The travel and tourism industry is a very vast and dynamic one with many sub-industries and sectors. Any sector which facilitates or caters to the traveling of people by offering them services and products constitutes the tourism industry.
There are various drivers to the industries such as income growth, improved standard of living, increased connectivity, better & faster transportation, changed outlook to leisure & stress management activities, the concept of borderless businesses & economy, increased attractiveness of global sports & culture, etc.
Direct vs. Indirect Contribution to GDP
The tourism industry doesn’t only account for direct revenues, which are from airline & other transport travels, hotel businesses, restaurants, tourist attractions, etc. but also there are other revenues which are driven by this industry, which can be referred to as indirect contributions. These can contribution related to supply chain effects, government expenditure on infrastructure or facilities, capital investment, etc. The indirect contributions can be:
- Government investments in facilitating tourism infrastructure such as the formation of tour circuits, up-gradation of airports, railways & other transportation, renovation of attraction sites, etc.
- Private investments in terms of the construction of new facilities to offer services related to money exchange & other financial services.
- Foreign Direct Investments (FDIs) due to better reachability & connectivity.
- Investment in the medical industry to encourage medical tourism.
- Any other contribution which indirectly is linked to supply chain & value addition to the industry.
Industry Overview & Performance
For the year 2019
- Contribution of the Industry to Global Economy: USD 9.25 trillion (Total)
- Contribution of the Industry to Global Economy: USD 2.9 trillion (Direct)
- Contribution to total Global GDP: 4% (Total) 3.3% (Direct)
- Number of International tourist arrivals worldwide:4 billion (2018)
- Compounded Annual Growth Rate (CAGR):2%
Sub-industries of the Tour and Travel Industry
As mentioned earlier, the industry consists of many sub-industries such as accommodation, transport, food and beverage, recreational & attraction sites, etc. Further, these also can have both organized as well as unorganized sectors such as travel companies, large hotels & restaurants, and small restaurants, tourist guides, respectively.
- Transport: This sub-industry comprises of all transportation & connectivity sectors which contribute to travel related to tourism. The airline industry is the biggest contributor with the revenue of commercial airlines worldwide being approximately US$ 838 billion in 2019, which was around 50% of total inbound tourism across the world, and a CAGR of 5.79% from the period between 2003-19.
- Accommodations: This sub-industry consists of hotels, camping services, shared accommodations, etc. which are associated with lodging. In 2018, the market size of the global hotel industry was recorded up to US$ 600 billion, with a CAGR of 6.51% for the period between 2014-18.
- Food and Beverages: This is comprised of all the restaurants, bars & cafes, food joints, packed food companies, etc. which cater to the tourists.
- Tourist Attractions: This sub-industry consists of all the recreational, pilgrim, historical, cultural, adventure, and natural sites as well as museums, parks, etc. that attract tourists. Countries worldwide spend largely to create and enhance such attraction sites. Currently, Europe accounts for most of the tourist attractions. Also, it accounts for most visitors with the total number of tourist arrivals in Europe in 2018, being 672.3 million and France with most visitors.
- Travel Companies: Even though the recent trend has witnessed self-booking of trips by travelers, but still global companies, such as Expedia Group, have generated high revenue of US$ 99 billion in 2018. Indian Online Travel Agencies (OTAs) are also growing exponentially in the current scenario, with companies like MakeMyTrip witnessing an increase in revenue by 20% (highest by any company in the world for 2019-20).
Industry Attractiveness Analysis
Porter’s Five Forces Framework
Considering all the sectors such as travel, hospitality, attractions, etc. together, the industry can be analyzed as follows:
- Competitive Rivalry: Considering the increasing number of travel companies, with almost 70,000 in the US itself, and also the fierce competition created due to internet marketing & price war, has made the industry highly competitive.
- Bargaining power of Buyer: Accelerated booking of travel by customers themselves by using the internet and also by comparing on websites such as Trivago, Hotel Finder, etc., to avail the best price has made the bargaining power of buyers quite high.
- Bargaining Power of Supplier: Suppliers are the professionals and employees who help in providing services. They can switch companies, but with proper hiring and retention plan, this power can be kept at a moderate level.
- The threat of new Entrants: Considering the accessible marketing channels provided by the internet, it has become easier for entrants to enter the market. But still, the differentiating factors like brand and experience offer a moderate hindrance to entry.
- The threat of Substitutes: Experiences or utility provided by virtual means such as virtual experience, online connect, etc. as well as other local recreational options, doesn’t offer any substantial threat to this in-person experience-driven industry.
Inference from Analysis
With the help of the above framework, it can be inferred that the industry is attractive enough if the concerned company is able to differentiate itself based on customer experience and in terms of providing the best prices along with the proper utilization of digital platforms and channels to convey the brand.
