Crisis management in the Australian tourism industry: Preparedness, personnel and postscript

Abstract

Since the pilots’ strike of 1989, the Australian tourism industry has experienced a series of ‘shocks’ or crises which have included the 1991 Gulf War, the Asian economic crisis in 1997, the dotcom crash of 2000, the collapse of the HIH Insurance Company, the World Trade Centre attacks and the demise of Ansett Airlines in 2001, the Bali bombings in 2002 and the Iraq War and the outbreak of the SARS (severe acute respiratory syndrome) epidemic in 2003. In 2002, a research project was carried out in a range of sectors of the Australian tourism industry to investigate the impact of the collapse of the HIH Insurance Company, the World Trade Centre attacks and the demise of Ansett Airlines on these organisations and the range of responses adopted to these events. This paper describes the preparedness of organisations to respond to these events; the personnel or human resource (HR) strategies implemented and the postscript, the organisational learning which had occurred. Interview findings indicate that there was little preparation for such events, a widespread reluctance to retrench staff, and limited organisational learning had taken place.

1. Introduction

Since the pilots’ strike of 1989, the Australian tourism industry has faced a series of crises, which have included the Gulf War in 1991, the Asian economic crisis in 1997, the dotcom crash of 2000, the collapse of the HIH Insurance Company, the World Trade Centre attacks and the demise of Ansett Airlines in 2001, the Bali bombings in 2002 and the Iraq War and the outbreak of SARS (severe acute respiratory syndrome) epidemic in 2003.

In 2002, a research project was carried out among a number of sectors of the Australian tourism industry to investigate a variety of issues associated with the collapse of the HIH Insurance Company, a major Australian insurance company, the World Trade Centre attacks and the demise of Ansett Airlines, Australia's second largest airline. Issues explored included identification of the factors influencing the impact of these events, the relative impact of these three events on these organisations, and their short- and medium-term responses. The study also highlighted aspects of the broader operating environment, such as role of organisational policies in guiding responses to these events, and compared the events of 2001 with other ‘shocks’ experienced by the tourism industry. This paper, drawn from the broader study, focuses specifically on the preparedness of organisations to respond to these events, in terms of the role of policies in guiding their responses; the personnel or human resource (HR) strategies implemented, and the postscript, the extent of organisational learning which had occurred.

2. Literature review

Faulkner (2001, p. 136) suggests that crises or disasters can be described as ‘sudden challenges which might test the organisation's ability to cope’. Pearson and Mitroff (1993, p. 49) suggest that crises are events which pose threats to the viability of organisations. Faulkner (2001, p. 138) has distilled the work of a number of authors and indicated that the key elements of crisis situations are:

• •a triggering event, which is so significant that it challenges the existing structure, routine operations or survival of the organization,
• •high threat, short decision time and an element of surprise and urgency,
• •a perception of an inability to cope among those directly affected,
• •a turning point, when decisive change, which may have both positive and negative connotation, is imminent,
• •characterised by ‘fluid, unstable, dynamic’ situations.

The attacks on the World Trade Centre clearly demonstrate the potential risk which terrorism poses for the tourism industry. A number of authors have highlighted the fact that tourists have become soft targets and are at risk from hijacking and terrorism (Faulkner, 2001). Furthermore, studies have shown that tourists substitute risky destinations with safer choices, demonstrate a delayed reaction to terrorism and exhibit cultural differences in their reactions to risk (Sonmez, 1998, pp. 427–428). For example, as a result of terrorist activity in 1985, 1.8 million Americans changed their foreign plans their following year (Sonmez & Graefe, 1998, p. 121). When the HIH Insurance Company collapsed on 15 March 2001, it was Australia's second largest general insurer, with almost 40 per cent of the public liability market. In the following (June) quarter, the net premium for insurers increased by 7.5 per cent, indicating that HIH's rivals had taken advantage of its collapse to obtain premium price rises which had been limited by competition (White, 2002). The terrorist attacks further compounded the impact on insurance premiums. Switzer (2002) records that premium forecasts made before September 11 indicated that the rises would be 25 per cent at the most, but after these attacks, the increases could be as high as 1000 per cent in some cases, as occurred in Thorpedale, Victoria. The public liability premium for the annual potato festival has risen 1000 per cent since 2000. In Tumbarumba, southern New South Wales, the 2002 Easter Tooma Gymkhana was cancelled after premium rises from $1600 to $10,000 (Hughes, 2002).

