An Economic Update on the Tourism Industry

Wanderlust is perhaps inherent to human nature- a legacy of the pre-historic ages when humans were predominantly nomads. Limited technology and access to information meant that for several millennia, the ability to travel was so severely limited that those who travelled far in ancient times, like Marco Polo or Faxian, are remembered to this day.

The advent of civil aviation, combined with easy access to information through the internet have transformed the travel and tourism landscape beyond recognition over the last few decades, to the point where today, even a common man can realistically dream of travelling to remote corners of the world in his lifetime. As a result, travel and tourism has become one of the most important industries in the world, providing a livelihood to 292 million people and accounting for 10.2% of global GDP.

The travel and tourism industry has displayed remarkable resilience in the current decade, despite factors like a global economic slowdown, political instability in many countries and the rising spectre of terrorism which has left few parts of the world untouched. Despite those factors, the growth of the industry has consistently outpaced that of global GDP since 2011. This astonishing phenomenon has been due to several factors, some of which are discussed in this article.

Tourism has traditionally been of the leisure tourism variety, where individuals go on a vacation unrelated to work. It may be in the form of a weekend getaway or a much longer stay away from home. The drivers of leisure tourism are many. For instance, sports buffs may indulge in sports tourism, which was a USD 7.7 Billion industry as of 2011. Food lovers in pursuit of new culinary experiences may indulge in food tourism.

Here is an interesting fact – There were as many as 56 million tourists who visited the US last year for gambling. Since many countries have a tight lock even on casinos online, people vacationed in places that allowed them to gamble without restrictions.

Leisure tourism can also be driven by negative factors. For example, consumption of alcohol is prohibited in most Middle Eastern countries, prompting citizens and expatriates living in those countries to seek indulgence in places where consumption is permitted. Similarly, individuals may indulge in recreational drug tourism, which allows them to obtain drugs that may be prohibited in their home country.

With increasing global interconnectivity, business tourism has become a very important segment within the travel and tourism industry. As of 2016, the global spending on business tourism was estimated at USD 1.3 Trillion- higher than the GDP of most countries in the world. Despite the advent of technologies like teleconferencing or online video chatting apps like Skype, Facetime or Google Hangouts, business tourism continues to thrive, with an estimated growth of 6% in 2017. With a global economic recovery underway, it is likely that this segment will experience significant growth over the next few years. The latest trend in this sector is a portmanteau called ‘bleisure’ tourism when business travellers extend their stay at their destination for leisure activities.

Medical tourism has emerged as another important segment within the travel and tourism industry in recent years. Valued at USD 10 Billion in 2015, this industry is expected to experience double-digit growth until the end of the current decade due to two factors, the significantly lower cost of medical treatment in developing countries (vis-à-vis developed countries) and the unavailability of local expertise in underdeveloped countries. Rising healthcare costs and limited insurance coverage- especially for orthopaedic surgeries- in developed countries are expected to further fuel the growth of this sector.

One of the oldest forms of tourism in the world, religious tourism remains a significant activity. The World Tourism Organisation estimated that major religious sites across the world, such as the Great Mosque of Mecca, Vatican City, Church or the Nativity, and Our Lady of Fatima attracted 300 million tourists as of 2016. Given the fact that religious belief is immune to political and economic downturns, this segment is likely to experience growth for the foreseeable future

One of the latest developments in the travel and tourism industry is the phenomenon of virtual tourism. Thanks to modern technology, it is now possible to experience a virtual tour of major tourist attractions without having to leave the comforts of home. The equipment required for a virtual tour could be as simple as an ordinary smartphone with the added option of a 3D headset. 

Counterintuitive as it may sound, virtual tourism could actually boost leisure tourism instead of supplanting it by giving would be travellers a preview of what they could experience- much the way a starter whets the appetite for the main course. While the concept is still in a nascent stage, with technological advancements it is likely that virtual tourism will grow into a full-fledged segment within the travel and tourism industry.

Several governments across the world to have formulated tourism policies to exploit the economic potential offered by the industry. The combination of higher disposable incomes, especially in developing countries, easy access to information and lower travel costs due to declining oil prices will contribute significantly to the growth of the travel and tourism industry over the next few years.

However, the industry continues to face significant challenges to growth. Apart from the factors mentioned at the beginning of this article, weakening currency exchange rates and barriers to entry in the form of visa restrictions could act as headwinds restricting the growth of the sector.

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