market risk, which can lead to periods of cash flow volatility.
• Daily “tenanting” of rooms relative to long-term lease arrangements of more
traditional property investments, which provide a predictable cash flow.
The above factors contribute to the volatility of the asset and increase the perceived level
of risk from an investment perspective.
82 Resorting to Profitability - Making Tourist Resorts Work in Australia
The lack ofstable andpredictable
income streamshas resulted in
hotels beingcategorised as
offering ahigher return inexchange for a
higher risk profile
In addition the lack of stable and predictable income streams has resulted in hotels being
categorised as offering a higher return in exchange for a higher risk profile. The owner
benefits from the improved income flow in a strong market but is also exposed to the
downside in a weaker operating climate.
Despite the higher risk and return profile, equity analysts often tend to rate direct
investment in hotel and tourism assets as offering a “neutral return” but with a higher risk
profile. Indirect investment in hotel or tourism assets as a class of equities is considered to
attract a higher return to compensate for the higher risk.
Given the high risk, neutral return perceptions, it is understandable why investment is
dominated by private equity or specialist investment vehicles. Private equity and smaller
investors tend to be:
• Opportunistic buyers of hotel properties;
• More appreciative of the upside and have a greater understanding of the
downside; and
• Motivated by the real estate and opportunistic attraction of the asset, including
yield, capital growth or trophy status.
Recent investment in the resort sector in Australia has been characterised by:
• Private hotel companies seeking strategic buys to generate economies of scale or
protect brand presence in certain markets (for example Marriott Surfers Paradise);
• Private opportunity funds seeking to acquire under-valued or under-performing
assets which can be turned around with appropriate asset management, allowing
the investor to exit within a three to five-year period with a substantial gain (for
example Commonwealth Property Hotel Fund);
• Private high net worth individuals seeking trophy assets (for example Daydream
Island); and
• Individual “mum and dad” investors seeking a lifestyle investment, in return for
which they are prepared to accept a much lower return of 2% to 4%.
Resort investment cycles in Australia
Ownership of Australian resort assets has undergone several changes since the boom
years of the 1980s. The key milestones in the hotel and resort industry are as follows:
83Resorting to Profitability - Making Tourist Resorts Work in Australia
The majority ofthesedevelopmentswere built at ahigh capital cost,driven by localentrepreneurialdevelopersbacked byforeign(Japanese)capital motivatedby the real estatecapital gainsrather thanincomeconsiderations
1980s - Japanese led investment
The level of investment in the hotel and resort industry in Australia increased significantly in
the 1980s, influenced by factors such as:
• Dramatic increases in the number of international visitors;
• Increasing occupancy and room rates for hotel and resort accommodation
properties;
• The expectation of substantial capital gains; and
• The availability of finance.
This gave rise to the creation of luxury, international standard resorts such as the Sheraton
Mirage Port Douglas, the Sheraton Mirage Gold Coast, the Sheraton Noosa, the Hyatt
Sanctuary Cove and the Hyatt Regency Coolum.
The majority of these developments were built at a high capital cost, driven by local
entrepreneurial developers backed by foreign (Japanese) capital motivated by the real
estate capital gains rather than income considerations.
1989 Pilots’ Strike and 1990-92 Gulf War/Recession
The pilots’ strike in 1989 and the economic recession in the early 1990s had a negative
impact on hotel and in particular, resort performance, with several hotels and resorts going
into receivership. By default, Westpac, one of Australia’s major banking groups, became
one of the largest hotel owners in Australia at that stage.
Mid 1990s to 1997 – Asian Investment
Following the recession, overseas investors were active in the Australian hotel market,
taking a counter cyclical approach and purchasing properties from receivers at a
significant discount to their replacement costs. Thakral Holdings purchased the Westpac
portfolio of hotels in 1994, making it the largest owner of hotels in Australia at that time.
Several listed hotel and resort trusts were floated on the Australian Stock Exchange in the
mid 1990s, including BT Hotels, Tourism Asset Holdings, Peppers Hotel Trust and Grand
Hotel Group.
84 Resorting to Profitability - Making Tourist Resorts Work in Australia
Resorts haveperformed poorly
in the postOlympic periodnot just due to
additions tosupply but as a
result ofexposure to
political,economic andnatural events
1997 Asian Crisis
With the onset of the Asian Crisis in 1997, the ownership of hotels swung into the hands
of Australian investors, with listed property trusts such as General Property Trust, Tourism
Asset Holdings, Grand Hotel Group and Peppers Hotel Trust making hotel and resort
acquisitions.
The 1990s were marked by the acquisition of properties built during the pervious decade
at a significant discount to the initial development cost.
The second half of the 1990s saw a return to hotel development in capital cities, fuelled
by improving hotel performance driven by a strengthening economy and the anticipation of
the Sydney 2000 Olympic Games. The Sydney 5-star hotel market doubled in size during
this period, with 11 new hotel properties added to the previous supply.
The second half of the 1990s also saw the rise of the strata titled investment in both
capital cities and holiday destinations. Strata titled resort models allow the developer to
recoup the cost of the high upfront capital investment required for the accommodation
and recreational facilities through the sale of residential products. Owners tend to be
“mum and dad” investors motivated by the “lifestyle” aspect of the investment for which
they are willing to accept a lower return in the range of 2% to 4%.
Post-Olympic blues
The increase in new supply experienced in the late 1990s has resulted in depressed hotel
performance in key hotel markets of Sydney and Melbourne. The Sydney hotel market has
witnessed strong investment activity with several significant hotel properties changing
hands, including the ANA Harbour Grand Hotel, the Westin Hotel and the Hotel Ibis World
Square. Counter cyclical buying opportunities have been the catalyst for much of this
activity, with a return of Asian investors to the Australian market for the first time since the
mid 1990s. This may suggest that markets have bottomed and a major upturn is
anticipated.
Resorts have performed poorly in the post Olympic period not just due to additions to
supply but as a result of exposure to political, economic and natural events. Long haul
destinations such as Tropical North Queensland and Northern Territory have suffered as a
result of turbulence in the global and domestic aviation market and the dampening effects
of terrorist attacks on international travel and global economic volatility.
The following table presents an ownership profile of the 20 largest resorts (based on room
number) in Australia:
85Resorting to Profitability - Making Tourist Resorts Work in Australia
The information in the above table indicates that:
• Three largest resorts in Australia are owned by publicly listed Australian companies;
• Majority of the 20 largest resorts remain in Japanese or Asian hands;
• Three out of the 20 resorts are strata titled; and
• Only one of the 20 resorts is owned by an individual.
Resort investment returns
Major resort transactions verse development cost
We have reviewed some of the more significant sales of hotel and resort assets during the
period from 1997 to 2002, including the development cost and purchase price. The
following table presents a summary of a sample of resort sales:
20 largest resorts in AustraliaBased on room number
Property Location Owner No. of rooms Star Grading Development/acquisition date
Hamilton Island Resort Whitsunday Islands, QLD Hamilton Island Trust 754 2, 3, 4, 5 1994
Ayers Rock Resort Yulara, NT General Property Trust 685 2, 3, 4, 5 1997
Conrad Jupiters Hotel & Casino Broadbeach, QLD Jupiters Ltd 609 5 1985
Burswood Hotel & Casino Perth, WA Burswood Property Trust 417 5 1987
Courtyard Surfers Paradise Resort Surfers Paradise, QLD Cheng Yu-Tung 405 4 2000
Mercure Resort Surfers Paradise, QLD Strata Title 405 4 1995
Sea World Nara Resort Surfers Paradise, QLD Sea World Nara International Pty Ltd 405 4 1987
Parkroyal Surfers Paradise Surfers Paradise, QLD Teo Lay Swee 379 4.5 1999
Novotel Twin Water Resort Mudjimba Beach, QLD Strata title 368 4 1992
Couran Cove Resort Stradbroke Island, QLD Strata title 356 5 1998
Novotel Palm Cove Resort Palm Cove, QLD Daysun 342 4 2000
Marriott Surfers Paradise Resort Surfers Paradise, QLD Marriott 330 5 2000
Royal Pines Resort Ashmore, QLD MID Corporation 329 4 1990
Hyatt Regency Coolum Coolum Beach, QLD Kumagai Gumi 324 5 1988
Oasis Resort Cairns Cairns, QLD Metro Holdings Ltd 314 4 1997
Sheraton Mirage Gold Coast Surfers Paradise, QLD Mirage Resorts 312 5 1987
Radisson Treetops Port Douglas, QLD Port Douglas Reef Resorts Ltd 305 3.5 1995
Rydges Reef Resort Port Douglas, QLD Raglan Investments/Selpam Ltd 299 4 2000
Novotel Daydream Island Resort Daydream Island, QLD Vaughan Bullivant 296 4 1999
Sheraton Mirage Port Douglas Port Douglas, QLD Mirage Resorts 294 5 1987
Source: Ernst & Young Research
86 Resorting to Profitability - Making Tourist Resorts Work in Australia
Sales Price verse Development Cost
Property Completion Estimated Sale price Sale datedate development cost ($ million)
($ million)
Ayers Rock Resort 1983/84 400 220 1997
Laguna Quays 1992 270 13 1999
Marriott Surfers Paradise 1992 200 63 2000
Daydream Island 1989 100 12.5 1999
Source: Ernst & Young Research
The information in the table above indicates that some of the most significant resort assets
in Australia have sold at significant discount to their initial development cost, attesting to
the misperceptions of developers and investors of the previous decades as to the
potential of the hotel and resort sector.
Hotel and resort yields
An analysis resort transaction suggests the following indicative (stabilised) property yields
for resorts and hotel assets:
Indicative yields for hotel assets
Asset type Yield
Trophy hotel 8%
Quality CBD hotel 8% - 10%
Mid market city hotel 9.5% - 11.5%
Suburban or regional hotels and resorts 12% plus
Source: Ernst & Young Research
The information in the above table indicates higher stabilised yields for regional hotels and
resorts, reflecting the higher risk profile of these assets.
The table on the following page presents a summary of the major Australian hotel and
resort sales from 1995 to 2002, including information on the purchase price and initial
yield.
87Resorting to Profitability - Making Tourist Resorts Work in Australia
Lower yields maybe consideredindicative of theopportunisticbuyer described,with investorswilling to sacrificeinitial returns inview of ananticipated“turnaround”opportunity
The information in the table above illustrates a wide range in initial resort yields, from 2.7%
to 8.14%.
The lower yields may be considered indicative of the opportunistic buyer profile previously
described, with investors willing to sacrifice initial returns in view of an anticipated
“turnaround” opportunity. Lower yields may also reflect the competition for quality assets
and the willingness of buyers to secure these at a premium price to build a hotel portfolio
or protect their brand presence.
Listed hotel and resort trusts
A review of the performance of listed hotel and resort trusts indicates that they have
under-performed relative to other listed property trusts.
The following table presents a performance comparison between the Standard & Poor
(S&P) Property Index and selected hotel and resort companies over a 5-year period:
Investment Performance Comparison
Australian Resort and Hotel Sales1996 to 2002
Property Location State Price Rooms Price Star Date Vendor Purchaser Initial Yield($M) /Room grading
Pacific Bay Resort Coffs Harbour NSW 26 254 103,543 5 1996 Destination Resorts Thakral Holdings NA
The Anchorage Port Stephens NSW 16.2 80 202,500 4.5 1996 NA Peppers Hotel Trust 8.14%
Fairmont Resort Leura NSW 40 210 190,476 4 1997 Bank Mitsui/AIDS Peppers Hotel Trust NA
Ayers Rock Resort Uluru NT 220 581 378,657 2,3,4,5 1997 ARR Co/NT Gov. General Property Trust NA
Daydream Island Whitsundays QLD 12.5 300 41,667 4 1999 Village Roadshow Ltd Vaughan Bullivant NA
Gold Coast International Hotel Gold Coast QLD 46 296 155,405 4 2000 GCI Properties Pty Ltd Daikyo NA
Parkroyal Surfers Paradise QLD 35 379 92,348 4.5 1999 Sun Australia Teo Lay Swee 2.7%
Courtyard by Marriott Surfers Paradise QLD 37.5 405 92,593 4 2000 Kokusai Motorcars Cheng Yu-Tung NA
Marriott Resort Surfers Paradise QLD 63 330 190,909 5 2000 Long Term Credit Bank Marriott Hotels 6.7%
Rydges Reef Resort Port Douglas QLD 17.5 299 58,528 3.5 2000 NA Raglan Investments/Selpam NA
Hyatt Sanctuary Cove Hope Island QLD 30 247 121,457 5 2001 KPMG (receivership) Mulpha 7.3%
Courtyard by Marriott Palm Cove QLD 16 189 84,656 4 2002 Thakral Horbelt Family 6.0%Great Barrier ReefLilianfels Resort Katoomba NSW 20 86 232,558 5 1999 Nara Orient Express Hotels NA
Laguna Quays Whitsundays QLD 13 193 67,358 5 1999 Long Term Credit Bank David Marriner/Cbus NA
Source: Ernst & Young Research
88 Resorting to Profitability - Making Tourist Resorts Work in Australia
Investment Performance Comparison Returns as at 31 July 2002
Security Name 1 yr (%) 3 yr (%) 5 yr (%) Net Cap ($M)
S&P/ASX 300 Property 4.5 11.1 10.4 N/A
Hamilton Island Trust -10.66 2.84 8.24 90
Peppers Hotel Trust -39.47 -18.78 -14.99 17
Cypress Lakes Trust -9.33 -2.21 N/A 17
Port Douglas Reef Resorts -13.33 -3.09 -10.83 19
Grand Hotel Group -44.66 -21.49 -15.97 104
Source: UBS Warburg, ASX
The information presented in the table above indicates that:
• Resort and hotel stocks have generally performed poorly in 2001 and 2002.
• A disruption in international travel patterns and the collapse of Ansett Airlines have
severely impacted long haul resorts reliant on international demand, such as
Hamilton Island and Port Douglas.