Ansett Airlines, owned by Air New Zealand and a partner in the Star Alliance of airlines, had 35 per cent of the domestic market at the time that it was placed into receivership on 14 September 2001. This event had a number of serious implications for the Australian tourism industry, which included the loss of tourists from New Zealand, disruption of services to rural Australia and customers of Star Alliance partner airlines were no longer able to use their frequent flyer points for travel to and within Australia (Prideaux, 2003).

In response to a crisis, invariably, urgent management decisions, which are not part of an organisation's normal operating procedures, will have to be made. Pearson and Mitroff (1993, p. 59) suggest that ‘the purpose of crisis management is not to produce a set of plans; it is to prepare an organization to think creatively about the unthinkable so that the best possible decisions will be made in time of crisis’. Indeed, Faulkner (2001, p. 137) suggests that good management means having strategies for coping with unexpected events over which organisations have no control. Spillan and Hough (2003, p. 399) suggest that ‘crisis management entails minimizing the impact of an unexpected event in the life of an organization’.

Effective crisis management means that senior management must manage the impact of the crisis on various sections of the organisation, such as information systems, operations and human resources (Hickman & Crandall, 1997). With respect to human resources, management must be mindful that its employees may experience considerable personal loss in such times and that there may be a decline in their workplace performance (Heath, 1998; Hickman & Crandall, 1997). Moreover, employees may be working in conditions of greater levels of stress. Crisis-induced and post-crisis stress may increase under a number of circumstances, which include ‘when informational certainty is low; … the size and scale of the event appears overwhelming; … executives, managers and even on-site team leaders show little support’ (Heath, 1998, p. 400).

In response to these circumstances, Heath (1998, p. 400) recommends that managers ensure that as much reliable information is provided as possible and use a range of ‘post-crisis stress reduction strategies’, ranging from informal peer interaction to formal professionally conducted programs. These recommendations highlight the need to obtain reliable information as a means of protecting an organisation's workforce (Heath, 1998, p. 14).

Crises are also times in which the relationship between management and employees can potentially become stronger, as they work together in the face of adversity to restore their organisation (Hickman & Crandall, 1997). However, during such times, staffing levels may have to be adjusted and it is imperative that organisations have appropriate policies in place to guide their responses. The use of casualised workforces has been one strategy which has allowed organisations to cope with variations in demand. Indeed, workforce ‘flexibility’ has been seen as the answer to uncertainty (Pollert, 1988, p. 281). The deregulation of the industrial relations system has been carried out in the name of increased labour flexibility in the following areas:

• 1.Numerical—the right to hire and fire staff to suit prevailing economic conditions;
• 2.Work time—the ability to adjust time and quantity of work time with relation to overtime, shift work, flexible starting times and stand down arrangements;
• 3.Functional—the ability to extend the range of tasks a worker can perform;
• 4.Wage—the ability to alter wages and conditions to suit the prevailing economic conditions;
• 5.Procedural—the establishment of a procedural framework which will allow consultation and negotiation to occur at an enterprise level between an employer and their employees (Buultjens & Howard, 2001, p. 61). A study involving registered club managers in New South Wales indicated that the most important areas of flexibility were work-time, functional and numerical flexibility (Buultjens & Howard, 2001, p. 68).

Crises such as those which occurred in 2001 create critical periods of learning readiness in organisations. This period of learning has three phases, namely, defensiveness, openness and forgetfulness. When faced with a crisis, managers and employees involved may feel defensive and be moved to protect themselves. However, once the immediate threat or incident has passed, they may be open to understanding their organisation's vulnerabilities and assessing its performance in managing the crisis. It is in this phase of openness when most learning can take place. However, the extent to which organisational members are open to learning and the duration of this phase are largely dependent on the behaviour of the top management. After the crisis, operations must be restored as soon as possible. Hence, the sense of urgency which motivates a desire for change is lost and all the superficial learning is forgotten (Kovoor-Misra & Nathan, 2000). They suggest that ‘healthy forgetfulness involves moving on, but only after the necessary lessons have been learned.’ (Kovoor-Misra & Nathan, 2000, p. 32).

