Impacts of Inflation on Tourism Industry: Positive and Negative Effects

This research paper discusses the impacts of inflation on the tourism industry, both positive and negative, and suggests solutions to overcome the negative impacts. It includes quantitative and qualitative research on small-medium enterprises and the hospitality industry, with references to UK's current inflation rate.

Research project

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
Definition: Inflation.....................................................................................................................1
Inflation: And its Events..............................................................................................................1
Aim and Objective of the research..............................................................................................1
MAIN BODY..................................................................................................................................2
Quantitative research.......................................................................................................................2
Small medium enterprise impacted by the inflation:...................................................................2
Qualitative research.........................................................................................................................3
Positive and negative impacts in tourism industry in reference to inflation................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6
online...............................................................................................................................................6
Yvanovich R., 2022. What Are the Effects of Global Inflation on the Hospitality Industry?
[Online] available through:..............................................................................................................6

INTRODUCTION
Definition: Inflation
Inflation in an economy determines the sudden hike in the price of a commodity. The
decrease in the price of commodity results in the lower purchasing power of the customers. This
is measured in percentage which states that the currency unit buys productively less in the
preceding periods (THIỀU, 2019). There are certain things that causes inflation for example,
when the demand rises than the supply then the goods price tends to increase. Customers
concerns regarding the price of goods are subtle, as they prefer to get the low priced goods as to
buy more products (Zhao, 2022). When the products have high prices, the customers limit the
purchase as they can only buy less products. The inflation can also affect when the price of raw
materials, labour wage and more that the firm tends to increase the price of the final goods.
Inflation: And its Events
When the economy hits the inflation, the customers decreases their purchase of products
as there are rise in price of the goods and services. During this time, the buyers save more money
for the future and spend the money in the healthcare facilities (Hoang and Nguyen, 2021). The
buyers purchasing less products as they focus more the necessary items to purchase more than
purchasing attracting items. The fluctuation in the price of goods and services also come into rise
when other countries increase the raw materials which affects the export charges. For instance,
the company Virgin Holidays in UK, due to inflation the sales lowered as the customers
decreased their spending as compared to prior inflation. Its shares fallen to 70% this year. The
rate of interest also leads the economy in inflation. When there are low rates in interest then
customers tend to increase the borrowing from the banks and spend according to the commercial
purposes (Nguyen, Binh, and Su, 2020). Also when the money is circulated in the market
economy then resulting to the increase in price of the goods and services by the government as to
control the money circulation. These are certain causes that affects the inflation in the country
where appropriate steps must be taken to take it under control.
Aim and Objective of the research.
Aim: To determine the impacts of inflation on the tourism industry and to execute the solutions
to overcome the negative impacts.
Objective:
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 To identify both positive and negative impacts of inflation in reference to the tourism
industry of UK.
 To overcome the negative impacts of inflation in the retail industry in context to Virgin
Holidays company.
MAIN BODY
Quantitative research
Small medium enterprise impacted by the inflation:
Small-medium Enterprises are the companies with low rate of labours and capital. These
companies are less among the common people as they have less capital investment and with
limited number of employees (CƯỜNG, 2019). The effect of inflation in the growth of Small-
medium Enterprises rigidly as according to the recent research of UK, two-third of the Small-
medium Enterprises business have effected where the bank of England target is 2%. The 46% of
the population do not believe that the rate of interest can help the curb inflation. The companies
working in the tourism sector gets affected by the inflation changes in the economy. The country
UK currently facing the increase rate of inflation as 10.1% in July as per the customer price
index. As per the recent survey, the travel and tourism had a huge fall in profit due to the
inflation that resulted in the low rate in travels as the customer chose to avoid the traveling
during this period of time (Icoz, and Icoz, 2019). The customers preferred other brands that is
more affordable to them to travel or cancel the trip or waiting for the low rates. The travellers
from different states travel for purpose in particular during this period whether for business or
vacations, they tend to change the destinations looking for the low price or choose other times to
travel.
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Interpretation
According to the graph, in the current year, the rate increased in July form 10.1% as
compared to 1985. It shows the increase in the inflation results in the fall of GDP as the
customers lowers its purchasing power. The Small-medium Enterprises in the economy increases
