Impact of Inflation on Tourism Industry

This research project aims to identify the impact of inflation on the tourism industry and address solutions for reducing the negative effect of inflation. It covers the positive and negative impacts of inflation on tourism, research methodology, and data collection.

FOUNDATION YEAR
RESEARCH PROJECT

Table of Contents
1. Literature review .........................................................................................................................3
1.1 Introduction......................................................................................................................3
1.2 Aim of the research..........................................................................................................3
1.3 Objectives of the research................................................................................................3
1.4 Events that can lead to inflation.......................................................................................3
2 Positive and negative impacts that inflation can have on tourism................................................4
3. Research methodology and data collection .................................................................................5
3.1 Explanation of the types of data that are used to identify inflation..................................5
3.2 Quantitative research on the impact that inflation has on SMEs......................................5
..........................................................................................................................................................6
3.3 Business and inflation.......................................................................................................6
4. CONCLUSION............................................................................................................................7
REFERENCES................................................................................................................................8

1. Literature review
1.1 Introduction
Inflation can be defined as increase in the prices of various products and services
available in the market for sale over a given time period. Inflation occur with the rise in the
prices of production cost such as wages and raw materials needed for producing the business
product (Turbet and et. al., 2019). An increase in the demand of customers towards products and
services can results in causing inflation because they are willing to give more for the product.
Customers spend less when they see that the price for ant particular product is rising or
increasing as they are price sensitive. The main of inflation is to measure the overall effect of
change in prices for the range of diversified set of goods and services (Lazić and Domazet,
2019). It also occurs because of imbalance in the demand and supply of wealth, results in
changing distribution and production cost or rise in taxes implied on products.
1.2 Aim of the research
Research aim
To identify the impact of inflation on the tourism industry and addressing the solutions
for reducing the negative effect of inflation.
1.3 Objectives of the research
 To study the impact of inflation on business performance within UK tourism industry
 To determine the strategies used by UK tourism industry to combat from negative impact
of inflation
1.4 Events that can lead to inflation
Inflation plays a prominent role in the overall economy which results in affecting
finances of every business functioning in the business market (Berry, 2019). In the time of
inflation, the buying power of customers reduces because they shift to buy normal products and
start to invest more for health related facilities and they also start saving their earned money for
future use. During inflation, customers only focus on saving and spending their earned money
only on essential goods. Rise in the inflation is considered to be an significant factor that affects
the demand for tourism and the tourism industry in other developing countries (Omar and Fraser,
2020). For example, increase in the cost of tourism results in increasing the prices of hotel which

leads to high inflation and this reduces the spending power of customers. Inflation in the tourism
industry is mainly caused by land values, which results in generating more demand for land.
2 Positive and negative impacts that inflation can have on tourism
As per the view of Bausch, Gartner and Ortanderl (2021), tourism industry is considered
as one of the most important and highly growing industry in all over the world. This particular
industry is the major contribute in the economy as it helps in providing various employment
opportunities to people. Inflation can have both positive and negative impact on the performance
of the business within the UK tourism industry. People who love to travel are more interested in
spending their major part of the income in travelling as they are earning because of exploring
new and beautiful places as their passion. Travellers can be bloggers, social media influencers,
tourist guide and many other who are dependent on the tourism industry for her daily livelihood
(Tingbani and et. al., 2019). As inflation occurs, travellers generally prefer to some more of their
income to book higher rate of prices for travelling from one place to another. It is important for
the tourism industry to make more money in the time of inflation as customers are willing to pay
more amount of money for staying an travelling purpose. Inflation also impacts the services ad
performance of the business negatively and this results in decreasing the overall profitability of
business in the competitive market. With the rise in inflation, the prices related to the company
products or services also gets increased and this results in deceasing the purchasing power of the
customer. As customers always want to receive or buy a product in normal price and wants to
spend less, the hike in prices results in making their consumption level less.
In context of tourism industry, due to inflation the prices of holiday packages also gets
increased which results in affecting the buying behaviour of the customers at the time of booking
deals related to hotel. There are many customers who believes in saving their efficient amount
for the future in order to purchase essential goods and cancelling their trips and stay plans until
the price actually reduces (Hosseini, Stefaniec and Hosseini, 2021). Customers always wants the
best services and facilities from the tourism place where they are staying and avoid that place
which is not earning substantial profits from their daily operations. In relation with the SME's
that are a part of the tourism industry has to shut down their business because of the rise in the
rate of prices and high rate of inflation in the market.

