ECONOMIC IMPACT ON DEMAND OF TRAVEL AND TOURISM ON A GLOBAL SCALE

SAAD ANWAR HASHMI
(feedback@pgeconomist.com)

Dec 3 - 9, 2012

The travel and tourism industry translates into a multiper with increase in business for not only hotel and accommodation but also airlines around the world. Travel and tourism is of strategic importance for any country as more travellers translate into a higher GDP and foreign exchange for that country. Looking at this core advantage, we have seen countries investing heavily in marketing to brand the country, best example being Malaysia Tourism with the slogan Malaysia, Truly Asia" Heavy investments are done by countries in entertainment and infrastructure to attract tourists. Just two decades ago, Dubai was only known as a shipping and cargo port. Coupled with extreme climate and topography, UAE was the most unlikely destination for air travel. Shaikh bin Rashid Al Maktoum, the ruler of UAE soon realized that the future of Dubai will not rely solely on oil extraction, rather tourism. He invested heavily in infrastructure attracting global brands and companies to establish offices. Dubai with quality of life and tax free salary along with Free Zones, the city today is one of the top most travel destination and now an attractive avenue to find careers. Both Dubai and Malaysia are recent examples who have created an environment through country and city wide planning attracting tourists. Continuing with this example, Emirates, the regional airline of UAE operates over 2500 flights per week and have ordered 90 Airbus A380's to meet the demand for air travel. The UAE is multicultural due to the vibrant job market attracting workforce from various countries. To support the same, Emirates covers 74 countries and 122 cities. Malaysian airlines have 104 aircrafts and have ordered further 50 aircrafts to join the fleet. The countries with the highest demand for air travel will boost every industry.

According to the Travel and Tourism Economic Impact report for 2012, countries which will value entertainment, shopping and have a consumer driven economy will evenly earn only through tourism and travel over the next 20 years. Presently, Maldives economy primarily runs on tourism. Travel and Tourism is the largest industry in the world. In 2011, this industry contributed to 9 percent of global GDP with a value of over USD 6 Trillion accounting for 255 million jobs. This very same industry is expected to grow faster than the GDP of most countries in 10 years, estimated at 4 percent annually which would translate into GDP of USD 10 Trillion accounting for 10 percent of GDP. In the next 20 years, it is estimated that 10% of all global jobs will be in the travel and tourism industry. Despite global recession with people being cautious about savings, the industry grew by 3 percent from 2011 to 2012 with translates into a quantum of USD 1.2 trillion and created 1.2 million jobs with capital expenditure of 0.7 USD Trillion

The most significant aspect of this growth is from developing countries. Traditionally, people would visit European countries, United States, Far East and Australia. There is a new trend to explore unlikely destinations a drift away from tradition. This would include increased travel to Cuba, Antarctica, Greenland, South America and island resorts which have been developing and provide a new avenue for travel. Increased demand for travel has also been witnessed in in India, China and Russia. It is also estimated that international trade will also fuel the travel industry. The travel and tourism industry therefore is stable and will show signs of growth in the future and will pose as an attractive investment option through private equity and debt financing. The international Air Transport Association (IATA) estimates that the total passenger demand rose 6.1% by April 2012 which is the highest compared to the averages of pervious 10 years.

We have already established that there is a multiplier effect with the growth of travel and tourism industry. The direct impact of the travel and tourism industry is on Transport, Entertainment, Attractions, Retail and Food Industry, cultural, sports, recreational services, residential and business accommodations which all contributes to a higher GDP with tax collections. Over all contribution to the increase in Travel and Tourism results in employment, foreign exchange and stability of the economy. Travel and Tourism generated 98.03 million jobs in 2011 (3.3% of total employment) forecasted to grow by 2.3 percent by end 2012 to 100.29 million (3.4% of total employment). This includes employment by hotels, travel agents, airlines and other passenger transportation services. By 2022, Travel and Tourism will account for 120.4 million jobs directly, an increase of 1.9 percent pa over the next 10 years.

The international air travel is also resulting in the biggest passenger manufacturers, Boeing and Airbus enhancing their internal capacities to meet such orders. Currently the demand for new aircrafts is higher than supply, an issue not only for Boeing and Airbus, but also various other manufacturers. Regional airlines including European carriers, North American airlines, Asia Pacific Carriers, Latin American and African carriers have witnessed increase in demand between 8 percent and 10 percent. Airlines in Middle East have grown by more than 15 percent and is estimated that the increase will be above 25 percent over the next 5 years. Japan experienced the strongest traffic growth among all regions, an increase of 27.8 percent in 2012.

Regional airlines in Pakistan need to compete with international players through increase in fleet since the demand is high. Strategic routes following the business model of the most successful airlines will help any airline increase its global following. PIA is inundated in financial turmoil and has shallow plans for repayment of debt. Shaheen and Airblue both do not have the financial muscle to be able to compete internationally unless major equity and debt financing takes place from investors. It is a pity to think that PIA was the airline that started Emirates and today Emirates is the global standard for air travel. Pakistan could be a travel destination provided law and order issues are eliminated and that country is developed primarily through recreational and infrastructural activities to attract international travellers.