Impact of Inflation on Tourism Industry: Positive and Negative Effects

This project report summarises the positive and negative impact of inflation in regards with tourism industry in a strategic manner. Main purpose of this report is to assess the impact of inflation rates on tourism industry through the aid of qualitative and quantitative data.

Research Project

ABSTRACT
This project report summarises the positive and negative impact of inflation in regards with
tourism industry in a strategic manner. Main purpose of this report is to assess the impact of
inflation rates on tourism industry through the aid of qualitative and quantitative data. For
collecting data, secondary sources are assessed for this project report. It has been discovered that
high inflation rates influence tourism industry in a significant manner as this has directly
impacted their core operations due to leisure activities of travellers.

Contents
INTRODUCTION ..........................................................................................................................1
Description of inflation ...............................................................................................................1
Explanation of the events which can lead to inflation ................................................................1
Research aims and objectives .....................................................................................................1
MAIN BODY ..................................................................................................................................2
Data collected through quantitive research .................................................................................2
Data collected through qualitative research ................................................................................3
CONCLUSION ...............................................................................................................................4
REFERENCES ...............................................................................................................................6
APPENDIX......................................................................................................................................7

INTRODUCTION
Description of inflation
Inflation can be understood as a rate whereby prices gets increased within a period of
time. It essentially occurs whereby prices rise in economy which decreased purchasing power of
individuals in a significant manner (Kim and Et. Al., 2021). It rises due to expanded money
supply, growing economy, fluctuations in exchange rates, government regulations and many
more aspects. High inflation is considered as harmful while some economist believe that there
must be small amount of inflation which can aid in driving economic growth in a strategic
manner.
Explanation of the events which can lead to inflation
Inflation gets caused by numerous factor or events which essentially encompasses of
increased velocity in circulation, population growth, higher interest rates, global events such as
covid pandemic and many more. Higher interest rates essentially increases borrowing cost in a
significant manner which led people to spend less on procuring of commodities or availing
services (Baiev and Et. Al., 2019). Interest rate is considered as vital aspect which led to rise in
inflation. As higher interest rates led to less supply of money which decreases inflation.
Contradictory to this, when interest rates are low or decreased, money supply will be more which
result in increase of inflation in a particular economy. Globalised activities also impact inflation
through rise in prices of commodities as well as wage-cutting mechanism. Increased trade
integration as well as greater participation of low-cost manufacturers in global production which
has disinflationary effect on a direct basis. Apart from this, disruption of supply chains through
pandemic as well as Russia-Ukraine war has impacted inflation and led to rise high in a
significant manner. Higher interest rate is considered as circulator for managing inflation in a
specified economy.
Research aims and objectives
Topic: To evaluate the impacts of inflation and solutions of neutralising them in respect to
tourism industry
Aims: To recognise the influence of factors of inflation and solutions for curbing negative impact
in regards with tourism industry
Objectives:
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 To ascertain the impact of inflated practices on tourism industry
 To discover solutions for curbing the negative impact in accordance with tourism
industry
MAIN BODY
Data collected through quantitive research
Rise in inflation rates is considered as top concern for SMEs in UK. It has been found
that 71% of small organisation owners are worried about the influence of inflation in regards
with their operations. A survey has been done by fintech group considering 500 UK small
companies through online research panel. It reveals surging demand of raw materials is led to put
