How High Australia Exchange Rate Effects on Australian Travelling Overseas - Assignment Example

How high Australia exchange rate effects on Australian travelling overseas and travellers visiting Australia TABLE OF CONTENTS SITUATION ANALYSIS 3 Introduction : 3 Background information: 5 Problem/Issue 6 Aim: 7 Preliminary Literature Review : 7 Research Objectives: 8 Research Plan (Schedule of Activities): 9 References 13 Appendices 16 Table 1: Tourism share of consumption (per cent) 16 Table 2. Exchange rate Table: 17 SITUATION ANALYSIS Introduction : Tourism is one of the fastest growing industry in the world and it accounts for about 10.7% of the world’s GDP. This sector generates revenues of US$ 500 billion per year while providing employment to about 260 million people world wide. The current growth rate is about 7% per annum. industries. Since a range of factors influence destination competitiveness, including price and non-price factors, there is a need to develop indicators which reflect this. The development of a set of competitiveness indicators would serve as a valuable tool in identifying what aspects or factors influence tourists in their decision to visit other countries. There are many factors which contribute or affect the growth and demand for tourism. They are : 1. Demographic factors such as population, income in origin country, availability of leisure time, education levels etc. It has been seen that the per capita income is the greatest determinant on outbound tourism flows from different individual countries. The countries having high economic growth are showing growth in outbound tourism as well. (Crouch 1992, 1995). 2. Qualitative Factors such as Image of the destination and quality of tourist services being provided, cultural similarities etc. 3. Price Factors – These are the most important factors determining the flow of tourists. The cost of tourism includes the transportation costs, accommodation, food and beverages, entertainment etc. These costs are generally flexible and keep on changing depending upon the exchange rate variations, or economic policies or the demand and supply conditions of the market. There have been several studies on the price competitiveness of different destinations. In one of these, it has been shown that an increase in relative costs is linked with a fall in market share in travel from every origin country. (Edwards, 1995) Thus there is evidence that international travelers are sensitive to price (Crouch 1992). Since price and exchange rate are linked together, it is important to study these parameters. .Moreover, it provides the indication of competitiveness of a destination. It is acknowledged that indicators of destination competitiveness are many and varied. They include objectively measured variables such as visitor numbers, market share, tourist expenditure, repeat visitation, foreign exchange earnings, employment, value added by the tourism industry as well as subjectively measured variables such as richness of culture, quality of tourism experience, destination appeal, scenic beauty. Some researchers claim that a destination is competitive to the extent that its market share of tourism (measured in visitor numbers or expenditure) is high and/or growing. This indicator accords with the commonly held view that competitiveness is essentially linked to visitor numbers or visitor expenditure. And this is linked to the exchange rate prevalent at the time. According to other researchers destination competitiveness is associated with the economic prosperity of residents of a country (Crouch and Ritchie 1999, Buhalis 2000). Ultimately, however, it translates to spending power of its residents which can be spent on tourism. Background information: The tourism industry has increased considerably in recent decades and has become one of the main sources of income in many countries (Williams and Shaw 1988, Coccossis and Nijkamp 1995). Tourism in Australia is an important economic sector representating about 3.9% of Australia's GDP in 2003-2004. Australia was the 10th biggest revenue earner from tourism in 2002, 2003 and 2004. But over the years this share has been constantly decreasing. During 2001–2002 and 2002–2003, external events such as the September 11, 2001 attacks and the Severe Acute Respiratory Syndrome (SARS) scare caused decrease in the number of international visitors to Australia. (ABS 2004) Holiday travel dominates inbound tourism to Australia. It is estimated that 2.9 million visitors, or 58 per cent of total visitors came to Australia for holiday purposes. The largest percentage of tourists to Australia come from Other Asia (26%) followed by Europe (24%), New Zealand (17%), Japan (14%), North America (12%) and the rest of the world (7%). The increase of 10.9 per cent over 1999 inbound tourism numbers was stimulated to a large degree by the publicity accorded to the Olympic games, coupled with favorable exchange rates and strong economic performance in the North American and European markets. In Australia, domestic sources provide the main demand for tourism goods and services. In 2002-03 demand from Australian residents consumed 77 per cent of tourism output, with international visitors consuming 23 per cent of output. See Table 1 in the appendix. Thus the main revenue is coming from the domestic tourists. ABS (Australian Bureau of Statistics) provides data on the economic contribution