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                                 RURAL AND REGIONAL COMMITTEE

                                  Inquiry into rural and regional tourism

                                        Melbourne — 29 October 2007




                                                     Members

                           Ms. K. Darveniza                                Mr R. Northe
                           Mr D. Drum                                      Ms G. Tierney
                           Ms W. Lovell                                    Mr J. Vogels
                           Ms K. Marshall


                                            Chair: Mr D. Drum
                                        Deputy Chair: Ms G. Tierney


                                                        Staff

                                       Executive Officer: Ms L. Topic
                                       Research Officer: Dr C. Hercus




                                                      Witness

      Mr D. Walsh, manager, Kiewa View accommodation, Mount Beauty.




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         The CHAIR — Welcome, David, and thank you for coming. All evidence at the hearing today is given
under parliamentary privilege, although anything that is repeated outside the hearing is not covered by
parliamentary privilege. Before you start, I ask that you give your full name and address and the organisation you
are representing.

        Mr WALSH — My name is David Edmund Walsh, and my address is [detail removed]. I am representing
Kiewa View accommodation in Mount Beauty. Certainly I put in a submission. Today if you have questions to ask
me, I want to explore that. I would like to move on to solutions, but there is little point in moving on to solutions if
we do not understand the problem, so I am looking for a bit of guidance from you in that regard.

I want to make it clear, though, that I do not see the ski resort operators as the devil incarnate, because I am a
business consultant, and if they were my clients, I would be saying, ‘Hey, find a segment of the market that you can
monopolise’. But on the other hand, I do advise my clients, ‘Don’t gouge your customers, because in the end it
comes back and bites you’.

I seek to make it clear that the problems I see is that the alpine areas are not making the true contribution they could
to Victoria, you cannot blame the commercial operators for trying to maximise their profits. You have got to look at
how the regulators and administrators are controlling them, because it is just a fact of life that that sort of thing
needs to happen. I just want to make it clear that I do not think they are bad for what they are doing, but I do not
think necessarily that what has been happening is to the benefit of the state and all its citizens, or it is not the best
anyway.

         The CHAIR — If you are happy, we will go straight to asking questions?

         Mr WALSH — Yes, I think that would be good.

       The CHAIR — Then we can expand on that as we go through, and you can touch on areas. When I read
your email to the committee — —

         Mr WALSH — My submission, yes.

         The CHAIR — I got the impression that you were against the established operators up on the mountain?

         Mr WALSH — The way they were doing it, not them personally.

        The CHAIR — You have some comparisons against staying on the mountain versus staying off the
mountain. Obviously it is going to be cheaper. But as I said, as a client of the mountain I enjoy staying up there, and
I am happy to pay if I can afford to pay.

         Mr WALSH — And that is not my point, that on the mountain is more expensive. The point I was
making was that when the off-mountain accommodation component of the total cost is so small, then if they want
to increase the total size of the market by cutting prices, and they halve their price, it only drops the total cost to the
consumer by 5 per cent.

If you are going to drop your price by 50 per cent, you need your volume to go up at least fourfold or fivefold in
order to make it economical. If all that does is reduce the cost to the end user by 5 per cent, a 5 per cent cost
reduction is not going to get you a fourfold or fivefold increase in volume. That is the point I was illustrating, why
we are not getting the true potential, that a high-cost structure does not give the alpine resorts’ surrounding towns a
chance to increase the size of the market by contributing more, by having more people stay there and what have
you. There is this focus on the way the resorts are run, which is very on-mountain-centric, and there is not enough
consideration to how much we could expand the whole industry by using more off mountain. That is the difficulty.

