After a tumultuous 18 months for the Australian higher education sector, it appears that there is little relief in sight.
If you thought the last eighteen months were challenging for the Australian higher education sector, a new report from Victoria University's Mitchell Institute suggests the worst is yet to come.
The report shows how the sector's increasing reliance on revenue from international students over the last two decades has left many universities exposed to unexpected external shocks. And as external shocks go, an ongoing global pandemic is hard to beat.
In 2020, Australian university profits plummeted by $1.6 billion to just $669 million. This operating surplus was the lowest since 2009, and represented an operating margin of just 1.9%, down from 6% in 2019.
Not all universities were affected equally. Fifteen of the 38 universities analysed reported a deficit in 2020, with many smaller universities finding conditions toughest.
The federal government allocated universities an extra $1 billion in research funding for 2021, but Minister Tudge has remained tight-lipped about further support. Yet Mitchell report author Dr Peter Hurley warns that without further assistance, "parts of the university sector are likely to face very difficult choices that will mean further cuts to staffing, courses and research."
Just days before the Mitchell report was released, Deakin University announced it was expecting a 'second wave' of job losses. Deakin had already shed around 400 jobs in 2020, some of the 17,300 university jobs which disappeared in 2020, according to figures from Universities Australia.
The single biggest factor smashing higher education revenues, resulting in these job losses, is the fall in overseas student numbers due to Australia's international border closure in April 2020. Although international student revenue fell less than expected in 2020, down 8.6% compared to 2019, to $9.2 billion, the real worry for university management is the trend showing international student enrolments are now falling by up to 24% annually. Given most university courses run for three to four years, the cumulative effect of these lost enrolments will be felt for years. The Mitchell report estimates that every missed six-monthly intake of international students is costing universities up to $1.25 billion.
Time is running out. Recent research commissioned by the ANU shows international student demand for Australian universities is down two-thirds on pre-pandemic levels. Worryingly, while Australia's share of this market has fallen, other countries such as the UK, USA and Canada have increased their share or remained stable. China and other countries in Southeast Asia have also doubled down on efforts to retain their own domestic students. None of which bodes well for Australian universities.
University senior executives haven't been asleep at the wheel though. Across Australia, battle-weary senior management who have worked to control spending, still face ongoing challenges amid deteriorating conditions. Existing revenue models that have served the sector for decades have been stretched to breaking point. As Ian Marshman and Frank Larkins from the University of Melbourne argue, 2021, (and 2022 and 2023) will be the 'proving ground' for universities' responses to the pandemic.
Modelling by the Doherty Institute, to which federal and state governments have signed up as part of Australia's four-stage COVID response plan, shows Australia has a long way to go before international borders open up sufficiently for the necessary influx of international students to address the revenue shortfall.
To reduce over-reliance on traditional models of international student income, universities need to look at how to diversify their revenue streams. Ideas already on the table include expanding short courses and micro-credentialled programs targeted more at local Industry and also mature domestic students. Universities are also working to create more work-based learning opportunities through industry engagement and working to erode the traditional barriers between Industry and educational institutions in an effort to boost revenues from Industry.
Beyond revenue differentiation, brand and course differentiation is increasingly essential as universities are facing higher domestic competition. Bold strategies of focusing on fewer, more differentiated offerings and moving away from generic offerings are also being developed.
Regardless of approach to addressing the shortfall, pace of execution is vital to gaining market share.
Those whose budgets rely on significant return of full fee paying international students may find themselves potential for takeovers by other institutions, as signalled by Minister Alan Tudge when he addressed the Universities Australia Higher Education Conference in June this year. "We have 39 comprehensive universities, which may not be an optimal model for the quality of teaching or research in this country."
Never waste a good crisis - it will be interesting to see which universities take advantage of this extraordinary time to make real, sustainable change for the long term benefit of students, Industry and the sector more broadly.
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