of tourist activity to the economy. It does so by applying a classification system to identify the industries supplying inputs to tourist activities and how these inputs are consumed (OECD 2000). Thus this data covers travel for business and other reasons, such as education and academic activities, besides leisure activity. Outbound Travel : Outbound travel accounts for about 40 per cent of total international travel, which includes both short-term overseas arrivals and resident departures. In recent times, the outbound travel sector has expanded more rapidly than the domestic travel sector because of the relatively cheaper prices of outbound travel. With the advent of newer technology, aviation industry is able to pass on the benefits to travelers and thus airfares have been slashed down and are competing with domestic sectors. In various parts of the world, the opportunity to shop for duty-free items has provided, in itself, a major motive for travel. For many tourists, the opportunity to shop in an exotic location, or ‘duty free’, is an important ‘pull factor’ of outbound travel. Destinations such as Hong Kong and Singapore have at times marketed themselves as ‘shopover’ destinations. Over 50% of visitor expenditure in Singapore is on shopping items. And the shopping depends upon the spending power of the tourists to a large extent which is in turn influenced by the exchange rate fluctuations. Problem/Issue The number of visitors to, and expenditure within, a destination are crucially associated with its international competitiveness. And this is linked with the price of the goods and services on offer. The following factors, generally associated with the operation of the global economy, can influence tourism flows: price competitiveness, the state of international relations, exchange rates, income effects (real rates of economic growth in origin markets) and substitution effects. Out of these, the exchange rate fluctuations causes the change in the spending power of people or visitors and it affects the revenues and profitability of businesses associated with the tourism industry. Hence, it is important to study the link between the two. .Moreover, it provides the indication of competitiveness of a destination. The competitiveness of a nation depends on its advantages in the relative prices of goods and services in the international marketplace (including effect of exchange rate). Aim: To investigate the effect of exchange rate fluctuations in the inbound and out bound tourism in Australia. Preliminary Literature Review : As mentioned earlier. Lot of work has been done before on link between exchange rates and tourism growth. Notable among them has been from Crouch 1992 and Edwards, 1995 (has shown that an increase in relative costs is linked with a fall in market share in travel from every origin country.) There have been detailed and extensive price comparisons made by the International Comparisons Program (World Bank 1993, OECD 1987, 1993, 1998). In a series of articles (Dwyer, Forsyth and Rao, 1999; 2000a,b,c; 2001; Dwyer, Mistilis, Forsyth and Rao 2001), have sought to construct indices of the price competitiveness of tourism destinations worldwide. Similarly, studies by Martin and Witt (1987) have focused on destination price competitiveness where this involves comparing exchange rate adjusted expenditures on a similar bundle of tourism goods and services purchased in different locations. As per Dwyer, Forsyth and Rao (2000a, p. 11) "tourism competitiveness is a general concept that encompasses price differentials coupled with exchange rate movements, productivity levels of various components of the tourist industry, and qualitative factors affecting the attractiveness or otherwise of a destination". From the literature on comparative advantage and price competitiveness comes recognition of the potential importance of destination price competitiveness in influencing visitor flows. Studies by tourism researchers indicate the price sensitivity of travellers is high in certainmarkets (Lee et al., 1996).Empirical studies highlight the importance of levels of technology, exchange rates, government policies, industry competition, and the influence of multinational enterprises as factors influencing the price competitiveness of tourism firms (Dwyer, Forsyth & Rao, 2000a,b, 2002). According to other researchers, destination competitiveness is associated with the economic prosperity of residents of a country (Buhalis, 2000; Crouch & Ritchie, 1999). This is consistent with the view espoused by the World Economic Forum (Porter et al., 2001). Needless to say that the measure of economic prosperity is the income available for disposal to the residents and this translates to a strong currency relative to other holiday destinations. Research Objectives: For inbound tourists : 1. Assess the change in travel plans of travelers from different countries based on exchange rate. 2. Assess the change in terms of money spent by travelers coming to Australia due to exchange rate changes. 3. Assess the changes in areas where money spent is reduced/not changed – for e.g food/entertainment or others. 4. Assess the change in reason of traveling i.e. whether for business/leisure or academic. Similarly for Outbound tourists: 1. Assess the change in travel plans of travelers to different countries based on exchange rate. 2. Assess the change in terms of money spent/ money available by travelers going from to Australia due to exchange rate changes. 