• The stock prices of listed hotels and tourism entities such as Grand Hotel Group,
Peppers Hotel Trust (now Australian Hotel Fund) and Hamilton Island has fallen to a
level where the shares are trading at a significant discount to their net tangible
asset value.
• Peppers Hotel Trust, comprising a portfolio of premium regional resort properties in
NSW, Victoria and Queensland, has been a poor performer.
• Grand Hotel Group, which has a hotel portfolio incorporating 25 hotels including
the Hyatt, Chifley and Country Comfort brands, has also been a poor performer,
despite a diversified portfolio of both capital city and regional hotel assets.
• In contrast, Hamilton Island and Cypress Lakes Resort, mixed-use resorts with
marina, golf, retail and land development components, have achieved stronger
returns, albeit below the listed property index.
Resort development and investment issues
We have reviewed resort development and investment issues in detail in the context of the
development process, including the site selection stage, the market analysis stage, the
approval stage, the construction stage and the operating stage. The results of our analysis
are summarised below.
89Resorting to Profitability - Making Tourist Resorts Work in Australia
Despite thematurity of theresort market,there is still alack ofunderstanding ofmarket anddemandfundamentals byvarious resortdevelopmentstakeholders,includingdevelopers,financiers andplanners
Local councilsoften do nothave sufficientresources orexpertise to dealwith complexplanning regimes
Issues during the site selection stage
• Limited availability of excellent development sites, which are accessible and have
strong differentiating features.
• Tighter environmental and planning controls surrounding natural attractions such as
national parks or beachfront areas.
Issues during the market analysis stage
• Bringing all parties together at the beginning of the project, including Government.
• Despite the maturity of the resort market, there is still a lack of understanding of
market and demand fundamentals by various resort development stakeholders,
including developers, financiers and planners.
• Project stakeholders are reluctant to undertake market feasibility studies,
particularly in equity-led projects.
• There is a lack of accurate data on regional visitation patterns, demand trends and
future projections, which limits the ability of investors to assess the feasibility of a
resort project.
Issues during the approvals stage
• Local councils often do not have sufficient resources or expertise to deal with
complex planning regimes.
• Local communities, particularly retirement communities, may object strongly to
resort development and influence local council decisions (“not-in-my-backyard”
syndrome).
• Building and safety codes can be inflexible and need to be considered according
to the level of risk, particularly in remote areas.
• The approvals process is characterised by lack of certainty in terms of time and
outcome.
• Resort development requires extensive community consultation, which is time
consuming and costly.
90 Resorting to Profitability - Making Tourist Resorts Work in Australia
• New resort developments must comply with stringent environmental legislation
such as the Environment Protection and Biodiversity Conservation Act, resulting in
additional time and expense. Resort developments adjoining World Heritage Areas
may require compliance with Commonwealth legislation in addition to state and
local approvals.
Issues during the construction stage
• Resort development incurs higher construction costs as a result of building in
sensitive and remote environments.
• The cost of infrastructure such as roads, energy, water and sewerage facilities on
“green-fields” sites is cost prohibitive. Accordingly, as a stand-alone economic
entity (that is, the operational aspect of the accommodation and service related
business) resorts do not work. In many instances it is necessary to sell off a
component such as residential or land banks to cover the high infrastructure costs
and achieve project viability.
• Availability of start-up capital to sustain development costs and initial trading
period, which can be lengthy, is a major constraint.
• Resort projects in remote areas are subject to higher pre-opening costs, including
staff recruitment, training and marketing.
Issues during the operating stage
• The time to achieve a stabilised level of trading for a resort is much longer than for
standard hotels, and can range from three to seven years.
Other issues
• Resorts face strong competition from generic strata titled developments
“masquerading” as resorts, which are real estate and not market focused.
• Resorts are more susceptible to supply fluctuations given the small size of markets
in which they operate. The lack of supply controls leaves a vicious trail of
destruction and creates a bad image of the industry.
• The resort business is a “derivatives” business, which exists on the back of
transport and infrastructure businesses. It cannot stand-alone and its success is
intertwined with the strength of the base businesses.
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The cost ofinfrastructuredevelopment is amajor issue forsecludedmainland andisland resorts
• The infrastructure, facilities and services at complementary attractions, particularly
iconic national parks such as Kakadu, Uluru and World Heritage areas are an
integral component of the visitor experience. The availability of funding for the
upkeep and future development of visitor facilities to handle the current and
projected visitation levels in a sustainable manner is a critical issue for resorts
located in proximity to national parks.
Development issues specific to resort types and styles
In addition to the above resort development issues, we have identified additional factors,
which are of relevance to the particular resort types and styles under consideration in this
study.
• The cost of infrastructure development is a major issue for secluded mainland
and island resorts.
• The harsh nature of coastal or Alpine weathering effects is an additional cost for
island, coastal and alpine resorts, necessitating more frequent repair and
replacement in the operational phase.
• Maintaining water quality is inherently an issue for secluded, island and coastal
resorts. Australia is a world leader in innovative water management technology yet
no incentives are given to resorts that utilise new technology.
• The absence of iconic natural features and the need to create attractions is an
important issue for accessible mainland resorts.
• Cultural tourism based resorts located in proximity to indigenous lands must
undergo a process of consultation with traditional owners. This requires a longer
time frame for development as well as additional cost. The differing value systems
between traditional owners and for profit operators must be skilfully managed.
• Nature based, eco-tourism resorts face additional development costs associated
with building and operating in a fragile area and must deal with various “layers” of
legislation and regulation.
Development/investment success factors and opportunities
Key success factors
Given the marginal profitability and high failure rate of resort projects, it is necessary to
understand the factors, which are critical to the success of a resort venture. These factors
include:
• A concept which meets market demand;
92 Resorting to Profitability - Making Tourist Resorts Work in Australia
• Design which reflects the resort’s environment and provides a point of
differentiation;
• Location in a region which has established demand and barriers to entry for
competitors;
• Access to transport infrastructure, with airline access being of paramount
importance for remote resorts;
• Community support for the development;
• Control of construction costs;
• Partnership with flexible financiers who understand the cyclical nature of resort
operation and are prepared to take a long-term view;
• Alliance with complementary facilities, such as national parks or other attractions;
• Creation of economies of scale by developing multi-tiered accommodation catering
to different target markets such as Ayers Rock Resort, Kingfisher Bay Resort or
Hamilton Island; and
• Mixed use development combining land, residential, marina and retail facilities
which have the potential to increase the project’s viability.
Role of industry in resort development
Resorts are not only complex to operate but also costly and uncertain development
ventures. Reducing the cost and risk associated with resort development is a key factor in
improving the development viability and investment performance of resorts in Australia.
Based on our research of impediments to resort development and key success factors,
we have identified the following opportunities for resort developers and owners to improve
the resort development process:
• Given the weak performance of resorts and the competitive nature of the resort
environment in Australia, focus on refurbishment and re-positioning opportunities
for existing resorts rather than on new development in the short to medium term.
• Undertake detailed market and feasibility analysis prior to undertaking development
and understand the high degree of sensitivities associated with demand and
supply analysis impact assessment.
• Only undertake development in areas where there is existing evidence of demand
and a strong attraction base.
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• Consult with development teams of State Tourism Organisations and State
Development departments when undertaking new development.
• Fund research and data collection on resort supply, demand and performance and
make this information available to local Councils, developers and other
stakeholders to improve investment decision-making.
• Improve the integration of resort facilities with the destination and off-site
attractions.
Role of Government in resort development
Based on our research we have identified the following opportunities for Government to
facilitate the resort development process:
• Work with developers and investors to develop and fund infrastructure facilities,
improving the feasibility of infrastructure development through the infrastructure
bonds, tax concessions, grants or low cost loans.
• Ensure that development and planning legislation is manageable, easy to
understand for developers and communities and is applied equitably and with
transparency across government jurisdictions.
• Provide certainty in relation to the approvals process, with accurate indication of
time and process. Encourage bilateral arrangements between State and
Commonwealth Governments under new environmental legislation to streamline
approvals processes.
• Undertake economic impact assessments to understand the net and flow-on
benefits of resort development to the greater community.
• Provide more certainty in relation to supply through destination master planning.
• Increase the level and quality of communications between State planning
department representatives and local Government Officers responsible for tourism
planning and development.
• Through the Cooperative Research Centre (CRC) Sustainable Tourism, provide
seed money or Research and Development grants for new technology, including
transport and environmental management.
• Provide funding for Management Plans for protected natural areas, which have
strong tourism appeal, possibly incorporating gateway or local resort facilities.
• Investigate innovative sources of funding for national parks and other heritage
attractions, especially for the development of visitor facilities in national parks.
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76 Resorting to profitability - Making Tourist Resorts work in Australia
Case studies
77Resorting to profitability - Making Tourist Resorts work in Australia
Couran CoveIsland ResortCase Study
78 Resorting to profitability - Making Tourist Resorts work in Australia
Couran Cove Island Resort Case Study
This case-study of Couran Cove Island Resort illustrates several of the issues common to
other accessible coastal resorts in Australia.
Location: South Stradbroke Island, Queensland
Unique Attractions: Accessible island location with beach frontage, nature-based
recreation opportunities, design in sympathy with physical
environment.
Access: By ferry transfer from Runaway Bay Marina, Southport
(20 mins) Closest regional airports in Coolangatta (30 min drive
from Runaway Bay). Closest international airport in Brisbane
(1 hour from Runaway Bay).
Start of operation: September 1998
Capacity: 356 units comprising 192 hotel rooms, 60 villas and 104 nature
cabins
Description of site
Couran Cove Island Resort is located on Stradbroke Island in South East Queensland.
It is accessible by ferry from Runaway Bay Marina from the northern end of the Gold
Coast. The resort land area stretches 3 kilometres across South Stradbroke Island from
the Broadwater to the coastal beach strip.
Five major eco-systems exist on Stradbroke Island, including spectacular coast dunes,
eucalyptus woodland, rainforest, melaleuca wetlands and mangroves. These eco-systems
create a unique but fragile natural environment.
All of the construction at Couran Cove was created to blend into the existing landscape.
Before building began, the site was surveyed and audited by the Australian Conservation
Foundation. Most building structures are elevated from ground level. Despite its large
scale, the resort was built around existing trees and natural features. Design materials,
especially colours, were chosen to blend into the environment.
Resort facilities are spread across the site. The main Marine Resort includes a marina,
an arrivals and boat launch area, a fine dining restaurant and conference break out rooms.
The Nature Cabins are spread throughout the site among the eucalyptus trees. A central
road extends eastwards from the nature cabin zone and culminates at the Oceanman Surf
Club, a themed restaurant with ocean views. A series of boardwalks link the road to the
beach, minimising dune disturbance.
79Resorting to profitability - Making Tourist Resorts work in Australia
Couran Cove has also taken immense steps in terms of “green“ living. Innovative and
sometimes revolutionary plans were developed to provide drinking water, treat sewerage,
manage waste and generate power. There is no vehicular traffic on the resort and some
900 bicycles and electric buggies provide transport to guests. However, 4WD vehicles are
allowed on the beach by permit is in conflict with the nature based principles on which the
resort is founded.
Facilities and activities
Accommodation stock is divided into two distinct zones of Marine Resort and Nature
Resort. The Marine resort includes deluxe rooms and suites and self contained 2, 3 and 4
bedroom lodges and villas. The Nature Resort component includes fully self-contained
Nature Cabins.
Couran Cove Resort - Overview of Accommodation
Accommodation No. of rooms Style Description
Marine hotel 192 Deluxe 4.5 star Self contained rooms with views of the Marina or the Lagoon.
Lodges & villas 60 Deluxe 4.5 star 1, 2 & 3 bedroom lodges and 3 & 4 bedroom villas which are fully self contained.
Nature Cabins 104 N/A Studio and 2 bedroom cabins with fully self-contained kitchen.
Total units 356
Couran Cove's facilities comprise three restaurants, including the Oceanman's Surf Club
which is perched high above the dunes and offers spectacular ocean views. The food
and beverage facilities include a grocery store for guests wishing to self cater.
Couran Cove is known for its world class sporting facilities, which were designed for
professional athlete training in line with the early vision for the resort. Guests have access
to a 100 m sprint track, two gymnasiums and a basketball court, tennis court, batting
cages, a rock climbing wall and long jump/high jump area.
The resort also comprises extensive facilities and activities for children. At the Sports
centre, there is a 0.75 acre sand filled area with slides, ropes, swings and climbing
games and the Kites Club offers a range of nature based adventure and learning activities.
The Junior Eco-Ranger program offers children a range of educational and fun activities
such as special nature walks focused on the island's natural environment.
The Spa and Total Living Centre (TLC) is a complete spa and rejuvenation centre, where
guests can indulge in treatments and “pampering“. The TLC also provides a range of
lifestyle activities, including yoga, tai chi, art and nutrition classes and retreats aimed at
promoting health and well being.
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Catering facilities and the Spa Island's central location make the area suitable for
conference activities and special events. In the event of a large sized conference, Couran
Cove erects a large temporary tent at a variety of locations serviced by a separate
production kitchen. The temporary structure will give way to a permanent conference
facility in the near future.
The Interpretative Centre is the resort's “environmental headquarters“. Qualified interpretive
guides conduct a wide variety of programs to inform guests about the island's
environment, through a range of multimedia and 3-dimensional displays as well as walks,
talks and activities with experienced guides. An Environmental Research Trust was
established to promote and fund environmental research at Couran Cove. The resort
supplies environmental data to the Bureau of Meteorology, Nature Search, Gold Coast
City Council and the Environmental Protection Agency.
Couran Cove has recently expanded its activities to include nature shows which has
included the construction of a special presentation area. The resort works with a local
events company to develop performances and activities that allow guests to experience
and learn about Aboriginal culture. The resort has also converted several suites and
cabins to meeting rooms and has expanded its conference facilities with a temporary
structure to meet market demand which was not part of the initial strategy.
