Diana Catalina Martinez Boyac - 1510430075 - IMTE-B 2015

The effect of economic crisis in the tourism industry in Europe- Learn and Study skills

The effect of economic crisis in the tourism industry in Europe

Over the last years, the tourism industry has played a significant role in the economic growth
and development of numerous countries. This field represents the third largest economic sector in
Europe, as this area is one of the most important tourism regions in the world and it generates more
than 4% of the European Union GDP. However, the tourism industry has faced numerous challenges,
from environmental disasters to globalisation, and specifically the financial crisis that started from
2008 has provoked severe damages to this economic field, causing Europes market shares to decline
during this period due to the vulnerability of this industry to economic volatility. This leads to
immediate effects, such as rising unemployment rates and a decrease in arrivals and overnight stays.
This introductory section provides a brief overview of the influence and effects of the global financial
crisis on the European tourism industry and the importance of this field in the global economy.
With the fast development of tourism in the last decade the challenges and crises faced by this
industry have also increased as they are being caused by diverse factors like political policies,
environmental issues, technological failures and financial changes, these crises have become more
frequent at a large scale. But, although a crisis can take place anytime and anywhere tourism does not
cease no matter how severe the crisis is. Despite this, the management of a crisis is a crucial subject,
especially the reduction of losses from the beginning by taking preventive measures. Henderson (2007)
defines crisis management as the responses to a crisis by organizations and their attempts to execute
some degree of control over its progress and outcome. On the other hand, the economic crisis and the
current situation in Europe influence the market of the tourism industry. Since the main goal of this
industry is to increase the number of tourists and to lead them to spend more money at a certain
destination, the current financial crisis generates strong changes in the demand and supply in the
market, as well as the amount of stakeholders in this field.
Moreover, many other industries are linked to tourism, enhancing local economies, but the
ongoing financial crisis has largely affected the great majority of economic activities globally, and as
Goh (2012) expresses, an economic crisis may affect tourism because of both economic and noneconomic factors. From the point of view of the traditional microeconomics approach, a financial crisis
is expected to produce changes in the income and prices in the Tourism market. Generating a
recessionary effect on the economy and finally leading the GDP to decrease as well as the income of
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Diana Catalina Martinez Boyac - 1510430075 - IMTE-B 2015

The effect of economic crisis in the tourism industry in Europe- Learn and Study skills
the households, therefore the demand in tourism is presumed to be affected not only by the permanent
but by the current income as well. These changes in the market represent devastating effects on the
welfare of the citizens of a country. For example, Greece has experienced recession for at least six
years, starting in 2008 along with the crisis, with results like the decrease of 21.6% of the DGP per
capita in 2013, the unemployment rate change from 7.6% in 2008 to 26.9% in 2013 and finally the
government gross debt from 112.9% in 2008 to 175.7% in 2013 (IMF 2014).
With regard of the effects of an economic crisis in tourism, there may be two major factors.
The first refers to the decision of cutting back the amount of resources or time invested in tourism by
the consumers. For example, customers might spend their holidays at a destination but instead of
travelling away for two weeks they cut back the time spent at the destination to 8 days, another major
effect is the substitution due to the income elasticity mechanism. Although tourism is generally
considered an income elastic service, the concept of inferiority may be considered as valid in some
situations; this concept is based on the increase in the consumption of some of these goods when the
income decreases (Stabler et al 2010). For example, this might particularly affect negatively luxurious
tourism destinations, due to the high-income elasticity, and it might affect positively low price
destinations. Nonetheless, the income elasticity might also influence the relation between inbound and
outbound tourism, due to the high elasticity of outbound tourism consumers are more likely to switch
to domestic tourism destinations, and in this case, this would benefit the domestic tourism industry in
terms of income and employment (Sheldon and Dwyer, 2010).
In addition, another effect of the financial crisis in Europe is the weakness and reduction of
investments because of spare capacities. The investments brought by the travel and tourism industry
play a very important part in the trade balances, facilitating the attraction of foreign direct investment
and providing opportunities for local markets, but these can be impacted by the crisis and the reduction
of tourism in the region, leading also, to a reduction of potential investors in the local economy
businesses. The decrease in potential investment would also lead to a reduction in the development of
infrastructure and services in Europe, and that would collectively affect the local community and
public or private establishments as well as the tourists. In addition, as it has been described previously
the travel and tourism industry represents a major part in the economy of the European Union region.
This industry in particular is in charge of creating jobs, bringing new money to the region and
diversifying the local economic base, making the economic diversity one of the critical aspects that
lead to the success in rural tourism areas (Goodwin, Harold, 2004)
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Diana Catalina Martinez Boyac - 1510430075 - IMTE-B 2015

The effect of economic crisis in the tourism industry in Europe- Learn and Study skills
In conclusion, the travel and tourism industry in Europe has been clearly impacted by the
current financial crisis, generating important implications for the regional economy, due to the high
rate of unemployment at national and regional levels. However, assistance from the local government
and authorities might mitigate and help the affected regions overcome the negative impact of the crisis.
Also, integrating the work of tour operators and other businesses specifically into the inbound tourism
in order to promote these areas to the potential international tourists, as well as promoting the domestic
tourism in order to help the local businesses within the region. Finally, another crucial aspect in order
to cope with the effects of a crisis is taking preventive measures, this will help this area of the economy
recover and overcome the current disadvantage and set the fundamentals to face future possible crises.

REFERENCES

1. Henderson, J. C. (2007) Tourism Crises-Causes, Consequences and Management.

Butterworth-Heinemann, Oxford.
2. Goh C. (2012) Exploring the impact of climate on tourism demand, Annals of Tourism
Research, 39(4): 1859-1883.
3. International Monetary Fund [IMF] (2014) World Economic Outlook Database: Greece.
4. Stabler M. J., Papatheodorou A. and Sinclair M. T. (2010) The Economics of Tour-ism,
(2nd edition), London: Routledge
5. Sheldon P. and Dwyer L. (2010). The global financial crisis and tourism: Perspectives of
the academy, Journal of Travel Research, 49(1): 3-4.
6. Goodwin, Harold (2004). Tourism and Local Economic Development. International
Centre for Responsible Tourism.