Global recession and its effect on tourism and travel industry.

Murgoci, Cristiana Stefania ; Firoiu, Daniela ; Ionescu, Emilia 等

1. INTRODUCTION

Tourism is a global-scale industry with growing impacts on the environment, as well as profound implications for regional and local development. In many developed and developing countries tourism increasingly provides new opportunities, employment and economic benefits to local communities, many countries seeing tourism promotion as an expedient and relatively inexpensive strategy to attract foreign direct investment by, for example, showcasing natural areas and local indigenous cultures. Growing tourism activity in many places in the world is increasingly tying them to the industry and related cultural, social, economic and political networks. At the same time tourism is deeply influenced by its changing physical and social environments and larger processes such as global climate change. The current global economic credit crisis has, in addition, underlined the impact of shifting economic fortunes on the global tourism system.

2. EFFECTS OF A GLOBAL RECESSION

The financial crisis is now likely to result in the most serious recession since the 1930s. The current economic slowdown has lasted longer and been spread wider than recessions in past decades, leading to a contraction in most wealthy nations and a sharp slowdown in emerging countries.

The World Bank pointed to a number of indicators of a dramatic slowdown. Global trade volumes will fall 2.5 percent in 2009, the first contraction since 1982. Worldwide investment will fall about 50 percent in 2009 compared to 2007. The financial crisis has cut access to loans in advanced and developing countries, pulling investment out of poorer nations and reducing consumer spending. No region has shown itself immune to the crisis.

A global recession will impact the entire Travel & Tourism sector, despite the robustness that it has shown in past years. There are many reasons to expect that demand for all kinds of travel will decline in the coming years. The financial crisis and economic recession are bringing about tighter credit conditions, high consumer debt, decreased housing wealth, stagnant wages, and rising unemployment, all of which are leading to a contraction in travel demand, particularly business travel.

With respect to the hospitality industry, since mid-September--almost in parallel with the stock market turmoil--demand for high-end hotel rooms has sharply decreased because businesses, especially, are cutting back on travel expenses. The hospitality industry has been experiencing a drop-off in business from affluent international leisure and business travelers in particular, as economies around the globe slow and the value of the US dollar rises against many currencies. Patrick Ford, the president of the global authority for hotel real estate Lodging Econometrics, has said that in 2008 revenue rates on luxury hotel rooms "slowed in mid-September and really atcheted downward during October.... Revenue per available room, the standard measure of performance, dropped 14 percent at upscale and luxury hotels in the week ending Oct. 18 over the comparable week last year.... For hotels in general, the decline was about 8 percent" (Sharkey, 2008).

A roundtable of two dozen hospitality industry professionals and Cornell faculty members that met on November 10, 2008, to discuss key trends facing the lodging industry in 2009 made the following prognosis:

--Lodging supply will continue to grow at between 2.5 and 3 percent per year through 2010, while demand for lodging will decline by approximately 0.5 percent in 2008 and 1 percent in 2009 before growing again in 2010.

--Hotel prices will decline by over 25 percent in the short term as a result of the increased cost of debt capital and slower industry growth.

--Most agree that future lending criteria will be more conservative, but, within these strictures, some deals will still be made.

--When an economic turnaround occurs, it will occur quickly.

--Owners and operators will likely increase their cooperation in order to get through what everyone knows will be a very difficult period.

Ultimately, however, the lodging industry is also driven by trends in GDP growth (or contraction), the availability of airline seats to take people to destinations, the cost of oil, the increase in hotel room supply, and the demand for hotel rooms.

3. THE EFFECTS OF GLOBAL CRISIS ON THE ROMANIAN TOURISM

After registering a constant increase in the total number of nights spent in hotels for several years, according to Eurostat, Romania recorded a 1% rise in 2008 compared to 2007 when ranked second in the EU27 with a growth rate of 8.8% (total number of nights spent in 2006, 2007 and 2008 amounted to 18.1 mn, 19.7 and 19.9 respectively). While in 2008 in EU27 the number of nights was almost evenly split between non-residents (46%) and residents (54%), Romania registered the lowest percentage of nights spent by nonresidents (16%), followed by Germany (21%), Sweden (23%), Finland (30%) and Poland (31%). This is a decrease of nonresident spending nights from the previous year of 5.7% when the foreigners accounted for 18% of the nights spent (3.5 mn in 2007 and 3.3 mn in 2008).

Even though investments in infrastructure are still needed, the global crisis will perhaps draw back the tourism business in 2009. For the long term though, the World Travel & Tourism Council places Romania amongst the top ten fastest growing countries in the world both for travel and tourism demand and direct industry GDP with a 7.1% and 7.8%, respectively (10-year real growth annualised).

For the near term many companies have cut down their budgets for business travel by as much as 30%, affecting in turn the hotel business; also the leisure budgets are expected to dwindle. As a result, the most optimistic estimations of profit and turnover are thrown back to the 2007 level.