Although there is the potential to learn from crises, indeed, Faulkner (2001, p. 137) observes that crises have ‘transformational connotations’; with potentially positive as well as negative consequences, it has become evident that many organisations do not learn from them (Kovoor-Misra & Nathan, 2000; Roux-Dufort, 2000). Roux-Dufort (2000, p. 26) suggests that ‘the organization's priority is to come back and maintain the status quo as soon as possible rather than exploring the extent to which the crisis is a privileged moment during which to understand things differently.’ Confirming this view, Henderson (1999, p. 177) reports that the results of a survey of leading tourist attractions in Singapore investigating the consequences of the Asian financial crisis indicated that there was no crisis management planning and that there was a need for such planning in the light of the nature of the travel and tourism industry, with its exposure to risk and disaster. This finding confirms the observation made by Cassedy (1991, p. 1) that many tourism organisations do not include the possibility of disasters in their strategic plans. Indeed, Cassedy observes that ‘given the travel industry's dependence on transportation, the exchange rate, the political situation, discretionary income and weather, this industry is highly susceptible to unexpected change’ (Cassedy, 1991, p. 3). This absence of some form of crisis management planning perhaps reflects the fatal mistake made by many businesses that a crisis will not happen to them (Spillan & Hough, 2003). They report the results of a survey of small businesses in Pennsylvania and New York, which indicated from the 162 responses, that little emphasis had been placed on crisis planning in these businesses, the majority of which had less than 25 employees. The study also concluded that ‘concern for crises was generated from the past experience of those crises…’ (Spillan & Hough, 2003, p. 406).

It would appear that not only tourism organisations were unprepared to respond to the events of 2001 but also the Australian Government did not have any pre-determined response guidelines; hence, its responses were made largely on an ad hoc basis without a complete understanding of the problems being faced or thought given to their longer-term implications (Prideaux, 2003). The manner in which governments respond to shocks in the tourism industry is important, as it may influence the rate of recovery of the industry (Prideaux, Laws, & Faulkner, 2003). Queensland was the first state to have a tourism crisis management plan, which was formulated after the events of September 11 and Ansett's demise in 2001 (Tourism Queensland, 2004). Development of the national tourism incident response plan commenced after the Bali bombings, in October 2002, and was ready for activation in time for the start of the Iraq War in 2003.

In summary, in view of the volatile environment in which the tourism industry is now operating, it is imperative that appropriate policies are in place, at governmental, sector and organisational level, to guide decision-making in key areas such as the management of human resources. It is also important to ensure that in the rush to return to the ‘status quo’, valuable lessons are not forgotten which would help guide responses to the next crisis which will inevitably occur.

3. Methodology

A qualitative methodology was considered most appropriate to describe and explore the complex issues associated with organisational responses to the events of 2001, namely, the collapse of the HIH Insurance Company, the World Trade Centre attacks and the demise of Ansett Airlines. The use of semi-structured interviews, with a number of pre-determined questions, allowed some comparison between the responses of the participating senior managers, and also afforded the opportunity to digress and probe further, when appropriate. These senior managers were drawn from organisations in a range of tourism sectors, namely, accommodation, business tourism, entertainment, tourism management and transportation, which includes car hire and tour operators and in a range of locations around Australia (Adelaide (A), Alice Springs (AS), Sydney (S), Melbourne (M), Cairns (C) and the Gold Coast (GC)). By conducting interviews in different sectors of the tourism industry and locations, an understanding of how a variety of tourism operators in a number of destinations around Australia responded to the events of 2001 could be ascertained. A profile of the interviewees is given in Table 1 .

Table 1.

