Algarve golf still a strong product but what is the future?

18 02 2011

by Stuart Woodman – ILM Golf Associate & Andrew Coutts – ILM CEO for Portugal Travel News

Leading Sustainable Tourism2

Golf in the Algarve has built a reputation for excellence over a period of 40 years. The factors which have contributed to this status are:

* the weather
* the quality and diversity of the golf courses
* the service and friendliness of the people
* the support offer (accommodation, food & beverage, beaches, etc.)
* access by air and by road
* value for money and investment opportunities in real estate.

As we are all painfully aware, the current financial crisis is having a negative effect on leisure and tourism based activities around the world, and we are all having to adjust our businesses and lives to adapt to this. in addition to exacerbate matters, the Algarve experienced a very cold, wet winter in the 2009/2010 season. This had a much stronger affect on those who do travel to a particular destination (for the core benefits of the Algarve´s weather), in the current economic situation, than it did in the past.

When a tourist spends their available cash on a winter break, they expect a break from the day-to-day problems and enjoy a break from northern European weather! To encounter constant rain in a destination reputed for good weather, creates a very negative reaction. For those in the golf and travel business, it is not unusual to encounter a client on a rainy day, saying ‘What is this weather doing, I came here for sunshine, why is it raining?’ We all explain that we have some 40cms. of rain every year and it must fall sometime, to which the reply is frequently, ‘Yes, but why is it doing it now when I am here?’

The common statistic that people repeat bad news far more often than good news, then takes effect during the next season. Morocco and Turkey likely benefiting. This was the case in 2010, when during the period of January to April, the Algarve experienced unusual rainfall, the numbers of rounds played in the Algarve dropped by 9.46% (33,640 rounds) when compared with 2009.

During the summer period (May to September) the decrease was only 0.79% (3,129 rounds) and in the winter (October to December) the drop was only 0.59% (1,444 rounds).

So the figures support the assumption that the poor weather had a severe knock-on affect. As we are experiencing a far better and more typical winter in the first part of 2011 we must obviously market this fact as widely as we can, to eradicate the negative reaction to the previous winter. However, this is obviously not the only challenge confronting operators. Whilst there is a strong offer of golf courses, it is akin to a hotel, never big enough (in supply of golf courses terms ) when business is good and demand strong, but too big when business is bad.

Similar to the hotel business, the fixed costs of a golf business cannot be reduced beyond the point where the product or base asset and service begins to deteriorate. Almost all of the Algarve golf courses are integrated within or related to a resort, where the sale of real estate is the main income earner, with golf being an anchor and catalyst to facilitate the real estate marketing efforts.

Whilst a stand-alone golf product can generate profits, golf assets are never going to be in the category or level as the income that can be made from the development and selling of property and in a falling financial market, break-even will be acceptable and creating profit is an achievement.

In the ‘good times,’ more money than was sensible or necessary was invested in some Algarve golf courses and their clubhouses. A clubhouse can have two functions: to service the golf trade and to help to demonstrate the quality of building which is available on a resort.

In a project where real estate is the key element, there is an amount which can be spent, in showing the ‘life-style’ that a property buyer can enjoy, if they invest in real estate. However, if the course is not directly selling real estate, such a building is a weight around the neck of the project. It is interesting that Penina, built in 1966, is one of very few golf products in the Algarve where the clubhouse is part of the hotel. Thus the golf and food & beverage personnel of the clubhouse are an integral part of the hotel product, creating operational synergies and labour cost savings.

This is also a similar case in the Sheraton Algarve where the food & beverage outlet required of the golf product was conceived as a general outlet for the resort.

Obviously, in these troubled times for real estate developers, large clubhouses are financially a millstone around the neck of the resort. The fact that they provide a F&B service also makes them an internal competitor for any other resort owned and operated F&B outlets.

The 630 holes of golf available in the Algarve are distributed over 26 resorts; some having only 9 holes and others, such as Vilamoura, having 90 holes. This is a very strong offer in the good times, when all can enjoy a profitable business. However, in many resorts with other products to sell, in rental accommodation from both hotel, villa and apartment beds, and real estate, income from golf has to be diverted to support the parts of the business which are losing money, which then has a knock-on effect on this sector. This results in a lowering of quality, due to lack of funding and problems soon multiply.

Although the Algarve beaches remain superb, the people are as friendly as ever and the weather can be relied upon as much as a feature of nature can be, the Algarve golf product is in danger of losing its reputation for quality on some of the regions courses. Happily, some are in better condition than usual, Quinta do Lago, Vale do Lobo Laranjal and Monte Rei standing out in this respect. These business´s follow a policy of maintaining a pricing policy, based on real operating costs. This does not always mean that they will be profitable, as the price charged must match the market spending power and profile.