3. Research methodology and data collection
In the present research, the researcher has used both qualitative and quantitative research
methods for collecting and analysing information related to the topic. This is important part of
the dissertation which helps in completing the research by using authentic and reliable methods
for conducting the research related to the given topic appropriately. Both primary and secondary
data is used by the researcher in the present project which helps in accumulating information
from different published sources.
3.1 Explanation of the types of data that are used to identify inflation
There are two types of methods that help in identifying inflation in a proper manner so
that they deal with the uncertain situation in an effective and precise manner. Consumer price
index is one of the most important method that results in identifying rate of inflation in the
business (Grytten, 2020). This method helps in determining the change in the prices paid by
customers over a given period of time for purchasing a basket of goods of the given company.
3.2 Quantitative research on the impact that inflation has on SMEs
SME's are considered businesses which have less number of employees and with less
amount of capital for carrying out the operations of the business. These business are not that
much familiar with the customers as they do not have that much amount of money for promoting
their services among customers (Eller and et. al., 2020). Inflation impacts the services of the
SME's prevailing in the UK tourism industry on a large scale. There are different types of SME's
that work within the UK tourism industry for providing facilities related to hotel booking to the
customer but with the rise in inflation these companies are mostly effected. Due to inflation, UK
is facing a 44.30% rise in the prices of the hotel room as compared to the year 2019, and this
results in reducing the customer base for booking the hotel room for stay (Coudounaris, 2021).
Tourism industry is the most important industry that helps in contributing a major part of
their income in the economy and is majorly dependent on the customer base. This results in
cancelling of bookings of hotels by the customers and result in decreasing the overall
profitability and productivity of the business in the market (Croes, Ridderstaat and Rivera, 2018).
Customers are the main asset of the tourism industry as they are final consumers who avail the
services of the business and demand for change and alteration in case they need. It is assumed
that only few of the customers do not cancel or shift their tickets according to the increase or

decrease in prices who travels mostly for business purpose. While customers who travel for
enjoying holidays or for long vacation time might cancel their tickets with the high price in the
services offered by the hotel (Arain and et. al., 2020). It is important for the business managers to
prepare their employees for dealing with every situation and for treating the customers in the
right manner in order to satisfy them.
Interpretation: It is interpreted from the above graph that most of the customers prefer to stay in
low budgeted hotel in the time of summer travelling such as Airbnb. This survey shows that with
the less social band one in five customers that is 20.8% who are interested in travelling abroad
for business or travelling purpose. Inflation has impacted the demand of customers for spending
more amount of money on the hotel for stay purpose as their purchasing power gets reduced with
time.
3.3 Business and inflation
Business and inflation are interconnected with each other as they both are important in
carrying out the business operations in a proper manner (Bullard, 2022). This results in knowing
about the customers which are inclined towards purchasing the following goods and services in
the business.

4. CONCLUSION
It is concluded from the above gathered information that inflation is known to be an
important concept that results in changing the prices of goods and services delivered by
businesses in the market. Many of the customers are price sensitive which means that they can
switch to another brand for availing services or can cancel their trips for next time if they found
that they are charging high for perceived service. In relation with the tourism industry which is
considered to be the most effective and influential industry for providing customer service to the
travellers properly. Inflation can have both negative and positive impact on the performance of
tourism business. With the high rate of inflation, Globus company gets affected as they increase
their prices for the customer which results in decreasing the overall consumption rate of the
hotel. Hays travels is known to be one of the renowned company with the UK tourism sector
which gets impacted negatively because of the increase in inflation. They see a decline in the
services of the business as customers are not ready to pay extra in the time of inflation.
There are various strategies and recommendations which can help tourism companies for
reducing the risk that they face during inflation. The most effective strategy that business can
adopt is lowering the prices less in comparison with the competitor companies so that more and
more customers gets attracted. Providing training to employees is also considered to be best
strategy that business can adopt for preparing them for uncertainties in a proper manner and for
retaining more number of customers. Communicating properly with employees is also important
because this results in making them feel more valued in the company for reaching target
audience effectively. Building attractive and eye-catching ambience is also important and
effective strategy which helps businesses in making customers comfortable with the
surroundings for gaining their trust and success in the market.

REFERENCES
Books and Journals
Turbet, M., and et. al., 2019. The runaway greenhouse radius inflation effect-An observational
diagnostic to probe water on Earth-sized planets and test the habitable zone
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Lazić, M. and Domazet, I., 2019. Theoretical and Practical Foundations of Inflation Targeting
with Special Emphasis on the Experience of Serbia. Economic Analysis, 52(2), pp.152-
162.
Berry, R.A., 2019. The Effects of Inflation on Income Distribution in Colombia: Some
Hypotheses and a Framework for Analysis. In Economic Policy and Income Distribution
in Colombia (pp. 113-131). Routledge.
Omar, O. and Fraser, P., 2020. Small and medium-sized enterprise retailing in the UK.
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Eller, R., and et. al., 2020. Antecedents, consequences, and challenges of small and medium-
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Coudounaris, D.N., 2021. The internationalisation process of UK SMEs: exporting and non-
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Croes, R., Ridderstaat, J. and Rivera, M., 2018. Asymmetric business cycle effects and tourism
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Arain, H., and et. al., 2020. Investigating the effect of inbound tourism on FDI: The importance
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Grytten, O.H., 2020. Revising price history: consumer price index for Norway 1492–
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