History
Couran Cove Island Resort was conceived by Australia's athletic icon Ron Clarke in the
early 1990's and was brought to fruition through the funding and support of InterPacific
under the Integrated Resort Development Act. Since InterPacific was a foreign investor,
development of Couran Cove was contingent on the company meeting Australia's Foreign
Investment Review Board criteria, which reviewed the nature of the proposal, the
company, the industry for which the development was proposed and set guidelines on the
nature and extent of foreign ownership permitted on the resale of properties.
The resort was originally developed to cater for the retreat and training needs of elite
athletes, however, due to the limited demand potential demonstrated by this market, the
resort expanded its positioning to an ecotourism style resort.
Construction activity commenced in 1997 and although the resort officially opened in
September 1998, construction activity was not completed until late December 2000.
Ongoing construction work was in part due to Couran Cove expanding its product focus
to meet the needs of multiple special interest markets and adding new features such as
the Interpretive Centre and conference facilities. Total construction cost of the resort is
estimated at approximately $200 million.
Today, Couran Cove is positioned as “Australia's newest island resort“ and is targeting
leisure, family and conference demand.
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Ownership and management structure
Couran Cove Island Resort is strata-titled and owned by individual owners and the body
corporate.
The resort is operated by InterPacific, an American-based company owned by
philanthropist Chuck Feeney.
InterPacific Resorts owns and operates several other luxury resorts throughout the Asia-
Pacific region, including Pacific Islands Club resorts in Guam and Saipan, the Laguna
Beach Resort in Phuket and the Bali Golf and Country Club Hotel in Bali, Indonesia.
During construction, InterPacific strata titled and on-sold individual units within Couran
Cove Resort to both local and foreign owners. Foreign demand for units, particularly Asian
demand, was strong during the initial sale period, but was capped at 50% according to
FIRB regulations. The rest of the resort was 100% equity funded through the InterPacific
Group.
Resort Demand
Top 3 Demand issues:
• Difficulty in diversifying demand from local domestic leisure.
• High seasonality of demand.
• High cost of meeting needs of a range of target markets.
Intrastate domestic leisure visitors are Couran Cove's most significant business segment,
representing approximately 50% of total demand and originating mainly from the regional
Queensland drive market. Interstate visitors from Sydney account for the next highest
proportion of visitors at 23%, followed by Melbourne at 17%. International demand
accounts for less than 10% of total demand. In recent years conference demand has
demonstrated growth and is now considered an important market segment for the resort.
The strong exposure to domestic visitors creates a range of challenges for the resort. The
strong level of competition in the Australian leisure market results in significant pressure on
pricing. The price sensitivity of the domestic market, and the appeal of self catering,
means guest do not have strong on-spend during their stay in the resort. The low revenue
generating potential of the market does not cover its high initial investment in resort
facilities and infrastructure as well as the ongoing high operating costs
82 Resorting to profitability - Making Tourist Resorts work in Australia
International visitors are perceived to be the resort's most viable growth market.
Accordingly, Couran Cove is actively identifying and targeting potential inbound demand,
both leisure and MICE related, to increase the proportion of higher yielding, longer staying
international visitors. Couran Cove has taken advantage of the government's Export
Market Development Grant (EMDG) in growing its international profile, and has in other
instances undertaken cooperative marketing with Tourism Queensland and the Gold Coast
Tourism Bureau to increase the effectiveness of promotional expenditure.
A strong exposure to domestic visitors makes Couran Cove particularly sensitive to the
seasonality of demand, which is highly correlated with school holidays and weekends.
Because of its site-specific infrastructure, extensive facilities and island location, the resort
is frequently unable to adjust its staffing and operating costs to meet demand fluctuations,
creating pressure on operating margins. A reduction in the overlap in school holiday
periods in different States would reduce the seasonality of demand for Couran Cove and
other resorts in Australia.
The seasonality of leisure demand also illustrates the importance of international demand
and conference demand which are less seasonal for resorts in Australia. To this end, the
EMDG is an important tool for resorts in diversifying into more international markets, while
transport infrastructure and airline access is critical to attracting the conference market for
both resorts and resort destinations.
In order to increase the perceived value of the resort for a number of markets
simultaneously, the resort has expanded is product offering and added more experiential
opportunities for visitors. The spacious grounds of the resort and the spectrum of
accommodation and activities are advantageous, allowing for the effective separation of
different user groups within the resort, despite the shared restaurant, pool and recreational
facilities. However, the delivery of services and experiences to a diverse range of guests
increases the operating cost, which can only be offset by consistently high occupancies.
Resort Development
Top 3 Development issues
• Higher development cost due to change in strategic focus.
• High cost of environmentally sensitive design, compounded by relatively low public
acceptance of eco-tourism.
• High cost of supporting infrastructure.
Couran Cove Resort was originally conceived as an elite-athlete training destination
functioning as a limited service, nature-based facility. When the decision was made to
change the positioning of the resort and expand its market appeal, a significant shift was
required in the design and facilities program of the resort.
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Although the resort was originally opened in September 1998, construction activity
extended until December 2000 in an effort to adapt public and back of house facilities to
provide the level of service which was required for a luxury, full service resort. The main
parts of the resort which required modification included:
• The addition of kitchen, food preparation and food and beverage areas.
• Extension of the arrivals/ welcoming and departure area.
• Expansion of the baggage storage areas.
• Expansion of resort administrative facilities.
• Expansion of mainland guest transit facilities.
• Expansion of conference facilities.
The change in the resort's positioning resulted in additional development costs and time
delays. It highlights the importance of strategic planning, market research and feasibility
analysis in the initial phase of resort development.
Since its inception, Couran Cove was built with the environment in mind. Alternate power,
including gas, electricity and solar power were sought to minimise fuel and water
consumption patterns within the property. The main sources of fuel are LPG and diesel.
The benefits of utilising environmentally sensitive technology are reduced gas emissions
(up to 70%), lower fuel consumption, minimal water waste (88% returned to the water
table) and lower disturbance of the natural environment in the physical construction of the
resort and its associated facilities.
The resort is a recognised industry leader in the field of water and sewerage treatment
and a leading eco-tourism destination as a result of its commitment to environmental
stewardship and associated interpretive opportunities for visitors. Despite this,
Government funding in support of the 'clean and green' approach relative to more
mainstream development and waste treatment methods has to date been limited, as has
access to funding for advanced research and development to further perfect methods of
waste and water management. Unlike the higher polluting diesel fuel, LPG is not
subsidised in Australia.
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In following its environmental vision, the resort has its own gas storage, power plant, water
treatment plant, tertiary sewerage treatment plant, rubbish recycling plant, fire reticulation
system and bio-organic composting facilities. It also self funded communications and road
infrastructure. The costs associated with developing the full range of infrastructure were
extremely high. Given the demand constraints identified in the previous section, the resort
is not expected to generate a net profit until year 10 of its operations. The weak market
fundamentals and high development costs are key barriers to the future development of
resorts in Australia.
Resort Operations
Top 3 Operational Issues:
• High cost of bulk gas storage, power plant, water treatment and sewerage
treatment plants.
• High cost of facilities maintenance and repair.
• High cost of staff training, development and retention.
In addition to the costs of developing resort infrastructure, the plethora of compliance and
licence costs for operating infrastructure are a significant expense for Couran Cove. The
resort employs an in-house certifier to address the range of approvals at local, state and
federal government level and ensure compliance. Compliance costs relate to a broad
range of resort operating areas, including waste management, ground construction and
landscaping, vehicles and workshops, chemical storage and use, water treatment,
sewerage treatment, processes and approvals. These costs are ongoing and particularly
onerous during the initial years of a resort's operation. The fact that Couran Cove and
other resorts have to employ a person to deal with compliance aspects indicates an
opportunity to streamline the approvals and compliance processes, helping resorts to
reduce operating costs.
The location of Couran Cove exposes it to harsh environmental conditions. The resort is
constructed on a sand spit island, forcing developers to select the most effective materials
and methods to construct durable and appropriate accommodation structures able to
withstand weathering. Timber was used predominately, and despite the resort's relative
infancy, repair and replacement have been a significant cost. Maintenance costs also
extend to specific resort 'precinct' areas which require specialised care, such as grounds
and gardens, the swimming pool, the marina, and independent sporting facilities where
every day wear necessitates repair and replacement. Relative to mainland hotels, repair
costs are amplified by design features which are in sympathy with the environment and
protect the underlying natural asset.
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As with other resort properties, staffing costs are the largest single overhead for Couran
Cove. The need to consistently train employees given the unskilled labour pool and the
high staff turnover is a major barrier to improved resort profitability. It highlights the need for
ongoing Government support in the resort training arena in recognition of the role of the
employer in providing career progression programs and support mechanisms for
employees.
Key success factors
The factors that contributed to the successful development and operation of Couran
Cove Resort are:
• Modern, full service resort facilities combined with environmental, lifestyle and
cultural principles.
• Wider range of natural and built facilities, allowing the resort to cater to broad and
niche segments, such as families, couples and special interest groups.
• Development of a mixed-use product, comprising hotel and nature cabins, which
diversifies the sources of demand.
• Access to transport networks, including 2 international airports and a major highway.
• Island location in close proximity to the mainland, offering a secluded yet
accessible experience.
• Long-term commitment to the project, with an owner who is willing to withstand
the long start up period.
• Strong management expertise in the resort sector.
86 Resorting to profitability - Making Tourist Resorts work in Australia
Ayers RockResort CaseStudy
87Resorting to profitability - Making Tourist Resorts work in Australia
This case-study on Ayers Rock Resort (ARR) illustrates some of the unique issues
encountered by secluded mainland resorts in Australia.
Location: Yulara, Northern Territory
Unique Attractions: Ayers Rock Resort is unique due to its extraordinary location
adjacent to the World Heritage listed Uluru Kata Tjuta National
Park. The resort has uninterrupted views to Uluru and is the only
resort within several hundred kilometres of this tourism icon.
Access: By air, 3 hours direct from Sydney to the resort airport. Most
international visitors pass through customs in Sydney or Cairns
before travelling to Ayers Rock. By road, 42 hours from Sydney,
4.5 hours from Alice Springs.
Start of operation: 1982, acquired by General Property Trust (GPT) in December
1997
Capacity: 791 rooms, 168 lodge beds and campgrounds for 2,542
persons
Resort location
ARR is located on 94 square kilometres of freehold land, approximately 18 km northwest
of Uluru. The resort is adjacent to the Uluru Kata Tjuta National Park, owned by and home
to Aboriginal people, the Anangu. Located in the centre of Australia in a semi arid desert
zone, the National Park and Uluru are renowned for their immense natural beauty. The
region is also rich in the cultural and spiritual heritage of the Anangu people Ayers Rock
Resort, together with extensive associated infrastructure, forms the 'Yulara' township. The
township has no local residents and consists of a transient population comprising resort
employees and guests.
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Resort site description
The resort was designed by architect Phillip Cox as a series of low-rise buildings, with no
part of the resort rising higher than the surrounding dunes, thus minimising the impact on
the landscape. The vast size of the site allows the resort to create “resorts within a resort“,
comprising 7 distinct resort components, with accommodation options ranging from well-
appointed campgrounds, 3,4 and 5-star hotels and exclusive luxury tents. With the
exception of the Tented Wilderness Camp, Longitude 131, the individual resorts are built
around a central ring road. A shuttle bus operates to provide access between the resorts.
Facilities and services
Ayers Rock Resort functions as a “town resort“ and as such comprises many of the
facilities and amenities of a small town, including:
Resort facilities
• A range of accommodation facilities
• A range of food and beverage outlets
• Shopping Centre
• Recreation facilities
• Visitor Centre
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Infrastructure
• Ayers Rock Airport
• Service station
• Medical Centre
• On site water, waste and sewerage plant and equipment
• Employee housing and recreational facilities
• School
Accommodation within the resort is designed to meet the full range of budgets and tastes
of visitors and can cater for over 4,000 people at any one time.
Ayers Rock Resort - Overview of Accommodation
Accommodation No. of rooms Style Description
Longitude 131 15 Luxury5 -star Wilderness camp tents. Facilities include a swimming pool and restaurant.
Sails in the Desert Hotel 232 Deluxe5-star Facilities include a swimming pool, 3 restaurants, bar, tennis court and mini-golf facilities.
Desert Gardens Hotel 218 Superior 4.5-star Facilities include a gift shop, swimming pool, bar, restaurant and BBQ's.
Outback Pioneer 167 hotel rooms Budget 3.5-star Incorporating budget cabins and dormitories. Facilities include a Hotel and Lodge 168 Lodge beds swimming pool, self-catering kitchens, kiosk, restaurant and bar.
The Lost Camel 99 Boutique hotel Self contained guest rooms, bar and swimming pool.3.5-star
Emu Walk Apartments 60 Serviced Apartments Fully self-contained 1 and 2 bedroom apartments with 3.5-star sofa beds, serviced daily.
Ayers Rock Resort 2,542 persons Powered, unpowered Comprises powered sites, tent sites, cabins and Campgrounds and cabin sites. swimming pool.
Total rooms (excluding beds) 791
History
Over the past decade, Ayers Rock Resort has been turned around from financial difficulty
to the leading resort development in Australia today.
The early days
Tourism to Ayers Rock began as an informal activity in 1956 , when a series of unofficial
camps evolved at the base of the monolith, followed by a rough airstrip and eventually
some low quality hotels and hostels. In the early 1970's, when visitor numbers were
estimated to be close to 50,000 per annum, National Park authorities and the
Commonwealth Government responded to the potentially unsustainable nature of camps
and poor quality accommodation, which threatened to impact the natural and cultural
values of the National Park.
90 Resorting to profitability - Making Tourist Resorts work in Australia
In 1973, a Commonwealth Senate Committee recommended the 'village' and airstrip be
moved beyond the National Park Boundaries. An area of 104 square kilometres adjoining
the National Park boundary was identified as the ideal site for the now Ayers Rock Resort
and in 1975, the site was approved by the Aboriginal Land Council and gazetted by the
Northern Territory Government.
