the for a funding increase regional tourism office€¦ · for many years our consistent tourism...

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THE CASE FOR A FUNDING INCREASE – DESTINATION QUEENSTOWN

The case for a funding increase

for Queenstown’s Regional

Tourism Office

Destination Queenstown

Prepared by: Graham Budd, Chief Executive FINAL VERSION 6th March 2017

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Contents Introduction from Destination Queenstown Chair ............................................................................................. 3

About Destination Queenstown .......................................................................................................................... 4

How DQ is funded ................................................................................................................................................ 4

Our vision ............................................................................................................................................................. 4

Our mission .......................................................................................................................................................... 4

What is proposed?............................................................................................................................................... 5

What is the rationale for an increase at this time? ............................................................................................. 5

Tourism market developments ........................................................................................................................... 5

Queenstown industry development .................................................................................................................... 6

Queenstown regional tourism status .................................................................................................................. 7

DQ Marketing and Markets activity .................................................................................................................... 8

National Industry Strategies and context ............................................................................................................ 8

Destination Marketing within Destination Management ................................................................................... 9

Background and status of funding (last 10 years) ............................................................................................. 10

Current priorities and opportunities ................................................................................................................. 11

Specific purpose of and allocation of funds – 3 year Strategic Business plan ................................................... 12

Proposed Increment over three years............................................................................................................... 13

Rates Impact ...................................................................................................................................................... 14

Funding scenarios – rates examples .............................................................................................................. 15

Process of consultation and gaining member support ..................................................................................... 18

Timeline and input to QLDC process ................................................................................................................. 18

Summary ............................................................................................................................................................ 18

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Introduction from Destination Queenstown Chair

Dear Destination Queenstown Members

Queenstown has been riding a strong wave of positive tourism growth for a number of years. This

has resulted from many different micro and macro level factors – one of which has been the activity

of your Regional Tourism Organisation's direct marketing activity and leveraging of strategic

partnerships over a number of years.

The marketing activity of your RTO aims to inspire and influence the market to bring the ideal

traveller to Queenstown – over time this has become a more significant and more complex

challenge, a challenge which we will fail to keep on top of without additional funding, and risk

losing ground to competitor destinations (both emerging and established).

In response to the opportunities of the tourism industry, and from expectations of the Destination

Queenstown (DQ) membership for the capacity and capability of DQ, we have continued to

evolve our organisation so that it can best undertake the range of marketing activity which will take

Queenstown into a successful future.

The following document outlines what we believe is all the necessary information to consider. It

outlines what we hope you, our members, will consider is a sensible and prudent recommendation

for an increase in our funding.

We look forward to your support so that DQ can continue to deliver top quality destination

marketing activity across the consumer, travel trade and business events sectors that will ensure

Queenstown is able to achieve its vision to be, and remain, the Southern Hemisphere’s premier

four season lake and alpine resort .

Regards

Matt Hollyer, Chairman

On behalf of the Board of Destination Queenstown

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About Destination Queenstown

Established originally as the Queenstown Promotion Bureau in 1985, Destination Queenstown (DQ)

is the regional tourism organisation responsible for marketing Queenstown domestically and

internationally on behalf of the local business community. It also incorporates the Queenstown

Convention Bureau and Study Queenstown.

DQ is an incorporated society governed by an elected sector representative Board of 6 Directors as

well as the CEO of QLDC and up to two co‐opted Directors. A Strategic Review Board (SRB) of 30

sector, industry and community members meets annually to review the DQ annual business plan and

ensure the organisation maintains a broad market and member focus.

How DQ is funded

DQ is funded by all business in Queenstown via a targeted tourism promotion levy on all commercial

rates. This is collected by QLDC via commercial rates on DQ’s behalf.

This funding mechanism and organisational structure offers a collective, neutral, approach that

provides destination marketing and promotion for the equal benefit of all businesses and the

community.

