Tourism and Economy - Essay Example

? Tourism and economy are inter-related; one is dependent on another. This is true for any economy. The recent economic recession has impacted the global tourism sector and Australia too has not escaped the impact of the recession. Domestic tourism is important to the Australian economy as it contributed $33 billion in GDP in 2004/05 and the domestic households contributing 63% of total tourism consumption (Tourism Research Australia, 2007). However, domestic travel has been on the decline not just in Australia but the same trend persists in other countries such as the UK and New Zealand. Travel agents associate the decline in domestic tourism to the growth in the low-cost carriers (LCC) and also forecast that carriers such as Tiger Airways and Air Asia X would slowly kill domestic tourism. However, this may be just one of the factors responsible for the decline in domestic tourism. In fact, the LCC may also contribute to the economy by bringing tourists from overseas, thereby increasing the inbound tourists to Australia. Despite the global economic slowdown during the year ended September 2011 domestic tourism received a boost due to the strong mining sector, recovery efforts following the east-coast floods and stronger business confidence (Domestic Tourism Snapshot, 2011). The graph below confirms that there has not been a significant fall in domestic tourism over the decade. According to this report interstate holidays and visiting friends and relatives increased during this period but the focus was on short holidays. Not a significant growth in the domestic sector has been forecast but the reasons are more economic and not connected to low cost air travel. Source: Domestic Tourism Snapshot, 2011 However, some decline in domestic tourism has taken place. The reasons for the decline in domestic tourism have been associated with several factors. Outbound visitor nights have increased while there has been a fall in domestic weekend trips. Since 2004/05 a smaller portion of household consumption is being allocated for tourism activity (Tourism Research Australia, 2007). The same trend was observed about 15 years ago when outbound travel grew by 6% while domestic travel increased by only about 1 percent per year. Therefore, the current decline in domestic tourism is not a new phenomenon. The driving factor for decline in domestic tourism in UK and New Zealand has also been associated with cheaper fares on short-haul flights. In the case of New Zealand the strength of the national currency has increased competitiveness for overseas holidays. In Australia consumer behavior and the attitude towards holidays has changed. Social, cultural and technological changes have resulted in lower tolerance (Tourism Research Australia, 2007). Australians prefer to spend their time and income on what makes them feel better now instead of deferring their holiday and obtaining gratification later. Domestic tourism has long lead times and lack of tangibility which places it a disadvantage compared to overseas holidays. It is intangible because of lack of communication and proper information. People want to experience their holiday and use it to learn through interactions. Domestic tourism in Australia is unable to fulfill the demands of the consumers who seek newer pastures. This has prompted the domestic tourists towards outbound tourism. Other factors include rising incomes and access to a range of destinations (TRA, 2011). Information and communication at the domestic level is lacking and none is willing to take responsibility. The drivers of domestic tourism are income and price while the drivers of outbound tourism are airfares and air capacity (TRA, 2011). As social and cultural changes have taken place, and as the dollar has become stronger, consumers find overseas travel much cheaper. The demand for outbound tourism has further been increased as cheap airfares and holiday packages are available. However, it is not just the costs but the excitement to experience something different and to engage in activities and cultural experiences, is what attracts consumers to opt for outbound holiday packages. This suggests that changes in lifestyle and cultural factors are equally responsible for the decline in domestic tourism. The Australian tourism market gained as low cost carriers entered the domestic tourism market. Airfares were down by as much as 21 percent since 2004 (TRA, 2011). At the same time, the outbound sector also experienced immense growth due to the introduction of low-cost carriers such as Tiger Airways, Air Asia X, and JetStar International. Outbound tourism is further expected to increase between 2011-14 due to an aggressive competitive marketing environment, increased marketing by competing destinations and changing distribution channels in addition to change in media options (Tourism Australia, 2011). The strong Australian dollar has increased the demand for outbound holidays from Australia as it is cheaper for the consumers. However, the strong Australian dollar has also adversely impacted inbound tourism in Australia as travelers find it expensive to holiday in Australia (Tourism Australia, November 2011). Domestic growth has also been adversely impacted by reduction in domestic capacities. Tiger Airways was grounded for six weeks during July-August 2011 while Qantas experienced industrial relations dispute. As Qantas cancelled its domestic and international operations the low-cost carriers gained a significant share of