Hostel environment for tourism

A high dollar and shifting tastes have meant a lean peak season for tourism operators. Picture Amos Chapple

As the high New Zealand dollar puts off travellers and increased competition in the motorcoach and hostel market squeezes margins some operators have shut their doors. Others have been forced to rethink their expansion plans or offer aggressive discounts to capture a bigger share of the shrinking backpacker market as new "hot" destinations such as Cambodia and Chile lure tourists to cheaper locales.

Severe discounting is rampant in the backpacker coaching market. The tactic is seen as a last resort by many operators and is discouraged by industry experts, yet at least one coach operator, Magic Travellers Network, deemed the move necessary.

Direct competitor Tourism Holdings, owners of Kiwi Experience coaches, has felt the burn from Magic's decision.

Tourism Holdings executive Sean Murray says the steep discounting has increased competitive pressure. Instead of matching or undercutting the discount - which would have set off a price war - Murray said Tourism Holdings offers backpackers such incentives as free touring days or two-for-one passes.

"I think the sad thing is, at the end of the day we are all eroding yield by fighting for the same customer," Murray said, adding that the summer season so far "has been a bit quieter than normal".

Magic executive Rob Burnell said late last month that the company didn't see discounting as a long-term strategy but made the decision to maintain its market share. It dropped all fares by 15 per cent until May, maintaining its off-season discount throughout the summer.

Hostels and backpacker lodges are feeling even more of a pinch than motorcoach owners.

Eric Foley, co-owner of the 370-member Budget Backpacker Hostels network, said the December rush never materialised for his Christchurch hostel or for many members.

"We've been full the last few nights, but normally we would expect to be full every night in January. We wouldn't expect to have any beds unless we had a cancellation," said Foley.

A 32-year veteran of the tourism industry, Foley said this was the first season he had heard of backpacker lodges closing due to poor market conditions.

Statistics New Zealand research shows 2005 was a hard year for some hostels. Between April and July last year, 17 backpacker establishments closed. But there were even more people rushing to take their place. The same data shows that from July to November last year, 42 backpacker establishments opened, bringing the total to 435 properties nationwide.

According to the Tourism Research Council data, the growth in hostels has boosted capacity by 27 per cent in two years. In the same time, total guest nights have risen only 17 per cent. The falling demand for hostel beds, coupled with the rise in capacity, means total occupancy rates have fallen 9 per cent in two years.

Fiona Luhrs, chief executive of the Tourism Industry Association, said she was aware of some backpacker accommodations closing, particularly at the start-up end of the market.

The independent hostel, often run out of a private house, is seen as an "easy entry" point into tourism.

"Those smaller operations come under pressure quite quickly because of lower occupancy rates. Quite a lot of them that have opened have been out in the regional areas, which have quite high seasonality," said Luhrs. "Someone starting off new might find that quite difficult."

Like any new business, economies of scale and intimate knowledge of the market are essential, she added.

The high Kiwi dollar is not only deterring backpackers and other tourists from coming to New Zealand, those that do come tend to spend less and stay for shorter intervals, Government research shows. So that leaves not only coaches and hostels on tighter margins, but attractions, retailers and other businesses that depend on peak tourist seasons to bolster sales.

Campbell Shepherd, managing director of Beyond Backpackers, which owns four hostels in tourist centres, said that many holidaymakers are coming over on a cheap flight, doing a quick loop around the South Island for 10 days and then they're gone.

At Beyond Backpacker's Queenstown property, for instance, on average backpackers are doing only one activity, like bungy jumping or jetboating, when in the past they had done three.

Shepherd said an employee of his on a recent trip to Thailand was told by another backpacker that New Zealand was getting a reputation as being so expensive - given the high exchange rate - that backpackers were calling the country the "Switzerland of the South Pacific".

"That's the perception at the moment, and it's deterring people from coming," said Shepherd. News travels fast in the backpacker community and these tourists often rely on word-of-mouth when choosing destinations, he added.

Southeast Asia and South America are the new hot spots, many industry experts said.

Gary Ogle, the owner of six holiday properties in Taranaki, said that although backpackers numbers were down this season, his assets were performing "well above average".

Not only has he "poured a lot more money" into advertising, but Ogle has expanded his reach by building accommodations and now has a portfolio of properties that target thrifty to high-end travellers. Meanwhile his lodgings boast more than just a place to sleep but a total experience heavy on the history of the locations and the beauty of the natural environment.

Ogle said he was well-prepared for the downturn because he had been expecting it since 2004.

"Over the next two to three years I certainly think we're going to see a lot more closures as times become tougher," he said.

Shepherd, Luhrs and Ogle agreed other than the high dollar, hot markets in South America, South Africa and Southeast Asia are luring backpackers.

"New Zealand had it good for quite a few years. It's been top of the pops and every country can only stay top of the pops for a period of time. Our time is over," said Ogle.

With a whole host of offerings, from an employment agency to nightclubs and a travel business, Beyond Backpackers is better prepared than most to weather the slowdown, said Shepherd. Even so, the company has put its expansion plans on the backburner for now.

"We have plans to expand and certainly we will continue with those plans, but the speed of development is in question now given the state of the market," said Shepherd.

PACKING IT IN

* Between April and July last year 17 backpacker establishments closed.

* But from July to November last year, 42 backpacker establishments opened, bringing the total to 435 properties nationwide.

* The growth in hostels has boosted capacity by 27 per cent in two years. In the same time, total guest nights have risen only 17 per cent.

* Operators say the December rush never materialised this season and the high dollar is deterring visitors. Those that do come are making shorter visits and spending less.

* New Zealand is seen as so expensive that backpackers have dubbed it the "Switzerland of the South Pacific".