Ayers Rock Resort
In early 1980, when visitor numbers had climbed to over 75,000 per annum, construction
of Ayers Rock Resort commenced under the direction of the Conservation Commission of
the Northern Territory. The existing hotels were compulsorily acquired by the
Commonwealth Government, removed and replaced on the new site cby the new hotel
facility.
In 1982, the campground area opened and by the end of 1984, the majority of the
remaining hotels and facilities were operating. The estimated costs of resort development
were $600 million, and by 1984, visitor numbers had reached in excess of 130,000 per
annum.
The hotels were operated by different management companies, including Sheraton and
Four Seasons, and synergies between the various components of the resort were not well
identified or streamlined. Accordingly, the properties traded poorly until 1992, when the
resort was restructured, partially privatised and a new board and management team put in
place. The restructuring strategy included repositioning the resort from the domestic to
international market, undertaking an extensive capital expenditure program to revitalise the
asset and switching from several operators competing with one another to a single
operator able to drive operating synergies and economies of scale. Visitor numbers had
climbed to over 240,000 per annum by 1992 and the operating performance of the resort
improved from $8.5 million to $15.5 million in the 4-year period from 1993 to 1996.
Re-inventing Ayers Rock Resort
In December 1997, General Property Trust purchased Ayers Rock Resort for a combined
cost of $220 million. Ayers Rock Resort Company Limited (now Voyages Hotels & Resorts
Pty Ltd) assumed management of operations for the resort. GPT and Voyages have
continued to consolidate the previous restructuring of the resort through a range of capital
expenditure programs and leading management initiatives to create one of Australia's
leading resorts.
Ownership and management structure
GPT is Australia's largest diversified property trust with assets worth $6.6 billion in
hotel/tourism, retail, office and industrial/business park sectors. The Trust has a substantial
investor base and units are owned by more than 60,000 investors, including large
Australian and overseas institutions.
91Resorting to profitability - Making Tourist Resorts work in Australia
The resort is operated by Voyages Hotels & Resorts Pty Ltd (Voyages). Voyages is wholly
owned by GPT Hotel Management Pty Limited.
Voyages aims to become the premier experiential holiday company in Australia. In addition
to Ayers Rock Resort, Voyages operates other GPT experiential tourism assets located in
pristine wilderness areas. These include Alice Springs Resort, Cape Tribulation Resorts
and Odyssey Tours and Safaris. It also owns 46% of Kings Canyon Resort in its own right
and manages the Resort on behalf of all owners.
The Ayers Rock Resort experience
ARR aims to provide resort guests with a “fully integrated“ tourism experience, comprising
four key principles of eco-tourism, cultural heritage, soft adventure and lifestyle.
ARR is committed to working and caring for the environment to reflect the beauty and
fragility of the natural surroundings. The resort provides a base for guests to explore the
unique and extraordinary environment of Uluru. The resort tries to work closely with the
local aboriginal people in developing touring options and ensuring the cultural integrity of
experiences offered so that guests have the opportunity to sample new and authentic
experiences.
ARR guests have a range of touring and soft adventure options, which allow them to
experience and learn about the natural and cultural heritage of the surrounding
environment. The activities program gives guests the opportunity to embark on a journey
of discovery and renewal, through opportunities ranging from unique dining experiences to
rest and relaxation.
In keeping with the above principles, Ayers Rock Resort facilitates a range of experiential
activities, both within and external to the resort.
• Odyssey Tours and Safaris - to Cave Hill Aboriginal art site and a sunrise tour.
• Sounds of Silence dinner experience - outback dining alfresco style whilst the
sun sets behind Uluru.
• Scenic Flights - primarily over Uluru and Kata Tjuta National Park.
• Aboriginal cultural tours - conducted by Anangu guides.
• Camel tours - the region on camel back
• Motorcycle tours - personally guided Harley tours.
• Cave Hill (S.A.) tour - to aboriginal Rock Art site and local aboriginal homeland.
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Resort Demand
Top 3 Demand issues
• High costs of marketing to a wide range of domestic and international markets.
• High risk associated with reliance on air access.
• Effects of capacity and infrastructure constraints of the National Park on resort
demand.
Given the size and diversity of resort accommodation, the marketing function for ARR
must drive both broad and niche markets in Australia and globally. Marketing to
international segments requires significant resources, both in terms of marketing dollars
and sophisticated sales systems. The annual marketing budget of the resort is
approximately $5 million or 4.5% of revenue. The marketing expenditure of ARR highlights
the high cost of marketing incurred by resorts in Australia, particularly to overseas markets.
Marketing of the resort promotes not only the resort itself but also advertises the natural
and cultural features of Uluru and Central Australia, contributing to the promotion of the
destination as a whole. Despite the high cost of marketing and the significant on-flow
benefits which it creates to the wider community, the resort is not eligible for the Export
Marketing and Development Grant (EMDG) because it generates revenue in excess of
$50 million per year.
Air access is a critical issue for ARR and the move away from a one airline monopoly in
1993, resulting in greater frequency of services and more competitive pricing, is
considered to have been an important factor contributing to improved resort performance.
The collapse of Ansett Airlines in 2001, combined with the disruption to tourism following
the economic and political events of 2001, contributed to a 5% decline in occupancy. The
impact of air access on demand to ARR illustrates the additional risk of remote operations
and highlights the precarious position of Australia's remote resorts which are serviced by
one airline.
Demand for the resort has displayed moderate growth in the past 5 years. Despite short
term “shocks“ such as the terrorist attacks of 2001 and 2002, demand is expected to
continue to grow at a moderate pace in the long term, particularly from international
markets. The positive demand and supply fundamentals have the potential to further
enhance the performance of the resort through occupancy and rate growth. The ultimate
ability of the resort to drive demand is strongly influenced by how many visitors the Uluru -
Kata Tjuta National Park can accommodate without negatively impacting the visitor
experience and the natural environment. At present, key sites in the park are overcrowded
at peak viewing times (i.e. sunrise or sunset) and do not provide the level of visitor
experience that either the resort or park management would like. Due to overcrowding, the
visitor experience in the park is devoid of the eco-tourism and wilderness features which
are the prime motivators for visitation to a World Heritage listed destination.
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The overcrowding in the World Heritage listed national parks is a growing issue for parks
and resorts in Australia alike. It highlights the importance of taking a strategic approach to
visitor management planning, including site planning, capital works programs to create
additional facilities and walks and better visitor information and processing facilities and
creation of new transportation options.
The development of niche touring product by ARR such as the “Sounds of Silence“ and
other tours in collaboration with park management and the Anangu people has helped to
draw visitors away from the key sites and to alleviate the problem of overcrowding. It
illustrates the importance of resort owners/operators working closely with industry
stakeholders in enhancing the visitor experience in resort destinations. The development
of such alliances to create new visitor products and experiences is essential for the future
success of ARR and other resorts in Australia.
Resort Development
Top 3 Development issues
• High cost of environmentally and socially responsible development.
• High cost of maintaining resort facilities up to standard.
• High cost of developing and upgrading resort infrastructure.
Since acquiring the resort in 1997, GPT has embarked on a major capital works program
covering accommodation, public facilities and infrastructure, amounting to an estimated
$110 million to date, and has largely focused on an upgrade of resort facilities to modern
standards. The running reserve for replacement is estimated between 7% and 8% of
revenue, significantly higher than the industry average of 3% to 4%.
The remote location of the resort requires careful planning and coordination, including
setting up a construction village to house construction employees who are flown in from
other parts of Australia. The cost of building materials which are sensitive to and can
withstand the harsh desert environment and their transportation to the site are additional
costs.
Building in an environmentally and culturally sensitive area such as Uluru necessities
extensive compliance with environmental codes, including the recently introduced
Environment Protection and Biodiversity Conservation Act. For example, the development
of Longitude 131 required a fauna and flora study to be undertaken. Resort management
also undertook a process of community consultation with the local Anangu people in the
course of this development. Because of the cultural values and way of “doing business“ of
the Anangu people, this process required additional time and financial resources. As a
result of the environmental and cultural sensitivities, the resort employs a full time
environment manager.
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In addition to the guest facilities, ARR comprises extensive infrastructure, including an
airport, roads, and power plant, water plant and waste management systems. The initial
development cost of the resort reported at $600 million illustrates the high cost of
infrastructure that is required to support resort development in remote locations. Unless
greater economic benefits are recognised, the high cost of infrastructure can rarely be
justified on purely commercial terms.
The additional cost of accommodation and infrastructure development in remote and
environmentally and socially sensitive destinations, particularly in “greenfield“ sites, is
significantly higher than in metropolitan areas in Australia. The competitive nature of the
resort industry in Australia and the fluctuations in demand do not always allow the cost of
development to be recouped through higher room rates or increased occupancy. These
fundamentals act as a significant barrier to development for existing and new resorts in
Australia.
Resort Operations
Top 3 Operational Issues
• High costs of labour and training due to transient nature of staffing.
• Higher cost of providing employee housing and services.
• Higher cost of maintaining and operating major infrastructure in a remote location.
The resort employs some 1,200 staff recruited from all over Australia. Despite an extensive
staff incentive program comprising salary, airfare and holiday bonuses, the average staff
employment term is approximately 14.3 months, resulting in a high level of turnover. High
turnover creates the need to constantly train and recruit staff, significantly increasing the
cost of labour. Given that the majority of employees are unskilled, the cost to train a new
employee is estimated at $3,000. ARR has made a significant investment in developing an
innovative training and knowledge management tool called “Building Great Experiences“,
designed to capture key operational processes and service delivery methods, assisting
with employee training. The expense associated with managing the transient nature of
staffing in a remote location emphasises the continued importance of training grants and
Government partnerships for resort operations.
Employee housing and employee services such as recreational, medical and schooling
facilities are also a significant expense for ARR. The resort provides some 750 housing
units and employs a full time housing manager and staff. The cost of building in a remote
location adds to the cost of providing quality employee housing. Schooling is only
available at the primary school level, creating a problem for staff with high school age
children. Factors such as schooling and housing contribute to the resort's inability to retain
staff over a longer period of time, adding to the cost of operating a resort in a remote
environment.
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A significant amount of time and money is expended on operating and supporting resort
infrastructure, with the most significant components being roads, water and power, waste
and airport facilities management. The management of such infrastructure requires the
resort to work with relevant Northern Territory Government departments. Due to the
centralised nature of these departments and lack of funding of resources, the
communications process can be lengthy and inefficient, adding to the cost of compliance
and operations. This illustrates the need for Government departments to streamline the
regulatory and communications processes and recognise the greater level of resources
required to work with resort operators in remote areas.
Key operating statistics
The standard of the guest experience and the performance of the resort have improved
significantly under GPT ownership and Voyages management.
The following table details the most significant performance indicators for the resort.
Ayers Rock Resort - Key Operating Indicators (2000)
Number of visitors 440,000
Capital expenditure program (1998 - present) $110 million (approx)
Annual average occupancy 80%
Average rate $177
Total revenue $110 million (approx)
Net income (EBITDA) $40 million (approx)
Net income (EBITDA) % 36%
Source: Voyages Hotels & Resorts
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Heritage Golf &Country ClubCase Study
97Resorting to profitability - Making Tourist Resorts work in Australia
The following case study identifies issues surrounding the development of Australia's
newest regional golfing resort in the Yarra Valley, an accessible mainland resort.
Location: Yarra Valley, Victoria
Unique Attractions: The Yarra Valley is a region known for its wine and food
produce. The area features a range of wineries and bed and
breakfast establishments and its proximity to metropolitan
Melbourne has ensured its popularity as a leisure destination for
day trip and weekend short break vacations. The accessibility of
the destination to Melbourne also makes it appealing to the
conference market.
Access: Less than 60 minutes by road from Melbourne CBD Closest
regional and international airport is Melbourne, being
approximately 80 minutes drive time from the property.
Start of operation: Golf Course - December 2000Hotel - April 2002Health Club -
October 2002
Capacity: 102 rooms
Description of site
The following map outlines the layout of the resort along with the key facilities:
98 Resorting to profitability - Making Tourist Resorts work in Australia
The Heritage Golf and Country Club (HGCC) is an integrated residential resort
development located in the Yarra Valley. The resort is spread over a 350-hectare site and
is zoned as a special use zone/major tourist facility. It is the first purpose-built, destination
golf resort to be developed in Victoria, featuring a golf course carrying the Jack Nicklaus
signature brand. The resort has three main components, being two golf courses
(1 opened, 1 planned), a 5-star hotel and a separate health club and day spa. These
components serve the resorts three distinct markets, being golf club members, resort
guests and on-site residents.
The hotel and golf clubhouse are located at the centre of the property, situated in an
elevated position and overlooking the golf course. Accommodation consists of 102 hotel
rooms (96 rooms, 6 suites), overlooking the operating golf course. The second planned
golf course (currently waiting for development approval) will be located on the northern
end of the property, with the Yarra River acting as a natural boundary between the 2
courses. The hotel porte-cochere joins the hotel and club-house buildings. The health
club/retreat is set back from the functional golf course, some 200 metres from the hotel
and clubhouse. The health club also acts as a mini store, providing essential needs for
resort guests and residents.
Carparking has been provided under the 3-level hotel as well as adjacent to the golf
clubhouse. The HGCC is connected to main power, gas and water, but has an
independent waste-water treatment plant which provides recycled effluent to assist with
irrigation of the St. John course.
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Ownership structure
HGCC is owned by Yarra Valley Golf Limited (YVGL), a Victorian-based private company
with three major shareholders. YVGL added residential property and strata-titled
accommodation into the resort to deliver optimum project financing. Despite being an
accessible, mainland resort destination, this product mix was identified as the most
financially sound way to ensure that the resort could be developed without requiring a
large exposure to bank debt and could produce positive project returns in the short to
medium term.
Accommodation Operator and branding
The HGCC has entered into an agreement with Mirvac Hotels to operate all the facilities at
the HGCC including Clubhouse, golf course the health club and the 102-room hotel.
