Higher education in Australia is an amazing growth story, but what is the impact of a global pandemic?
We can cautiously celebrate the way in which we have contained
the COVID-19 infections in Australia and rejoice in the pending
freedoms that will see a return to face-to-face teaching blended
with online learning. It is clear however, that the higher
education sector has suffered a heavy financial blow, from which it
may not fully recover without significant reform.
With the Group of 8 conservatively estimating a revenue downturn of $2.2bn it is hardly surprising that the recent survey by KordaMentha and TMA i flagged the economic impacts for the next 12 months on the education sector are 5th, only behind hospitality, tourism, retail and real estate.
The new normal: New opportunity or unprecedented economic fallout?
For now, Australia is being regarded as a "COVID safe house" by our prospective international students, and a recent survey of nearly 6,900 international student applicants by IDP Connectii indicated that "students are not abandoning their dreams to study overseas", however the survey responses were also clear that "time is limited". While Australia is competitively placed to attract more students as the3rd most popular study destination after the US and UK, there are other considerations:
Limited flexibility of financial and operational position
- Sector balance sheets are generally solid, however cash reserves will not sustain long term pressures of the magnitude we have seen in recent months.
- Balance sheet assets are typically illiquid and new debt to support operational costs difficult to service.
- The sector has to date had limited flexibility in changing employment costs and workforce productivity noting that about 60-65% of expenditure is workforce related.
- Most universities are weighed down by significant contractual obligations (research and leases) and need to traverse material stakeholder obligations and sensitivities.
Government support and restrictions
- Federal and state government support has been modest, with no direct support for research, a high bar to reach JobKeeper and only recent indications of variable, state based international student supports.
- Although the value of student experience is well understood and high priority, the current community and domestic travel restrictions are impacting existing student experience. The uncertainty on when restrictions will lift also impacts the attractiveness of Australia as a student destination.
Impact of COVID-19 on international students' countries of origin both socially and economically will vary significantly, making market predictions difficult and a net global contraction in the international student market likely in the short to medium term due to:
- Competition to attract and retain international students will be "off the charts" compared to recent times.
- Affordability of international study, for course fees and living expenses with global and domestic unemployment rates rising and recent uncertainty over casual work arrangements.
- Heightened stress in our trade relations with China, our leading source of international students.
Are Universities well placed to survive and thrive?
Hope is not a strategy. While working to attract international
students back to Australia, University leaders cannot fall into the
trap of expecting a 'V' shaped recovery. Failing to
recognise the seriousness of the current financial situation can
place universities into long term financial hardship from which
they may never fully recover - a legacy no University leader wants
to leave in their wake.
There are four important questions that Universities should be asking to assess how well placed they are to survive and thrive now and in the future:
Is the core offering in demand, differentiated and sustainable?
Universities will need sharp focus on core offerings of excellence that are in demand and are financially viable to; drive investment decisions, assess and align operations, attract students, and determine what they should change or exit to drive long term sustainability.
Can operations be more efficient?
Universities need to consider whether they have the right balance in their workforce, efficient teaching loads, and alignment of costs and structures in line with their planned mission, size and turnover.
Is the balance sheet sustainable?
With an honest lens, and robust rolling financial forecasting in place, Universities need to retest their thinking on monetising assets and flexibility of contracts and fixed costs, to identify options and scenarios to manage through ongoing uncertainty.
Are Universities sufficiently agile and open to change?
Yesterday's strategies and risk appetites need to be challenged. Market conditions have changed and demand flexibility in thinking, evidence to support options and decisions and courage and agility to implement what may once have been considered 'off the table'.
Where to from here?
The sector is reporting that the impact of the COVID-19 pandemic on many Australian Universities will require more fundamental redesign and restructure, that goes far beyond cost containment.
Universities have significant opportunities to strengthen their resolve and improve their competitive position. But now more than ever, they need to inject a hard-edged, commercial honesty to challenge their assessments and options during these extraordinary times. If they do this they will be well placed to adapt, evolve and re-emerge, more efficient, and more resilient than ever; in a position to thrive into the future.
Achieving desired outcomes is simple in approach though complex and confronting in implementation. It will not be easy, but with strong leadership, it is possible.
To download the full PDF click here.
i KordaMentha | TMA Survey 2020
ii IDP Connect student survey "International student crossroads, demand for on-campus education amidst COVID-19 11 May 2020. IDP Connect is a division of IDP Education, global leaders in student marketing and recruitment.
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