Economic factors have a huge impact on the travel and tourism industry. When economies are doing well, more people have money to spend on holidays. When times are tough, tourism is often one of the first things people cut back on. Understanding these economic factors helps us predict tourism trends and explain why some destinations boom while others struggle.
Key Definitions:
Tourism is often described as a 'luxury' rather than a 'necessity'. This means that when people have less money, holidays are often one of the first expenses they cut. Economic factors don't just affect whether people travel - they also influence where they go, how long they stay and how much they spend while there.
The tourism industry is highly connected to the global economy. For example, when oil prices rise, flight prices typically increase too. Economic changes in one country can affect tourism in another country thousands of miles away. This is why tourism professionals need to understand economic factors at both local and global levels.
Exchange rates have a massive impact on international tourism. They determine how much spending power tourists have when they visit another country.
When your home currency is strong against the currency of a destination you want to visit, your money goes further. This makes the destination more affordable. On the other hand, if your currency is weak, the destination becomes more expensive.
When the pound is strong against other currencies (e.g., £1 = $1.50), UK tourists find overseas holidays cheaper. Accommodation, food, attractions and souvenirs all cost less in real terms.
When the pound is weak (e.g., £1 = $1.20), UK tourists find overseas holidays more expensive. This might lead to shorter trips, choosing cheaper destinations, or holidaying domestically instead.
A weak pound makes the UK cheaper for international visitors. This can boost inbound tourism as foreign tourists get more pounds for their currency and find UK attractions more affordable.
After the Brexit referendum in 2016, the pound fell significantly against the euro and dollar. This had two major effects:
Visit Britain reported a record 39.2 million inbound visits to the UK in 2017, partly attributed to the weaker pound making the UK a more affordable destination.
The overall state of an economy has profound effects on tourism. During periods of growth, tourism typically expands; during recessions, it often contracts.
When economies are growing, several things happen that boost tourism:
During recessions, we typically see:
Not all tourism businesses suffer equally during recessions. Budget airlines, affordable accommodation and domestic tourism destinations often do well as travellers look for cheaper alternatives rather than giving up holidays altogether. For example, during the 2008-2009 global financial crisis, budget hotel chains like Premier Inn and Travelodge in the UK actually expanded while luxury hotels struggled.
Tourism often recovers quickly once economic growth returns. People who delayed holidays during tough times may book trips as soon as their finances improve. This can lead to a surge in tourism that outpaces general economic recovery. After the 2008 recession, international tourism bounced back strongly in 2010 with a 6.7% increase globally.
Disposable income is the money people have left after paying taxes and essential living costs. It's a crucial factor in tourism because travel is typically paid for with disposable income rather than essential spending.
Changes in disposable income can affect tourism in several ways:
Higher disposable income allows people to consider more expensive, long-haul destinations. Lower disposable income might mean choosing closer, more affordable destinations or staying home.
Tourists with more disposable income tend to spend more on experiences, dining and shopping while travelling. Those with less might self-cater and avoid paid attractions.
Higher disposable income often means more frequent holidays - perhaps several short breaks plus a main holiday each year, rather than just one annual trip.
China's rapid economic growth has created a huge new middle class with disposable income to spend on travel. Between 2000 and 2019, outbound trips from China grew from 10.5 million to nearly 155 million per year.
Chinese tourists became the world's biggest spenders on international tourism, with expenditure reaching $277 billion in 2018. This shows how rising disposable income in a population can transform global tourism patterns.
Destinations worldwide adapted to attract Chinese visitors by accepting Chinese payment methods, hiring Mandarin-speaking staff and catering to Chinese preferences.
Employment levels affect tourism in two key ways: they influence how many people can afford to travel and they determine how many workers are available to staff tourism businesses.
High employment rates generally mean more people have regular income to spend on holidays. When unemployment rises, fewer people can afford to travel, especially internationally.
The tourism industry is labour-intensive and needs workers to provide services. In areas with low unemployment, tourism businesses may struggle to find staff, potentially leading to higher wages but also higher prices for tourists.
Even when employed, people who feel their jobs are insecure may be reluctant to commit to expensive holidays. This is why tourism can suffer even before unemployment actually rises, if people are worried about the future. During the COVID-19 pandemic, many employed people cancelled travel plans due to job security concerns, even if they hadn't yet lost income.
Tourism often creates seasonal jobs that align with peak travel periods. In some destinations, unemployment rates fluctuate seasonally, with low unemployment during the tourist season and higher unemployment in the off-season. This pattern is common in coastal resorts in the UK, where summer brings many tourism jobs that disappear in winter.
When studying economic factors in travel and tourism, it's important to be able to analyse real situations. Here are some tips:
In your iGCSE Travel & Tourism exam, you might be asked to explain how economic factors affect specific destinations or tourism businesses. Always use specific examples and try to show the connections between different economic factors. For instance, don't just say "exchange rates affect tourism" - explain exactly how they affect tourist decisions and give a real example.
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