Travel Demand and Supply

Travel Demand and Supply Presentation Factors that influence Tourism Demand Travel Demand Trends Outline Tourism Supply in the Tourism System Relationship between Tourism Supply, Tourism Product and its Life Cycle Tourism Supply and Market Structure Factors that influence Tourism Demand Travel Demand Trends Outline Tourism Supply in the Tourism System Relationship between Tourism Supply, Tourism Product and its Life Cycle Tourism Supply and Market Structure Factors affecting tourism demand • motivation and behavior visitors - psychologically influence travel choices • Determinants of demand tourism: influential factors - society - directing & limiting the amount of tourism demand INTERNAL FACTORS EXTERNAL FACTORS 5 SOCIO CULTURAL GEOGRAPHIC MOBILITY DEMOGRAPHIC REGULATORY / GOVERNMENT COMPARATIVE PRICE ECONOMICS MEDIA COMMUNICATION DETERMINAN TS OF TOURISM DEMAND INFORMATION TECHNOLOGY 6 DETERMINANTS of Tourism Demand ❶ Economic Factors: Income, Time, Price • The relationship between tourism demand & income can be in the form of: GDP, personal income, disposable income (income minus taxes & government fees), discretionary income (disposable income minus monthly expenses). Two (2) significant things to note: 1. Average Disposable Income (per capita): can be biased, as this indicator ignores the distribution of personal income among people in a country (e.g. there are few people with very high incomes in a country). 2. The time period between tourist expenditure and revenue generation: • Tourism demand (especially outbound tourism) has a high income elasticity: income rises 1% 🡺 tourism demand rises > 1% • Free time: an important economic determinant of travel activity 7 DETERMINANTS of Tourism Demand ❷ Comparative pricing (Price competition): competitor "product" prices; comparative exchange rate and inflation rate comparisons between origin vs. destination countries 1. Substitute products (+): cross elasticity, relative price of similar tourist products (e.g. 10% increase in price of tourist attractions in Spain 🡺 7% increase in demand for similar tourist attractions in Italy) 2. Complementary products (-): cross elasticity, relative price of supporting products (e.g. increase in price of charter flights to Spain 🡺 decrease in hotel rates in Spain) ✓ The price of tourism to the price of non-tourism products also needs to be considered ✓ Price comparison must be the same product • For exactly the same product, there are 2 very important price components: DETERMINANTS of Tourism Demand ❸ Demographic factors: number and development of the target population ➍ Geographic factors: climate, climates, urbanization ❺ Socio-cultural: socio-cultural attitude ❻ Mobility: Transportation options - public or private ❼ Mass media communication: publication, promotion ❽ Information technology: TV, DVD, satellite dish ➏ Government Regulation: Guarantee of healthy competition of managers; Tourist safety; Determination of school holidays; Disbursement of international visitor formalities; Environment & sustainable development; Transportation, tour Barriers to Tourism CARRYING CAPACITY TERRORIST CRIME RATE 10 Factors affecting Tourism Demand Travel Demand Trends Outline Tourism Supply in the Tourism System Relationship between Tourism Supply, Tourism Product and its Life Cycle Tourism Supply and Market Structure Travel Demand TREND Some aspects that influence the trend of tourism demand: 1. Globalization of travel demand 2. Annual vacation fragmentation 3. More attention to the environment and the growth of ecotourism 4. Value change 5. Lifestyle changes 6. Tend to be independent travelers rather than mass tourism 7. New forms of vacation and special interests 8. Improved quality of awareness 9. Tend to travel for experience and education 10. Travelers are more flexible 12 Travel Demand TREND 1. Globalization of Tourism Demand Three (3) Basic elements: a. Geography element b. Improved standards and homogenized market c. Uniformity of activities in international tourism - Technological advances have had a major impact: transportation, communication - More destinations need to be offered: Opportunities for developing countries 13 Travel Demand TREND 2. Annual vacation fragmentation time poor, money rich - short vacations - several times a year 