Study Queenstown currently has separate funding mechanisms through grants and membership

contributions and is not funded from the tourism promotion levy.

Our vision

For many years our consistent tourism marketing vision is to be:

The Southern Hemisphere’s premier four season lake and alpine resort.

Our mission

To work with the Queenstown community to engage, inform, influence and maintain our ‘sense of

place’ and ‘social licence’ in support of tourism.

To work with the New Zealand and international tourism industry to promote, motivate and facilitate

sustainable year round visitor demand from priority target markets and premium segments. We

support this by being informed and knowledgeable destination experts.

To be the guardians and promoters of our destination values and brand and we curate compelling

stories and content to inspire future visitors.

To form strategic alliances and collaborate with travel trade partners, organisations and individuals

who value and appreciate our unique and desirable proposition.

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What is proposed?

It is proposed to increase Destination Queenstown’s core funding in annual increments over the next

three years of 10% per annum via the targeted tourism promotion levy applied to commercial rates

in the Wakatipu. This will establish an effective level of funding that can then be maintained in

subsequent years through the annual rates increment as determined by QLDC.

We believe a smaller increment over three years is likely to be more acceptable to our members. For

consideration some scenarios of the effect of this are included later in this document.

What is the rationale for an increase at this time?

Destination Queenstown’s funding was last increased in 2008 following a review that resulted in a

60% or a $1million annual increase at that time. Funding has then been increased in line with rates

movements by an average of 2.2% per annum through to 2017/18.

There have been some major market and environmental changes during this 10 year period and more

recently we have achieved significant tourism growth in both volume and value.

Increases in operational costs including expert marketing and business development staff salaries,

technology tools and resources and office premises has absorbed all of the annual increment over

this 10 year period. Effectively this has resulted in there being no increase in our marketing activity

and business development budget.

Tourism market developments

International visitors account for about 70% of Queenstown’s visitor mix. Queenstown continues to

be New Zealand’s primary destination of appeal to international visitors

Long term visitor arrivals into New Zealand continue on an upward trend notwithstanding short term

shocks and impacts, often driven by one off events. MBIE 2017 forecasts international visitor arrivals

to continue to grow by 4.8% annually through to 2023.

INTERNATIONAL VISITOR ARRIVALS

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Queenstown industry development

Destination Queenstown’s marketing activities have significantly contributed to Queenstown’s

annual guest nights increasing by a total of 57% from 2009 to 2017 with both domestic and

international nights growing at similar rates. This is an average annual increase of 8.1%.

Note the national guest night increase over this time has been only 22% vs Queenstown at 57%

Guest nights in not represented in this data, such as Airbnb and holiday homes, have also grown

significantly. DQ estimates this to be approx one third more to a total of 5 million guest nights pa.

COMMERCIAL GUEST NIGHTS

With a clear DQ objective over many years to grow value at a rate ahead of volume, Queenstown has

enjoyed a total visitor spend increase of 108% from 2009 to 2017. This is an average annual increase

of 13.5%. The rate of value growth has therefore been nearly double that of volume.

ANNUAL VISITOR SPEND

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Queenstown regional tourism status

Queenstown has clearly become the visitor hub for the lower South Island and dynamics of visitor

movements through and around the South Island have seen significant growth in scheduled air

services and passenger numbers through Queenstown Airport.

Queenstown is the third largest international airport in New Zealand with four airlines directly serving

ZQN from 5 ports on the East Coast of Australia. Forecast continued growth is illustrated in the recent

Airport 30 year master plan consultation.

Airport arrivals grew by 265% from 2008 to 2017 (see graph below). This growth has come from both

domestic services (which carry both domestic and international visitors) and trans‐Tasman services.

Queenstown is New Zealand’s largest international visitor destination by both volume and value

(after Auckland). Our ratio of international visitors to domestic is the highest in New Zealand at 70:30.

However, of course, domestic visitors are extremely important and our single largest geographic

market.

