Resort Tourism 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.

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.


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.

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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.


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.


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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

om

mo

dat

ion

Ty

pe

Ave

rag

e D

aily

Ro

om

Occ

up

ancy

%

Ave

rag

e A

chie

ved

R

oo

m R

ate

$

Ave

rag

e D

aily

Ro

om

Yie

ld $

Australian Resort Sample vs. Hotel Sample

Year Ended December 2001

Source: Andersen Hotel IndustryBenchmark Survey 2002


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• 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.


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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.


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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


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• 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


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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.


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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.


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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.


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.


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.


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.


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.


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.


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”.


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


• 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.


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.


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.


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.


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.


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


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




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




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


There has beena recent shiftfrom island andsecludedmainland resortdevelopment toaccessiblemainland resorts



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.


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.


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.


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.


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


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.


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.


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


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.


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


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:


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


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


Conventional Family life

Look at Me

Something Better

Real ConservatismYoung Optimism

Visible Achievement

Socially Aware

4-star hotel and resort demand by value segment





Look at Me

Something BetterReal Conservatism

Young Optimism

Visible Achievement

Socially Aware


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





Look at Me

Something Better

Real ConservatismYoung Optimism

Visible Achievement

Socially Aware


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.


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:


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.


• 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


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:


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


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:


1998 1999


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



1998 1999


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;


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.


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.


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;


• 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.


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


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.


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.


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.


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:


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


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.


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


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.


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


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.


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:


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:


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.


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.


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.


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


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.


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



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.


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.


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.


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;


• 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.


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:


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.


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:


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



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


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


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.


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



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.


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.


• 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.


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;


• 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.


• 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.

75Resorting to profitability - Making Tourist Resorts work in Australia

76 Resorting to profitability - Making Tourist Resorts work in Australia

Case studies


Couran CoveIsland ResortCase Study


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.


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.


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.


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


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.


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.


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


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.


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.


Ayers RockResort CaseStudy


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.


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


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


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.


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.


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.


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.


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


• 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.


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.


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


Heritage Golf &Country ClubCase Study


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:


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.


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.


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.


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


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.


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


• 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.


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.


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.


Kingfisher BayResort CaseStudy


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.


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


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.


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.


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.


Resort Development


• 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.


Resort Operations


• 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.


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.


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.


Alpine TouristResorts CaseStudy


This case-study of Alpine resorts illustrates many of the issues common to other secluded


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.


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)


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.


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


• 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.


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.


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


Appendices


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.


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.




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


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


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


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.


• 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

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.

Resort Tourism in Australia

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