It really does not matter that much to me. I have got one accommodation unit, and it is a bit of a hobby for me. But
what does worry me is that we are not maximising our potential as a state. For example, I did have a marketing
strategy where I cut my prices fairly severely in the shoulder and low seasons, because my strategy was offering
people a really low price and saying, ‘Hey, take the chance. If you book in September, you will get a really low
price. It is off mountain, and if the snow is not really good, you can go walking, you can go mountain biking, you
can go to wineries and what have you’. But as the price of lifts went up and up and up, then this cost structure that I
am talking about affected people’s judgement more and more and more.
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They are saying, ‘Yes, you will get accommodation cheap, but it is our holiday, and we are really saving so little on
the total cost’. Finally, when not only did the price keep on going up and up, but the lift companies went flat pricing
across the season, with no shoulder-season discount and no low-season discount, just went flat, I pushed up my
price.

I said, ‘What is the point in me discounting to try to generate more business?’ Because in the end people are not
stupid; they wake up and say, ‘Hey, the total saving is pretty small’. The reality is that it was true. If I could get
people to book early and take a chance on September, then they rarely cancelled, even if the snow was poor,
because they were not paying much for it and they had already committed to their holidays and organised it from
work. But now I find that people hold back. It is so expensive that they are holding back, so I do not really discount
anywhere near as much as I used to.

        The CHAIR — David, apart from getting the lift companies to go back and re-engage those shoulder,
off-peak price instructions in the off season, are there any other options available to us to create what you might call
a——

         Mr WALSH — More competitive — —

         The CHAIR — More competitive market?

         Mr WALSH — I think the answer to how to create a more competitive market when you have a fairly
monopolistic situation — and that is what we had, and some factors that created that situation were allowing Blue
Lifts and Red Lifts to amalgamate at Mount Buller, allowing the one company to own Falls Creek and Mount
Hotham.

They are not the only factors, but they were key factors and we have to wind them back to the extent that we can.
You might think that that is pretty radical, but it is not. We have known how to change monopolistic structures and
turn them competitive for centuries. We can go back to the 1890s in America with the Sherman Antitrust Act. If
they could break Rockefeller’s monopoly, then it cannot be too hard to deal with some small organisations like the
ski industry in Australia.

Some of those things have to be wound back, and you might think, ‘Hey, it won’t work to have more than one lift
company on a mountain’. Can we go back to that? Well, they do it in Europe. There are so many resorts in Europe
where in the total resort so many of the lifts are owned by different people; they are not owned by the same people.
I know that is the American model, and I know that it has been the Australian model over the last couple of
decades, but it is not the only model, so that is a possibility.

Certainly we cannot have the situation in such a small market as Australia where one company owns multiple
resorts. If they need to have multiple resorts for economies of scale they should be doing it in the northern and
southern hemispheres. They should be doing it in New Zealand and Australia maybe, but not in Australia. The
market is too small; it is too monopolistic for that to happen.

I honestly think that it has gone so far now, and these are some of the things that it causes. For example, back
30 years ago people going skiing booked the same two weeks or what have you year after year. To a much lesser
extent does it happen now. We have now become a training ground to create skiers for overseas resorts — in
Canada, Japan, Europe and what have you.

They come to Australia, learn to ski, and are off doing their skiing overseas. That means that we are spending
money recruiting increasing numbers of new people every year just to maintain the size of the industry, because we
are losing so many. We train them and send them off. It is like the SEC used to do — train all the apprentices and
send them off to industry. That is what the ski industry is doing. You think, ‘How can such smart people as those
who run the ski industry make these sorts of mistakes?’. We know there are many really big and well managed
companies with highly paid boards of directors that have not been successful and have gone broke. Just because
business people run these industries does not mean they are running it smart for themselves, and it can certainly not
mean they are running it smart for the state.

I think it has got to the point where we seriously have to look at creating a new resort in Victoria to create more
competition. Certainly we cannot do it the way we have in the past. I mean, the risk capital to establish Hotham,

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Buller, Falls Creek and even Baw Baw was provided by the state government — through the SEC, the Lands
Department, the Forests Commission.

That is where all the risk capital came from. It did not come from these operators; they bought into it when it was a
successful, developed resort. How are you going to do it now? Certainly those organisations are not going to do it. I
think the American model is a good one. You take greenfield and the real estate profits pay for the risk capital of
building the resort and the lifts and what have you. Most of the accommodation is down below the snow line where
it is cheaper and so on, but they build the village and sell the real estate, and it helps pay for it.