The process of managing a golf course successfully is not complex; by accurately forecasting the rounds which will be sold and then making sound assessments of fixed and variable costs, by dividing the former into the latter, we arrive at a ‘Cost per round played.’

Once additional financial costs are added, it is then easy to calculate the correct break-even selling price, being able to decide on what profit percentage is viable, in the current market. Where a resort has accommodation to sell, it is conceivable to combine the golf and accommodation using the same formula but looking for a combined profit or break-even, whilst waiting for the financial situation to turn around. Some courses in the Algarve have ‘panicked’ and are charging prices below the economic break-even and are taking strategic decisions based upon poor understanding or false economic assumptions.

Golf courses that are located in a resort have some ‘members’ as a result of the connection with the real estate offer and others simply through selling memberships to grant access to the golf course. This creates useful income and vital atmosphere in the resort.

65% (17) of the regions resorts have golf and real estate, 15% (4) with golf, real estate and hotel components, 1 with a hotel only and 15% (4) who have golf only. It is interesting to note that the 4 “golf only” products only lost a total of 1,259 rounds over 2009 figures. One of the four resorts with three components lost over 10,000 rounds whereas the other three integrated resorts only lost a total of 3,325 rounds and so will have been able to regard their golf operation as the catalyst to their hotel revenue, although this may have been at a much reduced price level.

As with the weather, the decision in 2010 of local government to excavate various primary roads exacerbated the negative reaction of visitors, with many finding access not easy. This seems to be past its worst, but is still continuing, creating a ‘building site’ impression.

The supporting and vital complementary offer of tourist accommodation and food & beverage outlets is also under severe pressure, with many hotels reducing prices dramatically and with many F&B outlets choosing to close for long periods.

The beaches continue to be an enormous asset, but the sun and sand product is a very seasonal business. The habit of offering different hotels and tour operators, varying prices for golf is beginning to hit home, with some being unable to sell golf packages in a price related market, as their price can only be higher than that of their competitors. Those who work on a ‘rappel’ system, charging the same “market “price but then awarding a credit at year end for the number of rounds sold, are now the chosen courses to play for many tour operator suppliers, as it is with these products that they can compete in the market.

The increase in web site bookings is also having a major impact on the market and a balancing act is required to ensure that both direct and tour operator sales can continue to maintain a balance in the “source of business”.

The overall reduction in rounds played in 2010 over 2009 was 38,213 -4%, (2010- 957,412 against 2009 – 995,625). This was divided between the “Barlavento” with a decrease of 11.64% in the period January to April (period A), 3.29% in the summer period May to September (period B) and 2.06% in the winter period – October to December (period C). The Central “region” showed a decrease of 8.52% in period A, 2.34% in period B and just 1.23% in period C. The “Sotavento” showed a decrease of 5.62% in period A, 5.53% in period B and in fact an increase of 6.36% in period C.

So what should the Algarve do to improve its position and performance? The most important elements of selling golf holidays are:

* Weather – we should promote the fact that the Algarve’s weather is the best in Europe, with illustrations of the weather we experienced this January. People (Brits!) were sunbathing on the beach and golfers wearing shorts and polo shirts;
* Golf course quality – operators should not allow quality to drop, but control costs very carefully. There is less demand now, so perform “agricultural maintenance” more regularly. Inspire staff to ‘go the extra mile’ to satisfy the clients we do have, so that they act as ambassadors for the Algarve golf product;
* Access – bring the roads back into condition, the road to Quinta do Lago (the best resort in Europe) has been closed for nearly 18 months and many others have been badly damaged by excavation;
* Airlines – make use of the low cost airlines, which will gradually be the future and work to make the product suit this mode of transport, such as having the hire of quality golf equipment available at all courses at a reasonable, to save passengers the need to pay to bring their own, at a high cost;
* Management – Use professional management. No one has all of the answers, but use those who know most from experience and training, this is where the major improvements will come from in product, service, operations and marketing;
* Development – “control” the future of golf development so that the style and number of courses suits the market demand;
* Marketing – formulate marketing plans carefully to ensure that the Algarve is in the mind of the travelling public, especially in Central and Northern Europe. Work with the golf courses, accommodation suppliers and airlines to create more familiarisation visits for those who generate the golfing travel business, with all sharing the cost, as it is a benefit for all of the Algarve golf community.