Eco-Labels for Travel Companies: Cost Analysis

Nowadays, a rising number of international leisure tourists seem to be willing to choose a destination with high environmental health quality. Also, the diversity and integrity of the destination’s natural, cultural resources, and environmental considerations are now as the more significant features of tourists’ destination-choosing process (Hudson and Hudson, 2010). On the same time, the growing global population and unsustainable consumption presented thoughtful issues to human health and well-being and the natural environment (Royal Society, 2012). Thus, some private sectors voluntary plan that tourism operations keep to defined environmental process or performance guidelines to help solve this problem (Honey and Rome, 2001). Eco-labels (certificates) are first introduced in Europe in the 1980s, and they have been widely used in the past 25 years (Font, 2002). The eco-labels are broadly defined as “any non-statutory environmental initiative that encourages businesses to voluntarily reduce their environmental impacts beyond the requirements established by the environmental regulatory system” (Carmin, Darnall, and Mil-Homens, 2003). Consequently, this paper aims to explore the benefits and costs of obtaining of eco-labels by travel, tourism, and hospitality companies. Benefits and costs divided into two parts, which are financial factors and non-financial factors.

Benefits of Obtaining the Eco-labels for Travel, Tourism and Hospitality Companies

Financial Benefits

By definition, the participation of eco-labels’ certification is voluntary. However, unless the eco-label certification would generate economic returns adequate to at least balance these costs, few companies will participate. Blue Flag Program (BFP) is a world well-known eco-label trusted by millions around the world, which is operated under the sponsorships of the Foundation for Environmental Education. In order to qualify for this admired award, a series of stringent environmental, educational, safety-related, and access-related criteria must be met and maintained (Bule Flag, 2019). In Blackman, Naranjo, Robalino, Alpízar, and Rivera’s (2014) research found that BFP certification is optimistically and significantly correlated with new hotel investment, and BFP certification has encouraged the construction of 19 new hotels and 1628 new hotel rooms per year. Secondly, this research stated that BFP certification inclines to shoot investment in luxury hotels. It is difficult to do the research to find the relationship with room reservation and eco-labels. But this finding about the hotel investment increasing indirectly provided evidence that eco-labels can bring economic benefits for tourism operators.

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Non-Financial Benefits

Besides the financial benefits, the certification of eco-labels may lead to a broad scope of other non-financial benefits for the tour operators and companies. First of all, Eco-labels might play a vital role in helping motivate pro-environmental actions in sustainable tourism, as they could help ‘encourage’, ‘enable’, ‘exemplify’ and ‘engage’ more liable environmental behavior for sustainability (Hm Government, 2005). Secondly, Eco-labels or certificate can help alleviate stakeholder opposition to the tourism industry. Because the eco-label program’s requirements mostly related to sustainable development, which match the respective of the stakeholders (Minoli, Goode & Smith, 2015). Secondly, eco-labels are able to foster positive brand reputation and develop customer loyalty (Prakash and Potoski, 2007), through the eco-labels, more tourists can identify the companies’ value and mission to help tourists make the decision when they are choosing the tourism products. So that the tourism companies could get support to build the sustainable brands (Schultz and Block, 2015), which could promote greater awareness and actions in the greening of the tourism industry to support the sustainable tourism. Additionally, Minoli, Goode, & Smith’s (2015) research stated that eco-labels are also expected to express a favorable implication on the quality of the environmental practices in the tourism industry, that inform and influence tourists' behavior and actions, which can be explained by the concept of ‘windows and mirrors’. From the perspective of tourists, eco-labels can be seen as ‘windows’ or ‘mirrors’. As a ‘window’, eco-labels have to deliver comprehensibly and believed information, that offers tourists with a valuable basis on which to make decisions. Tourists may have to understand why the eco-label exists and what it means. On the other side, as a ‘mirror’, the eco-label is a marketing instrument, which is tenable by being connected with the tripartite values of ‘self-expression’, ‘feel-good factor’ and ‘positive social identity’ (Zadek, 2007).

Finally, from a management perspective, the eco-label program would assist in monitoring, since the environmental claims under the eco-label program can be more easily monitored (International Institute for Sustainable Development, 2013). Competitors and customers are in a favorable position to judge the cogency of a claim, and will have an incentive to do, if a claim seems doubtful. The eco-labels are broadly defined as “any non-statutory environmental initiative that encourages businesses to voluntarily reduce their environmental impacts beyond the requirements established by the environmental regulatory system” (Carmin, Darnall, and Mil-Homens, 2003). The eco-label program is the non-government agency. However, the core works in the eco-label program can entirely meet the government needs in environmental protection, that as a medium to assist the government in monitoring the environmental impacts of companies.