3. Assess the changes in areas where money spent is reduced/not changed – for e.g food/entertainment or shopping etc. 4. Assess the change in reason of traveling i.e. whether for business/leisure or academic. Research Plan (Schedule of Activities): Research methods can be classified in various ways, however one of the most common distinctions is between qualitative and quantitative research methods. Some of the commonly used qualitative research methods are action research, case study research and ethnography. Qualitative data sources include observation and participant observation (fieldwork), interviews and questionnaires, documents and texts, and the researcher’s impressions and reactions.. Quantitative research is generally approached using scientific methods which include: The generation of models, theories and hypotheses, The development of instruments and methods for measurement, Experimental control and manipulation of variables, Collection of empirical data, Modelling and analysis of data and Evaluation of results. The most popular data collection techniques include: surveys, secondary data sources or archival data, objective measures or tests, and interviews. Although most researchers do either quantitative or qualitative research work, some researchers have suggested combining one or more research methods in the one study (called triangulation). We will be using both qualitative and quantitative methods in our research. Our plan includes the following objectives and activities : 1. Assess the change in travel plans of travelers from different countries based on exchange rate. This can be done through a. Collecting data from ABS(Australian Bureau of Statistics). b. Collecting data from Airlines 2. Assess the change in terms of money spent by travelers coming to Australia due to exchange rate changes. This can be done through : a. Direct surveys of tourists. b. Surveys of different tourist establishments such as Hotels, food joints, entertainment areas or shopping complexes. This may be a bit difficult to obtain. 3. Assess the changes in areas where money spent is reduced/not changed – for e.g. food/entertainment or others. This can be done through : a. Direct surveys of tourists. b. Surveys of different tourist establishments such as Hotels, food joints, entertainment areas or shopping complexes. This may be a bit difficult to obtain. We can probably compare their revenues before and after the fluctuation in exchange rate. 4. Assess the change in reason of traveling i.e. whether for business/leisure or academic. This can be done through : a. Direct surveys of tourists. Similar methods can be used for Outbound tourists as well. And scheduling can be done based on the available time frame for the project using Gantt charts. References ABS (2004) Australian National Accounts: Tourism Satellite Account, Cat No. 5249.0, Canberra: Australian Bureau of Statistics. Buhalis, D. (2000) Marketing the competitive destination in the future. Tourism Management 21 (1), 97–116. Coccossis, H., and P. Nijkamp, (editors) (1995). Sustainable Tourism Development. Avebury, Aldershot, UK Crouch, G., (1992), “Effect of Income & Price on International Tourism”, Annals of Tourism Research, Vol. 19, No.3, pp 643-644. Dwyer L., Forsyth P., Rao, and Valreio P. (1998) Australia: a Price Competitive Tourist Destination? Prepared by Centre for Tourism and Hospitality Research and Centre for Efficiency and Productivity, in association with Arthur Andersen, Sydney, December. Dwyer, L., Forsyth P. and Rao P. (1999) "Tourism Price Competitiveness and Journey Purpose", Tourism, 47 (4):283-299. Dwyer, L. Forsyth P. and Rao P. (2000a) “ The Price Competitiveness of Travel and Tourism: a comparison of 19 Destinations”, Tourism Management, 21 (1): 9-22. Dwyer, L., Forsyth P. and Rao P. (2000b) " Sectoral Analysis of Destination Price Competitiveness: An International Comparison”, Tourism Analysis Vol. 5, pp1-12. Dwyer, L. Forsyth P. and Rao P. (2001) “ Destination Price Competitiveness: Exchange Rate Changes Vs Domestic Inflation”, forthcoming Journal of Travel Research. Dwyer L., N. Mistilis, P. Forsyth, P. Rao (2001) “The International Price Competitiveness of Australia's MICE Tourism Industry" International Journal of Tourism Research. Edwards, A., (1995), Asia-Pacific Travel Forecasts to 2005, Research Report, Economist Intelligence Unit, London Lee, C.K., Var, T. and Blain, T. (1996), Determinants of inbound tourism expenditures. Annals of Tourism Research 23 (3), 527–42. Martin, C.A. and Witt, S.F., (1987), “Tourism Demand Forecasting Models: Choice of Appropriate Variable to Represent Tourists Cost of Living”, Tourism Management, pp 223-245. Porter, M., Sachs, J. and McArthur, J. (2001) Executive summary: Competitiveness and stages of economic development. In World Economic Forum The Global Competitiveness Report 2001–2002. Williams, A. M., and G. Shaw, (editors). (1988). Tourism and Economic Development: Western European Experiences. Belhaven, London, UK Appendices Table 1: Tourism share of consumption (per cent) 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 Households 67.9 67.7 66.9 65.0 65.9 67.2 Business/Govt. 10.8 11.0 10.9 10.8 10.2 10.2 Domestic 78.7 78.7 77.8 75.8 76.2 77.4 International 21.3 21.3 22.2 24.2 23.8 22.6 Source: ABS 2004 (Table 2) Table 2. Exchange rate Table: Read More