Maybe you have to throw in a casino or something in order to make it viable, but I think you should be seriously
looking at how you can create a new resort in Victoria to create some competition, because we are missing out on
the real opportunities that we can make of our alpine areas. We are just not growing them fast enough, in my
opinion.

         Ms MARSHALL — The amalgamation was actually orange and blue; that was in the early 1980s.

         Mr WALSH — Yes, I am sorry.

         Ms MARSHALL — And that happened quite simply because the two lift companies were taking 50 per
cent of the market share each. So they were investing in the infrastructure and they were losing on their clientele
quite rapidly. It was not profitable for them both to be on the same ski resort. Across the world, if you look at the
number of places where two companies own the infrastructure, specifically the lifts it is incredibly minute, because
it does not work financially.

The infrastructure that changed as a direct result of the amalgamation of those two ski lifts was stunning. I mean, I
am not that old, but I can remember what Mount Buller was like in the early 1980s as compared to the early 1990s
and early 2000 and on. Therefore, as much as you are saying that the initial infrastructure was built essentially by
government, I totally disagree. It was neglected by successive governments because it was always seen as a
business.

So far as I can see, we do not need to develop an entirely new ski resort to increase competition. What we do need
is to find out what are the prohibiting factors to people accessing what is there. But every ski resort in Australia has
been improved dramatically due to the fact that there is one business that owns the lift companies, and it is in their
interests and it is their primary concern to make those businesses profitable and to do everything across the board to
do that.

So I disagree with many of the things that you say, but I am interested in determining how we find real solutions —
because when you first came to the table you were talking about finding solutions — as opposed to what you are
saying. It is very difficult for me, with my background and my experience, to take what you are putting forward.
But I do think there is a disadvantage to off-mountain proprietors, particularly accommodation proprietors.

Again, the change in the structure with the ski lift tickets on all ski resorts was that it was requiring the same
amount of work at the start of the year to service the mountain even if only 15 per cent of the lifts were running. So
there was a huge loss to change that structure, and that is not going to be fed on to anybody, whether it be a
business on the mountain or off the mountain.

So my question to you is this: what is possible to look at, other than I guess the couple of suggestions that you have
made, to try to better connect the people who are off the mountain to the facilities that are on the mountain, when
the other part for me is that your accommodation and any accommodation off the mountain has the advantage
actually of accessing other tourist attractions for the other nine months of the year which the ski resorts do not
have?

         Mr WALSH — I am not surprised that we do not necessarily agree about everything; that is okay, and
you might be right, or I might be right. But certainly another thing is that the lift operators have shown a real
reluctance to package with off-mountain accommodation. They need to be encouraged to do that, because that
suddenly puts the incentive back to off-mountain people to market more, to discount more and what-have-you in
the shoulder parts of the season. That is also something to think about. I do not know how you can encourage them
to do it within the current franchises but I think that certainly would help.

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But in the end I think it will take more than that. We saw what happened when we broke the two-airline monopoly
in Australia and what-have-you. Somehow or other we have to find, and what we have done with
telecommunications and other things — —

       Ms MARSHALL — But you are still talking about businesses in that aspect that are running for
12 months of the year, whereas we are specifically talking about industries here that run for 12 to 13 weeks profit.

         Mr WALSH — Yes.

         Ms MARSHALL — So I do not think those same examples can be applied.

          Mr WALSH — The solution is not going to be identical. I think the current business philosophy they are
running on may be to their best benefits, but in the end the state owns these resorts, and these people lease them off
it. I do not think it is to the benefit of the state, so we have to find mechanisms to encourage them to go more for
volume and less for margin. I do not think there is too much doubt that they are going for margin rather than
volume.

Whether we give them some marketing incentives, whether we build into lease renewals a different sort of lease
payment structures that reward them for growing resorts faster, certainly that is something we should consider. I
think you need to give them the message that we really want them. This is a state asset that they are managing. Just
like you give incentives to other people, whether they are running your trains or what have you, you should be
giving them incentives to do what is of benefit to the state, rather than just let them do what is of benefit to them.