3. More attention to the environment and the growth of ecotourism opportunities for developing countries 4. Value change - sun + vacation (fishing, etc) - other than others (new culture, etc.) 5. Lifestyle changes - global lifestyle - cosmopolitan - healthy lifestyle 14 Travel Demand TREND 6. Tend to be independent travelers rather than mass tourism new paradigm: - segmentation of tourism demand - flexible supply and distribution 7. New forms of vacation and special interests traveler tastes - entertainment, excitement, education 8. Improved quality of awareness - improvement of tourism service standards - quality of traveler experience 9. Tend to travel for experience and education more experience - more education 10. Travelers are more flexible flexible and spontaneous 15 Tourism Seasonality - seasonality: characteristics of the tourist economy - Annual fluctuations in tourism are generally due to: climate and school holidays - Seasonality patterns are influenced by the measurement method: 1. unit - tourism: visiting or staying overnight 2. only long vacation or also short 3.business trip counted or not 4.based on departure or return 5.based on the point of view of tourist origin or destination 16 Instrument: tourism staggering ⮚ Climate and school holidays ⮚ Off-peak season travel, it depends: 1. availability of desired tourism type 2. Tourist facilities are affordable 3.concern of potential tourists 4.Tourists trust others to travel ⮚ Creating tourism outside the peak season, tourism managers can do: 1. cheaper price 2. discount for young families, special price for senior citizens 3. marketing objectives with good holiday staggering 4. tourism product improvisation 5. promotion of off-peak periods 17 Instrument: tourism staggering ⮚ Creating peak period distribution: officials and the local tourism sector can: 1.improve the quality of accommodation 2. little congestion, traffic accidents 3. reduce visitor density, convenient 4. tourism service standard improvement 5. decent prices during peak periods 6. little environmental damage 7. many interesting jobs in the tourism sector 8. slightly overbooked 18 Factors affecting Tourism Demand Travel Demand Trends Outline Tourism Supply in the Tourism System Relationship between Tourism Supply, Tourism Product and its Life Cycle Tourism Supply and Market Structure Tourism Supply in the Tourism System - Tourism is a complex phenomenon: there are various actors, demand, supply that are geographically separated but production and consumption are in the same place. Schematic of tourism system components (Supply and Demand): • Determinant • Motivation DEMAND • Transportation • Travel intermediaries (e.g. online travel agent, wholesaler) • Attractions • Services/Facilities (e.g. lodging) BRIDGING ELEMENT SUPPLY AT DESTINATION - Tourism System: a framework that shows the 2-way interaction between tourism supply in a destination and tourism demand bridged by a bridging element 🡺 SCHEME OF TOURISM COMPONENTS (Vanhove, 2005) Components of Tourism Supply 1. Tourist Attractions: A key component of tourism Consists of 3 groups: - Primary Natural Attractions: beaches, lakes, mountains etc. - Primary Man-Made Attractions: originally created not for tourist purposes, but able to attract tourists co/ building attractions (historical buildings mosques, churches, city parks, archaeological sites etc.), cultural attractions (history, religion, festivals etc.), social attractions (ethnic groups, way of life of the people etc.) - Purpose-Built Attractions: intentionally built for tourism, co/ ski tracks, theme parks, spa events etc.) Components of Tourism Supply 2. Service/facilities - accommodation, divided into commercial (hotels, cruise ships, lodges, farm-based facilities) and non-commercial (second residents, mobile homes, visiting relatives). - consumption, together with accommodation 🡺 40% tourism expenditure - other services/facilities, co/ shops, pharmacy, bank etc. 3. Infrastructure important components are distinguished above: - transportation, roads, railways, cruise terminals, harbors etc. - public infrastructure, electricity, water source, waste disposal, health care, network etc. BRIDGING COMPONENT • Bridging component is the connecting component between tourism supply and demand. • For example: tour operators