financial pressure on owners of small businesses. For tacking the issue of rising inflation rates,
Bank of England have increased the interest rates by 0.25% (Inflation is top concern for SMEs in
2022. 2022).
Global pandemic which is considered as vital cause for increasing inflation rates in
economy has impacted tourism industry in a significant manner. Inflation rates are also increased
in regards with restaurants, cafes as well as similar services in UK has been impacted with a
recording increase of 7.4% in July 2022 (Statista Research Department. 2022).
Inflation has been rising in UK in a steadily manner which is triggered due to increased
government spending for ending the impact of corona pandemic. It has impacted directly on cost
of products and services whereby they rose up to 3.1% on an average for past 12 months
(Interest rate increase: What would it mean for UK SMEs?. 2022).
In respect to increased inflation in UK, 66% of the organisations seek funding in relation
to business investment (UK SMEs keen to invest but being held back by impact of inflation.
2022). It has been analysed that two-thirds of SMEs in UK has been influenced on a negative
basis due to rising inflation. Employees as well as owners of these SMEs are facing cost of living
crisis in an exponential manner.
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Illustration 1: Chart showing impact of inflation on SMEs in corona pandemic
Source: UK small and medium-size enterprises: Impact of the COVID-19 crisis. 2021
From the above graph, it has been interpreted that corona pandemic has led to rise in
inflation practices on a world-wide basis. This practice also led to affect SMEs in UK in a
specified manner. It has been seen that impact of high inflation rates and corona pandemic has
been seen on small medium enterprises in a significant manner as per the graph.
Data collected through qualitative research
Positive and negative impact of inflated prices on tourism industry
As per Demary and Hüther (2021) high inflation rates has significant impact on tourism
industry in countries like UK as it lowers down the spending patterns of people. Tourism
industry has been influenced in a significant manner. Domestic holiday as well as
accommodation providers have increased prices throughout 2021 which led to staycation
demand results in deterring British travellers. In recent years, sustainable, responsible and eco-
tourism have emerged which led more travellers to get engaged in this.
According to Rasoolimanesh and Et. Al. (2019) high rise of inflation rates led to lower
down the purchasing power and change spending patterns of people while planning to make a
visit. Inflation rates affect low-income households as well as small business as they have to pay
increased prices for fulfilling their necessities in an effective manner. Increased inflation led to
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rise in interest rates which restricts businesses to formulate growth strategies. Organisations
operating in tourism industry are afraid to take loans or investing in new equipments, it also
reduces disposable income of business houses. Despite high inflation rates in UK impact
spending patterns of people in a negative manner, explorers are willing to give-up their non-
essential exercises for arranging funding for their next vacations.
Higher interest rates does not necessarily have bad impact on small businesses. It restricts
growth and expansion but is considered as better option for stabilised economy. Inflation can
also influence tourism industry in a positive manner as after global pandemic restrictions,
travellers want to plan their visit in a strategic manner as they get bored in their houses. This
practice can help companies operating in tourism industry to provide a valuable experience to
their guests in an effective manner. High inflation rates in UK also influence tourism industry in
a positive manner as it essentially increases power of currency in differentiated countries. In a
negative parlance, it is major cause which led to distress among leisure as well as business
travellers. Due to this, they tend to use digital ways and augmented reality techniques for doing
their meetings rather than spending on travelling which affects tourism industry.
Effective solutions for minimizing negative impact on tourism industry
As per the view point of Li and Singal (2022) tourism providers organisations should
plan for cheaper packages for travellers which can also help them increase customer loyalty in an
effective manner. It is time when companies can grab opportunities and create a unique
experience to travellers by adding value can result in gaining competitive environment. Domestic
holiday companies are required to understand competitive nature in context to outbound travel
operators as well as the fierce competition they can create in marketplace.
According to Hosseini, Stefaniec and Hosseini (2021) sustainable tourism should be
promoted which is considered as vital and acceptable feature for numerous travellers as they