         Mr NORTHE — You made reference to the employees and skills of those in the tourism industry and the
hospitality sector and how we are losing them, in particular — —

        Mr WALSH — I was talking more about the customers — the skiers. We were not getting enough repeat
business from the skiers now as what we were getting, say, 30 years ago. That is not the only factor involved. There
are cheaper airfares and all sorts of things are other factors, but it is a problem that we are having to find more and
more new skiers just to keep the same industry level. That was what I was referring to, rather than employee skills.

         Mr NORTHE — I guess this question can refer to both, whether it be skiers or employees. Obviously we
have trouble retaining both recurring visitor numbers and employees. From your own perspective, to where are we
losing them and why? Have you got solutions to attract them back? You have probably made reference to some of
that in your previous comments.

         Mr WALSH — Attracting people back is always very hard. It is easier to keep your customers than to get
them back once you have lost them. I am not saying we should not try, but our emphasis has to be on the new
skiers we are bringing in — and it is amazing, as you would have noticed, the number of Asians that are up there,
learning.

We have to focus on keeping them coming back and not having a couple of seasons in Australia and then doing
most of their skiing overseas. Part of it is the value proposition. Maybe there has to be a frequent user program. I
think some of the resorts have some frequent user programs, but they really have to focus. To the extent that you
can, build into your agreements with them that this is the target that they have to achieve.

Let them do some of the legwork for you — that is the point. If you are going to do everything, you may as well
run the resort yourself. If you are going to have them running the resorts for you — and that is how I see it; perhaps
I come at it from a different point of view — I see these mountains as belonging to the state, and you are getting
these people as operators. I do not see a great difference from you getting commercial people to operate a sewerage
plant, an electric plant, or a train or a tram service. I do not see a great deal of difference. I would encourage you to
change your thinking as to the way you see the people who are running those resorts.

If I have a moment, I would just like to explore some other areas where, other than downhill skiing, I think we are
missing out on in the alpine areas, perhaps because we have had the wrong philosophies. I come at it from being a
bushwalker for many years — I prefer mountain biking these days. I think we are missing out. We are losing
Victorians to places like Tasmania, New Zealand, Europe for walking, ski touring and mountain biking.


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We have the geographical resource. We have the climate for these things, but what we do not have are the facilities
that the majority of people want. We have all these forests and national parks, probably in the wrong order — that
is, more national parks than forests — but what we are not doing is taking the opportunity to provide the sort of
experience that people really want to have. The majority of people do not want to, and many of them cannot do the
real mountain walking — even myself, who used to carry very heavy packs, find that a lot more difficult, and
certainly I am not so keen as I used to be.

In other places, including down in Tasmania and also in New Zealand, people can walk from valley to valley and
stay in huts, and overseas they can stay in villages and the like, but you just cannot do that sort of real mountain
walking in Victoria. There are a few trails and so on — rail trails — but not for mountain walking.

We have a huge area for cross-country skiing, but if you want to get out there and do multiple-day trips, you cannot
ski from hut to hut like you can in Scandinavia, and yet our mountains look so similar to Scandinavia’s, where you
can just do it. There are these DNT huts in Scandinavia; there are refuges in Europe; and we really should look at
providing similar things. We should try to stop losing Victorians who want to do that sort of activity to overseas
countries. Moreover, the overseas people are going elsewhere and doing the overland trails. Why are they not doing
some in Victoria? We need to change our approach and philosophy, in my opinion.

We have been very reluctant to allow mountain bikers to ride the walking tracks. We have said ‘It is for walkers
only’, but if you go out there you will find a few walkers a month walking these trails, and yet we are saying the
mountain bikers cannot use them. Why? The trails are certainly not too busy in most cases. There has been some
very innovative thinking in places like the You Yangs.

Where they have opened up areas for the mountain bikers they have had to extend the car parks fourfold now for
the people who want to use those areas. That is what our parks are for. Sure, they are about preserving our
environment and diversity, but also for people to get out there and use them, for fitness and what-have-you.