Known as one of the most expensive capital cities in the region, Bucharest hotel market is primarily dependent on business travellers, out of which more than 90% are foreigners. Many important players in the 5-star market are expecting a drop by 10-25% in the occupancy rate, some considering even a slash in the accommodation tariffs as a measure to lessen the effects of the crisis. The management of Athenee Palace Hilton already cut its prices acknowledging an overall hotels market decrease in tariffs by 20-25%. The beginning of the year represented the weakest month (January) for the 5-star hotels, the occupancy rate falling to 50%; prospects remain bleak.

In an effort to overcome the effects of the economic crisis some Bucharest hotels started re-branding operations. It is the case of Sofitel which has become Pullman, the 5-star Howard Johnson will transform into a Wyndham hotel and Parc Hotel has become a Ramada hotel.

At the present it is difficult to quantify the outcomes of the current crisis for the overall hotel market, but hotels in the lower category of 2- and 3-star hotels will probably fare better in these distressed financial waters, as diminished budgets will force clients to pay less for accommodation.

In the first six months of the year, tourism agencies recorded sales drop over the values estimated at the beginning of 2009. According to some sources Romanian tourism saw a staggering 40% drop comparative to the same period of last year.

Overall, the most affected segment was for external destinations, especially the ones that included charter travel, where the fill rate reached only 60%.

This is also the reason why the Romanian market is now full of special tourism offers, like city break package.

The crisis also affected the consumer's behavior which became more responsive to special offers and last minute offers. They also turned to cheaper destinations and to individual tourism.

On the upside, the deluxe tourism segment doesn't show signs of recession. Companies report a 50% increase compared to last year. The World Tourism Organization revised to 6% it's drop estimates for the year in course.

Officials of major local tourism operators said that there is uncertainty in terms of 2009 revenues, as the financial crisis is being felt on the Romanian market, and is determining many Romanians to reconsider their travel budgets.

A possible solution for saving several local travel agencies from bankruptcy would be a partnership between market players to use resources more efficiently.

4. CONCLUSIONS

The present economic crisis has highlighted the urgent need for industry, governments, and society to re-shape companies and institutions, to redefine values, and to collaborate in innovative ways.

Only coming together to meet these urgent needs will ensure the effective and sustainable use of our planet's scarce resources. For the Travel & Tourism industry, this translates into the need to fully embrace the concept of sustainability within day-to-day operations as well as in re-formulating new products and services. Success in this endeavor will ensure not only that the destinations will be able to reap the benefits of Travel & Tourism in the long run, but in the short run it will also better prepare companies to ride out the present economic turmoil.

With global tourism facing slumps at every quarter, the industry has had to come up with new or better strategies to lure potential tourists into spending. Some hotels offer 50% discounts, others offer a free night on the fourth booked while others still advertise a 30% nightly discount.

Historically, tourism has demonstrated remarkable resilience and has emerged from past crises stronger and healthier. The current economic juncture, however, might be different. This crisis is truly global and its parameters are still in many ways unclear.

5. REFERENCES

Chann, Jo. & Turner, Lindsay (2009). The Economic Structure of World Tourism, Tourism Economics, IP Publishing Ltd, volume 15, number 1, March 2009, pp 5-21, ISSN 1354-8166

Knowles, Tim & Dimitrios, Diamantis (2006). The Globalization of Tourism & Hospitality, Thomson, 2006,UK, ISBN-13: 978-1844800469

Page, S. (2009). Tourism management. Third edition, Managing for change. (2009), Butterworth-Heinemann; 3rd edition, april 2009, UK, ISBN-13: 978-1856176026

***http://traveltourismmedia.blogspot.com/ 2008/07/fewer-flights-to-americas-playgrounds.html (Joe Sharkey); Accessed: 2009-07-21

*** http://www.conferenceboard.ca; Accessed: 2009-04-24

*** http://www.euromonitor.com; Accessed: 2009-04-24

*** http://www.eturbonews.com Accessed: 2009-05-10

*** http://www.guidetobceconomy.org Accessed :2009-07-30

*** http://www.ilo.org ; Accessed: 2009-08-01

*** http://www.weforum.org ; Accessed :2009-08-12

*** http://www.wttc.org ; Accessed :2009-08-12

*** http://www.wto.org ; Accessed: 2009-08-12

*** http://www.worldbank.org/ ; Accessed 2009-08-10

Fig. 1. Bucharest hotel market

2008 Bucharest hotel market share

 Hotel market share No. of rooms market share

5-Star 79% 19%
4-Star 33% 47%
3-Star 42% 23%
2-Star 15% 8%
1-Star 4% 3%

Source: Trend Hospitally Consulting Management 2009

Note: Table made from bar graph.