want to procure those services which provides them a sense of sustainability. It is imperative for
organisations to take care of fiscal and monetary policies which are undertaken by government
for formulating varied strategies in an effective manner. An analytics system can also be
introduced by organisational managers for managing inflated practices while enhancing their
performance in an effective manner.
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CONCLUSION
From the above presented information, it has been concluded that tourism industry is
negatively impacted on tourism industry in a significant manner at the time of global lockdown.
It has been assessed that organisations in tourism industry are suffering hard in regards with
reducing their profit margins as well decreasing guests till date. There are varied organisations in
respect to tourism industry which are highly impacted by inflation in a significant manner. For
curbing the negative impact of inflation, organisations such as Barrhead Travels Holiday, can
introduce new discounted offers which for catering the diverse needs of their travellers in a
specified manner. Government of a particular country formulate policies and strategies for
stabilising the economy as high inflation can led to harm the households, small businesses,
middle-lower people in a significant manner. UK government has formulate a credible fiscal
consolidation plan for bringing public finance to sustainable path. Organisational managers of
Barrhead Travel Holidays can provide budget-friendly packages to their customers so that it does
not restrict them to plan their travel to visitor attraction places. They can indulge some
techniques such as recruit local employees, encouraging procurement of local products or
services in an effective manner. They can also take help of hedging activities which led them to
invest in other business functions for minimizing the impact of inflated practices on operations
(Gannon, Rasoolimanesh and Taheri, 2021). They can attract more travellers through adoption of
sustainable aspects as well as offer eco-friendly activities in a significant manner. They can also
terminate their employees for reducing their working capital cost in a strategic manner. This
project report has discussed the impact of inflation in regards with tourism industry. There are
some negative impact of inflation on tourism industry such as reduced disposable income,
purchasing power of people and many more aspects. For curbing these effects in a specified
manner, managers of Barrhead Travels Holiday have to formulate strategies while keeping
government formulated policies in mind.
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REFERENCES
Books and Journals:
Baiev, V.V. and Et. Al., 2019. Strategic analysis of development of medical tourism macro-
destinations. Journal of Environmental Management & Tourism. 10(4 (36). pp.801-808.
Demary, M. and Hüther, M., 2021. Global inflation: Low for long or higher for longer? (No.
12/2021). IW-Report.
Gannon, M., Rasoolimanesh, S. M. and Taheri, B., 2021. Assessing the mediating role of
residents’ perceptions toward tourism development. Journal of Travel Research. 60(1).
pp.149-171.
Hosseini, K., Stefaniec, A. and Hosseini, S. P., 2021. World Heritage Sites in developing
countries: Assessing impacts and handling complexities toward sustainable
tourism. Journal of Destination Marketing & Management. 20. p.100616.
Kim, Y.R. and Et. Al., 2021. Spatial spillovers of agglomeration economies and productivity in
the tourism industry: The case of the UK. Tourism Management. 82. p.104201.
Li, Y. and Singal, M., 2022. Corporate governance in the hospitality and tourism industry:
Theoretical foundations and future research. Journal of Hospitality & Tourism
Research. 46(7). pp.1347-1383.
Rasoolimanesh, S. M., and Et. Al., 2019. Does living in the vicinity of heritage tourism sites
influence residents’ perceptions and attitudes?. Journal of Sustainable Tourism.
Online:
Statista Research Department. 2022. [Online] Available through:
<https://www.statista.com/topics/9662/impact-of-inflation-on-travel-and-tourism-
worldwide/#dossierKeyfigures>
UK small and medium-size enterprises: Impact of the COVID-19 crisis. 2021. [Online] Available
through: <https://www.mckinsey.com/industries/public-and-social-sector/our-insights/
uk-small-and-medium-size-enterprises-impact-of-the-covid-19-crisis>
UK SMEs keen to invest but being held back by impact of inflation. 2022. [Online] Available
through: <https://www.closeassetfinance.co.uk/industry-insights/uk-smes-keen-invest-
being-held-back-impact-inflation>
Young H., 2022. Interest rate increase: What would it mean for UK SMEs?. [Online] Available
through: <https://startups.co.uk/news/interest-rate-increase-smes/>
Young. H., 2022. Inflation is top concern for SMEs in 2022. [Online] Available through:
<https://startups.co.uk/news/inflation-top-concern-for-smes/>
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APPENDIX
Gantt Chart
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