Profile of interviewees

Industry sector	Adelaide	Alice Springs	Melbourne	Sydney	Cairns	Gold Coast
Accommodation	2	3			3
Business tourism	2	1	1		1
Entertainment						2
Tourism management		1
Transportation	4	3	1	2	1	2
Total	8	8	2	2	5	4

Some of these organisations had operations in more than one sector and geographical location. The interviews, lasting between 30 and 45 min, were audio-taped and later transcribed. Interviewees’ names have been changed to preserve their anonymity. At the end of each quotation, the following information is provided as follows: (pseudonym of interviewee, tourism sector, location, total number of employees (when provided)). It should also be mentioned that the phenomenon of ‘self-presentation’ was observable amongst a number of interviewees. General, broad, sanitised answers were given frequently. As it is not possible to report all the responses here, a range of quotations have been provided to illustrate the issues under consideration.

4. Interview findings and discussion

In this section, the interview findings and discussion are presented under the following headings: preparedness, personnel: HR strategies and postscript: organisational learning.

4.1. Preparedness

In discussing the short-term responses to these events, a certain sense of helplessness was detected in the one interviewee's comment, ‘just pulled our hair out, played more golf, there was nothing we could do’ (Trent, car hire, C: 4). However, it was also widely recognised that there was the need to be flexible, as can be judged from these comments:

… so therefore, the industry had to re-adjust and … we live in a changing world and if, if you’re not in tune with what is happening in the world, you’re quickly out of business. (Douglas, business tourism, A: 600)

… one lesson out of those 2 events was that … we need to have that flexibility to be able to … make some changes with the direction of the company… (Paul, accommodation and tours, S)

The importance of the ability to be able to act quickly and change in response to such events being embedded in an organisation's culture was highlighted by one tour operator, who indicated that this had allowed her employees to cope better with the changes which had to be made in response to events of 2001:

…I think if you make them [personnel] … comfortable with the idea that the company has to be quick on it's feet all the time, then when something happens, they won’t be phased… (Renata, tour operator, S)

From the responses to a question regarding the role of organisational policies in guiding responses to these events, it became clear that the majority of organisations had not been prepared for such events by the development of appropriate policies, confirming numerous reports in the literature about the absence of this type of planning.

We didn’t have any plans in place… (David, car hire, A: 8)

…policies, that presupposes we have a long-term vision and plan.

No, no, we’re a small business … (Lachlan, transportation, A: 300)

However, one interviewee did acknowledge the need for plans in the following comment, ‘I just think that businesses the size of ours have to have plans in place, because in fact, that [crises] happens everyday, all you’re looking at is the magnitude’, (Ray, entertainment, GC). The comment of another interviewee who had found that his organisation's crisis plans had not been of any value, highlighted the need for appropriate or relevant policies:

and normally you would have crisis plans which you would pull out of the drawer every year or two and dust it off and say ‘is it still relevant?’ But the crisis plan didn’t even address anything like this, so I don’t think anybody could have planned what they were going to do… being honest, … we literally ran around for a couple of weeks wondering what the hell we were going to do… the normal business practices did not seem to apply. (Nigel, accommodation, C)

While a number of organisations did not have any formal policies to guide their responses to the events of 2001, the organisational learning which had been acquired during other times of crisis was acknowledged as having guided their actions.

…I can remember myself in 1988 or 89 … and the pilots went on strike, it was a similar sort of thing, so you called on your experience and did what the best you could and you relied on your experience… (Mark, car hire, AS: 9)

…2 examples, which would have provided a precedent for management, would have been the Gulf War and the Pilots’ strike in 1988 … the boss has been in the game now for 30–40 years, I think that … in the background, these guys had some … sort of strategy in place so that, should something like that arise again, they would put into place. (Martin, coach company, S: 500)

These comments confirm the influence of previous experience of crises on organisations reported by Spillan and Hough (2003).