I would encourage perhaps thinking about where we can set up a few trails where people could do multi-day
walking and skiing in winter, and mountain biking, on these single trails, so they could go from hut to hut. We
cannot do it from village to village — it is not like Europe — but we can have huts and encourage walking clubs,
mountain biking clubs, skiing clubs and so on, to say, ‘Here’s a trail’ and encourage them and give them the licence
to build huts.

For example, the Melbourne Bushwalkers lost their Wilkie Hut — it was burnt in the bushfires — and they have
not been allowed to replace it. They should be told, ‘You can replace it, but let us replace it somewhere else. Let us
perhaps go out of Licola’, or somewhere like that where there is a huge area that is not being used for cross-country
skiing.

There should be a number of huts there and people can ski from hut to hut about a day’s skiing apart and in other
places there should be trails where there are huts, but not emergency refuge huts, but huts that we actually
encourage people to stay in overnight. With today’s technology you can overcome the problem of food and
what-have-you. In Scandinavian huts you can go to the cupboard, take out what you need and fill out a credit card
form; it is an honour system.

If you have it far enough from the road, then that will work. Once you get something half a day’s walk from a road
the people who are likely to go and just steal and what-have-you will not go there. But with today’s technology,
and with solar electricity for power and things like that you can set up vending machines. That would enable food
to be available there, so people would not have to carry a tent, a stove, fuel or food, and then suddenly a whole lot
more people will want to go out there and do multi-day walks, multi-day mountain biking and multi-day ski
touring. That is not happening at the moment. Not only would it use our national parks and create economic
activity, it would also create fitness.

         Ms MARSHALL — This comment stems from something you said earlier. I was just wanting to know
whether you are aware that in the early to mid-1990s there was a government change in the taxation that applied to
the land in alpine areas. They had previously taxed you depending on how many beds you had within your ski
lodge.

         Mr WALSH — Yes.

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        Ms MARSHALL — Then they changed that. They estimated how many beds should be built onto land of
your size and then taxed you accordingly. Of course the follow-on effect was that it destroyed the small lodge
market, so you were talking about trying to increase the number of beds and basically the number of clientele
coming onto the mountains, but that effectively took a completely different turn. Yes, it increased the number of
beds and essentially the number of visitations, but it weeded out the smaller operators and the less profitable end of
the market. I was wondering whether or not you were aware of that, for a start?

         Mr WALSH — Yes.

         Ms MARSHALL — And I would have thought that, again, that would have given rise to a greater
possibility of off-mountain accommodation providers.

         Mr WALSH — No. I think what it did was that, if you went to Mount Beauty at the weekend in the late
1970s or if you went to the Bogong Hotel at Tawonga, that place was bursting at the seams every Saturday night,
because the ski market was growing and there was not the on-mountain accommodation available, so there was this
huge spillover down into Mount Beauty and Tawonga off the mountain. If you go into the Bogong Hotel and into
Settlers Tavern and places in Mount Beauty and Tawonga on a Saturday night now, in the middle of the season,
there are not many there.

What actually happened was there was this pent-up demand for on-mountain accommodation, and the people were
going off-mountain because the accommodation was not there, and that change in approach then added a whole lot
of on-mountain accommodation. A lot of it was investor driven, and of course the developers were looking at their
development profit and not necessarily the total market, so they probably overdeveloped the amount of
accommodation available, certainly in comparison to how much the industry has grown, and that has just dragged.
Despite the fact that places like Mount Beauty have increased enormously in the amount of accommodation
available, they are actually probably not getting more people than they were back in the 1980s.

        The CHAIR — David, thanks very much for coming in. We appreciate your time, and we appreciate the
evidence that you have given us. We will make a copy of your transcript available for to you read in a couple of
weeks, and you can check what you have been quoted as saying and make sure that it is accurate. Any
typographical errors can be corrected. You will receive that information shortly.

         Mr WALSH — Thanks for your time.

Committee adjourned.




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