QUEENSTOWN AIRPORT ARRIVALS

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Queenstown remains New Zealand’s premium destination and the primary location for promotion of

many experiences such as golf, adventure and ski.

Queenstown is home to many of New Zealand’s ‘iconic’ experiences which continue to establish and

maintain our national as well as regional reputation.

While building diversity of the local economy is our collective aspiration, tourism and the visitor

economy, will remain the backbone and economic driver for our community in the foreseeable

future.

DQ Marketing and Markets activity

As noted above, budgets for marketing activity have effectively remained flat since 2009. In effective

terms this means less marketing investment is possible in an ever fragmenting media environment

and as travel channels and markets have grown.

This applies to marketing, communications, media, travel

trade and C&I.

So, as DQ marketing activity budgets have been static, the

opportunities have significantly grown. There are now more

international markets being targeted by New Zealand as air

services and connectivity grows.

Tourism New Zealand has had a budget increase of 56% over

the period that DQ’s grew 20%. They now have 13

international offices, up from 9 in 2008.

Since 2014 TNZ have also created divisions for Business

Events (C&I), Premium marketing and Special Interest such as

golf, wine, biking and ski. This has resulted in a significant

increase in opportunity and DQ has attempted to capitalise

on those that are beneficial to our members and region.

National Industry Strategies and context

As a primary visitor destination in New Zealand this region, represented by Destination Queenstown,

has an obligation and leadership and influencing role to support national strategies that have national

or at least wider regional influence.

In recent years this includes the post 2011 earthquake SOUTH initiative, the TIA developed industry

framework TOURISM 2025. MBIE has published Government policy/strategies positions and of

course Tourism New Zealand’s strategies are highly influential for our international activity. Recently

DQ has joined the NZ Tourism Sustainability Commitment. There are many other examples of

Queenstown’s leadership and participation in many industry issues and of course this is appropriate

and ultimately for the benefit of our members and community.

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Current national strategies for tourism include a priority focus on ‘dispersing’ visitors seasonally and

regionally. The seasonal strategy is one that DQ has been focussing on for many years and we support

this.

However the regional dispersal strategies that MBIE, Tourism New Zealand and TIA have adopted

during 2017 are posing a long term risk for Queenstown and DQ members. There is a perception by

our national agencies that Queenstown has an ‘over demand’ issue and congestion or supply

problems. This is resulting in market intervention by Tourism New Zealand with very specific regional

campaigns in an effort to address this. The issue is also driven politically by both previous and current

Governments.

We have numerous examples of this approach actively disadvantaging our region with Tourism New

Zealand’s ski marketing investments for 2017 and 2018 being a current case in point.

This risk in this scenario is more related to medium and long term perception and demand rather

than short term impacts. Without question there are currently some visitor demand and impact

issues which require management at a community level and this is reflected in our strategies of local

engagement and influence.

“If the rate of change on the outside

exceeds the rate of change on the inside, the end is near”

Jack Welch

Destination Marketing within Destination Management

Queenstown has experienced growth in both visitors and permanent residents in recent years and

this is expected to continue. Visitor growth has been very good for our economy but has also created

some resident resistance to the negative impacts of this growth.

This is not an issue unique to Queenstown. Many popular destinations globally are addressing the

same issue as international outbound tourism grows and is expected to continue to do so. Many

other New Zealand destinations are also experiencing this pressure.

This gives rise to the concept of ‘social licence’ and ensuring that local residents and communities

remain supportive of the visitor industry and welcome the diversity, social and economic benefits

that tourism brings.

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Many destination marketing organisations (DMO’s) or RTO’s are addressing the transition into

destination management influence that these growth pressures are creating.

This is also the case for DQ. While our core mandate remains on positioning, branding, marketing and

demand creation activity it is necessary to also now consider how growth and demand is managed in

a sustainable way within our community.