Officially known as the “Sebel Lodge Yarra Valley,“ the hotel is positioned as a 5-star
facility. The hotel was strata-titled by the developer, with guaranteed returns of 6% offered
to investors for the first two years of operation. Approximately 70 rooms were sold as
strata rights, with YVGL retaining the remaining rooms. YVGL retained the strata title to the
hotel common areas, food and beverage and back of house facilities.
Facilities
The HGCC currently consists of:
• One completed and operational Jack Nicklaus Signature18-hole golf course.
• Land for another 18-hole golf course designed by Antony Cashmore in
consultation with Nicklaus Design. Tony Cashmore is a well-known Australian golf
course designer.
• A 102-room, strata-titled 5-star “Sebel“ branded hotel operated by the Mirvac
Hotel group.
• A 3,200 square metre club-house for golf club members, containing administration
areas, function rooms, pro-shop, spike bar and restaurant.
• A 1,000 square metre Health retreat/club containing 20 metre heated pool, sauna,
day spa, gymnasium, 2 tennis courts, café and minimart.
• 120 residential blocks, ranging from 510 square metres to 1180 square metres.
The substantial irrigation requirements for the golf course are sourced from self contained
storage facilities. All 8 golf course lakes are used for storage and recycled effluent is also
used for course watering.
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All course works are controlled from the maintenance compound. The compound is
located to the west of the hotel and club-house and has a separate entrance to the main
resort entrance. This building houses staff amenities, all course machinery and workshops
with fertilizers, chemicals and storage bins.
The construction of the second 18-hole golf course will commence as soon as
development approvals are received and will coincide with Stage Two of the residential
development.
History
The HGCC development was planned as a private, golf country club modelled on
exclusive golf country clubs found in the USA. Such clubs have member only policies for
golf course access and often provide a wider range of other recreational pursuits, club-
house amenity and accommodation. The commercial viability of this same concept in the
Australian market was constrained due to the limited domestic demand base and the
“lodge“ concept was adapted to become the 102-room Sebel Heritage Lodge, operating
as a commercial, resort-style property, allowing non-exclusive utilisation of accommodation
and recreational amenities.
HGCC was conceptualised in the early 1990's by Dr John Tickell, a director of YVGL, with
experience in the Hyatt Coolum development in Queensland. Land for the resort was
secured by option by YVGL in 1993 and re-zoning took place to allow the development to
proceed. Envisaged as a prestigious golf and country club, development proceeded after an
amendment to the local planning scheme was granted by the then Liberal State
Government. To date the development has been entirely funded through private interests
and revenues received from the strata-titling of the hotel and the sale of the residential lots.
The development was split into two stages. The first stage was the golf course and
associated club-house, hotel, health retreat and 120 residential lots. Construction
commenced in 1997 after a four-year approval process and began with the first golf
course, designed by Jack Nicklaus. Construction of the remainder of the resort
commenced in November 2000 when the hotel development was undertaken. With two
key components of the resort largely in place, construction of the health retreat began in
November 2001. The Golf course opened in late 2000, with the hotel opening in April
2002. The Health retreat opened most recently in October 2002.
Residential development took place simultaneously with the golf course and hotel and
health club and approximately 100 of 120 lots developed as part of Stage One have sold
to date. With a limited residential product being developed, strict covenants exist on
housing style and form. These covenants maintain continuity in design and ensure that only
quality housing is developed on the property, protecting the original vision of the resort as a
superior development in all aspects. Stage Two, which was due to commence in early
2003, allows for the addition of another golf course and 120 condominiums/villas.
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From conception to current status, the project has covered a 9-year time span. Income
from residential sales and the strata titling of the accommodation allowed the financial
investment of YVGL to remain at levels, which were not reliant on large bank loans. The
total estimated development cost to date is in the vicinity of $60 million dollars, (excluding
land, legal and administration costs) yet bank loans only approximate $2 million. This level
of outstanding debt provides the shareholders with a level of comfort and assurance in the
success of the project to date.
The HGCC development is nearing 75% completion. The following timeline highlights the
timing of key development milestones achieved and those to be achieved within the
projected 12-year project timeframe.
1993 Site identified (land held under option)
Late 1994 Application for planning scheme amendments submitted
January 1995 Panel appointed to hear submissions on planning scheme amendment
March 1995 Planning approval granted by Minister for Planning
April 1995 Planning Scheme amendments gazetted
August 1996 Stage 1 development plan for St John Golf course approved
December 1996 Land purchased
December 1996 Development plan lodged with council for 2nd golf course
(subsequently not approved)
March 1997 1st golf course construction started
Construction of roads/residential infrastructure started
March 1999 Construction of clubhouse started
June 2000 Clubhouse open
November 2000 Construction of hotel started
Construction of roads/residential infrastructure complete
December 2000 1st golf course open for play
September 2001 Development plan resubmitted for 2nd golf course
November 2001 Construction of health retreat/recreation club started
April 2002 Hotel open
October 2002 Health retreat/Recreation club open
Future Timeline
December 2002 Infrastructure for Stage 2 residential expected to start
January 2003 Development plan for 2nd golf course expected to be approved
July 2003 Buildings for Stage 2 residential expected to start
December 2005 Stage 2 residential to be complete
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Resort Demand
Top 3 Demand issues
• Seasonality of demand.
• Domestic market price sensitivity.
• Alignment of individual and local tourism body marketing efforts.
The business strategy of the Sebel Heritage is focused on attracting primarily Victorian
residents to the property and to a lesser extent inter-state or overseas guests. A one-hour
drive time from the Melbourne CBD makes the property easily accessible for the
conference market, which generates mid-week demand for the hotel.
The leisure/short-stay market is the major demand source for weekend hotel use, with the
hotel expected to benefit from its accessibility to a major capital city and also its location in
a well-known tourism/leisure destination. The HGCC resort is focussed on two special
interest themes, being golf (primary) and health/spa (secondary). The resort is also
widening its appeal by sourcing and packaging alternative activities which are specific to
the region and that are available in the immediate area. These include experiential activities
such as bushwalking, ballooning, cycling, wine tasting and gourmet food experiences. The
selection of the Yarra Valley as the resort location is important for this reason. The resort
provides activities which are new and complementary to the region (Golf and Spa) whilst
also acknowledging the activities which are already provided and can be packaged with
the resort “product.“
The HGCC however has an additional challenge of attracting demand to a facility that has
an outdoor activity as its primary feature. In a seasonal climate which exists in Victoria,
with much cooler temperatures experienced throughout the winter months, generating
constant demand for outdoor activities, particularly golf is challenging. It is for this reason
that marketing collateral is focussed on the wider product offering of the broader Yarra
Valley destination. This illustrates the importance of alternate complementary destination
activities or indoor facilities in resorts or destinations impacted by weather patterns.
Almost all demand for HGCC is sourced from the domestic market. International guests
are considered a bonus for the resort but are not being heavily targeted as a market
segment. Relative to overseas guests, domestic travellers are significantly more price
sensitive. Competition from other accommodation establishments and a near exclusive
reliance on domestic demand restricts the ability of HGCC to achieve room rates in-line
with similar international resorts of this quality of development, as pricing is largely dictated
by the perceived positioning of the resort against rival domestic destinations.
103Resorting to profitability - Making Tourist Resorts work in Australia
The HGCC adds another feature to the wider Yarra Valley destination. Product
development by the HGCC has encompassed the wider destination and its features in its
marketing, allowing a more complete product to be presented to the consumer. Marketing
of the destination by regional tourism organisations (RTO's) needs to encompass all the
features of the region. While this is yet to eventuate, the HGCC is hoping that the resort
will create a reciprocal level of interest from the RTO and that there will be scope for
collaborative marketing initiatives.
Resort Development
Top 3 Development issues
• Compliance with state and two local government authorities for a range of
approvals and the community consultation process.
• Lengthy approvals period resulting in higher opportunity cost.
• Creation of a world class golf resort in an area with inappropriate soil.
The development of the HGCC in the Yarra Valley met with initial resistance from the local
community, stemming from concerns about environmental disturbances, noise, and
increased traffic flow. The proposed development also contravened a regional
development rule that denied all new sub-division of land for residential purposes. It is for
this reason that a special planning scheme amendment emphasising tourism was
necessary, and was delivered by the State government.
This authoritative planning scheme amendment issued by the State government ensured
that the local approval processes was not cumbersome, however, this overlay of the state
government planning scheme resulted in a somewhat strained community consultation
process and elicited many minor objections. Justified community concerns were written
into the planning scheme amendment and the developer has attempted to appease local
concerns. The developers held several meetings during which they made themselves
available to the community to explain the development and its objectives. The level of
acceptance is now significantly higher than first encountered; however, the challenges
encountered in the development process highlight the additional costs and resources
involved in developing a resort in a politically and socially sensitive environment.
Development of the HGCC was initially made more difficult due the proposed site actually
crossing the local government boundary of the previously known Lilydale (now Yarra
Ranges) and Healesville (now Nillumbick) Shires, separated by the Yarra River. This
required initial and continuing simultaneous approvals from two local shires. Such
approvals were often dependant on the impact they had on other parts of the
development. In addition there were up to 20 “referring authorities“ involved in obtaining
shire approvals.
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As with developments of this magnitude, there are significant holding costs incurred in the
timeframe required to develop the property. The time taken for council receipt,
documentation and presentation of planning requests to the community has been slow,
evidenced in the more than 1-year of elapsed time between the submission of the
development plan for the 2nd golf course and its expected approval. Such lengthy
approval periods frustrate programmes, impact project returns and further pressure returns
from the investment. In this case, seven years of development (and cost) was required
before any cashflow was received.
World class golf courses are often distinguished from others by the quality/type of soil on
which the course is constructed. The type of soil and the course base were therefore two
important features to consider when planning a facility such as the HGCC.
The Yarra Valley is known for its clay based soil, which for the quality of golf courses being
considered, combined with the regional weather patterns, was not appropriate. The poor
drainage quality of clay and its impact on the general playing surfaces necessitated the
laying of an extensive and very expensive sand base for fairway construction. A sand base
of 300mm was required, at an approximate cost of $1.5 million, for the course to be of
world class standard and in fitting with the Nicklaus signature design brand. This illustrates
the significant additional cost required in developing built attractions which are often
integral to a resort's appeal.
Resort Operations
Top 3 Operational issues
• Staff recruitment and training
• Workplace agreement negotiation
• Golf course drainage
At the time of writing, the HGCC (including accommodation facilities) had only been open
for five months. The Health/Recreation club was scheduled for an imminent opening, with
the golf club being open for approximately two and a half years.
To date, the operating issues faced by the resort have been minimal. For example,
recruitment of skilled staff was easier due to the proximity of the resort to a major
metropolitan area. Opening a resort property involves co-ordination of a number of
resources, people and information technology systems and challenges were also
encountered in these areas, including timely delivery of furnishings, foods and other hotel
fixtures, furniture & equipment.
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A workplace agreement has been negotiated for the entire resort, allowing a great deal of
flexibility in workplace requirements. Under the agreement, a minimum of seven hours a
week is guaranteed, with up to a maximum of 36 hours per week able to be rostered per
employee. With this built in level of flexibility, there is little need for casual staff. The
Enterprise Bargaining Agreement was considered necessary to give the resort flexibility in its
operation, particularly during start-up and the formative months of operation. This
employment condition was made clear in the recruitment process.
HGCC is satisfied with the year to date performance of the resort, given the opening of the
accommodation immediately preceding the cooler and wetter winter months. Conferencing
demand has exceeded expectations thus far, with demand existing over a seven-day a
week period, not the five-day demand period originally envisaged. This success of the resort
highlights the importance of access to the conference market.
The domestic weekend leisure market is taking longer to establish than anticipated,
highlighting the competitive nature of this segment and the extensive marketing resources
required. The opening of the health club in October 2002 has added another feature to the
resort and resort management have very positive expectations for this segment.
One of the initial issues encountered with the golf course operation centred on golf course
drainage. The first winter season saw the addition of sub-surface drainage as drainage
patterns emerged. This resulted in the additional cost of re-grassing of some fairways as the
course settled after the “growing-in“ period.
Key success factors
The factors that contributed to the successful development and operation of the Heritage
Golf and Country Club are:
• Proximate location to a major urban centre (Melbourne), optimising access to a large
visitor and staff population.
• Suitable product 'fit' with the regional food, wine and activity experiences within the
Yarra Valley region.
• Minimisation of debt funding. Development finance was primarily sourced through
strata-titling the hotel component of the resort, the sale of residential lots and private
interests.
• Staged development, which facilitated gradual, organic demand growth.
• Early recognition of the importance of the domestic market in making the resort
successful.
• Selection of an experienced and well-known Australian hotel operator to operate and
manage the hotel component of the resort.
• Persistence on behalf of the developer, who had the patience and tenacity to move
through all barriers and obstacles to achieve the vision of the resort.
106 Resorting to profitability - Making Tourist Resorts work in Australia
Kingfisher BayResort CaseStudy
107Resorting to profitability - Making Tourist Resorts work in Australia
This case-study of Kingfisher Bay Resort illustrates several of the issues common to other
secluded island resorts in Australia.
Location: Fraser Island, Queensland
Unique Attractions: Located within a World Heritage listed area, unique flora distinct
to the island, diverse nature-based tourism opportunities, all-
Australian materials and advanced architectural design utilised
for resort structure
Access: By catamaran or boat from Hervey Bay Wharf. (45
minutes)Closest regional airport in Hervey Bay (4 hours drive
from Brisbane). Closest international airport in Brisbane
Start of operation: July 1992
Capacity: 152 hotel rooms, 109 villas and 200 backpacker beds
Description of site
Kingfisher Bay Resort is an integrated resort development located in South East
Queensland on the Western side of Fraser Island, adjoining a World Heritage listed area.
The resort is spread over a heavily wooded 65 hectare site at North White Cliffs and
zoned as a multi-use site, including commercial, tourism, residential and recreation
precincts.
Resort accommodation consists of low-rise building, designed to integrate with the natural
environment in an unobtrusive design below the tree canopy. Building design is based on
the nature of Fraser Island itself, with indigenous materials and colour schemes utilised
throughout.
