Factors Affecting Demand in The Tourism Sector

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  • Post last modified:May 19, 2021
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The global travel and tourism industry is one of the largest contributors to the world’s GDP. Apart from that, it has also created a very large number of jobs globally. The financial value it creates annually runs in trillions of dollars. Apart from the people that the tourism sector employs directly, it also creates employment for people in several other related sectors. The condition of the global economy had improved post-recession. Rapid technological innovation also led to growth in demand for tourism. However, there are several more factors that influence demand in this sector and which you will read about in this article. As per a 2016 report by the World Travel and Tourism Council, it created 7.6 trillion dollars in the year which was a little higher than 10 percent of the global GDP.  It employed more than 292 million people in 2016 which was also nearly ten percent of the employment level of the world. This data shows the large size of the global travel and tourism industry and its importance as a part of the global economy.  The contribution of the travel and tourism industry to the global GDP was 10.4% in 2018 and 10.3% or $8.9 trillion in 2019. Around 319 million people were working in this industry and the number grew to 330 million in 2019. The tourism sector is affected by several global and local trends as well as economic, political and other factors. However, 2020 has brought a fresh set of challenges to the tourism sector. The global spread of Coronavirus is currently the biggest challenge facing tourism.

Economic factors and their effect on tourism demand.

Economical factors have a major impact on the tourism industry globally and locally. Fluctuations in the global and local economies can affect the level of demand and supply in tourism in local areas or globally. During the recession, the demand for tourism had been affected on a global scale. Higher economic activity leads to favorable demand for tourism services globally. When economic activity and employment are high, people have sufficient disposable income to spend on tourism and travel. This leads to favorable demand and on the other hand lower economic activity and employment lead to low consumption of tourism services and less spending. During the recession, demand for tourism services fell because people were forced to cut down on extra costs and the level of employment had fallen worldwide.

However, the world economy was back on track post-recession and demand for tourism saw healthy growth as consumer spending on tourism grew. Fluctuations in the local economies of several countries continued post-recession and they had only short term impact on demand for tourism in these areas. Moreover, the role of economic factors in creating demand for tourism also gets clear from the fact that in Asian countries with higher economic activity, the demand grew higher compared to others. Apart from the Asian countries including China, India, Indonesia and Malaysia, the US and neighboring countries like Canada, Mexico, and others have also benefited by good economic activity and seen healthy demand for tourism services in recent years. In this way, economic factors have a major impact on the demand for tourism globally. However, they affect both sides – demand and supply. A healthy economy and its agents serve tourists better. When the level of economic activity is higher, the suppliers are able to cater better to demand and their earnings are high. Several global hospitality brands like Marriott and Hilton enjoyed superior growth in the last several years because of improved economic activity in key regions including the US and China. The fiscal policies adopted by governments in these regions also have a direct impact on the earnings of hospitality services providers.

Geopolitical factors and their effect on tourism demand

Geopolitical factors also have a deep effect on the demand for tourism. A stable geopolitical situation can lead to a healthy increase in demand for tourism while instability can affect it negatively. Tourist activity in the US was affected in the aftermath of the 9/11 attacks. It resulted in higher surveillance throughout the US and such an environment makes tourists feel insecure. Particularly, it can lead to a decrease in the arrival of tourists from Islamic countries. In the middle East too, terrorist activities have affected the demand for tourism. Egypt is a country with several attractive tourist destinations including the pyramids. However, ISIS’ activities have had a negative impact on tourist activity and the overall economic environment. Even if the government takes stringent action against the terrorists, it can lead to a state of chaos and disruption in the country which can bring tourist activity lower. People like to travel to countries that offer a safe environment and where they can enjoy their vacation in peace. However, in a time when civil war or terrorism is disrupting the local economy and polity, such an environment is not very encouraging for tourists. In this way, geopolitical factors can have a major impact on the tourism industry worldwide. A stable geopolitical environment attracts tourists and leads to higher employment and income and vice versa. If the relationships between any two nations are tense, it can also result in a negative effect on the demand for tourism. If the relationships between two neighboring states/countries are poor, the number of tourists from one to the other remains low.

