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Economy of Tourism and Hospitality

Categories: Tourism


The travel industry is an important element of todays’ society and influences all aspects of the world and each individual on the planet. For most working people, it is difficult to envision a world without vocations and open doors for wandering out to new places after new adventures. Yet there are many people from different parts of the world for whom traveling is inaccessible due to political or financial reasons. For the ones who has access for borderless traveling world and unlimited experiences, destinations across the globe have are prepared to offer attractions beyond imagination.

People have been traveling for various reasons since the beginning of humanity. In different centuries motivation for people to travel were different. This includes exploring and opening up new lands, religion, war and territorial change of countries, nomads migrated within the country due to hash whether and famous Silk Road was major travel motivator as is was main trade zone across Europe and Asia. Kings and rich aristocrats traveled from one residence to another, spending days on the road and leaving a history behind.

In todays’ world peoples’ traveling habit are similar to the ones above, but more prioritized for business and leisure. However as shown people travelled, they moved, migrated, explored and discovered. Destinations and purposes might change, but people will continue traveling.

Tourism today one of the world’s largest economic sectors, Travel & Tourism creates jobs, drives exports, and generates prosperity across the world. The sector, comprised of a wide range of industries, aims to serve and support domestic, international, business and leisure visitors.

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Companies, large and small, in industries ranging from accommodation and transportation to food & beverage, retail and culture and sports & recreation, all strive to create products and services that bring people together, support communities and celebrate the wonders that our world can offer.

Consumer Behavior and decision-making process

According to World Travel and Tourism Councils’ research done for year 2018, tourism industry is considered as one of the largest and fastest growing industries in the world. The volume of tourism industry reached nearly $8.8 trillion in 2018. North America is biggest tourism market and second biggest is Europe. Regardless how big is this industry, it still depends on travelers’ choice, which is usually reflected by their behavior. To preserve and enhance its current status Travel and Tourism industry have to identify what factors influences travelers’ choice. So what is the reason for people to travel and what impacts their choice when it comes to choosing destinations, whether it’s domestic vocation or overseas.

Going back to the history, people used to choose their travel destination based on distance and price. The whole process of going on vacation used to be much more complicated, lack of information and minimum choice of transportation. Last century most popular source of booking a holiday was travel agencies. People used to book their next vacation or business trip through travel agencies only.

With the development of new technology, the travel and tourism industry totally transformed. According to Association of British Travel Agency in 2018 81% of travelers booked their holidays online.

Study made by Marketing expert, Gonzalo shows six steps of tourists decision-making process. It all begins from inspiration, sources of inspiration for travel are friends, family or colleagues, internet even YouTube. Following the inspiration traveler will start planning, other travelers review has biggest influence on traveler’s choice is. Whether the review from or friends. When the destination has been decided traveler will start searching for hotels and flight/ train/ bus tickets. 85% of millennials visits multiple travel booking sites to get the best deal.

Transaction period is time from the day travel booked to actual arrival date to the destination. Most of the time this period is underestimated. During this time potential tourist can get influenced by friends and social media which may lead to cancelation of his trip. Next step is on-site experience, referring to googles study 85% of travelers decide on activities only when they reach the destination. That means almost 9 out of 10 travelers books tours upon arrival.

Last process is post- travel, when traveler becomes influencer himself. He may positively recommend the place or ban the destination, hotel or airline.

Impact of Travel and Tourism Industry on Global Economy

Travel and Tourism industry plays a big role in economy of most countries around the globe. According to WTTC annual report Travel and Tourism has three types of impact on economy. This statement also challenges the Tourism Satellite Accounting methodology approved by UN Statistics Division, which quantifies only the direct contribution of Travel & Tourism.

In WTTC annual report claims direct contribution is divided into three distinctive different sectors of the economy. These three sectors are: commodities, industries and sources of spending.

The report attempts to look at the total impact from Travel and Tourism. The report includes not only Direct contribution but also Indirect and Induced contribution in order to get a more complete overview of the sector. Indirect contribution includes items such as Travel and Tourism investments in say new aircrafts and new hotels. It also includes government spending for marketing and promotion, aviation, security, sanitation services etc. Domestic purchases of goods and services for supporting Travel and Tourism is also included as indirect contribution.

