Well, here we are, already over a month into 2025! And just when you thought things couldn’t get any harder or crazier, we’ve got a global trade war on the horizon, inflation about to be let off the leash again in the US, staff harder to find than the holy grail and an election due within a few months.
Malcom Fraser famously said; “life wasn’t meant to be easy.” But give me a break!
So, I’ve decided to write my next few blogs about how we should confront the looming challenges. Because the tourism industry is sensitive to economic conditions, and particularly, small tourism businesses often feel the brunt of economic volatility and inflation more acutely than the big guys.
Rising costs, patchy demand, and economic uncertainty and volatility can make it difficult for small tourism businesses to remain profitable and sustainable in the medium to longer term. But you have the benefit of flexibility and agility. You’ll need to proactively plan strategies, with smart financial management if your tourism business is to effectively navigate these challenges.
Remember that our economy, in fact all economies by their nature, are unpredictable and volatile. We’ve experienced demand ‘bubbles’ (housing), recessions (COVID), currency fluctuations (thanks Donald!), changes in consumer sentiment and spending habits. And as we’ve experienced post COVID, inflation increases the cost of goods and services, which then increases operational costs which in turn erodes profit. These factors significantly impact the tourism industry. So, what can you do?
How to you build financial resilience in your business to withstand economic fluctuations?
Firstly, if you’re relying too heavily on a single revenue stream, you’re at risk in a downturn. So, diversify. Consider creating different products to different markets, or partner with local businesses, or expanding ‘packages’ or ‘value adds.’
Slowly build an emergency fund which you can go to if you need to cover unexpected expenses if there’s a downturn. You should aim to have at least three months’ worth of operating costs parked in a savings account in the bank.
Keep a constant eye on your pricing to both reflect rising costs or falling demand while remaining competitive. With a bit of creativity, you can offer tiered pricing or ‘value packages to attract customers without sacrificing profitability.
Post COVID we’ve all experienced how disrupted supply causes inflation with higher fuel, energy, maintenance, and more general supplies costs affect business (and personal) expenses. It’s not easy but, you can at least partially mitigate these increases by negotiating with your regular suppliers and establishing longer-term relationships to, for example secure better rates and payment terms.
Also, you’ll be surprised how much you can reduce costs, and specifically power bills through eco-friendly practices. And you can bring guests on board with this by highlighting to them the environmental benefits it also brings. Simple things like less frequent washing of towels and linen, reducing air conditioning, re-usable water containers etc are examples. You’ll be surprised how guests will support your initiative.
To mitigate increased staff costs, look for savings by implementing automation and digital tools in marketing, for example with more efficient bookings management and payment. This is where TXA can help.
When cost of living pressures impact demand, attracting and enticing returning customers becomes both critical and more challenging at the same time. But if you focus your efforts into creating personalised guest experiences by crafting new services or re-packaging existing ones to meet their preferences, again you’ll be surprised at the rewards for your work. Don’t be afraid to offer unique and exclusive experiences that can carry a premium price. Value conscious guests will pay a little bit more if the quality and enhanced experience you create justifies the cost.
If you haven’t already, look at implementing reward programs, discounts, or referral incentives to encourage repeat business.
The cost efficiency of your marketing effort will increase if you focus on digital marketing strategies including social media, and automated email campaigns to stay connected with your past, potential and booked customers. And use storytelling techniques to capture attention and highlight the unique value of your offerings.
I’m not a huge fan of grants or subsidies but Governments often provide financial relief, grants, and policy support when the industry is facing economic pressures. Stay connected to your and tourism local organisations because there is no downside in applying for financial assistance programs if available as they can help with business sustainability in the short to medium term.
As I suggested above, work to create local collaborations with hotels, restaurants, events, and attractions to develop joint packages, to reduce marketing costs and amplify results. This will be easier, and you’ll be better informed if you join and participate in local tourism boards and associations.
The one thing that the last few years has taught us is that we live in uncertain economic, social, and environmental times. To withstand economic turbulence, you should have a rough plan that identifies risks with contingencies so you can readily pivot operations in response. And protect your business against operational disruptions, property damage, or liability issues with at least basic insurances.
Don’t let the volatility and chaos that seems to surround us engulf the potential of your tourism business. Economic volatility and pressures are inevitable. Build resilience into your business by taking steps now to mitigate risks.