Industry Projected Growth prior to COVID-19
The entire global tourism industry was expected to grow at a CAGR of 6.7% to reach a size of above US $ 18 trillion by 2029. Both international and domestic tourism was supposed to grow at a rate of 6.5% and 6.8% annually. With the advent of global business & economy and the emergence of borderless global perspective aided by the increase in the standard of living as well as in the number of middle-income families, the industry was well set to increase its contribution in total world GDP, with the increase in travel, related to business as well as recreation.
Impact of COVID-19 and Revised Growth Projections
Due to restrictions within and cross-border travels amidst the lockdown measures taken by the countries to curb the outbreak of COVID-19 as well as decreased willingness to travel, the tour and travel industry has become one of the worst-hit industries due to this global pandemic.
The social distancing and quarantine measures seem to affect the industry for a considerable future. Although some travel related to urgent causes like business or medical may resume with many cautions, it would require a considerable time to bring the industry back on track.
Also, it is almost certain that the industry is looking to get revolutionized due to specific measures that will be incorporated after the resumption. These would be mainly related to hygiene and social distancing measures.
The current COVID-19 pandemic is projected to cause about a 34.7% drop in revenue of the entire tourism industry in 2020, with a total employment loss of 75 million jobs worldwide. Out of these, China and India are projected to suffer from a job loss of 25.6 million and 9 million, respectively.
According to the Confederation of Indian Industry (CII), it is estimated that the tourism industry in India will incur a loss of about US $ 70 billion. While the United Nations World Tourism Organization (UNWTO) has expected a global loss of more than the US $ 50 billion due to a decline of 30% global international tourist arrivals in 2020, also, keeping in mind that these are early estimates, the scenarios can turn even worse, as the situation pans out.
Ways out of the crisis for the industry
Considering that the tour and travel industry is one of the most impacted ones among the various affected industries amid this pandemic, the following things can help the industry to get itself back on the track, eventually:
- Staycation: Slow tourism or Staycation, which has been present but wasn’t much substantial, can be used as a way out for the problems related to the rapid spreading of the virus or diseases due to highly paced travels. Moreover, it can help individuals to get a more immersive experience and help them to connect with the local environment.
- Solo Travel: Traveling alone had already started gaining traction in the travel industry, with more and more individuals opting for a unique solo experience away from the crowd. Dublin Airport claimed that out of its 31.5 million estimated passengers in 2018, 57% were solo travelers. This trend can be promoted to survive the industry post this pandemic.
- Focus on domestic or local tourism: With inevitable restrictions on international travels to curb the transmission of disease, the focus can be shifted to domestic tourism, which can be more cost-effective and long. Maybe, the time has arrived when the attention can be given towards getting closer to our national heritage and traditions, so that we may associate ourselves with our cultural origin.
- Virtual Tourism: Even though there is nothing that can replace the in-person experience of leisure tourism, but considering the short-term constraints and also an expansion in terms of the new segment, the concept of virtual tourism can be considered to realize. It may provide another dimension of tourism where virtual tourists can visit the places of their choice with the comfort of their homes. This can also reduce the overall cost to a meager amount and also will provide the option to tour more frequently, thus attracting a broader set of people.
- Economies of Scope: It is always advisable to be flexible enough to diversify the utility of the business based on available resources and capabilities. The already available facilities can be used for foraying into other relatable domains like as suggested in terms of virtual tourism, long term stay facilities for visitors, landscape photography, paid lifestyle & traditional contents, etc.
- Hygiene First: One of the significant ways to get back the confidence of the tourists towards their travel is by assuring them that the health & hygiene are the topmost priorities. Also, the proper utilization of government facilities and interventions regarding social distancing in the post-pandemic era can help to support the industry.
- Government Intervention: Even though the government acts as an external component to the industry, the time demands reliefs and aids from the government, such as tax relaxations & infrastructure up-gradation, to survive the industry. Also, measures like ‘Travel Bubble’ and ‘COVID-safe travel zone’ taken by Baltic states in Europe and New Zealand & Australia respectively can help to form an environment in which tourism can be revived.
From the analysis of the industry, it can be understood that it has been contributing to almost one-tenth of the global GDP, and as projected earlier, it could have attained a size of US $18 trillion.
But due to the current pandemic, the industry being one of the worst hits would take some time to get back on track with some permanent adaptations and changes. Even though there would be lost in the short and medium-term, but in the long run, it will again become stable. The customer experience, hygiene priorities, effective internet & technological usage, and cost leadership would become the differentiating factors making them critical for any business which wants to grow in the industry.
By- Kumar Jai, IIM Nagpur
craft, Craft Driven, Craft Driven Market Research, market research, pandemic, tour and travel, travel industry, travelling