Sep 10 2020
Operators in Australia’s education sector are currently contending with an array of opportunities and threats. The release of the Times Higher Education rankings this month has listed a record number of Australian universities among the world’s top 200. The rise in rankings for many of Australia’s universities has been driven by research output, which has been funded by the high tuition fees that international students are charged. Australia’s higher education sector generated a record $15.9 billion in international student tuition fees in 2018-19. However, the Federal Government’s COVID-19 travel ban has disrupted this operating model, as loss of revenue from international students has contributed to significant reductions in funding for research.
Education services were Australia’s largest service export in 2018-19, and the fourth largest export overall behind iron ore, coal and natural gas. Over the year through October 2019, Australian educational institutions received more than 917,000 international student enrolments. Australian education institutions are now looking at options to revive the international student market in the wake of the COVID-19 pandemic.
The impact of the COVID-19 outbreak
The University and Other Higher Education industry has performed well over the past decade, as high fees paid by international students enabled revenue to grow at an annualised 4.5%, to $35.4 billion in 2020-21.
While this staggering revenue growth as provided a boon to tertiary institutions, universities have become increasingly reliant on international student fee income to fund teaching, research and capital expenditure. According to Universities Australia, the COVID-19 pandemic could cost the industry $16 billion in revenue over the three years through 2022-23.
The damage is likely to be concentrated among small education institutions, which have lower cash reserves and less capacity to access debt as a lifeline to ride out the pandemic. In addition, the lack of access to JobKeeper, the Federal Government’s national wage subsidy scheme, has further exacerbated the problem for universities. As wage expenses accounted for 54.2% of industry revenue in 2019-20, cuts to both wages and employment are likely to be significant. Consolidation in the industry is likely, as larger players seek economies of scale through acquisitions of small players in financial distress.
The rapid transition to remote learning in 2020 is likely to become a permanent feature of the industry, as institutions shift to a hybrid online teaching model. Major institutions, such as Monash University, have already introduced new initiatives including a new November 2020 intake, which will be conducted entirely online.
As universities adopt an online operating model, expenditure on new buildings and infrastructure is likely to fall significantly. The completion, cancellation or postponement of infrastructure investment is expected to undermine revenue for the Institutional Building Construction industry. Revenue across the industry peaked at $23.5 billion in 2018-19, and is expected to decline over the five years through 2023-24, to total $18.1 billion.
How can universities respond and recover from the pandemic?
In the short term, universities are likely to respond by scaling back unviable course and subject offerings, cutting non-core operating expenditure, and consolidating employment positions that were created during the boom of the past decade. Investment in online learning infrastructure is expected to surge.
One important element of the shift to online learning is the impact on international student visas. One key drawcard of studying in Australia is the pathway it can provide to a post-study work visa, enabling foreign graduates to seek employment in Australia. In recognition of this, the Federal Government adjusted visa regulations in July 2020 to enable student visa holders studying online outside Australia to use that study to count towards the requirement for a post-study work visa.
Some positive signs exist for universities awaiting the return of international students. English Language Intensive Courses for Overseas Students (ELICOS) providers in the Art and Non-Vocational Education industry have reported a strong interest among their clients to resume their studies in Australia when the pandemic subsides.
Pilot programs to enable international students to return to Australia are in development, but have yet to begin. South Australia is set to be the first state to see a return of international students, with a pilot program awaiting approval from the Federal Government. Under this program, 300 students from Singapore would return and undergo a mandatory supervised quarantine period. The Federal Government has yet to approve the program, citing a need to focus on first removing interstate border restrictions and addressing the backlog of Australians wishing to return from overseas. South Australia’s pilot program was originally expected to commence in September 2020, but has been delayed amid the disruption of a second COVID-19 outbreak in Victoria.
The University and Other Higher Education industry is projected to grow at an annualised 2.3% over the five years through 2025-26, to $39.6 billion. However, this forecast assumes the COVID-19 pandemic will subside by 2021-22.
Education is expected to remain one of Australia’s largest sources of export revenue over the next five years. To support student enrolments, universities are anticipated to expand their online education capabilities, increase the number of external and multi-modal courses, and improve the flexibility of internal courses. Single-subject courses, conversion courses, external courses and low-cost e-learning courses are likely to continue boosting demand.
A key threat to the education sector overall is a potential loss of revenue from Chinese students. The diplomatic relationship between Australia and China has become increasingly strained in 2020, leading to trade disruption in the Grain Growing, Wine Production, and Meat Processing industries. In June 2020, China’s Ministry of Education advised students to reconsider travelling to Australia where they might be the target of racially motivated attacks. Amid escalating tensions between China and the Western world, the threat of a sudden loss of access to the Chinese market represents a significant concern for Australian universities.
IBISWorld reports used to develop this release:
- University and Other Higher Education in Australia
- Institutional Building Construction in Australia
- Art and Non-Vocational Education in Australia
- University and Other Higher Education in Australia
- Grain Growing in Australia
- Wine Production in Australia
- Meat Processing in Australia
- International Airlines in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647