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Home > Sector Profiles > Tourism and Hotels

Sector Profiles

Tourism and Hotels Industry


Major Industry Trends

Spending on tourism and hotels is closely related to the economic cycle. Certainly, spending on leisure activities such as holidays tends to be one of the first things that consumers cut back in times of economic hardship. The travel and hotel industry is further affected by reduced demand from the business sector since travel is one of the first areas to be axed by corporations when the economy slows.

International tourist arrivals grew by 5% in 2013, reaching a record 1,087 million arrivals, according to the latest “World tourism barometer” published by the UN World Tourism Organization (UNWTO). Despite global economic challenges, international tourism results were well above expectations, with an additional 52 million tourists traveling the world in 2013, according to the UNWTO. The organization predicts that in 2014 international tourist arrivals will grow by 4% to 4.5%—again, above its long-term forecasts of 3.8% per year between 2010 and 2020.

Levels of international tourism were strongest for destinations in Asia and the Pacific (+6%), Africa (+6%) and Europe (+5%). The leading subregions were Southeast Asia (+10%), Central and Eastern Europe (+7%), Southern and Mediterranean Europe (+6%), and North Africa (+6%).

“2013 was an excellent year for international tourism” according to UNWTO secretary-general Taleb Rifai. He explained that “the tourism sector has shown a remarkable capacity to adjust to the changing market conditions, fuelling growth and job creation around the world, despite the lingering economic and geopolitical challenges. Indeed, tourism has been among the few sectors generating positive news for many economies.”

“The positive results of 2013, and the expected global economic improvement in 2014, set the scene for another positive year for international tourism. Against this backdrop, UNWTO calls upon national governments to increasingly set up national strategies that support the sector and to deliver on their commitment to fair and sustainable growth,” added Mr Rifai.

Regional prospects in 2014 are strongest for Asia and the Pacific (+5% to +6%) and Africa (+4% to +6%), followed by Europe and the Americas (both +3% to +4%). In the Middle East (0% to +5%) prospects are positive yet volatile, according to the UNWTO.

Tourist Destinations

Europe led growth in absolute terms, welcoming an additional 29 million international tourist arrivals in 2013, raising the total to 563 million. Growth (+5%) exceeded the forecast for 2013 and is double the region’s average for the period 2005–2012 (+2.5% a year). This is particularly remarkable in view of the regional economic situation and as it follows an already robust 2011 and 2012. By subregion, Central and Eastern Europe (+7%) and Southern Mediterranean Europe (+6%) experienced the best results.

In relative terms, growth was strongest in Asia and the Pacific (+6%), where the number of international tourists grew by 14 million to reach 248 million. Southeast Asia (+10%) was the best performing subregion, while growth was comparatively more moderate in South Asia (+5%), Oceania, and Northeast Asia (+4% each).

The Americas (+4%) saw an increase of six million arrivals, reaching a total of 169 million. Leading the growth were destinations in North and Central America (+4% each), while South America (+2%) and the Caribbean (+1%) showed some slowdown compared to 2012.

Africa (+6%) attracted three million additional arrivals, reaching a new record of 56 million, reflecting the ongoing rebound in North Africa (+6%) and the sustained growth of Sub-Saharan destinations (+5%). Results in the Middle East (+0% at 52 million) were rather mixed and volatile.

Russia and China—Leading Outbound Growth in 2013

Among the 10 most important source markets in the world, Russia and China clearly stand out according to the UNWTO. China, which became the largest outbound market in 2012 with an expenditure of US$102 billion, saw an increase in spending of 28% in the first three quarters of 2013. The Russian Federation, the fifth largest outbound market, reported 26% growth through September of that year.

The performance of key source markets in the advanced economies was comparatively more modest. France (+6%) recovered from a weak 2012, and the United States, the United Kingdom, Canada, and Australia all grew at 3%. In contrast, Germany, Japan, and Italy reported declines in outbound expenditure.

Other emerging markets with substantial growth in outbound expenditure were Turkey (+24%), Qatar (+18%), Philippines (+18%), Kuwait (+15%), Indonesia (+15%), Ukraine (+15%), and Brazil (+14%).

The Role of Tourism in the Global Economy

Travel and tourism are significant contributors to the world economy. Tourism accounts for 4.7% of GDP, 6% of employment, and 21% of exports in countries of the Organisation for Economic Co-operation and Development (OECD), according to the OECD’s publication “Tourism trends and policies 2014.” This report says that domestic tourism (tourism by nationals with their own country) is very significant to the tourism economy and represents around 78% of tourism consumption in OECD countries. Together, domestic and international tourism are capable of supporting employment and adding local value.

Active tourism policies are essential for advanced tourism economies to prosper in the global economy of tourism. The OECD says that the role of government in tourism policy is evolving, with a greater focus on competitiveness, value for money, and sustainable growth. Tourism policy is also becoming more complex, with a wider range of policies influencing, and influenced by, tourism.

Countries are looking for ways to remain competitive and maximize the economic and other benefits of growth in tourism. Governments are looking to make travel as easy and efficient as possible; the challenge is to encourage legitimate travelers while delivering on economic, security, and other national policy priorities.

The global financial and economic crisis has led to increased pressure on public budgets that support the development of tourism, such as marketing, infrastructure, and environmental protection. Taxation related to tourism provides governments with funding to help support public investment, but at the same time tax reductions can help to stimulate the growth of tourism.

The OECD has identified the following trends in terms of tourism policies.

  • Tourism policies and planning are becoming more country specific and are taking a longer term view. They are also more dynamic in nature, adjusting to decreasing budgets, shifts in tourism markets, and demographic change.