Destination marketing is a part of Destination management and this includes ensuring we have an

informed and engaged resident community and that any negative sentiment is listened to,

understood and mitigated as far as possible. A welcoming host community is the most important

asset any visitor destination can have.

In particular the DQ CEO (with senior management and the DQ Board) have a very important role to

play in influencing and engaging with the community on these matters. This evolution of influence

has been formally considered by the DQ Board over the last couple of years and resulted in the recent

structural changes and the extended community mandate of DQ and the CEO.

Background and status of funding (last 10 years)

As noted earlier Destination Queenstown funding was increased in 2008 and has subsequently had

an increment of an average 2.2% between 2009 and 2017/8.

This represents a total increase of just 20% noting the previous reference to TNZ’s increase of 56%.

During this period, and more specifically in the last 5 years, this increase has been fully absorbed by

investments in skilled staff salaries, including new roles which have been created in line with growth

in demand, opportunity in our markets and growth in the funding and activities of our key partners,

particularly Tourism New Zealand.

Team positions were 11 in 2009 and are 15 in 2018. It is not envisaged that any further positions will

be required to fulfill our obligations to our members. At this current level and structure we are

suitably resourced while still having to remain very selective about prioritising our demands and

opportunities.

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In addition DQ relocated in 2015 to new commercial premises which was essential to accommodate

the team and create a suitable working and visitor environment. Overall this has meant an average

increase in staff and operational costs of 5.5% which has absorbed most of our funding increment.

With an aspiration to be the highest performing RTO in New Zealand we have also invested in

appropriate tools and technology such as the recent investment in a world class CRM system and

recent (and continual) investment in our website and other digital channels. We are the leading RTO

in New Zealand for social media following.

DQ LEVY INCOME AND ALLOCATION (YE JUNE)

Current priorities and opportunities

Destination Queenstown undertakes a transparent and robust business planning process which is

ratified by a strategic review board on behalf of our members and wider community. This includes a

three year strategic intent framework executed through annual business plans.

2016 to 2018 priorities included investment in a new destination web site and implementation of a

new CRM system to support sales processes. We have increased investment in the Queenstown

Convention Bureau and our priority markets remain NZ domestic, Australia, USA and China with an

emphasis on higher value visitors and developing a portfolio of visitor markets in line with

opportunities provided by Tourism NZ and airline connectivity.

Our objectives are to drive year round demand by maintaining our peak seasons as we grow our

shoulders. In particular we have a need to defend our winter position as New Zealand’s premier ski

destination and rebuild some apparent softening in demand.

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To achieve our objectives DQ also requires suitably skilled and experienced staff. The establishment

in 2017 of the role of Business Development and Convention Bureau Director complements the

Marketing and Communications Director position established in 2015.

Specific purpose of and allocation of funds – 3 year Strategic Business plan

Over three years it is proposed to utilise the additional funding as follows based on our 3 year

strategic priorities. A principle of how we operate is to remain nimble and flexible to changing market

conditions, however these are the expected areas of application.

In year one (2018/2019) it is expected the increment of approximately $190,000 will allow us to

recover our core operational costs and maintain our current levels of marketing activity investment.

In year two and three we will have sufficient increased funds to invest more where required or

implement new initiatives.

Our strategic priorities in the three year period are covered under four key pillars.

1. SUSTAINABLE HOST COMMUNITY.

This focus is to ensure that tourism in

Queenstown retains the support of our

community (both business and resident)

to ensure the long term sustainability of

the sector. This includes factors of the

environment, visitor experience, host

community support, business economic

sustainability, and reputation

management.

2. OUR BRAND, OUR PLACE AND OUR STORIES.

Marketing Queenstown through telling the stories of our place and curating content that

supports the pillars of our brand and proposition. We need to retain our adventure

credentials and defend our status as New Zealand’s ‘essential’ visitor destination while

effectively participating in national strategies that seek to distribute visitors into less visited

regions during peak periods.