the GDP of the country as its products are low priced and the customers are attracted toward the
low priced products.
Qualitative research
Positive and negative impacts in tourism industry in reference to inflation.
According to the view point of Rick Yvanovich (2022) the inflation affects the business
precisely the small business. during the pandemic the rising inflation urges the government to
take steps regarding the balancing of the inflation. The government replenish the restaurant
revitalising fund which also resulted in the quick depletion as per the high demand. These sectors
get completely impacted by the economic and political changes. But in tourism sector it
sometimes turn out to be advantage to the business as high cost of the tickets can also be
purchased as sometimes may not be any choice left for the customers (Yvanovich, 2022). During
the pandemic the travelling turned out be the significant so the price of the tickets was lowered.
The demand of travelling never decreases but gradually increases and it shows that inflation
sometimes give a good impact on the travel and tourism industry. The hotels have utilised this
opportunity to catch up with the travellers those are ready to pay any price as these customers
prefer the comfortability first. The high class accommodation is fairly impacted by the inflation.
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However, as per the view point of Patrick Whyte (2021), the industry of tourism is
considered to be one of the largest growth in global terms. The inflation has impacted in both
ways whether good or bad. There are some people who travel and make money through
travelling as a part of their business. These includes social media influencers, bloggers,
adventurers from different countries and so on. These people prefer to travel and ready to pay for
any price as part of their job. Moreover, they are supposed to pay less as compared to other
tourists as they get certain privileges regarding exploring different places (Whyte, 2021). When
the inflation occurs in the country, the travellers who needs to travel as business purpose have to
travel in high prices for overall expenses such as flight charges, accommodation and so on. As
per the current consumer price index the percentage is increased by 3.2% per year. The increase
in the index is said to be the highest record in the series of the national statistics of the UK. As
said by Hannah Audino who is an economist at PwC, claimed to have an expectation of higher
inflation as there was irregular data of months recorded could be monitored. The rise in the price
can result in the higher input cost of raw materials and freight charges. The customers have to
pay the prices higher than before due to this cause and there is a chance of losing revenues of the
business due to pandemic. The tourism sector has a direct impact because of inflation that is
affected economically and politically in the country. The high cost in different sectors like food,
salaries can affect the hospitality sector like tourism.
CONCLUSION
It can be concluded from the above data that the country affecting inflation can fluctuate
the price of goods and services which means there can be rise in the prices of the commodity.
The inflation is measured in terms of percentage. Substantially, the customers prefer to buy the
products in low prices so that they could purchase the products more. For that the customers are
ready to change the brand for the same product whichever is available low. In reference to
tourism industry which is said to have a global reach is also impacted by the inflation both in a
positive and negative way. The company Virgin Holidays is also a company deals with tourism
has impacted due to inflation as the customers are not ready to pay higher charges which resulted
in the decrease in the revenue of the company. But for some reasons, the other companies like
hays travel had a positive impact in the inflation as there are travellers that have to travel as a
part of their job and business. As a result, the major target of the company are the tourists those
who earn through traveling like You Tubers, bloggers and more. These people travel at any
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expense and are ready to pay whatever price asked. Through these the companies are benefitted
in a better way. The inflation can also hider the growth of this sector so for that the companies
should lower the cost as much as possible for the customers in an affordable price. The company
Virgin Holidays avoided the activities which are less productive and prioritise the effective
methods. The company by lowering the salaries of the employees can make the final cost lower
as a result can enhance the growth of the company by attracting the customers to travel more.
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REFERENCES
Books and Journals:
CƯỜNG, V.S., 2019. Impacts of fiscal and monetary policies on inflation: theoretical and
practical model for the case of Vietnam. Journal of Economic Development, pp.39-45.
Hoang, T.T. and Nguyen, T.V.A., 2021. The impacts of money policy on growth and inflation in
Vietnam: results from the VAR model. International Journal of Business and
Globalisation, 27(3), pp.293-312.
Icoz, O. and Icoz, O., 2019. Economic impacts of tourism. In The Routledge Handbook of
Tourism Impacts (pp. 95-108). Routledge.
Nguyen, C.P., Binh, P.T. and Su, T.D., 2020. Capital investment in tourism: a global
investigation. Tourism Planning & Development, pp.1-27.
THIỀU, T.Q., 2019. Impacts Of Inflation On The Effectiveness Of Economic Value Added
Scale. Journal of Economic Development, pp.14-18.
Zhao, H., 2022. On the impacts of trend inflation in an open economy. Journal of International
Economics, 138, p.103648.
online
Whyte P., 2021. UK inflation hits 3.2% - what does this mean for hospitality sector?. [Online]
available through:
https://www.hospitalityinsights.com/content/uk-inflation-hits-3-2-what-does-mean-for-
hospitality-sector/
Yvanovich R., 2022. What Are the Effects of Global Inflation on the Hospitality Industry?
[Online] available through:
https://blog.trginternational.com/effects-global-inflation-hospitality-industry/
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