4.2. Personnel: HR strategies

Organisations, irrespective of size, sector and location, responded to these events by adopting a range of HR strategies. There was widespread reluctance to retrench staff as it was acknowledged that they would be needed when the industry recovered from its decline.

we tried to cut costs as much as possible … the first thing that comes to mind is retrenchment which we wouldn’t do, we tried to push people out on holidays, as much as possible, fortunately, this company is… owned 100% by one man … and he's sort of been in the business now for many, many years, so he's seen the ups and downs. So, … rather than flicking people, when the business comes back, you’re then left with a, not enough staff or b, you have to retrain everybody, so the customer service goes down, consequently you lose more business. (Martin, coach company, S: 500)

Nobody lost their job, and … that's why the management volunteered to take a 20% pay cut, because they wanted to have their staff there, so that when business picked up, they wouldn’t have lost all crucial staff… (Renata, tour operator, S)

All staff were met and because ours are on hourly shiftwork arrangements …all the drivers that were working … 40 or 50 hour weeks, were reduced to 15 and 20, and they agreed, because we wanted to maintain the skill base that we had, … (Pat, tour operator, GC: 100)

Many interviewees acknowledged the importance of keeping staff informed as to what was happening and involved them in decision-making about employment options:

[we] kept them very much informed of what was going on within the market. I also made a commitment to them that … there would not be any knee-jerk reactions to what was transpiring and that we would keep them informed as to what … the consequences of any, if any significant down-turn in business would occur. I think if you communicate well with your staff and they have an understanding of what's going on, they also understand what is required and the needs of the business … they feel comfortable about things that are happening around them. (Michael, accommodation, A: 130)

I spoke to my staff and I had 2 choices, either put some off … or cut back their hours. So I brought them in here [coffee shop] … one by one, had 10 coffees a day, and they all agreed that they’d be happy to just have a day or so off during the week, no pay, so we effectively got rid of 2 staff … just generally tighten up, try and ride it out because we knew that eventually consumer confidence would return. (Peter, transportation, A: 6)

… from a company's point of view, we did realise that at the time, that there would be some anxt and anxiety amongst our staff and … we had a meeting with our staff … from an employment point of view, … it takes … a long time to get, to find the right people, it takes a long time to get settled in, it takes a long time to get them being a very important person for our clients, … the thought of having to lose any of them, it's not a good thought in anybody's mind … and so, I’m very pleased to say no, we didn’t have to retrench anybody… (Trevor, business tourism: 500)

I addressed 100 staff out in the depot standing on step and I’m crying … and I said to them, “I’m sorry, but it's not out of poor service or poor management or poor practices by you or I or anybody, it's totally out of our control and we’re just going to do the best we can to hold it together and I’m imploring you to help us to that”. They did, you know, they did, which was really good. (Pat, tour operator, GC: 100)

In summary, the importance of communicating with staff in times of uncertainty was widely recognised, confirming Heath (1998). It was also generally accepted that it was imperative to retain staff if at all possible and flexible work-time arrangements were instrumental in allowing this to happen, corroborating the findings of Buultjens and Howard (2001). There was also evidence of management and staff ‘pulling together’ during this time, as suggested happened by Hickman and Crandall (1997).

4.3. Postscript: organisational learning

With respect to the organisational learning which had taken place as a result of the events of 2001, there were a variety of responses. A number of interviewees were satisfied with their responses and did not see the need to do anything differently should a similar situation happen again:

I just think that that what happened actually probably reinforced the way we went around doing our business, that we basically had in place the necessary procedures to actually alter the business accordingly to what was happening at the time. (Michael, accommodation, A: 130)

I don’t think they should change anything, they did a good job. (Kate, car hire, AS: 7)

no, I don’t think so. No, because we, we came through about as well as we could have come through it. (Renata, tour operator, S)

Other interviewees reported that certain lessons had been learned from these events, e.g.:

… it's made us much more cautious than what we were previously … if we’d had our time over again … a number of things I would have done differently… (David, car hire, A: 8)

our yield management is more sophisticated now, so that would work better. But no, I wouldn’t change much. (Lachlan, transportation, A: 300)

