This paper discusses tourism industry in relation to the economy. Main issues discussed are theories and concepts of macroeconomic, economic impacts of tourism, recession impact on tourism, and supply and demand in the industry.
We would then continue to further analyze tourism industry by looking at the airlines, British Airways mechanics as a tourism product and its innovation as a tourism product. Lastly, we conclude that the tourism industry contributes to a healthy economy.
Tourism by the definition of Tourism Society of England was Tourism is short duration non permanent movement of people to places which differs from the place they work and stay. The movement may be for leisure or work purposes. (Beaver, Allan 2002)
Tourism is one of the fastest growing industries in the world and it is the major economy sector contributor for Hawaii. In 2010 over 922 million tourist arrivals recorded world wide and recorded receipts of USD 1.7 trillion. Judging by the amount; tourism industry is a relatively huge industry and major economy of many countries such as Thailand, Maldives, Malaysia and many more. (Beaver, Allan 2002)
Macroeconomics is defined as the overview of the economic as a whole instead of looking at sector or industry, macroeconomics explain how a nations economy responds to the environment. It is the additional of all individual economy of a country. Tourism industry is just a sector in macroeconomics and will add to the factors which will improve a country’s GDP.
Gross Domestic Products is the magnitude and value of the economy as a whole; to measure the total products produced during the year it is calculated. Factors included in the calculation of GDP include national income, unemployment, savings, investments, consumption, inflation, international trade and government expenditure. (Tribe, 2005)
Balance of payments is basically trade surplus or deficit faced by a country. Trade surplus happens when the economy exports more of their products and imports less from foreign countries. The net results would be trade surplus which is good for the economy as it will increase the GDP. The opposite would happen when a country has outflow of currency to international trade, it will record trade deficits. Tourism industry has been recognized as on of the industry where it can earn foreign currency. Higher tourist arrivals in the country means that local currency will be demanded more. This will help to generate demand on the local currency and will appreciate the currency. (Tribe, 2005)
Governments aim to have positive growth of GDP every year to ensure that the economy grows and its people benefits from better living standards. Main objectives of any government would be to lower unemployment, balance between government spending and income, balanced international trade and stimulate economic growth by stimulating the above mentioned factors in the short run and understand the factors for continued for continued growth in the long run.
Tourism industry have contributed to increased sales, employments, tax income for government and trade surplus on the balance of payments accounts. All of this contributes to the country’s GDP. Sectors directly linked to tourism are accommodation, transportation, restaurants, retail and entertainment. Tourism contributes directly to government income and has huge multiplier effects. All sectors are interlinked with one another, as researches have shown, more than two thirds of tourist spending goes to the transportation and accommodation. Other expenses go to food, leisure and entertainment. (Tribe, 2005)
Creating employment opportunities is vital to a country’s economic wellbeing. Recent research has shown that in Hawaii, 33% of the employment opportunities are created by the tourism industry. Tourist arrivals create not only employment opportunities but also increases consumption of local products and improve businesses in the locality. Increase demand of local products will increase the prices as well; therefore locals will be affected by the price increase.
Local government in order to attract more tourist arrivals will improve on the basic amenities and build new facilities at tourist hotspots. This increase investment spending which directly will also increase the GDP. Continuous spending and income generation from the tourist will create multiplier effect on the economy; this enhances the economy further.
Foreign tourist arrivals also increase the demand for local currency, this help the nation to record trade surplus from the foreign currency exchanges taking place. Looking at another perspective the purchases made by tourists are considered as increase in exports; adds to national GDP.
Since 2007 when the sub prime and liquidity crisis affected the world economy, bringing in recession to most of the developed nations and emerging countries. The long recession period have countries recorded negative growth or stagnant growth over the period.
The industry was sluggish and recorded very poor tourist arrival all over the world in the period 2007-2009 except for Middle East region which recorded double digit growth. The liquidity crunch has resulted in less luxury travels but increase in the budget travelling sector. To prove this point, we can see that the budget airlines have recorded growth and the tourism industry still supported by the lower end of travelling means. (M Thea Sinclair.1998)
Recent outbreak of Avian Flu AH1N1 and SARS, terrorist attacks have caused significant drop in tourist worldwide. Research also shown that tourism and the economy are positively correlated; which means a robust tourism industry will see the country’s economy growth and vice versa.
Recession tourism a term coined by American entrepreneur Matt Landau, is low cost high experience tour where the traveler goes to places where their dollar can take them further and lasts them longer. This trend sees a boom in developing countries where relatively the cost of living is lower. (Tribe, 2005)
Factors affecting the demand and supply in the tourism industry would be potential income of tourist, price parity of countries, quality of services offered, economic and socio-cultural relation between countries. (Witt, Stephen F., and Martin, Christine A.1987)
Increase in potential income in any country could see their people would be going out to other countries for holidays; the same argument will be valid for price parity and quality of services offered. For example, people from the European countries have high income, and price parity advantage over developing countries such as China, India, and other Asian countries; therefore we do see a lot of Europeans travels to Asia for holidays and also to escape the winter season.
Similarities between countries in terms of socio-cultural and economic will see people from both countries visits each other more often; in the case of Britain and commonwealth countries, Colonial countries and its colonial masters, and Japan and United States which shares similar culture and economic policies.
Factors affecting the supply would be the suppliers. As the industry is very dynamic and no one can monopolize the industry; it is based purely on free market competition. Therefore the suppliers will monitor the trend closely and offers its services to its selected target markets. Local festivities and seasons will affect the demand and supply. (Witt, Stephen F., and Martin, Christine A. 1987)
Both demand by tourist and supply of tourism services created the dynamics in the tourism industry. Consistent marketing efforts by governments’ agencies have created demand in their own countries; for example tourism efforts by Malaysia; Malaysia Truly Asia tagline have recorded increased tourist arrival.
Airlines have shortened the travelling time needed between countries and enhanced business and leisure travels all over the world. Airlines industry also depends largely on the tourism industry to record profitability. That is why now major airlines and budget airlines now have their own subsidiaries to offer complete range of tourism products for their customers.
British Airways (BA) has evolved from an airlines company towards a company who looks into every need of its customers. Given the changing dynamics of the environment; British Airways now offers hotel bookings, tour packages, car rental and even retail. Through innovations and understanding customer needs, BA itself now is a tourism product connecting countries and cities in their own network.
British Airways has collaborated with many travel agencies, hotels, transportation companies and many others to produce a holistic tourism product which will improve the tourism industry locally and abroad. The company itself is now contributing not only to local economy but also global economy as a whole. Market dynamics have created demand for one stop center to obtain all tour and travel products and British Airways have evolved to provide to the needs.
Other airline also have followed suit especially budget airline which includes in their flight packages to offer sightseeing and visits to places of interest in their travel itinerary. This creates demands from customers as it is convenience and the price depends on the supply and demand of the products.
In the era of globalization, tourism industry has becoming a vibrant and ever growing industry around the world. The industry itself has helped many countries to grow and progress; some countries it is their most important economic lifeline; Maldives an island country with limited resources relied heavily on its tourism to sustain its economy.
Tourism industry has been touted as one of the major contributors to the economic wellbeing of the country. Even during economic recession and lower tourist arrivals, it is still the industry that governments’ focuses on to increase its GDP, the secondary economic impact and multiplier effect to the community.
To conclude, tourism demands are created by both tourist and suppliers; it is a very dynamic industry where its product and services offered are constantly changing to meet the specific market demands.
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