3. GROWING VISITOR VALUE.

This continues our targeting of markets and sectors that can be encouraged to stay longer,

have a higher daily spend than average and those that can be motivated to travel in shoulder

seasons, recognising that defending our peak demand is also essential.

This applies to both leisure travellers as well as conference and incentive business events.

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Value can be defined in many different ways but it is essential to note our principle of being

a desirable and welcoming destination for all styles of traveller. The intent is for their relative

experience to be a premium one whether a back packer in a hostel or an executive in a luxury

lodge.

4. MARKET OPPORTUNITY PORTFOLIO

As potential new visitor markets emerge to complement existing established markets our

challenge is to invest in the appropriate portfolio that can best achieve our objectives.

This is our responsibility to the wide variety of DQ members catering to many markets. The

geographic market priorities will remain as NZ domestic, Australia, USA, and China.

Next level priorities include a mix of traditional (UK, Europe, Japan, Korea, SEA) and those

with emerging growth potential (Latin America, India, Philippines).

Proposed Increment over three years

Each year the targeted rate is determined based on the total proposed funding for DQ (less 5%

allocated from general rate) and divided by the capital value of the applicable rating units. Therefore

the rate is impacted by changes in the capital value of individual properties and also

increases/decreases in the number of properties in these rating categories.

Due to the increase in the number of

commercial properties in

Queenstown over the last few years

the actual rate apportioned has

actually decreased since 2013 from

0.001226 to 0.001170 in FY18.

Assuming no additional funding is confirmed, QLDC’s LTP budget proposes an annual increment over

this time of 3.2% pa.

We are therefore seeking an additional increment of 6.8 % above this level as illustrated below in

the chart and table.

It is proposed to increase the

total DQ levy income by 10%

in each of the next 3 years.

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PROPOSED LEVY 2019 ‐ 2021

(000's)

Year Current 3.2% LTP increase proposed

6.8% variance Requested (additional)

TOTAL ANNUAL WITH 10% PROPOSED

2018 $3,491

2019 $3,603 $237 $3,840

2020 $3,718 $506 $4,224

2021 $3,837 $809 $4,646

By year 3 an annual 10% increment will provide an additional $809,000 pa funding to a total of $4.646

million.

Please note that these are simplified estimates. Approximately 5% of DQ’s funding is derived from a

‘top up’ from general rates but for the purposes of this proposal this small effect is not accounted

for.

Rates Impact Below are some specific examples of the effect of the proposed increase on a variety of commercial

and accommodation properties. Individual properties and businesses will cover a very wide range

however these tables are representative of the relatively modest effect on rates expected over the

three year period.

Many DQ members are renting or leasing premises. Obviously In this case the rental or lease costs

will include a component of contribution to cover rates. The variables of contribution in this scenario

are too many to consider specifically however as a guide, a calculation can be made based on:

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A rates bill could be approximately 25% of the opex costs of a commercial downtown property

The tourism promotion levy is approximately 25% of a total rates bill.

Divided by the share of space or floor area occupied by the respective business.

Some examples of the rates impact on a leased property are included below

Please note all of these examples below are indicative only and NOT actual amounts. They likely

reflect a worst case scenario because they assume a static base with no additional properties in the

Queenstown/Wakatipu wards. This is clearly not the case. In addition the properties used for

rental/lease examples are high value CBD commercial buildings, again just used for illustration.

Funding scenarios – rates examples

Commercial ‐ median capital value $1.230 million

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $1,439

2019 $1,583 $144 $36

2020 $1,742 $158 $40

2021 $1,916 $174 $44

Commercial ‐ lower capital value $274,000

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $320

2019 $353 $33 $8

2020 $388 $35 $9

2021 $427 $49 $10

Commercial ‐ higher capital value $21.9 million

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $25,576

2019 $28,134 $2,558 $640

2020 $30,947 $2,813 $703

2021 $34,042 $3,095 $774

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Mixed use ‐ capital value $1 million