Costs of Obtaining the Eco-labels for Travel, Tourism and Hospitality Companies

Financial Costs

The tourism companies apply for the ecolabels were not free and required financial support from several parts. In this research, EU ecolabel Fees as an example to discuss. According to the EU ecolabel Fees (European Commission, 2018), cost categories as follow:

1. Application/ Renewal cost: applying to have the eco-label certificate has to pay the application fee, and when renewing the eco-label certificate, the company also have to pay the renewal fee. For instance, in France, a standard company needed 1,215EUR to apply the EU eco-label and 1,200 to renew the eco-label.
2. Extension/Modification Cost: when the company made some change or extended their products or service will charge the Extension/Modification fee.
3. Annual cost: a yearly fee charged by the eco-labels organization each year to maintaining the eco-label certificate.
4. Inspection cost: in Belgium, inspection fees were charged if an on-site inspection required. These charges include the costs of the investigation, travel costs, accommodation costs, audit and daily expenses of the inspector.

Besides the certified or recertified cost of the eco-labels, eco-certification might decrease hotel profits and therefore dissuade new hotel investment. For instance, the BFP certificate, visitors and inspectors attach importance to the whole environmental quality of the beach groups, comprising clean sea water, safe drinking water, and lack of litter (Frampton, 2010). Thus, obtaining and maintaining certification may require hotels to make investments in water treatment and other types of environmental protection (Brunnermeier and Levinson, 2004). Some of the financial costs involved could be significant, which will hinder the companies to get the eco-labels.

Non-Financial Costs

Non-financial costs contain all those obstacles that could not have direct financial influence, but, in any case, barrier the using of eco-labels. At the first place, this is the barrier from the customers’ awareness and understanding of eco-labels. Needham and Little's (2013) research in alpine US ski resorts observed that few tourists were knowledgeable of eco-labels or motivated them to travel on their present trip because of the eco-labels. Another eco-labels related study in Audubon certified Golf Resorts (ACGRS) found that golf visitors lack of consciousness and perception on the eco-labels, because of the ‘outreach and education’ requirements of the program marketing were insufficient for golf visitors at ACGRs (Minoli, Goode, & Smith 2015). The eco-label’s marketing and advertising play an essential role in improving customers’ awareness and understand of eco-labels, so as to impact tourists’ decision making.

Secondly, customers are not willing to pay a premium on socially responsible products. In Minoli, Goode, and Smith’s (2015) study revealed that golfers pay about 10% to 18% more per round to play environmentally eco-label certified golf courses. Eco-label program may lead to extra expenses of companies so that the price of products will be higher than before, which means customer has to pay the premium as price is one of the main consider factors when customer choosing the travel products. Therefore, product premium will directly affect tourists’ destination choosing process and indirectly impact the profits of the tourism company.

The Right Balance: When Eco-labels Benefit Your Company

The previous two parts explained the benefits and costs correlated with the obtaining of the eco-label by travel, tourism, and hospitality companies. Not all of benefits and costs can direct financial expression should be taken into reflections. The cost-benefit ratio will be different for different companies and will depend on diverse aspects:

1. Company characteristic: travel, tourism, and hospitality companies are unnecessary to get eco-label at any costs or just because it is trendy. For some of them, eco-label will not be appropriate. Some of the hotels are small and operate by family, which offer the necessary services to the customer. These hotels do not have adequate capital to get the eco-label and maintain it. On the other hand, a large and famous hotel may enjoy obtaining the eco-label to increase the expected significant economic gains and follow the eco-label standard to develop sustainable tourism.
2. Relative costs and relative profits evaluate. As outlined above, membership in eco-certification programs is costly. Enterprises have to pay substantial pecuniary and non-pecuniary costs to match certification environmental performance standards and also application fees and other transactions charges (Salzhauer, (1991); Blackman, Naranjo, Robalino, Alpízar, & Rivera (2014)). However, few operators will participate unless the economic return from certification is sufficient to offset these costs at least. Eco-certification can enhance the expected profit of the company, thus attracting investment, or reduce the anticipated profit, inhibiting investment (Blackman, Naranjo, Robalino, Alpízar, & Rivera (2014)). It is critical to do the cost and benefit analysis before the operator apply for the eco certificate to generate the economic returns more than these costs.
3. Company culture and corporation social responsibility. Besides the profits, the whole world has a responsibility to protect the natural environment, especially, tourism enterprises should take corporate social responsibility (CSR) as other enterprises in today's business world. Eco-labels play an essential role in helping encourage pro-environmental behavior to achieve sustainable tourism development. Participation of the eco-label is voluntary, but eco-label may create a system to motivating, monitoring, and enforcement and effectively makes the sustainable development of the enterprises into reality. Response for the environmental conservation initiative to create a favorable image and reputation for the company.

Summary and Conclusion

This paper provided the body of knowledge of strengths and weaknesses of ecolabels by recognizing the potential benefits and costs associated with the participation of eco certificate by travel, tourism, and hospitality companies. It displays that the benefits and costs are very various, and companies have to consider all of them before deciding to participate or not the eco certificate. It would be a mistake for companies to blindly jump into the participation of getting the eco-label whirlwind without first defining clear goals. In this study, most of the discussion under the view of the tourism companies; however, eco-certification also paramount for customers. Future research will need to look into how the customer views the eco certificate in the tourism industry. How many tourists know about the eco-labels and tourists’ trustfulness of eco-labels. Eco-labels are emerging as a way for companies and institutions to build trust and communicate their contributions to 21st-century sustainability. Deep in the fine print of the eco-labels, it benefits for companies and customers to participate in sustainable tourism development.

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