How High Australia Exchange Rate Effects Australian Travelling Overseas and Travellers to Australia - Assignment Example

How high Australia exchange rate effects on Australian travelling overseas and travellers visiting Australia TABLE OF CONTENTS SITUATION ANALYSIS 2 Introduction 2 Background information: 4 Problem/Issue 6 Aim: 6 Preliminary Literature Review : 7 Research Objectives: 8 Research Plan (Schedule of Activities): 9 References 12 Appendix 16 Table 1: Exchange rate Table: 16 SITUATION ANALYSIS Introduction As per WTO (World Tourism Organization), Tourism is defined as ‘activities of persons traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited’ (ABS 2004, 48). If the person stays longer than one year at a place, they are no longer regarded as a tourist. Holiday travel is the dominant sector of the international travel market though there are variety of reasons why people travel. It could be plain holiday, visiting friends and relatives, business, employment and sports, academics etc. The tourism industry is one of the main sources of income in many countries (Williams and Shaw 1988, Coccossis and Nijkamp 1995). It is one of the fastest growing industry in the world and it accounts for about 10.7% of the world’s GDP It is growing at a rate of about 7% per annum. Since a range of factors influence destination competitiveness, including price and non-price factors, there is a need to develop indicators which reflect this. These factors could be demographic, qualitative or price factors. The development of a set of competitiveness indicators would serve as a valuable tool in identifying what aspects or factors influence tourists in their decision to visit other countries. Demographic factors include factors such as population, income in origin country, availability of leisure time, education levels etc. As per Crouch (1992, 1995), the countries that have high economic growth show growth in outbound tourism as well. Qualitative Factors include image of the destination and quality of tourist services being provided, cultural similarities etc. The strength of these factors usually reflect changing fashions and tastes (Crouch and Ritchie 1999) On the other hand, the Price Factors such as the transportation costs, accommodation, food and beverages, entertainment etc. determine the flow of visitors to the place. Obviously, if the place is higher priced than comparative destinations, tourist will not go to such a place specially since now-a-days, there are many good alternatives available to the tourists. There have been several studies on the price competitiveness of different destinations. In one of these, it has been shown that an increase in relative costs is linked with a fall in market share in travel from every origin country. (Edwards, 1995) Thus there is evidence that international travelers are sensitive to price (Crouch 1992) Since price and exchange rate are linked together, it is important to study these parameters as well. Moreover it has been seen that destination competitiveness is also associated with the economic prosperity of residents of a country (Crouch and Ritchie 1999, Buhalis 2000). Ultimately, however, it translates to spending power of its residents which can be spent on tourism. Background information: Tourism is one of the world's fastest growing industries, and has been identified as a means of generating national income in less industrialized economies. Like other countries, Australia has also promoted tourism as one of the major source of national income According to scholars, holiday travel to a destination is influenced by two major factors that is the attractiveness of the destination and the ability of tourists to travel to that destination in terms of situational constraints (Woodside and Lysonski 1989; Um and Crompton 1990 and 1992; Crompton and Ankomah 1993). They defined the situational constraints income, travel prices, time and health as those critical factors. It was shown by Um and Crompton (1992) that ability of travelers to travel is more important than the attractiveness of the destination. The other factors that generally influence tourism flows consist of price competitiveness, the state of international relations, exchange rates, income effects (real rates of economic growth in origin markets) and substitution effects. Out of these we are primarily going to study the exchange rate and its effects. Tourism in Australia is an important economic sector representating about 3.9% of Australia's GDP in 2003-2004. Through the direct sale of goods and services to international visitors, tourism export earnings in 2002-2003 totalled more than $16.6 billion. Australia was the 10th biggest revenue earner from tourism in 2002, 2003 and 2004. But over the years this share has been constantly decreasing. During 2001–2002 and 2002–2003, external events such as the September 11, 2001 attacks and the Severe Acute Respiratory Syndrome (SARS) scare caused decrease in the number of international visitors to Australia. (ABS 2004) Mostly inbound tourism is dominated by holiday travelers. It is estimated that 2.9 million visitors, or 58 per cent of total visitors came to Australia for holiday purposes. The largest percentage of tourists to Australia come from Other Asia (26%) followed by Europe (24%) and New Zealand (17%). In Australia, domestic sources provide the main demand for tourism goods and services. In 2002-03 demand from Australian residents consumed 77 per cent of tourism output, with international visitors consuming 23 per cent of output. Thus the main revenue is coming from the domestic tourists. Outbound Travel : Outbound travel accounts for about 40 per cent of total international travel, which