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $293

2019 $322 $29 $7

2020 $354 $32 $8

2021 $389 $35 $9

Mixed use ‐ capital value $500,000

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $147

2019 $162 $15 $4

2020 $178 $16 $4

2021 $196 $18 $5

Mixed use ‐ capital value $2.5 million

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $731

2019 $804 $73 $18

2020 $884 $80 $20

2021 $972 $88 $22

Accommodation ‐ median capital value $1.230 million

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $1,436

2019 $1,580 $144 $36

2020 $1,738 $158 $40

2021 $1,912 $174 $44

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Accommodation ‐ lower capital value $462,000

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $541

2019 $595 $54 $14

2020 $655 $60 $15

2021 $720 $65 $16

Accommodation – higher capital value $42.6 million

Year Current base

10% Proposed

Annual Increment

Quarterly Increment

2018 $49,802

2019 $54,782 $4,980 $1,245

2020 $60,260 $5,478 $1,370

2021 $66,286 $6,026 $1,506

CBD commercial property lease ‐ 100sqm

Year Current base contribution

10% Proposed

Annual Increment

Quarterly Increment

2018 $763

2019 $839 $76 $19

2020 $923 $84 $21

2021 $1,015 $92 $23

CBD commercial property lease ‐ 250sqm

Year Current base contribution

10% Proposed

Annual Increment

Quarterly Increment

2018 $1907

2019 $2,097 $190 $48

2020 $2,306 $209 $52

2021 $2,537 $230 $57

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Process of consultation and gaining member support

DQ needs to make submissions to the QLDC LTP by the submission deadline of the 13th April 2017.

QLDC also requires sufficient evidence of member support for the proposed increase as part of the

submission. It is proposed to provide this evidence by way of a member vote of support at a special

general meeting of members.

The process of consultation with members and key stakeholders will be:

Business case documentation complete for members by 8th March 2017

Special Remarks to members on 8th March 2017 with documents available

Mountain Scene advertisement of member general meeting published 8th March 2017

Member and stakeholder consultation and presentations between 8th and 28th March 2017

DQ Member general meeting and vote on 28th March, 4pm, Millennium Hotel

SRB to ratify business plan and funding submission 6th April.

Submit to QLDC by 13th April.

Timeline and input to QLDC process

The process of member consultation on the proposed increase will happen in parallel to the DQ

strategic and annual plan timeline.

The key deadlines are:

Document and proposal released to members 8th March

Consultation and approval process completed by 28th March

SRB meeting on the 6th April

DQ submits to LTP ‐ QLDC submission deadline on the 13th April.

Summary

Destination Queenstown is seeking an increase in core funding over the three year period from

FY2019 to FY2021 in three annual steps of 10%.

Since 2008 DQ investment and activity has contributed to significant sector growth in Queenstown,

well ahead of national average, with visitor volume up 57%, spend up 108% to $2.157 billion and

Queenstown airport arrivals up 265%.

In this time Tourism NZ funding has also had new markets, offshore offices, sector investment (C&I

and SIG) added to their portfolio of activity.

Over the same time DQ funding has increased by a total of only 20% or 2.2% average pa. This

increase has been largely absorbed by cost increases for skilled staff, premises and other

operational costs. Therefore our marketing campaign and business development (trade, industry

and C&I) investment has remained static in an increasingly fragmented and complex environment.

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Despite this we have achieved some excellent results, with strong sector tailwinds, but our ability to

participate and influence the growth opportunities ahead in a potentially more challenging

environment will require an increased investment. DQ must also play an increasing role with the

community and in sharing knowledge to achieve long term sector sustainability for both businesses

and residents.

Member support is required for an increase in DQ’s base funding through three annual increases of

10%pa to the tourism promotion levy collected by QLDC on the behalf of DQ’s members. To accept

a submission to implement this, QLDC require clear evidence of this support in our submission to

their 2017 LTP process.

__________________________________________________________

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