In essence there were two reasons for the "STB Crash" of 1978 and for the company's substantial accumulated losses that were discovered then. On the one hand substantial losses arose from the cessation of trading of a major partner, the Australian equivalent of STB, and also the termination of a concessionary arrangement between STB and an international airline. Had the company a sound base at that stage, these blows could probably have been weathered, albeit with some strain. The position of the company however was not sound. From 1975 to 1978 it now appears that the actual profits of the company, while considerable, were not as large as was believed at the time. In consequence monies had been paid to NZUSA that were in reality beyond the resources of the company. While both factors, combined, brought the company down, it is difficult to assess one as the primary cause, ahead of the other.

When the realisation of the magnitude of these losses was appreciated, a number of measures were taken to restore the company to a stable footing. The debt to the Australian Union of Students Travel Service was to be repaid with a special purpose $2.00 levy on the International Student Identity Card (ISIC). The general accumulated losses were to be recovered from the trading profit of the company.

Constituent Guarantees

The general tosses of STB were, and still are, manifested in its bank overdraft. It was recognised that if the company were to be able to continue to trade there would need to be some guarantee given the bank in respect of the overdraft, as STB had no asset against which it could be secured. On this basis it was agreed in August 1978 that overdraft guarantees totalling $100,000 would be provided by the seven NZUSA constituents on a pro rata basis.

At the time it was agreed amongst all constituents that all would participate in giving the guarantees. At that time, had the guarantees not been given, STB would probably have been wound up, NZUSA would probably have covered the losses of the company, and then the losses would have been divided on a pro rata basis. The rationale for providing the guarantees was clear: either the losses were covered immediately, or a guarantee for a similar amount would be required (actually a smaller amount owing to the arrangements relating to the Australian debt) in anticipation that the trading profits of the company would reduce the debts, and eventually clear them completely. At that point the guarantees could be released without any cash having been required from the constituents.

Obviously the scheme proposed could only work if STB actually made a profit, but in view of the massive revenue from the ISIC scheme this seemed a valid assumption. Providing the travel operation was able to cover its costs, substantial profits from ISIC sales would generate the required revenue to recover the losses.

On the basis that other constituents were doing likewise, VUWSA signed its guarantee for the pro rata share of the overdraft, some $17,000. Three other constituents did likewise. After much delay and confusion, promise and counter-promise it became clear that three of the constituents (Canterbury, Massey and Auckland students' associations) were not going to honour their earlier commitments and sign their share of the guarantees.

Consequently by 1979 there were insufficient guarantees to cover the overdraft and the bank was beginning to ask leading questions. The STB Board attempted to resolve the impasse by offering those constituents who had already taken up guarantees the opportunity to increase them. They endeavoured to sweeten this otherwise tasteless pill with the offer of a guarantee fee of 4%p.a. on the value of the guarantee. Victoria and Otago increased their guarantees to $40,000 each on this basis.

Why so high

The fly in the ointment is that STB did not continue to trade according to anticipated patterns (which included projections by Wilkinson Wilberfoss). The profit in the following year was a scant $6,000. It now seems highly unlikely that the company will be able to return to its former profitable levels without a substantial increase in the ISIC price.

What's Cause the Losses?

In addition to these factors, inflation has eroded the value of STB's income. While travel commissions increase in line with continual and frequent increases in air fares, the price of the ISIC has not been increased since 1977 (the entire $2.00 per card special levy struck in 1978 went to the Australians, STB's general operations received no benefit from this increase). Thus in real terms the value of the ISIC has dropped to about 60% of its 1977 value. At the same time, sales have also dropped by a similar amount.

It would appear therefore that a significant increase in the price of the card would solve the problem of its declining real value, although possibly at the cost of some further sales.

The profitability of STB could be expected to improve, providing such an increase did not substantially affect sales of the cards, with the additional proviso that the travel operation were able to at least maintain a breakeven position.

Peter Beach