Influence of Changing Currency Rates on Consumer Travel Behaviour - Essay Example

? The influence of changing currency rates on consumer travel behaviour: Exploring UK consumer travel to Europe The influence of changing currency rates on consumer travel behaviour: Exploring UK consumer travel to Europe 1. Introduction The following proposal suggests that the currency exchange rate has an influence on the consumer travel behaviours of UK tourists. The exchange rate is affected by factors that are associated with the export/import status of a country. In having an exchange rate that favors the currency of outside nations, a country has a competitive advantage. Currently, the euro has stood on lesser ground than the UK pound. Therefore, tourism into the rest of Europe is favorable to UK consumers. The following study will attempt to show that the currency exchange rate has an affect on UK travel consumerism. 2. Literature Review The following preliminary literature review represents the information that is central to the research that is being proposed. The issue of currency exchange rates can have a profound impact on the costs of traveling to other countries within Europe for UK consumers. In order to better understand the way in which financial decisions are made by travel consumers from the UK, it is important to understand the behaviours that are affected by unfavorable or favorable currency exchange rates. This information is relevant to both the finances of consumers and to those who market European based tourism to UK travelers. Thus, the research has the potential for informing a diverse number of researchers towards understanding the effect of currency exchange rates on consumer decisions. 2.1 UK Travel in Europe UK holidays comprise the majority of the travel done overseas. According to Boniface and Cooper (2009), two thirds of international travel from the UK is done for leisure purposes. The trips are planned through air travel three quarters of the time, with sea travel being used for 16% of the trips and 10% of the trips involving use of the Channel Tunnel. The most popular destinations for UK travelers are Spain, France, Ireland, North America, Italy, and Greece, with France being the most valued destination. The USA is the only non-European destination with a significant amount of travel from the UK (p. 159). According to Boniface and Cooper, the three key elements that affect UK travel in terms of volume and market are: the UK economy and the relationship of that economy in terms of the euros, green issues that might affect the travel habits and attitudes of the consumer, and the growth of domestic travel destinations (p. 160). Williams (2009) discusses a third element that has impacted the choices made by UK travel consumers. The internet now provides accurate information, including travel conveniences such as online reservations and detailed cost evaluations that can be used to budget for a trip (p. 66). With easier obtained financial information, the consumer can make decisions that are informed with up to the minute information and predictions on the currency exchange rates, suggesting that the consumer might be more likely to use this information in making travel decisions. 2.2 Currency Exchange Rates After the euro was introduced in 1999, the value against the pound has been quite volatile. Initially, the value against the British pound and the American dollar deteriorated which was due to the capital outflows from Europe. By 2007, however, the euro had gained an advantage over the American dollar at a rate of about 1.35%, a raise of 53% over its value in 2001 (Madura 2008, p. 168). The pound has a current advantage over the euro. According to X-Rates (2011), the pound is worth 1.19 against the euro. The past 120 days are represented in Figure 1. While the value has shifted dramatically during the last four months, the pound has consistently held value over the euro, thus suggesting that the value of European travel by UK consumers holds financial benefits. Euros to 1 GBP Figure 1 (X-Rates 2011) However, when compared to the British pound value against the American dollar, the competition becomes more fierce. The British pound has a value of 1.62 in comparison to the American dollar, thus having more value when choosing a destination. The last 120 days of value is represented in Figure 2, thus showing that the value in the US is greater than the exchange rate value to the euro. American Dollars to 1 GBP Figure 2 (X-Rates 2011) The event of tourism is considered an invisible import for the concerns of currency value. In order for exports to be encouraged, a country will often support the depreciation of the value of their currency. A deflationary policy is intended to stimulate exports over the consumption of imports. This type of policy is also good in stimulating the tourism industry (Tribe 2000, p. 331). As long as a currency is valued at less than the pound, the likelihood of tourism being experienced in that region by UK consumers is increased. Thus, the competition of the US destinations is appealing when the value of the currency is particularly out of balance. 2.3 UK Consumer Tourism Behavior While the currency rates are an influence on UK tourist habits, there are other factors that must be considered when assessing the potential trends that will be experienced from a particular culture. Travelers from the UK value service as one of their top priorities where holiday destinations are considered (Reisinger 2009, p. 343). As well, children will be taken into consideration when considering holiday destinations. In a study conducted in Cornwall, the decision making factors that were most prevalent were age and gender factors within the family structure (Shaw and Williams 2002, p. 91). Financial factors did not rate as high as family desires for certain types of experiences when choosing a holiday destination. Qualitative studies on the travel choices made by UK consumers suggest that there are a great number of factors involved in the decision making process when considering a destination. Using the grounded theory approach and through the utilization of qualitative interviews, a three year study on UK consumer tourism habits concluded that service was a high level priority for UK travelers, confirming the assertion made by Reisinger (Pizam and Mansfield 1999, p. 340). The UK has a high level of competition among travel tour operators in regard to focusing the vacation plans of UK consumers. UK consumers have an average of 25 days of vacation time per year, thus the competition for the dollars spent during the time is high. UK consumers have a variety of choices through services, and also have the added benefit of the internet for additional information resources in order to book a pleasing holiday package. According to Mazanek (2009), competition within the UK for tourism consumerism is such that discount packages arise in order to competently compete with all of the various tour companies at the disposal of the consumer. Therefore, cost is often affected, not only by the exchange rate, but by the value that the tour operator can offer through a discount to the traveler (p. 130). 