One interviewee (Trevor, business tourism, M: 500) acknowledged that people in his organisation had been caught up in the emotion of the time, and that the next time such an event occurred, they would wait for reliable information before planning their response. Indeed, confirming Heath (1998), there was broad acknowledgement that any responses should be based on accurate information:

first one was, to rapidly … increase our intelligence-gathering information, so to ensure that the decisions we were making were based on fact, not on reaction. (Ray, entertainment, GC)

well the very first thing we had to do was to try to establish what effect it was going to have on those traditional feeder markets because it caught us totally unawares. (Nigel, accommodation, C)

In discussing the perceived benefits of the events of 2001 to the tourism industry, a number of interviewees again highlighted the value of organisational learning as a result of these events:

I think the operators get a chance to sit down and really look at what their business is all about … it forces people to also explore other markets that they probably wouldn’t have explored in the first place, had the business been just bopping along. It also gives operators an opportunity to review their cost structures and rationalize if they need to and understand that their, their existing clientele is of utmost importance and their staff morale and staff, ability to be able to hold staff during those periods is also important in producing a product that continues to be outstanding. (Michael, accommodation, A: 130)

One interviewee suggested that there were benefits at the industry and organisational levels:

the benefits are, I reckon, for the industry would be just working out smarter ways of doing business, being more efficient…things like this made people sit up and pay attention and be a bit more strategic in their approach, marrying up short-term gain with long-term objectives. From our point of view, it's caused us to look fairly closely at the business in that respect. … it sharpens us up in our business management approach, it sharpens us up in our service delivery, because we’re now competing for a tighter market. (Brad, tour operator, S)

side-benefits should always be that we increase our level of understanding and the knowledge and intelligence … that is, despite a negative event, what do we learn from it? … so as to avoid it in the future, to be able to manage it more effectively in the future, but more importantly, to increase organisational capabilities to responding to events in the future, so everything is a learning experience, at a strategic and an organisational culture level. (Ray, entertainment, GC)

Hence, while a number of interviewees learnt that their responses to these events had been adequate and hence would not change their response to future such events, other interviewees did learn a variety of lessons resulting in a number of organisational changes. Indeed, the value of the organisational learning which occurs at such times was acknowledged by some interviewees as a benefit of these events.

5. Conclusions and implications

The events of 2001 considered in this study display the characteristics of crises, in that they presented sudden challenges which had tested the ability of organisations in the tourism industry to cope (Faulkner, 2001). The lack of preparedness for such events was demonstrated by the widespread absence of policies to guide organisational responses, confirming the observations of Henderson (1999), that while there was a need for crisis management planning, none had been done. The need to support personnel in such times by the provision of reliable information, reported by Heath (1998), and the importance of workforce flexibility in areas such as work-time, mentioned by Buultjens and Howard (2001), have also been confirmed. In contrast to the comments of Kovoor-Misra and Nathan (2000) and Roux-Dufort (2000), there was evidence that organisational learning had taken place, which confirmed the observation of Faulkner (2001) that such events can have positive consequences.

These findings have a number of implications for the Australian tourism industry. Most importantly, it must be recognised that organisations are now operating in an increasingly volatile environment and it is imperative that good networks are developed and maintained so that accurate information can be gained on which appropriate responses to any crisis can be planned. It is vital that organisations become flexible in their approach to their operations, one aspect of such flexibility being with respect to staffing. In this study, work-time flexibility has been shown to be particularly important means whereby staff could be retained, as there was a widespread reluctance to retrench staff, who would be needed once the industry had recovered. It is also critical that lessons learnt during such times are not lost, but become part of the ‘corporate memory’, such that they can guide future decision-making.

6. Further research

The findings of this study are limited by the small sample size and it is recommended that a similar study be conducted in other sectors and geographical locations to confirm the findings. Also, a follow-up study of participating organisations investigating their responses to the outbreak of the SARS epidemic and the Iraq War would be particularly valuable. Indeed, one interviewee suggested that the timing of another crisis would dictate his organisation's response:

… I would say that it that happened within the next year and business dropped, we’d probably have to retrench staff—2 big hits like that, 2 years running… in the short-term, it would be harder to hold staff… (Martin, coach company, S: 500)

In addition, such a study would identify the extent of organisational learning which has taken place in that time.