The induced contribution measures the GDP and jobs supported by the spending generated directly from the directly and indirectly employed persons in the Travel and Tourism industry.

The global direct contribution from Travel and Tourism in 2018 was $2.8 Tn and is expected to grow to $4.1 Tn by 2029. The forecasted annual growth rate until 2029 is 3.6% which means that the direct contribution part from Travel and Tourism is expected to growth from 3.2% to 3.5% of total GDP by year 2029.

The Travel and Tourism sector has been growing significantly both globally and regionally over the years covered by the report. In addition, this material growth is forecasted to continue and even accelerate in growth over the next 10 years.

The global total contribution which include direct, indirect and induced was $8.8 Tn in 2018 and is also forecasted to grow by 3.7% until 2029. This means that the global total contribution is forecasted to reach $13.1 Tn in year 2029. The Travel and Tourism global contribution share of GDP in 2018 was 10.4% is forecasted to increase to 11.5% by 2029.

The main highlight is that Travel and Tourism contributed 10.4% of global GDP in 2018 with a total sum of $8.8 Tn. This sector generates every 1/10 job in the world. The growth of the sector is significant and in the last 5 years every 5th job generated in the world is from Travel and Tourism. The Travel and Tourism sector of the economy has been growing faster by 3.9% versus the whole economy as a whole of 3.2%. The growth in Travel and Tourism is global with all regions of the world growing fast albeit from difference starting level.

The fastest growing regions are Caribbean (+15.5%), South East Asia (+12.6%) and Oceania (12.2%). Most of the other regions are also growing significantly in the range of 8-10%.

When looking at it globally only the manufacturing sector is growing faster (+4%) than the Travel and Tourism sector (3.9%).

The breakdown of global spending is approximately 1/3 International and 2/3 Domestic. The spending is also approximately 1/5 Business and 4/5 leisure. The total global contribution to GDP from Travel and Tourism is split directly 31.2%, indirectly 51.5% and 17.3% induced.

The Travel and Tourism sector is labor intensive sector and generated directly 123 mill jobs globally in 2018 which is 3.6% of all jobs. This is forecasted to increase by 2.2% in 2019. For the next 10 years number of direct employees in Travel and Tourism is forecasted to grow by 2.1% annually resulting in a total number of employees of 154 mill in 2029. The percentage of global direct employment is expected to raise from just above 3.8% in 2019 to more than 4.2% in 2029.

Travel and Tourism industry directly impacts the regions employment rate. When looking at the total contribution to employment it is expected to increase annually by 2.5% from 319 Mill jobs in 2018 to 421 mill jobs in 2029. This means that the total share of global employment is forecasted to increase from 10.0% in 2018 to 11.7% in 2029.

Money spend by foreign visitors to a country (or visitors export) is a key component of the direct contribution of Travel and Tourism. In 2018 the world generated $1.6 Tn in visitors’ exports from 1.5 bn international tourist. This is forecasted to increase to $2.5 Tn from 2.2 bn international tourist by 2029. That is a forecasted annual grown rate of 3.8% pa.

Economy of Sri Lanka and Tourism Crisis

Democratic Socialist Republic of Sri Lanka- island country located in Indian Ocean of South Asia. Untouched natural beauty of Sri Lanka attracted millions of tourists for years. Size of the island is 65,610 sq km, which is 4 times smaller the UK. Population of Sri Lanka is 21,2 million people. Industries pulling the economy forward are exporting textiles and clothing, tea and spices, diamonds, emeralds, rubies, coconut products, rubber manufactures and fish. Sri Lanka is third largest exporter of tea, including green and black tea.

According to World Banks analyzes Sri Lankas’ economy showed continues growth after the civil war came to an end in 2009. Economy growth measured as 5,8% had an impact on reconstruction and growth of the country in the eyes of international financial institutions.

The third biggest contributor to the country’s economy is Tourism sector. In 2018 Sri Lanka recorded its highest ever number of foreign tourists, more than 2.3 million tourists visited the country. As a result, country earned estimated $4.3 billion in just 2018, 11% higher than in year 2017.