includes both short-term overseas arrivals and resident departures. In recent times, the outbound travel sector has expanded more rapidly than the domestic travel sector because of the relatively cheaper prices of outbound travel. The outbound travel market makes a significant contribution to the economy. The contribution was estimated to be $3.8 billion in 1993-94 and $2.9 billion in 1995-96 (Skene 1996; O’Dea 1997). It has been shown by Hamal (1996 and 1997) that substitution occurs between outbound and domestic holiday travel. Thus, if the other tourist destinations become cheaper and attractive, the domestic tourists also go for these destinations. Problem/Issue The number of visitors to, and expenditure within, a destination are crucially associated with its international competitiveness. And this is linked with the price of the goods and services on offer. The exchange rate fluctuations cause the change in the price of goods and services and also affect the spending power of people or visitors. Hence, it is important to study the link between the two. .Moreover, it provides the indication of competitiveness of a destination. The competitiveness of a nation depends on its advantages in the relative prices of goods and services in the international marketplace (including effect of exchange rate). Aim: To investigate the effect of exchange rate fluctuations in the inbound and out bound tourism in Australia. Preliminary Literature Review : As mentioned earlier, researchers have shown that destination competitiveness is associated with the economic prosperity of residents of a country (Buhalis, 2000; Crouch & Ritchie, 1999). This is in complete agreement with the view espoused by the World Economic Forum (Porter et al., 2001). Meaning if the currency is strong relative to other tourist destinations, people will be more willing to travel since it increase their purchasing and spending power. Thus the measure of economic prosperity is the income available for disposal to the residents. And as seen above among several factors associated with situational constraints, travel prices have been empirically observed to have a significant influence on travel demand (Hamal 1996 and 1997). There ia lot of literature available which studies the link between exchange rates and tourism growth. For example , Crouch (1992) and Edwards (1995) showed that an increase in relative costs is linked with a fall in market share in travel from every origin country and international traveler is sensitive to price which is inextricably associated with the prevalent exchange rate. Similarly , World bank and OECD have done extensive price comparisons in the International Comparisons Program (World Bank 1993, OECD 1987, 1993, 1998). In a series of articles (Dwyer, Forsyth and Rao, 1999; 2000a,b,c; 2001; Dwyer, Mistilis, Forsyth and Rao 2001), have sought to construct indices of the price competitiveness of tourism destinations worldwide. It was shown by Um and Crompton (1992) that ability of travelers to travel is more important than the attractiveness of the destination. This ability is measured by the spending power of these tourists. Martin and Witt (1987) have also focused on destination price competitiveness where this involves comparing exchange rate adjusted expenditures on a similar bundle of tourism goods and services purchased in different locations. Lee, et al. (1996) showed that the price sensitivity of travellers is high in certain markets. And Empirical studies highlight the importance of levels of technology, exchange rates, government policies, industry competition, and the influence of multinational enterprises as factors influencing the price competitiveness of tourism firms (Dwyer, Forsyth & Rao, 2000a,b, 2002). Research Objectives: For inbound tourists : 1. Assess the change in duration of stay of visitors in Australia due to fluctuations in exchange rate i.e. whether there has been an increase or decrease in the duration of stay. 2. Assess the change in travel plans of travelers from different countries based on exchange rate. To find out which countries are the major contributors to the inbound travel to Australia and what is the relative exchange rate of the two countries. 3. Assess the areas where money is spent is by travelers coming to Australia due to exchange rate changes. 4. Assess the change in reason of traveling i.e. whether for business/leisure or academic. Similarly for Outbound tourists: 1. Assess the change in travel plans of travelers to different countries based on exchange rate. 2. Assess the change in terms of money spent/ money available by travelers going from Australia due to exchange rate changes. 3. Assess the changes in duration of stay in the destination countries by Australian visitors. 4. Assess the change in reason of traveling i.e. whether for business/leisure or academic. Research Plan (Schedule of Activities): There are main two types of Research methods that can be used by researchers. These are qualitative and quantitative research methods. Some of the commonly used qualitative research methods are action research, case study research and ethnography. While Quantitative research is generally approached using scientific methods which include: The generation of models, theories and hypotheses, The development of instruments and methods for measurement, Experimental control and manipulation of variables, Collection of empirical data, Modelling and analysis of data and Evaluation of results. The data sources for both are similar and include techniques such as surveys, interviews and questionnaires, documents and texts, and the researcher’s impressions and reactions, secondary data sources or archival data, objective measures