3. Proposed Research The research that will be conducted for this study will be done in such a way as to reflect the state of mind through which UK consumers make travel choices in regard to the currency exchange rate between pounds and euros. The study will be conducted through a survey instrument that will be assessed for quantifiable data that can be used to draw conclusions in regard to the research questions. The data will provide a framework for a discussion that will either support or not support the hypothesis. The study will be conducted over an approximate three month period, collecting data that can be used to reach valued conclusions. 3.1 Research Questions and Hypotheses The following research questions will be used to frame the study in order to create focus and to narrow the topic. 1. Is the currency exchange rate taken into consideration by UK travelers when they plan a holiday in Europe? 2. When the currency exchange rate is not favorable, does travel to Europe from the UK decrease? 3. When the currency exchange rate is not favorable and the consumer uses this as a measure against which decisions are made about travel, where does the consumer most often go as an alternative destination? 4. What competition does the US present with the value of the pound being significantly higher than that of the American dollar? Does this influence decisions about overseas travel by UK consumers? 5. What effect does tour package sales have against the currency exchange rate when consumers are making decisions regarding their holiday plans? The following hypotheses will be considered as the conclusion of the research draws answers from the data. Null Hypothesis: The rate of exchange between pounds and euros has a significant affect on the travel choices of UK consumers. Alternative Hypothesis: The rate of exchange between pounds and euros has little affect on the travel choices of UK consumers. 3.2 Aims and Objectives 3.2.1 Aims The proposed research for this study will intend to provide an understanding of the way in which international financial considerations affect the choices made by UK travelers when considering traveling to other parts of Europe. The central aim of this study is to define the measure of currency exchange rates as they effect the choices of the consumer. 3.2.2 Objectives The following objectives will help to define the primary answer to the research question and discover conclusions in relationship to the central aim of the study. The study will hope: 1. To reveal the importance of the currency exchange rate in relationship to the choices made towards travel. 2. To discover if there is a quantifiable fluctuation of travel when the currency exchange rate becomes unfavorable to the UK consumer. 3. To discover if other holiday travel destinations become more attractive when the currency exchange rate becomes unfavorable. 4. To determine if package discounts supersede the currency exchange rate when making travel plans. 3.3 Data The proposed research for this study is defined by quantifiable data that is derived by a participant based survey. The survey will be administered to approximately 100 participants in order to provide an appropriate amount of data. The survey instrument will be designed with a series of approximately 25 questions that can provide data for the study. The questions will have answers based upon a Likert scale standard of answers with a five point set of possible answers which are statements to which the respondent can best relate their feelings on the question. According to Evans and Rooney (2008), the Likert scale provides the best possible chance of the respondent having an accessible answer to questions on a survey instrument (p. 101). The data will then be put into a spread sheet and calculated for use with SPSS software. The SPSS software will provide the findings for the study. 3.4 Proposed Time Frame The study will be conducted within a three month period with an expenditure of no more than ?50. The first month will be used to prepare secondary research that can more fully frame the study for the purposes of creating findings for discussion. The first month will also be used to prepare the survey instrument and to run a pilot study in order to determine if the instrument can answer the questions that have been proposed within the study. The second month will be used for conducting the research. The third month will be used for determining the findings and for writing the results of the conducted study. The following chart represents the preliminary proposed timeline. References Boniface, Brian G., and Chris Cooper. 2009. Worldwide destinations: the geography of travel and tourism. Amsterdam [etc.]: Butterworth-Heinemann. Evans, Annabel, and Bryan J. Rooney. 2008. Methods in psychological research. Los Angeles: Sage Publications. Levi, Maurice D. 2009. International Finance. London: Taylor and Francis, Inc. Madura, Jeff. 2008. International corporate finance. Australia: Thomson. Mazanec, Josef A. 2009. Consumer psychology of tourism, hospitality, and leisure. Wallingford, Oxon, UK: CABI. Pizam, Abraham and Yoel Mansfield. 1999. Consumer behaviour in travel and tourism. London: Taylor and Francis, Inc. Reisinger, Yvette. 2009. International tourism: cultures and behavior. Amsterdam: Butterworth-Heinemann. Shaw, Gareth, and Allan M. Williams. 2002. Critical issues in tourism: a geographical perspective. Oxford [u.a.]: Blackwell. Tribe, John. 2000. The economics of leisure and tourism. Oxford [u.a.]: Butterworth- Heinemann. Williams, Stephen. 2009. Tourism geography: A new synthesis. London: Taylor and Francis, Inc. X-Rates. 2011. Currency Calculator. Accessed 19 February 2011 from http://www.x- rates.com/calculator.html Read More