The economic environment
The global economic recovery has slowed down over the past six months. In addition to the Eurozone crisis and the unrest in the Middle East and North Africa, growth in a number of major emerging market economies has been lower than previously forecast. The IMF projects real GDP growth worldwide at 3.5% for 2012. Growth is expected to be driven by emerging and developing economies which are forecast to expand by 5.6% in 2012. In comparison, advanced economies are expected to grow by only 1.4%.The two largest source markets, the UK and Germany, are expected to grow by 0.2% and 1% respectively in 2012. Within the Eurozone, the unemployment rate currently stands at 11.4%, up 120 percentage points from last year. Compared to other Eurozone countries, both Germany and the UK have withstood the economic crisis in the Eurozone with unemployment at just 5.5% in Germany and 8.1% in the UK. The economic outlook for 2013 seems more positive with real GDP growth worldwide projected at 3.9% driven by the expansion of both advanced and emerging markets. While advanced economies are forecast to grow at 1.9%, emerging and developing economies are projected to expand by 5.9%.
The leisure travel market
Demand for international tourism remained strong in 2011 with international arrivals growing by 4.6% compared to 2010. The percentage increase was slightly below 2010 (7%), driven primarily by economic factors coupled with unrest in the Middle East and North Africa, which were the only regions to record a decline in arrivals, -8% and -9% respectively (UNWTO). Europe, home to the majority of the core markets and accounting for over half of all international arrivals worldwide, together with Asia, were the fastest growing regions globally.The travel and tourism market continues to experience a clear polarization of demand. On one hand, we have customers who demand individualization, i.e. unique holidays with bespoke services. On the other hand, we have customers whoare increasingly moving towards commoditization, i.e. flights in combination with hotels with minimal levels of differentiation.
The sustainability challenge
Travel and tourism accounts for 9% of global GDP*. The industry will continue to be one of the world’s fastest growing sectors, with emerging economies in particular seen as engines of such growth and the UNWTO expecting international tourist arrivals to exceed 1 billion in 2012. Travel and tourism today is responsible for 9% of global employment* but also for 5% of global carbon dioxide emissions**. From a sustainable development perspective this poses a challenge – the growth of an industry highly dependent on fossil fuels and biodiversity in a world of finite natural resources.Tourism businesses have to face up to this challenge.The responding to these issues means bringing sustainability centre stage, to build on the efficiency and resilience of tourism businesses and the services they provide. Sustainable Holidays Plans are a major step forward for the tourism industry in the journey towards providing special travel experiences whilst minimizing environmental impact, respecting the culture and people in destinations and bringing real economic benefit to local communities.
The political climate
The impact of government regulation in all of the tourism markets is significant. Some of tourism activities activities, such as those undertaken by airlines, are heavily regulated. Many of the lawmakers, particularly in Europe, are becoming increasingly focused upon measures to protect customers. The policy of tourism parties has to engage with legislators at an early stage in relation to all of those areas of regulation that might have a material impact upon the way business is done. The focus is always to work with governments to bring forward legislation that is fit for purpose, is no more burdensome on industry than it needs to be and does not discriminate between different business models. The engagement with the European institutions has been particularly important over the last 12 months as it tries to achieve a proper balance between the aviation industry and the customer in the area of passenger rights. This will also remain an area of focus in the coming 12 months. The work of the European institutions in relation to the revision of the European Directive on Package Travel also continues. It is necessary that the European institutions are convinced of the need for reform and will bring forward a proposal in the first quarter of 2013. Over the last 12 months, Eurozone countries have had to come to grips with austerity measures placed on them by national governments, some more severe than others. However, it is expected this to have a major impact on tourism business. Aviation taxation also remains on the agenda as governments across the worl look for ways to increase revenue. The role is to remind them of the importance of the travel and tourism industry as a driver for growth. In the UK, the debate on airport capacity continues. Leading tour operators will take a full part in that debate as it develops in order to ensure that the specific requirements of leisure airlines and passengers are fully understood. Both segments are being driven by high growth in online bookings and, while the uncertain economic environment has had an effect on consumer travel spending habits, demand for leisure travel remains strong. Business models aim to cater to these trends – individualization and commoditization – to best serve the changing needs of tourists. It is considered individualization to be the Tour Operator market and commoditization as the Online Accommodation market.
*World Travel and Tourism Council’s Economic Impact Report 2011.
**United Nations World Tourism Organisation (UNWTO),United Nations Environment Programme (UNEP) and World Meteorological Organisation (WMO) October 2007
-TUI Travel PLC, 2012