108 Resorting to profitability - Making Tourist Resorts work in Australia
Central facilities for the resort adjoin the hotel accommodation wing, including the
restaurants and entertainment areas, with an additional facility for day-tripper visitors
located away from the main complex. A series of shops, car park and service station are
located behind the hotel accommodation complex in a retail “village“ style configuration.
Beyond the resort village and hotel accommodation, the resort hill face extends steeply
inland from the Western perimeter of the property to a ridge line. Additional
accommodation facilities dedicated to the backpacker market are located in this area,
separate from the main resort facilities. Supporting facilities are also sited beyond the
ridge, including extensive plant, water, sewerage and recycling depots.
Facilities and activities
Accommodation stock at Kingfisher Bay is separated into three distinct styles, a hotel
wing, villas and backpacker accommodation.
Kingfisher Bay Resort & Village - Overview of Accommodation
Accommodation No. of rooms Style Description
Hotel wing 152 Deluxe4.5-star Standard hotel room accommodation. The Hotel wing complex includes 2 restaurants, conference facilities, Bush Rangers office and swimming pool.
Villas 109 Deluxe4.5-star Self-contained 2 and 3-bedroom villa accommodation.
Backpacker Lodge 200 beds Backpacker Budget style dormitory accommodation. Facilities include the Dingo Bar and sports facilities
Total rooms (excluding beds) 341
Kingfisher Bay Resort and Village amenities include three restaurants, four bars, a
café/bakery, a convenience store, beautician, nightclub and swimming pool. The fine
dining and standard restaurants are located within the main complex. An additional food
and beverage outlet, the Sand Bar, is geared to service both day trippers and guests,
located close to the ferry terminal.
The resort operates a range of activities on Fraser Island including 4WD ecotours, 4WD
hire, range guided walks, tennis, bushwalking, birdwatching, wildflower walks, watersports,
fishing and a children's club. In more recent years, additional activities and interpretation
facilities have been introduced to Kingfisher Bay to improve the educational and
interpretational opportunities for resort visitors. These include tours of the plant and
recycling facilities of the resort and flora and fauna interaction opportunities.
History
Kingfisher Bay resort was conceptualised a Queensland-based public company,
Queensland Tourism Industries Limited, as a nature-based tourism destination during the
late 1980's. Developed under an Act of State Parliament on 19 January 1989,
development of Kingfisher Bay Resort was funded through an initial capital raising and a
partnership with Cosmos Australia P/L, a subsidiary of a Japanese public company, R****
Cosmos.
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The idea of a nature- based resort, utilising best practice construction techniques and
local materials to provide a structure in sympathy with the environment, was visionary at
that time and has continued to provide the resort with a competitive advantage.
Development commenced prior to 1989 with construction of the pier facility, followed by
construction of the resort component. At the commencement of operations in July 1992,
the resort included the main complex, day visitor pavilion, 152 hotel rooms, 25 villas, the
retail “village“ and associated plant and equipment. Since 1992, an additional 84 villas
have been constructed in two phases and a 120-bed backpacker style wilderness lodge
and ancillary bar and dining facilities were developed.
The size and layout of the resort has allowed for the development of a multi-use facility
and the separation of potentially non-compatible user groups. This in turn has created a
diversified demand base for the resort, reducing its exposure to market risk.
Ownership structure
Kingfisher Bay and Resort is owned and operated by Kingfisher Bay Resort Village P/L, a
Queensland-based private company and subsidiary of Tourism Leisure Corporation. Land
for the resort was purchased freehold and zoned into precincts.
Villa accommodation is strata titled and income from strata sales has been used to fund
expansion and development of the resort in a staged process. Additional land parcels are
currently being offered for residential development, with strict covenants on development
style and form. The sale of strata units and land has provided resort owners with an
additional source of capital, which has been used to fund further development and
upgrade existing facilities.
Resort Demand
Top 3 Demand issues:
• Price sensitivity of the domestic market.
• Limited ability to effectively leverage marketing opportunities using the resorts
“Hervey Bay/Fraser Island“ tourism destination context.
• Limited access to regional marketing funding/ high costs of effective promotion in
the increasingly 'noisy' marketplace.
Approximately 70% of demand for Kingfisher Bay Resort is sourced from the domestic
market, with the remaining 30% from international visitors. International guests are most
likely to be from Germany, Europe and America. Relative to inbound visitors, domestic
travellers show higher price sensitivity to room rates and package offerings.
110 Resorting to profitability - Making Tourist Resorts work in Australia
Competition from other regional resorts and a high reliance on domestic demand places
pressure on Kingfisher Bay to keep room rates in line with rival destinations to ensure
occupancies are maintained. The ability of the resort to increase its exposure to the less
price sensitive international market is constrained by the high cost of overseas marketing
and relatively poor air access into the region, not serviced by jet aircraft or major airlines.
This illustrates the importance of the Export Marketing and Development Grant (EMDG)
scheme to independent resort operators in remote locations.
Kingfisher Bay Resort exists in the context of two distinct regional environments, the
natural environment of Fraser Island and the built tourism environment of Hervey Bay.
Relative to the size of more mainstream Queensland resort tourism destinations such as
the Gold Coast and Sunshine Coast, Hervey Bay lacks enough critical mass to rank as a
high profile destination in its own right. As such, Kingfisher Bay Resort is unable to gain
significant marketing leverage through cooperative marketing with the destination as a
whole, since the resort and its associated World Heritage Area has a higher profile than
Hervey Bay as a destination. This has limited Kingfisher Bay Resort's access to the
regional marketing funding pool, which benefits competitor properties within rival precincts
or destinations. As a result, Kingfisher Bay must spend more on independent promotional
activity to achieve the same level of promotional profile as other south east Queensland
resort properties.
Strong association with the World Heritage Area of Fraser Island has also delivered some
managerial challenges for the resort. The stronger profile of Fraser Island has resulted in
increased visitation; however, there has been a lack of corresponding Government
investment in the provision of infrastructure and amenities to cope with rising demand.
Kingfisher Bay Resort has had to invest significant funds beyond the boundaries of the
resort to ensure the elements of guests' “out-of-resort“ experience is of the highest
calibre. This includes road maintenance close to the resort to ensure guest safety and
prevent excessive vehicular damage.
Hervey Bay Council has proposed raising funds for cooperative marketing through a
tourism levy on local businesses with an aim to substantially boost the profile of the
destination as a whole and grow the economic performance of the region through tourism.
For Kingfisher Bay, growth in the profile of the destination may also stimulate improved
access infrastructure, both road and air. The growing popularity of shorter, more frequent
holidays drives the need for remote destinations to ensure they are accessible. Existing air
transport to Hervey Bay is limited and requires guests to transfer in Brisbane. There is no
direct air link from Cairns, Sydney or Melbourne due to lack of sufficient demand, which in
turn acts as a deterrent to airline operating to Hervey Bay from major centres.
111Resorting to profitability - Making Tourist Resorts work in Australia
Resort Development
Top 3 Development issues
• Underestimated scale of capital expenditure in start up period.
• Multiple Government entry points for approvals/ navigating the regulatory and
licensing minefield.
• Difficulty in securing community and environmental group support.
The cost of capital investment on Kingfisher Bay Resort was underestimated across the
initial five year operational period due to the longer than expected lead-time to profitability.
Significant outlays on the bus fleet ($2.5 million), Sewerage plant ($600,000) and
passenger boat ($1.5 million) extended the timeframe for the resort to generate a profit.
This was originally estimated to occur within 3 years of operation but instead took 5 years.
The capital-intensive nature of the resort operation and the absence of short-term profits
highlight the necessity for financiers to adopt a long-term view on investment return
expectations.
In gaining approval for various development components as they related to compliance
and planning frameworks, the process of dealing with multiple Government agencies was
cumbersome and not well streamlined. Development approvals and licensing for the range
of plant and infrastructure facilities crossed Local, State and Federal Government
jurisdictions, proved long-winded and complex and were exacerbated by poor
communication between the various tiers of authority. Resultant construction time delays
amplified development costs. Given the scale of capital expenditure required for an
integrated resort development such as Kingfisher Bay and the length of time required to
achieve operating profit is significant, a requirement exists for Governments to clearly
articulate the cost, time and likely outcome of the approvals process and create a greater
level of certainty.
Community consultation prior to the development of Kingfisher Bay Resort was of
paramount importance for resort owners, who wanted to reassure the community that the
resort was designed to integrate with the environment rather than impose on it. Despite
efforts by developers to maintain transparency in the resort development planning process
and engage with local community, National Parks Authorities, environmentalists and local
Government (Maryborough Shire Council), Kingfisher Bay Resort owners were involved in
a 10-day court case with local environmentalists. The plaintiffs were not required to
provide security for costs of the case and the onus of payment of all legal, preparatory
and court expenses were borne by Kingfisher Bay Resort, despite the case being ruled in
their favour. Opposition by local environmentalists delayed initial construction phase of the
development, compounding construction time delays and creating escalating costs.
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Resort Operations
Top 3 Operational Issues
• Compliance with a broad a range of regulatory authorities.
• Fringe Benefits Tax (FBT) liability of staff accommodation.
• Uncertainty relating to charges imposed by the National Parks and Wildlife Service.
A broad range of regulatory authorities dictate standards and procedures relating to
specific plant, equipment and occupational health and safety processes for Kingfisher Bay
Resort. The main ones include Queensland Waterways, Workplace Health and Safety
Authority, Maryborough Shire Council, Queensland Department of Main Roads, the
Environmental Protection Authority, Queensland Parks and Wildlife Service (QPWS) and
Queensland State Government. The relationship between Kingfisher Bay Resort and each
authority is based on a necessary level of compliance of the operational aspect of the
resort that falls under the jurisdiction of a specific authority. In some instances, compliance
regulations are duplicated by similar authorities or the same authority at a different
Government tier. When this is the case, the resort must ensure it complies with the most
comprehensive of the compliance codes to ensure it meets the requirements at each
level. For example, “Residual Current“ compliance as it relates to electricity falls under the
jurisdiction of both Workplace Health and Safety Authority and Electrical Standards of
Australia. By complying with the more rigorous standards set by Electrical Standards of
Australia, then the resort automatically meets the secondary compliance goal. Although
the same compliance measure must be met to satisfy both authorities, the process of
identifying and ensuring all aspects are covered is the responsibility of the resort itself,
creating additional operating costs.
As new technologies improve the efficiency of specific plant and operations, compliance
measures are upgraded and the resort forced to introduce new best practice procedures
to meet new standards within a specific timeframe. Due to the scale of investment in plant
and equipment, forced compliance over a short term can impact profitability significantly.
For example, recent changes by “Food Standards Australia“ necessitate an upgrade in
both food transportation processes/facilities and food vending facilities at the point of
purchase. New standards relate to ensuring food is tested more frequently, handled more
hygienically and displayed (in all circumstances) under a protective fabric/material. The
costs of re-engineering the buffet food service areas of the restaurants, ensuring the
resort is compliant in all outdoor food presentation and adhering to new food testing
regimes in food transport from the mainland are expected to be significant.
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Fringe Benefits Tax (FBT) on staff housing remains a significant issue for remote and island
resorts like Kingfisher Bay Resort, since it imposes a tax on both the Resort operator and
the employee for the 'fringe benefit' of on-site accommodation. In relation to housing, the
fringe benefit granted to employees is taxed at the highest marginal income rate and paid
by the employer, who then gains an income tax deduction based on the taxable value of
the fringe benefit. In effect, the resort owner/operator is taxed for providing the benefit. For
an employee on anything less than the highest income tax rate, there if no incentive to
take fringe benefit style remuneration. Given the necessity for resorts located in remote
location to provide employee housing and transportation, the FBT is an additional burden
and barrier to profitability.
As interest in more experiential nature based tourism has grown, Kingfisher Bay Resort
has extended its activity base. The Resort provides 4WD recreation opportunities, Ranger
Guided tours, and various other activities within the World Heritage Area demanding an
effective relationship with the National Parks and Wildlife Service to facilitate appropriate
touring opportunities for resort guests. Permits and associated levies are required for
access to the World Heritage Area. As funding for the QPWS moves from consolidated
reserve towards a user pays system, uncertainty relating to the likely escalation of charges
is of concern to the resort, since such fees add to the resort's activity pricing. It is also
unclear whether funds collected from tours are directly reinvested into the management
and upkeep of the Fraser Island infrastructure, like roads and toilet amenities. This
highlights the importance of a strategic partnership approach between resorts and national
parks authorities to ensure adequate funding and upkeep of natural assets, which are
integral to the success of the destination.
114 Resorting to profitability - Making Tourist Resorts work in Australia
Key success factors
The factors that contributed to the successful development and operation of Kingfisher
Bay Resort are:
• Exclusive location in a World Heritage attraction, with established visitation patterns
and barriers to entry from competition.
• Development of a mixed-use product, comprising hotel, villa and backpacker
accommodation, which creates additional sources of demand and reduces the
exposure to market risk.
• Development under an Act of State Parliament, facilitating future development.
• Staged development and access to capital through strata titling and land sales.
• Financing partner with a long-term commitment to the project, willing to withstand
the long start up period.
• Creation of a visionary product, reflecting principles of eco-tourism and adventure
tourism.
• Integration of resort operations, creating additional source of revenue from tour
operations, 4WD hire and barge operations.
• Active promotion of environmental, cultural; and conservation principles.
• Creation of a professional management company, with a management team skilled
in operations and finance.
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Alpine TouristResorts CaseStudy
116 Resorting to profitability - Making Tourist Resorts work in Australia
This case-study of Alpine resorts illustrates many of the issues common to other secluded
resorts in Australia.
This case-study examines the top five Australian alpine resorts - Thredbo, Perisher, Mount
Buller, Mount Hotham, and Falls Creek - as a group, and highlights issues and
opportunities for Alpine resort tourism as a niche tourism sector. The five resorts are all
located in Alpine regions near the border between NSW and Victoria. A summary table
comparing their size, altitude, terrain (etc) is provided in Appendix 1.