Technological factors and their effect on tourism demand

Technological factors also have a similar positive effect on the tourism industry and the demand for travel and tourism. In the advanced countries, several places despite not being geographically attractive or naturally beautiful, the cities attract tourists in large numbers because of technological factors. Technological factors have led to an entirely new range of tourist activities. Western cities have several such tourist hotspots that are attractive because of technology and business. A beautifully lit Western metro-city with attractive trains and cars and huge malls and entertainment centers sees higher tourist footfall due to technological growth. Technology has aided the growth in demand for tourism in other ways too. It has connected destinations and people. People have more options for traveling which have kept growing cheaper with time. Traveling to distant destinations is not a dream anymore but people are taking several vacations every year. Technology has reduced the costs of marketing and helped airline brands reduce the prices of travel. Apart from that, lodging options have also increased for people and reduced the costs of their overseas stay. People on tour can benefit from Air BnB arrangements which greatly reduce the prices of overseas stay. The internet has brought destinations closer. One can select from thousands of tourist destinations globally. Blogs, websites and social media heavily publicize each tourist destination and people can gather all the information they need to plan their tour. If the influx of foreign tourists in the Asian nations has increased, then its credit to an extent also goes to the internet. It has made booking and marketing of tourism services easier and also helped people and businesses manage the costs of travel better. Traveling is secure and people can stay connected with their family and friends through the internet all the time. Hospitality brands are giving their service a personal touch through the use of advanced technology, data, and analytics. Falling costs of travel have also led to an increase in the number of leisure travelers. The rise of the gig economy, driven primarily by technological growth also brought new opportunities for travelers as well as tourism providers.

Sociocultural factors and their effect on tourism demand

Cultural factors also have a deep impact on the demand for tourism. Millions of people every year go on religious tours like the Muslims going to Mecca or the Christians to their holy cities. Apart from it, people also go on cultural tours to understand the cultures of other nations. Culture and religion are major forces affecting the demand for tourism worldwide. In Asian countries, Buddhist and Hindu cultures hold a special appeal for foreign tourists and attract them in large numbers.  Hinduism and Buddhism are very old religions and people take tours to places like China, India, Malaysia etc to understand these religions and their cultures. The Greek culture also has a similar appeal and when you go abroad to any nation there is something distinct and unique in every culture to offer. People do not always go abroad for business or pleasure but also for cultural learning. From Greece to NewZealand, every culture has its own unique appeal and strength. People also understand nations and their social structure through the lens of culture. You cannot understand India, Japan or China without understanding their cultures. It is why several tourist organizations around the world arrange cultural tours to various nations. In the modern world, culture has become a primary attraction for tourists and millions travel to distant nations every year only to know their culture and experience its uniqueness.

Impact of Coronavirus Pandemic and its unexpected effect on tourism demand

The sudden spread of Coronavirus has had a highly negative impact on the entire travel and tourism industry globally. While currently, nearly all tourism-related activity has come down to zero, a large number of providers are battling for survival. The pandemic had a sudden and bitter impact on the aviation sector and its heavy impact was clear by the middle of March 2020. Even after 15th March, airline brands globally have continued to ground aircraft and layoffs are underway across several organizations. It would not be wrong to say that the pandemic has brought the entire sector on its knees. In a press release dated 13th March 2020, World Travel and Tourism Council had announced that the pandemic had put at least 50 million jobs at risk worldwide. However, the council also noted that the industry could make a stronger return once the situation is again under control. It has predicted an adverse impact of around 25% on the travel and tourism industry due to the COVID-19 pandemic. There are several measures that the council suggested which governments around the world can adopt to churn demand and economic activity in the industry again like easing fiscal policies, removing barriers, introducing incentives, supporting destinations as well as improving travel facilitation.

Impact of other factors on tourism demand globally

Demand for travel and tourism in the 21st century is affected by some other factors too. How nations and hospitality brands market themselves also affects the demand and sales of tourist services. Some nations have invested in heavy marketing of their tourist destinations to churn demand. Dubai is one of such tourist destinations which is marketed around the world through various channels. Apart from its attractive landscape, Dubai also invests heavily in the promotion of its tourist attractions. However, not all tourist destinations are as aggressive in terms of marketing. Still, growing competition has made countries and hospitality brands invest more in marketing. The evolution of new physical spaces for accommodation has also changed how people travel. The rise of Air BnB and home-sharing spaces has also strengthened the demand for leisure travel. It also gave rise to increased competition forcing the competitors to reduce prices for stay. For many people traveling abroad would not have been possible unless for these cheaper lodging arrangements. Another important factor that affects the demand for tourism internationally is the changing demographic composition of the global population. Globally, the demographic composition of the population has changed and the millennials are more enthusiastic about tourism and travel than the baby boomers. They are more adventure-loving and spend more on travel and tourism than the previous generations. Millennials are also tech-savvier than the previous generations and more likely to stay up to date with the latest technologies. However, they prefer higher convenience and lower prices. This is why tourist agencies and hospitality brands are tailoring their services to match the expectations of the millennial generation. In this way, there are several factors affecting the demand for tourism internationally including the reduced prices of air travel and overseas stay.  The tourism industry has experienced fast growth after the recession and is expected to grow in the coming years too. However, the tourism landscape globally has improved a lot in the 21st century and is expected to evolve further with evolving technology and political relationships between the various nations. Except for the impact of Coronavirus, the tourism industry has been seeing a boom. Once the situation is back under control and with some additional government support worldwide, the travel and tourism sector could start seeing healthy growth again.

Sources:

Report by WTTC

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.