international services. Because of the changes in market demand, the aviation sector also keep changing and investing in new products, essential to sustain in the competitive environment. The Tourism & Transport Forum (2009) is of the opinion that reduced overseas travel or a drop in Australian dollar will not immediately translate into increased domestic tourism. Domestic tourism has to be actively promoted not just as an alternative to overseas travel but also as an alternative discretionary spending. Australian’s have to be aware of the competitive domestic tourism packages on offer. The price competitiveness has to be communicated to the Australian tourists. At the same time, according to Euromonitor International (2012), domestic tourism has received an impetus due to the mining boom which has steered the country’s domestic tourism towards the larger cities. The rural areas like the hubs of Queensland continue to suffer. However, Air Asia X has announced daily flights between Kuala Lumpur and Sydney which is expected to bring in close to $140 million into the economy (The Sydney Morning Herald, 2012). Expected to start in mid-2012, this new service should bring in 55,000 more international visitors per year. This strategy would help Tourism Australia achieve its 2020 goal of doubling overnight visitor expenditure. Another concern of the Federal Government is in granting Singapore Airlines access to Qantas’ lucrative route to the west-coast of the United States (Kirk, 2005). This could enhance the competitiveness in the Australian market. Another option is the merger of Singapore Airlines (SIA) and Qantas which, it is presumed would help fight the budget airlines and thereby protect domestic tourism. The global aviation industry is undergoing consolidation and the merger of SIA and Qantas would not be out of place. The merger is evaluated against the permit to fly the Qantas route to the west coast in the United States. However, SIA is not the only competitor; airlines from the Middle East such as Emirates, Etihad Airways and Qatar Airways are more of threats to Qantas (Kennett, 2011). SIA-Qantas merger would neither reduce competition from these Middle East airlines and nor would it reduce competition from the LCCs. Therefore the SIA-Qantas merger benefits neither the tourism sector in Australia and nor the state economy. On the contrary, Qantas should reorganize itself and make itself competitive in the international business environment. In any case, the budget airlines are helping the economy as it promotes inbound tourism as of now. It is also worth recognizing that the low-cost carriers’ business model has not been very promising when they try to expand beyond short-haul, regional flights (Parker, 2012). Many have gone out of business. Hence, it is difficult to forecast how long they would survive in the market. Therefore, if the government accepted the SIA-Qantas merger, the country would lose its only national carrier; it would lose control over the aviation sector. If the merger is not accepted and if Qantas reorganizes itself, they could save jobs, help the economy and over time compete with the budget carriers. Thus both internal and external factors are responsible for the shift in demand from consumers and for decline in domestic tourism. However, since the airlines industry is an oligopoly industry, market share is usually concentrated. Tiger Airways and Air Asia X may have captured the market share by offering attractive packages but the economic environment is equally responsible for this shift in trend. Rising incomes, change in consumption behavior, stronger Australian dollar, increase in carrier capacity have all added to the shift in demand. Travel and tourism sector in Australia is dependent on the state of the economy, on the exchange value of the Australian dollar. This definitely makes an overseas holiday much cheaper than a domestic holiday but the strong Australian dollar also attracts visitors from other nations to Australia, thereby keeping the sector healthy. Neither the state economy is adversely impacted and nor the travel agents. Therefore the LCCs are not a threat to the industry. References Domestic Tourism Snapshot. 2011. Domestic Tourism Snapshot. [Online] Available at: [Accessed 15 May 2012] Euromonitor International., 2012. Travel and Tourism in Australia. [Online] Available at: [Accessed 15 May 2012] Kennett, J., 2011. Qantas must reinvent itself now. Herald Sun. [Online] 26 August. Available at: [Accessed 15 May 2012] Kirk, A., 2005. John Anderson advises caution over Singapore-Qantas merger. ABC. [Online] 29 November. Available at: [Accessed 15 May 2012] Parker, A., 2012. Asia gives aviation sector reasons for cheer. The Financial Times [Online] 13 February. Available at: [Accessed 15 May 2012] The Sydney Morning Herald. 2012. AirAsia X announces daily Sydney flights. [Online] 17 June. Available at: [Accessed 15 May 2012] Tourism & Transport Forum. 2009. AUSTRALIAN TOURISM AND THE RECESSION. Joint government/industry recovery strategy - april 2009. [Online] Available from: [Accessed 15 May 2012] Tourism Australia. November 2011. Quarterly Market Update. [Online] Available from: [Accessed 15 May 2012] TRA. 2011. What is driving Australians' travel choices? Tourism Research Australia. [online] Available from: [Accessed 15 May 2012] Tourism Australia. 2011. Corporate Plan 2011/14. [online] Available from: [Accessed 15 May 2012] Tourism Research Australia. 2007. [online] Available from: [Accessed 15 May 2012] Read More