History
Alpine tourism in the Snowy Mountains and the Victorian Alps first emerged in the 1940s
and 50s. The first chairlift was built at Falls Creek in 1957 and ski-tourism became a
popular winter adventure tourism activity. There was rapid expansion of ski tourism
throughout the 1960s, 1970s and into the 1980s. Two styles of tourism accommodation
emerged; non-profit club lodges, and commercial accommodation including hotels,
resorts, B&B's and apartments. Over the last decade or so there has been a shift away
from clubs and the bunk-style share accommodation of lodges in favour of self contained
apartment accommodation.
Over the last few years there has also been a push to go beyond the traditional winter
market and to attract year-round visitation to alpine resorts with the key non-winter
attractions being ecotourism, sightseeing, bushwalking, mountain biking and as an escape
from the summer heat of the cities.
Alpine Resort Demand
Top 3 Demand Issues:
• A mature market - no new growth observed
• Seasonality - winter highs and summer lows
• Strong competition from other leisure activities
There are two main markets for the Alpine tourist resorts; winter and non-winter. In the
winter, the resorts attract a preponderance of 18-35 year-olds seeking adventure and
adrenalin, as well as a secondary family market. There is a general community perception
that ski tourism is an expensive leisure activity and the alpine resort sector has to compete
with a range of other leisure pursuits such as sports events, theatre and city-break
tourism. Winter tourists to the alpine resorts have very high expectations of quality - both
in terms of professional service and in terms of the standard of facilities provided. Many
have visited overseas alpine destinations and demand a similar high quality experience.
Increasingly these customers are demanding fully-inclusive deals with customised
itineraries. Despite the introduction of snowboarding over the last decade, there has been
little or no growth in demand for winter alpine tourism. Some resorts have however had
considerable success in capturing the non-winter market.
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Winter Market (around 100 days) Non-Winter Market (around 265 days)
19-35 year olds Seniorsfamilies Conference, meetings and eventsShort break marketpositioned as an aspirational holiday destination Positioned as a value for money destination
Snowboarding as a new activity 'keeping the industry alive' Soft adventure activities: ecotourism, guided walks, scenic drives, etc.Hard adventure: bushwalking, Mt climbing, rock climbing, mountain biking, etc.
Very high expectations of quality, high prices. Seeking value for money
Demanding customised 'packages' Events and festivals
Shorter stays Luxury health and spa facilities
Mature market - low growth Growing market but very competitive
Over the last decade or so, many of the resorts have been trying to diversify their markets
in order to address the problem of seasonality. The winter market is still the main source
of revenue and has the highest room rates and highest occupancy rates, but some
resorts have had considerable success attracting visitors for the non-winter season,
especially the Christmas and Easter holiday periods. The non-winter market is very
different to the traditional winter market, soft adventure activities such as ecotourism,
heritage interpretation and education are important. Visitors want to learn and be touched
by nature, the resorts are investing in walking tracks, and interpretive trails either jointly
with National Parks Management agencies or on their own land (for example, Mt Buller is
developing interpretative trails within the resort).
Thredbo is generally acknowledged as leading the field in respect of non-winter visitation
and has attracted a series of events including the National mountain bike championships,
and a National Shakespeare Festival. Recent research by Canberra University shows these
participatory events have a very high positive impact on the regional economy.
Markets that look to hold potential for filling in the gaps between the holiday periods are the
growing “baby-boomer“ market, and MICE (Meetings, Incentives, Conferences and Events)
market, and education tourism. Some of the resorts have also developed strong cross-
industry synergies that assist to address the seasonal imbalance, for example, Thredbo has
the Australian Institute of Sport's altitude training base and Mt Buller has a campus of
LaTrobe University where Tourism and Hospitality courses are offered. The extra facilities
provided by these campuses also serve as attractions for tourists and widen the product
available.
Alpine Resort Development
• Providing “certainty“ for investors over land tenure and development approvals
processes
• Responding to the threat of global warming - uptake and investment in new
technologies for snow-making
• Regional support structures and infrastructure (including transport and
communications)
118 Resorting to profitability - Making Tourist Resorts work in Australia
It is very unlikely that any new alpine resorts will be developed in Australia in the coming
years as suitable alpine land is protected within National Parks and there has been little
growth in demand over the last few years to warrant new 'greenfield' developments. There
is, however, some scope for the expansion and redevelopment of existing resorts and
Consolidated Press Holdings has approval for a $100 million upgrade of Perisher Blue
resort and plans a further $240 million expansion subject to approvals.
Alpine resorts exist under a complex system of land tenure and management that comes
mainly under State Government responsibility. In Victoria the alpine resorts are all located
on crown land often surrounded by (or adjacent to) National Parks. They are administered
by Statutory Authorities (Alpine Resort Management Boards) that come under the Alpine
Resorts Co-ordinating Council (ARCC) under the Victorian Department of Natural
Resources and Environment. The ARCC is currently preparing an Alpine resorts 2020
strategy to address the strategic planning of the resorts.
In NSW the situation is even more complex. Planning NSW has this year taken over the
responsibility of development approvals in the Kosciuszko region from NSW National Parks
and Wildlife Service (NPWS). Key features of the new (SEPP 73) planning policy for
Kosciuszko are:
- Improved public consultation
- Stronger emphasis on visual impacts
- Rigorous environmental impact assessments,
- A requirement that geotechnical and land stability issues be stringently
assessed.
The Resorts Division of NPWS oversees the Local Government functions for the area
including the provision of municipal services for the Perisher Range. Thredbo resort has a
'headlease' arrangement with NPWS whereas Perisher Blue operators have individual
leases with NPWS.
In the past there have been considerable delays and difficulties encountered at the
planning stage of new accommodation developments, but it is hoped that the new SEPP
73 planning guidelines will provide more certainty for developers and investors by removing
the local interpretation and influence over the approvals process.
Both NSW and Victoria are currently involved in strategic planning exercises for the Alpine
resort areas which are partly in response to the industry-wide threat of global warming.
'The greenhouse effect' is likely to have significant implications for Australia's alpine resorts
with increasing temperatures and reducing precipitation. Global warming is expected to
cause the 'snowline' to shift further up the mountain making ski resorts at lower altitudes
more marginal. The higher altitude resorts of NSW have a competitive advantage in that
they have greater capacity to increase their snowmaking to offset lower natural snow falls.
119Resorting to profitability - Making Tourist Resorts work in Australia
Each of the five large resorts has already invested heavily in new technologies for
snowmaking and Australian resorts are world leaders in this field, making snow at far more
marginal temperatures than resorts in colder areas of the world. Access to water is crucial
for snowmaking and the cost of pumping water up the mountain slopes to be turned into
snow is significant, as are the energy costs involved.
Alpine Resort Operations
Top 3 Operational Issues
• Keeping the beds 'hot'
• Access issues - not being penalized for being in a remote location
• Reducing operational costs - tax
Alpine resorts operate in a very high cost business environment. The remoteness of Alpine
resorts from the major cities - Victorian resorts are about 3 hours drive from Melbourne and
New South Wales resorts are about 5 hours from Sydney - means that inputs such as
building materials and basic goods and services have to be transported long distances for
use. Access is particularly difficult and expensive in winter periods when space is at a
premium and road conditions can be poor. Improving access to alpine resorts is a key
issue that can improve their performance. All of the Alpine Resorts in Australia rely on road-
based access, and despite significant recent private investments to improve air access to
Mt Hotham and Falls Creek, alpine tourism remains a road-transport-based industry.
One of the key success factors identified in managing the operation of Alpine resorts is to
'keep the beds hot', that is, to use every possible accommodation unit (or bed) for as
much of the time as possible. If the beds are empty (and cold!) then there are fewer
visitors on hand to use the other resort facilities - the ski lifts, café's, restaurants, golf
courses etc. The successful resort operators have a number of mechanisms that assist to
keep the beds 'hot':
- Tiered pricing during peak and shoulder periods.
- Providing tailored packages for different niche markets.
- Working in close co-operation with the accommodation booking service
providers.
- Ensuring there is a wide range of accommodation types and prices to suit
different market segments.
120 Resorting to profitability - Making Tourist Resorts work in Australia
As with other resort types, most alpine resort staff are bound by an Industrial Award wage
and there are significant add-on costs for human resources. The resorts have evolved
quite complex systems of staffing over the years to ensure that they can attract and retain
staff for the peak visitor periods. They rely on having a willing pool of young, enthusiastic
staff attracted by the 'lifestyle' rather than the money.
Some further success factors identified for successful Alpine resort operations are:
- Managing the seasonal fluctuations in staffing requirements.
- Managing the occupancy rates for the resorts to spread the visitor load over the
seasons.
- Diversification of product and activities.
- Integration between the ski-lift operations and accommodation and food and
beverage side of operations.
- Managing the 'build-up' to peak season so that infrastructure (especially waste
treatment plant) can adjust and operate cleanly and efficiently.
Land taxes are an expensive aspect of resort operation and one resort operator suggested
the possibility of reducing the rates of land tax paid annually. Another area where tax
policies could be reviewed is in the context of the Alpine resorts industry being very
dependent on seasonal weather conditions. It was suggested that seasonal resorts be
allowed access to 'income equalisation' taxation adjustments similar to those allowed for
farmers and others who may have large variations in incomes from year to year.
121Resorting to profitability - Making Tourist Resorts work in Australia
Comparison of the Five Major Alpine Resorts
Resort Thredbo Perisher Blue Mount Buller Mount Hotham Falls Creek
Established 1962 1952 1946 1948
Land tenure National Park National Park Crown Land Crown Land Crown Land -
Relationship to National parks Headlease NSW NPWS Adjacent to surrounded by surrounded by
arrangement is 'landlord' National park National park National park
with NSW NPWS
Ownership Amalgamated Consolidated BCR Asset BCR Asset
Holdings Ltd Press Holdings Management Management
Management Kosciusko- Perisher Blue Mt Buller Resort Mt Hotham Resort Falls Creek Resort
Thredbo Co. Pty Ltd Management Board Management Board ManagementBoard
Beginner 16% 22% 20% 25% 17%
Intermediate 67% 60% 40% 45% 60%
Advance 17% 18% 40% 30% 23%
Highest elevation 2037 m 2034 m 1850 m 1790 m 1780 m
Base elevation 1365 m 1605 m 1450 m 1390 m 1600 m
On-Mtn Car spaces 2200 6980 1500 2000 2000+
No. Beds 4200 3114 3500 7000 4200
Village Height 1365 m 1680 m 1750 m 1600 m 1650 m
XC Trails 6 km 104 km 35 km 9 km 20 km
Downhill skiable area 480 ha 1250 ha 245 ha 180 ha 450 ha
Downhill longest run 5.9 km 3 km 2.5 km 2.5 km 3 km
Snowboard Park Yes Yes Yes Yes Yes
Nearest Town Jindabyne Jindabyne Harietville Mansfield Mt Beauty
Distance From 30 km 30 km 34 km 47 km 30km km
Distance to a major city 487 km Sydney 487 km Sydney 250 km Melbourne 357 km Melbourne 356 km Melbourne
Apx. Visitor days per year 400,000 300,000
-winter days 350,000 270,000
-summer days 50,000 30,000
Lifts 13 50 25 12 19
Staff in Peak season 850 950
122 Resorting to profitability - Making Tourist Resorts work in Australia
Appendices
123Resorting to profitability - Making Tourist Resorts work in Australia
Appendix 1- Bibliography
ABS (2002) Australian National Accounts: Tourism Satellite Account 2000-01, CatalogueNumber 5249.0, Commonwealth of Australia, Canberra.
ABS (2000) Population Projections Australia 1999 to 2101, Catalogue Number 3222.0,Commonwealth of Australia, Canberra.
ABS (2002) Tourist Accommodation Australia: December Quarter 2001, CatalogueNumber 8653.0, Commonwealth of Australia, Canberra.
ABS (1999) Tourist Accommodation Australia: December Quarter 1998, CatalogueNumber 8653.0, Commonwealth of Australia, Canberra.
Austrade (2002) How the Export Market Development grants Scheme Helps TourismExports, Australian Trade Commission, Canberra.
Australian Heritage Commission and DITR (2001) Successful Tourism at Heritage Places,Commonwealth of Australia, Canberra.
Blamey, R.K. (1995) The Nature of Ecotourism, Occasional Paper No 21, Bureau ofTourism Research, Canberra.
BTR (2002) Travel by Australians 2001: Annual Results of the National Visitor Survey2001, Bureau of Tourism Research, Canberra.
BTR (2000) Travel by Australians 1999: Annual Results of the National Visitor Survey1999, Bureau of Tourism Research, Canberra.
BTR (2003) Travel by Australians: December 2002 Quarterly Results of the National VisitorSurvey, Bureau of Tourism Research, Canberra.
BTR (2003) International Visitors in Australia: September 2002 Quarterly Results of theInternational Visitor Survey, Bureau of Tourism Research, Canberra.
BTR (2000) International Visitors in Australia: June 2000 Quarterly Results of theInternational Visitor Survey, Bureau of Tourism Research, Canberra.
BTR (2000) International Visitors in Australia: Annual Results of the International VisitorSurvey 1999, Bureau of Tourism Research, Canberra.
CRC for Sustainable Tourism (2002) Our Gold Coast: The Preferred Tourism Future.
Davidson, J. & Spearritt, P. (2000) Holiday Business: Tourism in Australian Since 1870,Melbourne University Press, Victoria.
DITR (2002) Forecast December 2002, Tourism Forecasting Council, Canberra.
DITR (2003) Forecast May 2003, Tourism Forecasting Council, Canberra.
DITR (2002) The Ten Year Plan for Tourism: A Discussion Paper, CommonwealthDepartment of Industry, Tourism, and Resources, Canberra.
124 Resorting to profitability - Making Tourist Resorts work in Australia
Horwath (2002) Hotel Industry Survey of Operations, Horwath Asia Pacific Pty Limited,Sydney.