and travel agents function as market generators as well as liaisons between suppliers and travelers. • Tour operators work with businesses in a tourist area and help promote the tourist area to visitors. Factors affecting Tourism Demand Travel Demand Trends Outline Tourism Supply in the Tourism System Relationship between Tourism Supply, Tourism Product and its Life Cycle Tourism Supply and Market Structure TOURISM PRODUCT AND ITS LIFECYCLE - Tourism product is a combination (amalgam) of various components (attractions and facilities) both from the point of view of consumers and producers. ▪ Consumers: the tourism product is the total experience from leaving home until returning again ▪ Producers: tourism products: many different elements in which manufacturers are more focused on their own products and substitute products rather than complementary products. Example/hotel keeper sells rooms, restaurant providing food, airlines etc. - Tourism products are heterogeneous 🡺 many intangible elements (image, hospitality, friendliness etc.) Tourism Product Life Cycle In terms of consumers and producers, tourism products have 5 stages: No. Supply Stage Demand 1 Introductory Period Begin New trendy destination 2 Growth Period Accommodation and facilities investment Starting to get a lot of interest to visit 3 Adulthood Investment additions Maximum number of visits 4 Saturation (stagnation) oversupply Change in tourism interest 5 Decline Period (potential performed rejuvenation with innovation) Providing special offers to increase visitation Decrease in number of visits Factors affecting Tourism Demand Travel Demand Trends Outline Tourism Supply in the Tourism System Relationship between Tourism Supply, Tourism Product and its Life Cycle Tourism Supply and Market Structure Tourism Supply and Market Structure Market Structure: 1. Perfect competition 2. Monopoly 3. Monopolistic competition 4. Oligopoly Market structure in tourism matters: • pricing • price policy • company strategy Tourism Supply and Market Structure 1. Perfect Competition Market - Many sellers, many buyers The market determines the price Neither the seller nor the buyer can influence the price, e.g. if the producer increases the price, the buyer will immediately switch to another seller. Example: small hotel, taxi etc. Tourism Supply and Market Structure 2. Monopoly Market - One seller, many buyers - Difficult to enter the industry - Monopolist as price setter - optimum price for maximum total revenue - Example: museum - Graph tourism demand, price and max revenue in a monopoly 2. Monopoly Market.... - upper curve 🡺 demand curve AB, and curve - bottom 🡺 DE revenue curve P = $100 🡺 no demand (D) no revenue (R) P = $0 🡺 1 million demand no revenue Max. revenue when P = $50, demand 500k n revenue $25k 🡺 elasticity D = 1 The demand curve shows that (1) in the bag. AC the demand curve is elastic (P goes down means D and R go up) and (2) in the range CB the D curve is inelastic (P goes down 🡪 D goes up , but R is down Tourism Supply and Market Structure 3. Monopolistic Competition Market - Between perfect competition and monopoly Multiple sellers - not competing on the same level Slight barriers to entry and exit There is a branding aspect Suppliers can minimize competition with: a. Product diversity b. Acquisitions and mergers Tourism Supply and Market Structure 4. Oligopoly Market - A few dominant sellers, many buyers - Industry entry and exit barriers - All actors exercise control -price and output - Interdependent between sellers 🡺 price and output decisions also depend on competitors 🡺 kinked demand curve A Price (P) • • • • ACB = demand curve P0 = prevailing price AB = Elastic demand curve BC = Inelastic demand curve P1 C P0 P2 B Q1 Q0 Q2 Quantity (Q) • If the producer raises the price to P1, competitors will not follow 🡺 lose turnover and market share; demand falls from Q0 to Q1. • If the producer lowers the price to P2 - ceteris paribus - competitors will follow 🡺 slight increase in demand from Q0 to Q2, and total revenue less than before the price drop Tourism Company Competition Criteria 1. 2. 3. 4. 5. 6. Number and size of companies Concentration level Economies of scale Capital, fixed cost Price discrimination, product differentiation Pricing policies, market share strategies Thank You!