or tests, and interviews. Sometimes, people have tried to combine both types of research methods in one study and this is called triangulation. We too, would be using both qualitative and quantitative methods in our research. Our plan includes the following objectives and activities : 1. Assess the change in travel plans of travelers from different countries based on exchange rate. This can be done through : Collecting data from World bank and OECD data and ABS(Australian Bureau of Statistics) and Collecting data from different Airlines 2. Assess the change in terms of money spent by travelers coming to Australia due to exchange rate changes. This can be done through : Direct surveys of tourists and Surveys of different tourist establishments such as Hotels, food joints, entertainment areas or shopping complexes. This data may be a bit difficult to obtain. Some secondary data is also available through OECD and ABS. 3. Assess the changes in duration of stay of tourists. This can be done through : Direct surveys of tourists or Surveys of different tourist establishments such as Hotels, Motels Paying guest accommodations etc. 4. Assess the change in reason of traveling i.e. whether for business/leisure or academic. This can be done through : Direct surveys of tourists and visa and passport offices. Similar methods can be used for Outbound tourists as well. And scheduling can be done based on the available time frame for the project using Gantt charts. References ABS (2004) Australian National Accounts: Tourism Satellite Account, Cat No. 5249.0, Canberra: Australian Bureau of Statistics. Buhalis, D. (2000) Marketing the competitive destination in the future. Tourism Management 21 (1), 97–116. Coccossis, H., and P. Nijkamp, (editors) (1995). Sustainable Tourism Development. Avebury, Aldershot, UK Crompton, J.L., and P.K. Ankomah (1993). Choice Set Propositions in Destination Decisions. Annals of Tourism Research 20: 461-476. Crouch, G., (1992), “Effect of Income & Price on International Tourism”, Annals of Tourism Research, Vol. 19, No.3, pp 643-644. Dwyer L., Forsyth P., Rao, and Valreio P. (1998) Australia: a Price Competitive Tourist Destination? Prepared by Centre for Tourism and Hospitality Research and Centre for Efficiency and Productivity, in association with Arthur Andersen, Sydney, December. Dwyer, L., Forsyth P. and Rao P. (1999) "Tourism Price Competitiveness and Journey Purpose", Tourism, 47 (4):283-299. Dwyer, L. Forsyth P. and Rao P. (2000a) “ The Price Competitiveness of Travel and Tourism: a comparison of 19 Destinations”, Tourism Management, 21 (1): 9-22. Dwyer, L., Forsyth P. and Rao P. (2000b) " Sectoral Analysis of Destination Price Competitiveness: An International Comparison”, Tourism Analysis Vol. 5, pp1-12. Dwyer, L. Forsyth P. and Rao P. (2001) “ Destination Price Competitiveness: Exchange Rate Changes Vs Domestic Inflation”, forthcoming Journal of Travel Research. Dwyer L., N. Mistilis, P. Forsyth, P. Rao (2001) “The International Price Competitiveness of Australia's MICE Tourism Industry" International Journal of Tourism Research. Edwards, A., (1995), Asia-Pacific Travel Forecasts to 2005, Research Report, Economist Intelligence Unit, London Hamal, K. (1996), Substitutability Between Domestic and Outbound Travel in Australia, a working paper presented at the Australian Tourism and Hospitality Research Conference, Coffs Harbour, Australia, 6-9 February. Hamal, Krishna (1996/97), Modeling Domestic Holiday Tourism Demand in Australia: Problems and Solutions, Asia Pacific Journal of Tourism Research, 1(2), 35-46. Hamal, K. (1997), ‘Substitutability Between Domestic and Outbound Travel in Australia’, Pacific Tourism Review, 1(1), 23-33. Hamal, K., (1998), Australian Outbound Holiday Travel Demand: Long-haul Versus Short-haul. Analysis and Forecasting Paper presented at the Australian Tourism and Hospitality Research Conference Gold Coast, Queensland, Australia Lee, C.K., Var, T. and Blain, T. (1996), Determinants of inbound tourism expenditures. Annals of Tourism Research 23 (3), 527–42. Martin, C.A. and Witt, S.F., (1987), “Tourism Demand Forecasting Models: Choice of Appropriate Variable to Represent Tourists Cost of Living”, Tourism Management, pp 223-245. OECD (1987, 1993, 1997) Purchasing Power Parities and real Expenditures, Statistics Directorate, OECD, Paris O’Dea, Daniel (1987). Tourism’s Direct Economic Contribution, 1995-96, Research Paper No. 3, Bureau of Tourism Research, September, Canberra. Porter, M., Sachs, J. and McArthur, J. (2001) Executive summary: Competitiveness and stages of economic development. In World Economic Forum The Global Competitiveness Report 2001–2002. Skene, J. (1993). Time Series Properties, Demand and Forecasts: Short-Term Visitors to Australia from New Zealand. Working paper no. 86. Canberra: Bureau of Industry Economics. Skene, J. (1996). Estimating Tourism’s Economic Contribution, Research Paper No. 2, Bureau of Tourism Research, Canberra, October. Um, S., and J.L. Crompton (1990). Attitude Determinants in Tourism Destination Choice. Annals of Tourism Research 17: 432-448. Um, S., and J.L. Crompton (1992). The Roles of Preceived Inhibitors and Facilitators in Pleasure Travel Destination Decisions. Journal of Travel Research 30: 18-25. Woodside, A.G., and S. Lysonski (1989). A General Model to Traveller Destination Choice. Journal of Travel Research 27: 8-1 World Bank (1993), Purchasing Power of Currencies: Comparing National Incomes using ICP Data, International Economics Department, World Bank, Washington. Williams, A. M., and G. Shaw, (editors). (1988). Tourism and Economic Development: Western European Experiences. Belhaven, London, UK Appendix Table 1: Exchange rate Table: Read More