The Determinants For Demand In Tourism In Greece.

University Degree Business and Administrative studies

THE DETERMINANTS FOR DEMAND IN TOURISM IN GREECE

INTRODUCTION

“The relative and absolute importance of tourism in people’s expenditure budgets has risen dramatically, with consequences not only for the welfare of tourists themselves but also for the residents of the areas they visit. The large numbers of tourists and the scale of their expenditures has considerable effects on the income, employment, government revenue, balance of payments, environments and culture of destination areas. A fall in demand can bring about decreases in living standards and rises in unemployment, while increased demand can result in higher employment, income, output and/or inflation and may threaten environmental quality and sustainability” (Sinclair M, Stabler M, 2002).

Even though the demand for tourism in a very important sector in tourism economics, no so much attention were given to explore this area and to conduct a throughout research on it. This paper reviews and analyzes key factors that affect the demand for tourism in Greece from both positive and negative prospective. Investigating the demand for tourism is the background for the successful strategy planning in companies with tourism-related activities whereas better knowledge of demand in tourism can also be of assistance to policymakers in planning strategies for this industry.

DEFINITION OF TOURISM DEMAND

The demand of tourism can be determined either by the number of tourists coming from their countries to a destination country or by their expenditures in the destination country. It is difficult to model tourism demand because tourism involves a broad range of activities. According to O’Hagan and Harrison (1984) tourism demand has a special nature for a number of reasons. First of all it is a demand for a number of goods and services, and “no production sector ‘tourism’ actually exists, which cases doubt for some on the existence of tourism as a concrete economic entity” (O’Hagan, J.W. Harrison, M.J., 1984). Secondly, the demand for tourism can be of two types: tourism as private consumption or as part of production (business trips). In most cases personal and pleasure travel used to be a dominant, however, business travelers usually consume services similar to those who travel for personal reasons. And finally, “tourism goods and services are not transported to their users, but rather the consumers are transported to the goods and services” (O’Hagan, J and Harrison M.,1984). As a result of this tourism flows become more sensitive to a number non-economic factors such as political stability, transportation costs and facilities, technological forces, socio-cultural issues, etc. in a country of destination.

The determinants of tourism demand were investigated in a number of studies and several researchers suggest that the demand for tourism is primarily determined by income of the purchaser, prices of commodities (accommodations, food, local transportation, amusement) in a destination country compared with other destination, exchange rate, the cost of international travel (Sinclair M., Stabler M., 2002; Garin-Munoz T., Amaral T., 2000; Walsh M.,1996). Also the demand for travel can be positively affected either by random events such as Olympic Games, for instance, that attract extra tourists, or can be influenced negatively by major external factors like, for example, ...

This is a preview of the whole essay

BRIEF OVERVIEW OF GREEK TOURISM INDUSTRY

According to the World Tourism Organization Greece held the 16th place internationally on the list of tourist destinations in 2002, while 90% of arrivals were from Europe, which is considered to be Greece’s primary tourist market. According to Economist Intelligence Unit statistics the total number of arrivals in 2002 was closer to 12,7 mln tourists. Tourism represents about 10% of the domestic income of Greece (2003). Two-thirds of tourists are from the European Union (around 9 million), the majority of whom come from the U.K., Germany, Italy, France and Austria. Tourists from outside EU mainly are coming from the USA, Japan, Canada, Australia (WTO, 2003).

The approach of the Athens 2004 Olympics has brought increased optimism regarding the future of the Greek tourism industry. It is estimated that approximately 145,000 visitors per day will visit the Games and be accommodated in hotels, cruise ships, campsites and residential houses. Apart from the fact that in the immediate future, tourists will probably be attracted to potentially safer destinations, the staging of the Olympic Games will have a determining effect on the future image of Greece and its potential in tourism.

DETERMINANTS OF TOURISM DEMAND IN GREECE

INCOME

Income and price factors play an important role in determining the demand for international tourism. Growth in real income provides consumers with increased spending power. “The larger the country’s purchasing power – the more likely its citizens can afford to purchase a good or service from abroad” (Walsh M., 1996).

According to Garin-Minoz and Amaral the level of income in the country of origin is measured by the Gross National Product – GNP (2000). Walsh Mary (1996) analyzed different studies regarding the relationship between income and tourism demand. The income variable is represented differently, however, in her studies she suggested to use data “representing discretionary income per capita”, i.e. personal disposable income per capita in each country. After having the GNP of other countries expressed in US dollars, we divide them by the population of each country and obtain their values in per capita terms.

As was mentioned before, main countries that are generating tourism flows for Greece are Germany, Austria, Great Britain, USA, Italy and France. Real income growth in those countries can be assumed to relate positively to real per capita demand for Greek tourism.

RELATIVE PRICES IN OTHER DESTINATIONS

Another important variable here is the price of tourist services in Greece compared to relative prices in other Mediterranean destinations. The tourism sector meets an increasing competition in the face of other Mediterranean destinations like Turkey, Egypt, Tunisia and Morocco, as well as Spain and Portugal. Meanwhile the newly developed destinations like Slovenia, Croatia and Bulgaria also registered the increase of tourists compared with the previous years. This factor can affect the demand for tourism in Greece in terms of decreasing the number of international visitors who would choose the comparable sun and sea holidays at cheaper prices.

At the same time, the increase in domestic prices, especially after euro was introduced in Greece, may also influence negatively the tourism demand.