  • Countries are reforming the governance of tourism to better address complex interministerial challenges. There is also a move to integrate tourism more into national economic plans given its ability to create jobs, promote regional development, and generate export revenue.

  • Countries are implementing new financing models and partnerships to relieve pressure on tourism budgets and encourage a higher level of cooperative or industry participation, particularly in marketing activities. They are also increasing their scrutiny of the activities of national tourism organization, rationalizing policy delivery functions and programs, and focusing more on source markets as well as new technologies and social media.

  • At the same time, there is a growing awareness of the importance of domestic tourism for its ability to provide a stable source of revenue in uncertain times, as well as more inclusive benefits through the promotion of social tourism, which is accessible to all. Many countries are taking measures to stimulate the domestic market.

  • G20 countries have recognized the role of travel and tourism as a vehicle for job creation, economic growth, and development, and have committed to work toward developing travel facilitation initiatives. In Europe, new estimates indicate that 6.6 million travelers from six key target markets were lost due to the visa regime in 2012, equating to €5.5 billion in direct contribution to GDP.

Governments have implemented a variety of approaches to facilitate travel, from streamlining visa processing and changing visa requirements to introducing other forms of travel authorization and improving border processes such as visa, visa on arrival, automated border processing, and trusted traveler programs.

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Other Factors Impacting the Tourism Industry

Political Unrest: Thailand, Turkey, and Egypt

Political unrest can have a dramatic impact on tourism, as can be seen from events in Thailand in 2013 and 2014. In March 2014, for example, the Wall Street Journal reported that negative travel advisories issued by foreign governments because of political turmoil had significantly dented one of Thailand’s key industries, with the number of overseas visitors plummeting by nearly a third in the first two months of 2014 compared to a year earlier.

The newspaper said that 48 countries whose combined travelers represent 92% of foreign tourists had issued warnings for their citizens traveling to Thailand to “avoid rally sites” or to “exercise a high degree of caution.” Hong Kong issued one urging its residents “to avoid all travel to Bangkok.”

The travel business is one of Thailand’s most important economic engines. As many as 26.7 million foreign tourists visited in 2013 and tourism revenue reached 1.25 trillion baht (US$38.36 billion), the Tourism Council of Thailand said. The Council warned that if the unrest drags on, the number of overseas visitors in the first half of 2014 could fall by as many as 1.1 million, leading to an estimated revenue loss of 90 billion baht (US$2.76 billion).

The number of visitors from East Asian countries, especially Hong Kong, China, and Japan, had tumbled severely, with almost been no group travelers from Hong Kong since the beginning of the 2014. Group holidaymakers from China, the largest source of foreign visitors in 2013, plunged by more than 60%.

However, the situation can vary from country to country. Thus, Turkey—which also saw significant political unrest in 2013 and 2014—became the world’s sixth most popular tourist destination, visited by 35 million foreign tourists in 2013, according to figures from the U.N. and Turkey’s Culture and Tourism office.

There were about 34.9 million foreign visitors in 2013, up 10% from 31.8 million in 2012, according to Turkey’s Ministry of Culture and Tourism. In December 2013, the most recent month for which figures are available, there were 1.4 million visitors, up 7.4% from December 2012.

By contrast, Egypt’s tourism sector, which contributes around 11% of the country’s GDP, has experienced a series of hits since the January 2011 uprising that toppled long-time dictator Hosni Mubarak. In February 2014, Britain’s Daily Telegraph reported that the country had suffered its worst September ever in terms of visits from international tourists, with a 90% year-on-year drop in numbers compared to September 2012.

In July 2013, violence that followed mass sit-ins in Cairo prompted the UK Foreign Office to warn against travel to most of the country. Other European countries followed suit, which proved “devastating” to Egypt’s visitor numbers, according to Hisham Zaazou, the country’s tourism minister. Europe, with its 73% share of Egypt’s tourism market, became a “tap that had closed,” forcing the minister to spend October and November of 2013 trying to get the bans lifted.

Growth of Budget Airlines

Since first emerging in the mid-1990s, budget airlines have had a dramatic impact on the tourism industry. Apart from boosting overall numbers, budget airlines have also opened up lesser-known destinations and encouraged greater independent travel.

However, their impact has not been entirely positive, with some countries claiming that the advent of budget airlines has hurt domestic their domestic tourism industry. Australian travel agents have warned that this is the case in their country, for example. Thus, in December 2011 Alan Dodson, managing director of travel company Holiday Planet, said he was finding it harder and harder to market Australia as a destination with low-cost carriers such as AirAsia and Jetstar offering cheap packages to Asia.

Spanish tourism officials have also criticized the budget airlines operating across Europe that fly to Spain and its islands, saying that the low fares encourage tourists who are not going to spend what they have saved on their flights while on their holiday, but instead prefer to look for equally cheap accommodation, food, and drink.

Environmental Concerns Pose Long-Term Threat

One of the biggest international problems grabbing the attention of the media and the political classes is that of climate change. Air travel, in particular, has attracted the ire of environmentalists and proved a useful scapegoat for politicians keen to polish their green credentials.

Certainly, governments around the world have been quick to impose taxes on air travel. To the cynics, this has simply been an exercise in raising revenue, while environmentalists have called for even higher taxes and the introduction of draconian measures to curb air travel. Given the slump in air travel that has occurred as a result of the global economic slowdown, the immediate urgency to adopt measures to discourage air travel has evaporated. In the long term, the issue may come back to haunt the industry.

However, the aerospace industry is investing heavily in technology to boost fuel efficiency, as well as in research to develop alternative fuels. Indeed, it is doubtful whether anything—even concern about the environment—can stop the long-term growth of tourism, given its potential in countries such as India and China as living standards rise.

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Further reading on the Tourism and Hotels industry

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