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Airlines, hotels are financial examples for HEIs, says Grant Thornton

Higher education providers could learn from financial models used in the airline and hotel industries, which have been developed as safeguards against dips in demand.

Yield management strategies seen in airline and hotel industries could help institutions become financially sustainable. Photo: Thomas Nugent.

Volatility in the market is likely, the report asserts

This is the claim made by global financial advisory firm Grant Thornton in a report exploring the financing of international student mobility. Despite forecasts that the number of globally mobile students will rise, increasing competition, currency fluctuations and exchange rates mean volatility in the market is likely, the report asserts.

Pointing to the growing reliance on international student tuition fees in the UK, where they account for 12%, and in Australia where it’s even higher, 17%, the report argues that universities could be better at maximising revenue while still attracting price sensitive students.

One model the report puts forward is implementing yield management strategies seen in airline and hotel industries, where prices are given on sliding scales.

“Yield modelling techniques can be applied to international student recruitment to help HEIs understand the ‘tipping point’”

“These sectors already use yield modelling techniques which can be applied to international student recruitment to help HEIs understand the ‘tipping point’ where higher fees outweigh reduced international student numbers,” the report states.

Richard Shaw, head of education in the UK, argued there is a “lack of sophistication” in the way universities price international students.

“One fee suits all isn’t the way universities should approach this. From any year it could differ depending on demand from home students,” he said.

Scholarships and discounts on tuition fees can be used to attract valuable international students and in turn boost institutional reputation. “It could even be offering to pay for flights home,” said Shaw. “It’s that care and support that will make universities stand out.”

The report draws on examples in the US, where more than three-quarters of first time full-time undergraduate students receive some kind of financial aid as part of strategic measures to attract desirable students.

Scholarship recipients in the US bring more than just academic performance to the campus, often demonstrating commitment to leadership, volunteerism, civic contribution or entrepreneurship, the report observes.

“These examples show that applying yield management techniques is more complex for an HEI than it is for a hotel or airline. They must consider who takes a place, not just whether it’s being filled or not,” it notes.

“HEIs need financial models that ensure their seats are filled by the most desirable students. And they should target discounts at international students most likely to be influenced by reduced fees, not those who would likely pay full price to attend.”

Shaw added that yield management strategies that create “discounts” for students on certain continents or studying specific subjects could be a way of increasing diversity among international student cohorts.

The report also encourages providers to create incentives for students to study on their campuses by targeting their biggest costs: housing and travel. Offering scholarships for accommodation and transportation can make studying more affordable and attractive, it says.

“They should target discounts at international students most likely to be influenced by reduced fees”

Carol Rudge, partner and global leader of not for profit at Grant Thornton International Ltd, said by protecting and growing the income institutions receive from international students, they will be in a better position to fund strategic priorities and avoid market shocks.

“They will need to match how much they charge with their reputation,” she said.

International enterprises in the form of branch campuses or other forms of transnational education is the third business model Grant Thornton recommends to institutions, albeit with caution.

Mark Oster, national managing partner of the not for profit and higher education practices at Grant Thornton US, is quoted: “Political and cultural differences are a real challenge when thinking about international operations. HEIs may not agree with the values of countries in which they most want to establish overseas campuses.”

Ultimately, said Oster, institutions will answer to the faculty, students, alumni and donors at home “on behaviour in the countries where they establish outposts”.

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