EXCHANGE RATE

People are usually concerned about the price for good or service in terms of their own country’s currency. That price depends not only on the price of the good in the origin country but also on exchange rate. However, the exchange rate can influence the price of goods or services.

Compared to last year euro had increased its exchange rate towards almost all major currencies. For travelers outside it becomes more expensive to visit tourist destinations that are in euro area. At the same time citizens of euro zone are stimulated to travel to European destinations outside it.

TRANSPORTATION COSTS

Greece is isolated geographically from other European Union countries (where the majority if tourists comes from), therefore, the most popular transportation is airplane. The cost of transportation is one of the components of the final price the consumers have to pay for the tourism product. An increase in transportation costs can result in decline of demand, all other things being equal (Garin-Munoz T., Amaral T., 2000). The high transportation costs can be the decisive variable in choosing whether to visit country or not and even may lead to substitution of a near or far destination. Another factor that can influence demand is also the choice between domestic and foreign holidays which also comes up from the cost of transportation.

GEOPOLITICAL FACTORS

“In the past two years international tourism has, first and foremost, been reigned by the combination of an overall weak economy and a high level on uncertainty because of the struggle against terrorism and the looming Iraq conflict” (WTO, 2003). The Iraq conflict and terrorist attacks caused and probably will continue to influence negatively a demand of air transportation, interregional travel and travel to destinations that are geographically close to the zone of conflict. The emergence of SARS also deceased the demand for tourism worldwide. Despite these events, Greece still managed a slight increase in total 2001-2002 traffic (GNTO Newsletter, 2003). Nevertheless, it is expected that demand for travel and tourism will continue to grow and Greece will continue to be a preferred tourist destination because of its safe, crime-free and tourist friendly environment.

OTHER FACTORS

The distinctive feature of Greek tourism is that it has a seasonal attribute. Greek tourism had been based for more than five decades on the product of “sea and sun” and the majority of tourists arrive to Greece between mid-June and mid-September respectfully. Therefore, during the wintertime the demand for tourism significantly decreases. Official policy is to try to diversify to spread arrivals throughout the year by developing conference tourism, yachting, golf, skiing in the mountainous area, spa and medical tourism.

Walsh in her studies also mentions such factors as weather and habit/presence (1996). The weather is unlikely factor for Greece, nevertheless the bad weather during vacations can influence negatively one’s decision to come to Greece again next year. As for the habit – the possibility occurs that once people visited Greece and liked it there can be a tendency that this visit will be repeated. Also a person can recommend to visit this country to people who don’t have any first-hand knowledge about a particular resort in Greece.

CONCLUSION

This paper analyzed the main determinants of demand in tourism in the case of Greece and showed that income, price, exchange rate, transportation costs and geopolitical factors can affect the demand for tourism in this country. However, the further econometric analysis in needed to investigate in details the above-mentioned variables and to evaluate more precisely the demand for tourism in Greece.

Despite some negative influences of the above-mentioned factors tourism will continue to be the most dynamic sector of Greece’s economy contributing most to its gross national product and economic growth since prospects of Greece’s tourist industry are highly promising.

REFERENCES

Economist Intelligence Unit (2003) Greece: Country outlook. The EIU ViewsWire [online]. Available from:

http://www.viewswire.com/index.asp?layout=display_print&doc_id=294543. Accessed [November 1st 2003].

Garin-Munoz ,T., Amaral, T (2000) An Econometric Model For International Tourism Flows To Spain. Applied Economic Letters [online], 7. Available from:

http://www.uned.es/dpto-analisis-economico2/fichprof/garin/Copia%20%20applied%20economics%20letters.htm.pdf [Accessed 11th November 2003].

Greek National Tourism Organization (2003) Newsletter No.29 [online]. Available from:

http://www.gnto.gr/3/08/0802/ec80229.html [Accessed 1st November 2003].

Jud, G. Donald, Joseph, Hyman (1974) International Demand for Latin American Tourism. Growth & Change [online], 5(1), Business Source Premier, EBSCO Host. Available from:

http://search.epnet.com/direct.asp?an=4546418&db=buh. [Accessed 10th November 2003].

Mello, M., Pack a., Sinclair M. (1999) UK Demand For Tourism In Its Southern Neighbours. Cristel DeHaan Tourism and Travel Research Institute, University of Nottingham [online]. Available from:

. [Accessed 10th Novermber 2003]

O’Hagan, J.W. Harrison, M.J. (1984) Market Shares of US Tourist Expenditure in Europe: An Economietric Analysis. Applied Economics [online], 16(6), Business Source Premier, EBSCO Host. Available from:

http://search.epnet.com/direct.asp?an=4612899&db=buh. [Accessed 10th November 2003].

Sinclair M.Thea, Stabler Mike (2002) The Economics of Tourism. New York, Routledge.

Tse, Raymond, Y.C. (2001) Estimating The Impact Of Economic Factors On Tourism: Evidence from Hong Kong. Tourism Economics, 7(3), [online]. Available from:

. Accessed [November 10th 2003].

Walsh, M.. (Journal of the Statistical and Social Inquiry Society of Ireland 1996) Demand Analysis In Irish Tourism. [online]. Available from:

http://www.ssisi.ie/journals/96-97/demand_analysis_in_irish_tourism.pdf. [Accessed November 11th 2003].

World Tourism Organization (2001) Tourism Highlights [online]. Available from:

[Accessed 10th November 2003].