Impact of Economic Crisis on Tourism: Literature Review

Literature review on how economic crises affect tourism

• Hospitality industry affected by crises such as the economical one theses days.
• Customers buying decision&Power influenced when they want to travel by crisis or financial aspects.
• Affect on arrivals, expenditures, number of nights stayed, volume due to a crisis (economic and financial)?
• Explain law of supply and demand, and give a model related to hotels or tourism if possible.

The impact of crises, particularly economic crises, on the tourism and hospitality industries is illustrated sharply by Watkins (2002), who details how the depressed economy of the United States following the dot com crash led to a rapid decline in the American long haul public transportation system, with significant implications for the US tourism and hotel industries. In addition, not only did the weak economy in 2000 and 2001 create issues in the industry, but the attacks on the 11^th September 2001 dramatically decreased travel across the country. However, Watkins (2002) demonstrates that this also led to customers exercising greater power when making their buying decision, with many companies choosing lower class options for business travel, and tourists using the power of the Internet to look for the lowest air travel prices. In addition, the economic and terrorist crises actually benefitted US low cost carriers, allowing Southwest Airlines to reach a critical mass of services, and hence take on the major flag airlines such as American Airlines and Delta.

Indeed, the evidence indicates that during a significant economic crisis, the tourism industry shrinks, but changing consumer preferences tend to minimise the impact of this shrinking, and allow some sectors to grow. Looking at the current economic crisis, Clausing et al (2007) report that many travel executives are confident that the industry as a whole will survive the current recession, and even emerge stronger, and with higher net profits than originally forecasted. This is further supported by Taylor (2008), who reports that whilst sales of traditional holidays in the UK country fell by a quarter over the summer of 2008, with many predicting a further 12 per cent fall over the summer of 2009, this reduction in capacity will provide future benefits to the industry. In particular, the reduction is expected to result in an six or seven percent increase in prices in 2009, which will help the surviving agencies and operators to boost their profits and secure their operations.

However, whilst widespread national or international crises, such as the one occurring at the moment, offer opportunities for some firms in the industry; localised crises can have a devastating impact on arrivals, expenditures, and volume in the local area. The Economist (2003) details the impact of the outbreak of severe acute respiratory syndrome, SARS, on the economy of Hong Kong where it was most concentrated. In Hong Kong at the height of the outbreak, hotel occupancy fell by almost 80 per cent and the two main passenger airlines: Cathay Pacific and Draganair, lost more than 60 per cent of their traffic. Restaurants and hotels in the city also saw almost no economic activity, and retail prices continued their falls which were initiated by the Asian financial crisis in the late 1990s (The Economist, 2003).

The Asian financial crisis itself was a significant one, and had a major negative impact on tourism across the industry, particularly amongst Asian airlines which lost many of their business class passengers. However, in this case the economic crisis created a fall in demand which acted as a catalyst for a significant change to the supply side of the industry (Sadi and Henderson, 2000). In particular, the Asian airlines recognised the need for high levels of adaptability in their supply of services, including the need to be flexible around costs in case of falls in revenue. The supply side pressures led to an increasing extension and consolidation of the various strategic alliances in the industry, as well as organisational reorganisation and the adoption of new technologies. These changes allowed the most successful players in the industry to weather the crisis and gave them the potential to emerge from it in a stronger situation (Sadi and Henderson, 2000).

Indeed, even major crises can provide a boom for some tourist activities in the region where the crisis occurs. This can be seen in Pearce’s (2001) analysis of the development of the New Zealand tourist industry during the 1990s, which was strongly affected by the Asian economic crisis. As a result of this crisis, only the most resilient hotels, airlines and other tourist offerings were able to thrive, hence creating an industry able to rapidly adapt to changing tourist tastes and market conditions. This led to New Zealand developing one of the most diverse and complex tourism industries in the region, giving it significant appeal to a wide range of tourists (Pearce, 2001). Finally, whilst the tourism industry can be strongly damaged by economic crises, it can also reap the benefits of events which occur as a reaction to said crises, or from attempts to resolve them. This is demonstrated by Bue-Said (2008) who claims that the victory of Barack Obama in the US presidential election will tend to be of significant benefit to the tourism industry in the United States: not only will Obama’s proposed rescue package for the US economy stimulate tourism, but as the first African American President of the United States, Obama may well be a tourist attraction himself.

References

1. Bue-Said, J. L. (2008) Black clouds could be lifting. Travel Weekly; 14^th November 2008, p. 26.
2. Clausing, J. Baran, M. and Compart, A. (2007) Industry is upbeat despite credit crunch. Travel Weekly; Vol. 66, Issue 38, p. 16.
3. Economist (2003) In intensive care. Economist; Vol. 367, Issue 8321, p. 20.
4. Pearce, D. (2001) Tourism. Asia Pacific Viewpoint; Vol. 42, Issue 1, p. 75.
5. Sadi, M. A. and Henderson, J. C. (2000) The Asian economic crisis and the aviation industry: impacts and response strategies. Transport Reviews; Vol. 20, Issue 3, p. 347-367.
6. Taylor, I. (2008) Holidays out of UK ‘down by a quarter’. Travel Weekly; 14^th November 2008, p. 2-3.
7. Watkins, E. (2002) Another Threat to the Hotel Industry. Lodging Hospitality; Vol. 58, Issue 12, p. 2.