Tourism industry faces challenges on its path to recovery

Sunday, 1 October 2023

Tourism has long been an economic heavy-hitter, but the industry needs more support and funding to regain its full potential, industry insiders say.

Before the pandemic, tourism was New Zealand's largest export earner, generating $41.4 billion and accounting for 9.1% of the economy.

It was one of the industries hardest hit by the pandemic border closures, but is now in its second year of recovery, and building back strongly.

The most recent tourism satellite figures available are for the year to March 2022, and show the industry generated $26.6b, slipping to 5.1% of the economy,

While domestic tourism income had remained relatively stable at about $24b, the value of international visitors collapsed to just $2b.

But Tourism NZ chief executive René de Monchy says international visitor arrivals have now increased to about 80% of pre-pandemic levels, from 60% to 65% in the first year after the border opened.

The latest figures show international visitors contributed $2.1b to the economy in the June quarter this year, with Australians the largest contributors spending $715 million, he says.

“There was a big boost from the FIFA Women’s World Cup, with 101,161 visitors in July, and the outlook for the coming summer period is good.”

Over the last financial year New Zealand also won 54 international conferences, estimated to be worth $63.8m, he says.

And it has been reported a record number of cruise ships and port visits are scheduled to hit the country over the 2023 to 2024 cruise season.

But the industry is staring down some issues, and they need to be addressed for tourism to “build back better”, and fulfil its economic and social promise, industry insiders say.

So what are those issues, and what should be done about them?

Funding rethink needed

Tough economic times led the government to announce funding cuts last month. The tourism portfolio is set to lose $60m of funding for Tourism NZ and the Tourism Recovery innovation programme.

Tourism Industry Aotearoa (TIA) chief executive Rebecca Ingram says the 13%, or $15m, cut to Tourism NZ’s baseline annual funding goes well beyond the 2% baseline cut for other agencies.

The agency has not had a funding increase for a decade, so their budget has gone backwards while global advertising costs have gone up, she says. Meanwhile, the innovation programme was only rolled out in November.

“We are dismayed by these cuts which disproportionately impact tourism and place at risk our ability to develop in a way that really works best for New Zealand.”

A lot of work has gone into recovering from the pandemic, and into developing a network of regional destination plans on how to recover sustainably and with resilience, and how to create the type of industry the country wants, she says.

“But we need funding to be ready for the impact of weather events, to address capacity and infrastructure issues, and to provide technology and innovation to advance the industry.”

“We need it for the industry to exist in a way that is globally competitive, because we aren’t the only place wanting to attract ‘high quality’ visitors. We have to ensure New Zealand is seen on the world stage.”

The issue goes beyond the recent cuts, with work on a new industry strategy identifying that getting secure, sustainable funding for tourism infrastructure and activities is one of the biggest challenges.

Ingram says it seems counter-intuitive to suggest tourism needs better funding, but there has been a lack of it in the past, including for local government for investment in infrastructure which benefits visitors and residents.

“A strong, well-functioning industry is important for New Zealand. It matters for the economy, for the industry, and for the people employed by it.”

Regional pressures

Regional Tourism NZ chairperson David Perks says tourism is a diverse industry, but “pretty much everyone” agrees the current mechanisms to support it are outdated, and there is not enough funding to get the best outcomes.

The ecosystem tourism operates in has been the same for 30 years, and much has changed over that time, including a big increase in international visitor and domestic tourist numbers, he says.

“There are concerns over the impact of all these extra people on communities, and on the environment. That’s not new. If you look back to pre-pandemic days, the system was creaking heavily then.

“But the destination plans show regions like tourism because of the vibrancy and prosperity it brings to communities, and they also identify the issues, and suggest better ways to address them.”

Regions want to see that vibrancy and prosperity spread across the year, rather than being seasonal, so there are permanent, long-term opportunities for local people, he says.

They also want tourism to have a positive impact on communities, and to not have negative repercussions environmentally.

Perks says the problem is tourism is funded by a small portion of government money going into the Ministry for Business, Innovation and Employment MBIE and Tourism NZ, along with discretionary funding from regional ratepayers, and that is not the way to do it.

Local government is a big funder not just of tourism, but of the infrastructure to support it, and of things that make it desirable to visit a place, such as events or trails, he says.

“There is no written mandate for it, and councils afford what they can, but three-year terms mean regular change, so there is little long-term strategy around it.

“The challenges are exacerbated in regions where lots of people visit, but there is only a small ratepayer base, such as McKenzie or Coromandel.”