Tourists in Sri Lanka have an opportunity to explore rich Buddhist culture, wildlife, sandy beaches, endless beautiful tea plantations and forests. Tourists arrives from all over the world, mainly from neighboring countries like China and India, followed by the UK, Germany, and France. According to the list created by UK telegraph, Sri Lanka is famous for numerous reasons: wildlife, delicious food, unique journey on old train, surfing, diving and whale watching.

In April 2019 several tragical terrorist attacks took a place in capital city of Sri Lanka- Colombo. Among the targeted locations were big hotels like Shangri-La and The Cinnamon Hotel, full of tourists, business travelers, cultural centers and historical buildings were also affected. This event took a life of more than 250 people, children, foreign tourists and locals.

Impact of this event on tourism sector of Sri Lanka is significant. Referring to Trading economics, Sri Lanka suffered major economic growth drop first time ever since 2014. Wholesale and retail trade, transportation and storage, hotels and restaurants suffered, which consists for nearly 25% of total GDP. GDP shrank to 0.6 percent, after a 3.3 percent advance in first quarter.

The governments’ plan to increase number of tourists up to 3 million in 2019 and more in 2020 failed dramatically. Foreign tourist arrival dropped by 50% immediately after the explosions took a place with potential loss of $1,5 Bn. of foreign exchange. Countries like China, USA, UK, India and Israel forbid their citizens to travel to Sri Lanka.

According to the research done by University of Macedonia, communities and government must be prepared for such event. Last 20 years many massive terrorist attacks took a place in major tourist destinations, targeting mainly foreign tourists. Research is done based on books about psychology of tourists and studying the results of serious disasters both natural and manmade. Researchers believes understanding the crisis and nature of disasters, lifecycle, had an impact on hospitality industry businesses today. However, they argue despite the frequency of crisis today psychology of tourists during the disasters are not studied well enough. Depending on nature of the crisis tourists reacts differently and their behavior varies. Paper referring to Berman (2003) describes five main reasons for crisis in tourist destinations and Sri Lankas crisis is specific act of terrorism.

Another research done by Austrian University concluded that terrorism severely impacts tourism industry compare to other human made or natural disasters. Peoples understanding of risk stopes them from traveling. There are three types of tourist groups: risk neutral, functional and place risk. Risk neutral group of tourists believes risk and tourism are not related to each other. They mainly concentrate on the place’s adventure and personal need of excitement. In the case with Sri Lanka this group of tourists must be the ones who can help the country to recover from tourism crisis. While other two groups of tourists show concern about logistics, organization and generally finds trips very risky. Above fact impacts traveler’s decision-making process. Subsequently media also plays a big role. In some cases, risks related to safety are not as high as media presents to the public. Media helps to build an image of destination. As a result, tourists get confused and worry about their personal safety, mostly ending up canceling their dream trip.

Sri Lanka foreign tourist arrival fell 70,8% since the deadly attack took a place. Considering the above facts related to tourist’s behavior Sri Lanka must build a new strategic plan how to stabilize tourism sector in the country. The countries recovery strategic plan involves different industries. First step towards bringing back the tourists, Sri Lanka now offers free visa on arrival for 48 countries. Previously visa used to cost US$20 and for some country’s citizens up to US$40. The government set the new policy only for half a year, which I think wouldn’t help to recover from the crisis. Another action Sri Lanka took is reduce the rate of ground service for airlines and lower fuel price. Government is trying to bring airlines traffic back to the market, but due to absence of demand airlines did not reschedule. Hotels offer discounted rate all over the country, to regain their occupancy rate. Two months later after the attack tourist’s arrival picked up again. In June this year compare to May foreign tourist arrival increased by 20%.


From the short research I’ve done, I can conclude second biggest industry in the world Travel and Tourism heavily relies on modern technology and data. The rate of online booking and visiting several sites for price comparison clearly shows travel agencies century has long gone. Visitors from across the globe can easily have access to any information related to the destination they are interested at. This can be a positive advantage of modern devises or poor marketing of great destination.

Despite the size of the industry ($8.8 Tn) Tourism and Travel sector is extremely fragile. We have seen through the history how tourism crisis can impact countries economy. Recovery process might take long and require continues investment both from individuals and government. However, well-constructed strategy with long term vision is a key to return visitors back to the tourist destination.


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Economy of Tourism and Hospitality. (2019, Dec 18). Retrieved from

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