Inskeep, E. (1991) Tourism Planning: An Integrated and Sustainable DevelopmentApproach, Van Nostrand Reinhold, New York.
Inskeep, E. & Kallenberger, M. (1992) An Integrated Approach to Resort Development,World Tourism Organisation, Madrid.
Inskeep, E. (1998) Guide for Local Authorities on Developing Sustainable Tourism, WorldTourism Organisation, Madrid.
Jones Lang LaSalle Hotels (2002) Public and Private Hotel Investment, Jones LangLaSalle, Sydney.
National Roads & Motorist's Association (2002) Accommodation Guide 2001-2002,Australian Automobile Association, Canberra.
Roy Morgan Research (2002) Results of the Holiday Tracking Survey, Roy MorganResearch, Melbourne.
The Australian Pocket Oxford Dictionary 4th Edition. (1996) Oxford University Press,Australia.
Tourism New South Wales (2002) Impact of Geo-Tourism Development Values onDestination Choice in Coastal New South Wales, 2002 Ecotourism Association of AustraliaInternational Conference, 21-25 October 2002, Cairns.
TTF (2002) Keeping the Bush in the Game: New Approaches to Making Regional TourismMore Competitive, Tourism Task Force, Sydney.
TTF (1997) Developing Viable Regional Tourist Accommodation - Part 1 - the reformagenda for governments A joint study conducted for the Tourism Task Force by ArthurAnderson & Planning Workshop Australia. Sydney: Tourism Task Force.
TTF (1997) Developing Viable Regional Tourist Accommodation - Part 2 A joint studyconducted for the Tourism Task Force by Arthur Anderson & Planning Workshop Australia.Sydney, Tourism Task Force.Seniors Card Tourism Scheme (2000) Not Over the Hill, Just Enjoying the View
Andersen (2002) Andersen Hotel Industry Benchmark Survey 2002, Andersen, UnitedKingdom.
Andersen (2001) Andersen Hotel Industry Benchmark Survey 2001, Andersen, UnitedKingdom.
Andersen (2000) Andersen Hotel Industry Benchmark Survey 2000, Andersen, UnitedKingdom.
125Resorting to profitability - Making Tourist Resorts work in Australia
Appendix 2: List of respondents
Mr David Gibson Managing Director Jones Lang LaSalle Hotels
Mr Robert McIntosh Managing Director Colliers International
Mr Geoffrey Lee Director Tourism Woodhead International Pty Ltd
Mr Ben Dillon Head of Property Westpac Institutional Bank
Mr Selliah Kalyanakumar Fund Manager Commonwealth Property
Mr Bruce Porter Director - Property Babcock & Brown Pty Limited
Mr Peter Naas Senior Manager Commercial ANZ Banking Group Limited
Real Estate
Mr Tony Karp Vice President BT Funds Management
Ms LingYin Tang General Manager - Macquarie Bank
Macquarie Leisure Trust
Mr Mark Campbell Managing Director P&O Resorts
Mr Joe Sita Director of Development Radisson Hotels and Resorts
Mr Phil Kasselis Director of Development Six Continents Hotels
Mr Tim Di Mattina Executive Director Travelodge Hotels & Resorts
Mr Todd Wynne Parry Director of Development Medina
Mr Ric Cameron Chief Executive Mirage Resorts Management Pty Ltd
Mr David Lawrence Vice President Outrigger Hotels - Resorts
Mr Michael O'Connor Managing Director Peppers Hotel Group
Mr Simon Reed Managing Director Robert Luxmore
Mr John Hagley Managing Director CRI Limited
Mr John Morris Managing Director Port Douglas Reef Resorts
Mr Stephen Holliday Hospitality and Bovis Lend Lease
Leisure Sector Manager
Mr Steve Pink Development Manager Consolidated Properties
Mr David Kobritz Managing Director Deal Corporation
Mr Jeff Kuhne Senior Vice President Troon Golf Australia
Mr David McMann Managing Director - Asia Pacific ClubCorp Holdings Australia Pty Ltd
Ms Louise Murray Senior Manager Medallist Developments
Mr Richard Buxton Managing Director Buxton Property Group
Mr Jeff Beeston Team Leader - DITR
Regional and Niche Tourism
Mr Michael Shiels Team Leader - DITR
Tourism Business and Investment
Analysis
Mr Bob Peglar Group General Manager - DITR
Tourism Business Development
Mr David Crinion General Manager, Policy SATC
and Planning Group
Mr Graham Perry Chair See Australia
Ms Julie Conlon Executive Officer Coastal Council of NSW
Prof Bruce Thom Chair Coastal Council of NSW
Mr Keith Maxted General Manager - Invest Australia
Attraction, Strategies and Partnerships
Mr Graeme Crough Tertiary Industries Unit Manager FIRB Department of the Treasury
Ms Meg Switzer Director of Tourism Environment Australia
and Sustainable Heritage
Mr Tony Fleming Director of Southern Directorate NPWS
Mr Brock Crambourne Director, CRC Turism Canberra University
Mr Stewart Moore Managing Director Sustainable Tourism Services
Ms Jan Bimrose Director - Tourism Development Tourism Queensland
Mr Peter Keage General Manager - Investment Tourism Victoria - Infrastructure
& Aviation TDevelopment & Aviation
126 Resorting to profitability - Making Tourist Resorts work in Australia
Mr David Tarr Manager - Development Tourism NSW
Mr Daniel Gschwind General Manager QTIC
Mr Tony Ryan Partner Blake Dawson Waldron
Mr Stephen Albin Deputy Chief Executive Tourism Task Force
Ms Cathy Parsons Executive Director Green Globe Australia
Ms Rosemary Hollow Assistant Director - Australian Heritage Commission
Tourism and Sustainable Heritage
Mr Andrew Cocks Chief Executive Australian Ski Areas Association
Mr Sandie Jeffcoat Chief Executive Mt Buller Resort
Mr Gil Marshall GM Planning and Policy Victroia DNRE
Appendix 3: Roy Morgan Value Segments
Appendix 4: Properties included in Andersen Benchmark Survey Report sample
Australian Resort Sample
1. Alice Springs Resort
2. Royal Pines Resort
3. All Seasons Mermaid Resort
4. Geographe Bayview Resort
5. Cairns Oasis Resort
6. Matson Resort Cairns
7. Outrigger Cairns Resort
8. Rydges Oasis Resort
9. All Seasons Pacific Bay Resort
10. Centra Pelican Beach
11. Outrigger Coolangatta Beach
12. Hyatt Regency Coolum
13. Orient Express Lilianfels
14. Kings Canyon Resort
15. Peppers Fairmont
16. Outrigger Mooloolaba
17. Sheraton Noosa Resort
18. Marriott Courtyard Great Barrier Reef
19. Novotel Cairns Palm Cove
20. Sheraton Mirage Gold Coast
21. Peppers Manor House Southern Highlands
22. Outrigger Sun City Resort
23. Pacific International Waterfront Resort
24. Rydges Capricorn Resort
25. Desert Garden Hotel
26. Radisson Resort Palm Meadows
27. Burswood International Resort
28. Peppers Convent Hunter Valley
29. Peppers Guest House Hunter Valley
127Resorting to profitability - Making Tourist Resorts work in Australia
30. Radisson Port Douglas Treetops
31. Sebel Resort & Spa Hawkesbury
32. Peppers Hidden Vale Lockyer Valley
33. Kingfisher Bay Resort
34. Radisson Beach Resort Dunsborough
35. Rendezvous Golden Beach Resort
36. Rydges Reef Resort Port Douglas
37. Rydges Reef Villas Port Douglas
38. Sheraton Mirage Port Douglas
39. Peppers Anchorage Port Stephens
40. Peppers Delgany Mornington Peninsular
41. Outback Pioneer Hotel
42. Sails in the Desert
43. Jupiters Townsville Hotel & Casino
44. Sebel Resort Noosa
45. Hyatt Regency Sanctuary Cove
46. Conrad Jupiters Hotel & Casino
47. Marriott Courtyard Surfers Paradise Resort
48. Marriott Surfers Paradise Resort
49. Mercure Surfers Paradise Resort
NSW Resort Sample
1. All Seasons Pacific Bay Resort
2. Centra Pelican Beach Coffs Harbour
3. Orient Express Lilianfels
4. Peppers Fairmont Blue Mountains
5. Peppers Convent Hunter Valley
6. Peppers Guest House Hunter Valley
7. Peppers Anchorage Port Stephens
8. Peppers Manor House Southern Highlands
9. Pacific International Waterfront Resort The Entrance
10. Crowne Plaza Terrigal
11. Grand Mercure Bowral
12. Nautilus Coffs Harbour
13. Novotel Northbeach Wollongong
14. Novotel Opal Cove Coffs Harbour
15. Sebel Resort & Spa Hawkesbury
128 Resorting to profitability - Making Tourist Resorts work in Australia
Appendix 5: Operating department and undistributed expenses explanation
• Rooms Department
All revenue and expenses associated with the sale and operation of guest rooms.
Expenses include payroll and related benefits as well as other operating costs. Payroll and
related benefits include salaries, wages and related expenses for front desk, reservations
and housekeeping personnel. Other operating expenses consist of travel agent
commissions, Frequent Flyer commissions, guest supplies, cleaning supplies, uniforms,
laundry, linen, and other items for maintaining guest rooms and the lobby area.
• Food and Beverage Department
All revenue and expenses associated with the sale and operation of food and beverage
outlets in the hotel or resort. Major expenses include the cost of goods sold, payroll and
related benefits, as well as other operating costs. Cost of goods sold represents the cost
of all food and beverage inventory used in the preparation of items served to guests plus
transportation, storage, and delivery charges.
Other operating costs include china, linen, glassware, silver, entertainment, menus and
printing, restaurant and cleaning supplies, contract cleaning, paper supplies, licences, and
miscellaneous operating supplies associated with the food and beverage department.
• Telephone Department
All revenue and expenses associated with the usage of telecommunications by hotel
guests, such as telephone, internet and facsimile. Telephone expenses include the cost of
local and long distance calls, payroll and related benefits for operators as well as other
operating costs.
• Administrative and General
Included in this category are the payroll and related benefits for the general manager,
human resources personnel, administrative staff, and financial staff. These payroll and
related benefits are relatively fixed and do not materially vary with occupancy fluctuations.
Other administrative and general expenses include the cost of office supplies, computer
services, accounting and legal fees, credit card commissions, liability insurance, printing,
stationery, postage costs, cash shortages, credit and collection charges, dues,
publications, donations, and other miscellaneous administrative expenses.
• Marketing
Marketing expense includes payroll and related benefits for the sales and marketing staff,
direct sales expense, advertising and promotion and travel expenses for marketing staff.
129Resorting to profitability - Making Tourist Resorts work in Australia
• Utility Costs
These costs represent expenditures for electricity, fuel, water, sewage, and other
miscellaneous utility costs.
• Property Operation and Maintenance
Property Operations and Maintenance expenses include payroll and related benefits for
maintenance personnel, maintenance supplies, landscape and grounds maintenance,
contract services such as waste removal, as well as the cost of repairs and maintenance
for the building, furniture, and equipment.
• FF&E Reserve
This is an amount set aside for the replacement of furniture, fixtures and equipment
(FF&E). These items are exposed to heavy use and must be replaced at regular intervals
to maintain quality, image and income potential for a property.
• Fixed Costs
Fixed costs usually include property taxes and insurance. Property taxes typically include
taxes on real estate, business and occupation, personal property, utilities and other
municipal taxes.
Appendix 6: Bibliography
Appendix 7: Statement of limiting conditions and assumptions
130 Resorting to profitability - Making Tourist Resorts work in Australia
FULL REPORTof the TTF Australia
2003 Hallmark Report
The full report is available free
of charge on the ttf website:
www.ttf.org.au
MAKING TOURIST RESORTS WORK IN AUSTRALIA
Resorting to ProfitabilityThe full report and this summaryare available free of charge on the website: www.ttf.org.au
While every care has been taken in preparing thisReport, TTF Australia Limited, the project SteeringCommittee (including its constituent organisations),and Ernst & Young (including its related entities,partners, staff and agents) each disclaims all liabilityhowever arising to the maximum extent permittedby law for any loss or damage (whether direct or indirect) incurred as a result of any person, company or other entity acting or relying on information in this Report. This report is general in nature and readers of this report should obtain independent advice specific to their own situation.
Sponsors
Federal Department of Industry Tourism & Resources
Tourism NSW
Tourism Victoria
Tourism Queensland
General Property Trust
Australian Ski Areas Association
Acknowledgments
Andrew Sudholz
Monika Dubaj
Paula Drayton
Jeffrey Blunden
Kristy Rodwell
Olivia Jenkins
Karl Flowers
MAKING RESORTS WORK IN AUSTRALIA
Resorting to Profitability
TTF Australia is the peak industrygroup developing tourism and infrastructure. It represents chief executives of the 200 most prestigiousinvestors, operators, regulators anddevelopers in Australia's tourism,transport and infrastructure industries.
TTF Australia Ltd
Level 10, Westfield Towers, 100 William Street, Sydney NSW 2011Tel 02 9368 1500 Fax 02 9368 0933 Email [email protected]
www.ttf.org.au
Key findingsThe future stability and development of the resortssector is an important issue for both industry andGovernment to consider, given the expected long-term growth in tourism in Australia and thepotential for resorts to act as catalysts for regionaldevelopment.
• The resorts sector has performed poorly over the last few decades when compared to city hotels, but has adapted to the Australian context and environment. New resort development has been characterised by smaller,niche style resorts including golf resorts, eco-resorts, safari resorts and health and spa retreats.
• The resort industry has experienced a period of consolidation in the last decade, following the 'hype' of the 1980s. A better understanding of demand and supply fundamentals, stronger management expertise and stringent financial requirements create a healthier platform for future resort operations and development in Australia.
• In the next 5-10 years the resorts sector should focus on refurbishment and re-positioning opportunities for existing resorts rather than on new developments.