That has led to different regions looking at visitor levies or bed taxes to help with funding, he says.

“These are common in other parts of the world, but there has always been a wariness about them here, and different views on how they should operate, so there are none in place.

“Now, there is a consistent view that if you want to have a long-term, depoliticised vehicle to address these issues you need a country-wide system of them, so costs are shared and visitors contribute.”

Tourism can be a significant contributor to the lives of New Zealanders, and the pandemic led the industry to reimagine how it can be done, he says.

“There is an industry consensus of sorts about the way forward, which is positive, but there is disappointment that the work was done, and it has not led to a strong outcome.”

Government relations

In the lead up to the election, both the major political parties have made renewed commitments to support the industry, and its recovery, if elected.

One of Labour’s priorities in its plan to grow the economy is to boost the country’s premium tourism offering.

It wants to review the International Visitor Levy, refocus Tourism NZ's campaigns, use trade relationships to promote New Zealand, and continue working on the Tourism Industry Transformation Plan.

National says it will deliver practical initiatives “so tourism operators can get on with delivering world-class experiences, and growing their businesses and the economy”.

Those initiatives include creating a new Great Walk, broadening the working holiday visa, electrifying the New Zealand Cycle Trail, and investing $5m over four years to promote regional events.

But recently several industry figures have published commentary calling for politicians to pay greater attention to tourism, and for a more robust and collaborative partnership between the industry and government.

Ingram says the industry’s relationship with central government is important, and it wants to work closely with whoever is the new government.

At the TIA’s recent election panel, all the parties recognised the role of tourism, and its economic importance, and that was fantastic to see, she says.

“But we want to talk about how we can make funding sustainable, and how we can design an industry for the future, rather than just play catch-up.”

What tourism needs from a minister is someone who is invested in it, and who will work with the industry to create what is wanted, she says.

Workforce challenges

Before the pandemic, there were 366,000 people employed directly or indirectly in tourism, making up 13.2% of the workforce, according to tourism satellite account figures.

In the first year of the pandemic, the industry lost 72,285 workers, or about a third of those directly employed, including 6738 or 25% of tourism’s owner-operators.

But the latest tourism satellite figures show numbers have since increased, with 240,000 people directly and indirectly working in tourism. That is 8.7% of the workforce.

During the pandemic, skill shortages were a big challenge for the industry, but with the border open and the return of working tourists the shortages have improved.

A TIA survey conducted in July and August showed 51% of businesses were recruiting. That was a 20% improvement from the August survey last year.

Perks says the pandemic highlighted the need to build greater capacity in the workforce, but it is not well catered for by the traditional education system.

“People kind of fall into it, rather than going through courses, and there is an acknowledgement that tourism education happens in place, so we need to find ways to deliver it in workplaces and small communities.

“That’s critical because visitors want to experience that unique sense of a place, they don’t want to experience something ubiquitous that they could experience anywhere.”

There is some friction between industry and the Government over how to address workforce capacity, he says.

“They think we should just employ New Zealanders, but we need to be smarter than that. We want the permanent jobs for locals, but where we have seasonality we need to utilise working tourists to fulfil the promise tourism has.”

Marketing NZ to the world

For the industry to be successful, New Zealand needs international visitors, and Tourism NZ is tasked with attracting them.

De Monchy says the agency wants more visitors to experience what the country has to offer, and to encourage greater regional spread and off-peak travel, so the benefits of tourism are spread more widely.

The cuts to the agency’s baseline will be challenging, as it wants to find the best audience and market to come to the country, and it costs money to promote in multiple markets, he says.

“It’s a fiercely competitive global marketplace, and many destinations see tourism as a key part of their economy. We are not the only ones trying to get a share of that.

“But New Zealand is not the easiest or cheapest place to get to, so it is a premium destination. We need people to fall in love with the idea of coming here, and then turn that dream into a booking.”

To achieve that, the agency has to target the consumer market, and the tourism trade market as with long-haul travel, even from Australia, most people do book through intermediaries, he says.

“Our focus is on understanding what consumers in different markets want and expect, and how to deliver on that promise, as well as ensuring the trade sector is up-to-date with information to enable bookings.”

While the outlook for the approaching summer is good, it is looking a bit softer next year and beyond, he says.

“We are cognisant of the increased competition around the world, so with the funding cuts, we need to work out how we set ourselves up to do what we need to do, especially as costs go up for spending.”