Impacts of Inflation on Tourism Industry and Mitigation Strategies

This research project analyzes the impacts of inflation on the tourism industry and provides mitigation strategies to overcome the negative effects. It discusses the effects of COVID-19 on the tourism industry, the rise in global customer price inflation, and the impact of inflation on SMEs. The report also emphasizes the positive effects of inflation on businesses and the need for digital transformation to analyze the situation efficiently.

Research Project
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Introduction......................................................................................................................................3
Main Body.......................................................................................................................................4
What are the typical impacts that inflation can have on the tourism industry and what
solutions, to ease the negative impacts, can be implemented?...............................................4
Conclusion.......................................................................................................................................7
References........................................................................................................................................8
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Introduction
Inflation is a term that indicates the rise in the prices of most services as well as goods on a
common or day-to-day basis for instance housing, food, clothing, consumer staples etc. In simple
terms, the term inflation basically measures the average change in the price of commodities and
services over a time period (What is Inflation?. 2019). In addition to this, it also indicates a
decrease in the purchasing power of a unity of a nation’s currency. It also have direct impact on
the cost of living in a particular country. In addition, inflation is a broad measure that includes a
significant rise in the cost of living and overall commodity prices in a particular economy. In
addition, it has been determined that the customer price index and the wholesale price index are
two commonly used inflation indices. In addition, it has been emphasized that inflation can be
viewed positively or negatively. Along with the rate of change, inflation can be greatly viewed
positively or negatively depending on the individual perspective (Kumar and Hussain, 2014).
The tourism industry's impact on inflation is adequately discussed in this report. In addition, this
report discusses significant solutions as well as negative effects that can be mitigated. The report
also mentions a variety of events that lead to inflation, including global events that result in
significant increases in interest rates. Inflation can occur for a variety of reasons, including an
increase in the quantity of money available for purchase or the printing or distribution of
additional cash to citizens of a particular economy. Inflation is also primarily caused by this
increased pressure on the economy's supply and demand sides. This report's primary objective is
to examine the typical impact of inflation on the tourism industry and provide significant
solutions to mitigate its negative effects. In addition, this report discusses, supported by
government statistics reports, the valuation of statistics to determine inflation and information
stating the measured impact of inflation on SME. In addition, qualitative research analysis is
discussed in this study. that further aids in evaluating the positive and negative effects of
inflation on tourism industry organizations.
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Main Body
What are the typical impacts that inflation can have on the tourism industry and what solutions,
to ease the negative impacts, can be implemented?
Businesses in nearly every industry faced a number of challenges as a result of the sudden
appearance of COVID-19.Organizations all over the world put in place stringent measures like
lockdowns, which had an impact on the ongoing operations of numerous businesses in various
industries. According to Alegre and Sard 2015, the travel and tourism sector was one of the
hardest hit. However, as the situation began to improve, the reopening of the economy provided
businesses in the tourism industry with a number of opportunities to influence consumer needs
and demands through a variety of tactics and strategies (Alegre and Sard, 2015). However, the
skyrocketing cost of living and severely disrupted supply chain presented a number of obstacles
for these businesses. It has been determined that between November and December 2021, global
customer price inflation reached its maximum of 5.6 percent. According to Dogru, Isik, and
Sirakaya-Turk 2019, this is the highest rate since 2008. In addition, the IHS Markit reports
indicate that the rate of inflation will continue to be very high in 2022.According to Goodhart
and Pradhan's analysis of these facts, inflation had a significant impact on the hospitality industry
in the tourism sector. This rate not only made it harder for businesses to run their operations, but
it also made them more vulnerable to supply chain issues. In addition, it has been determined that
inflation has had an impact on the day-to-day operations of businesses in a variety of industries.
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Figure 1Pricing recovery destination comparison - Major European cities
Source: https://www.otainsight.com/resources/blog/inflation-hotel-rates-europe
In addition, it has been emphasized that, when compared to the average room rate for
major European cities from the summer of 2019 to the summer of 2020, the room prices for the
month of Rome were up 51.4 percent, Berlin was up 50.2%, Dublin was up 44.5%, London was
up 44.3%, Barcelona was 29%, Amsterdam was 12.1%, and Paris was 19.8% (How is inflation
impacting travel demand and hotel rates across Europe?).2022). According to in-depth analysis
of qualitative accounts and data from numerous hoteliers, inflation was a major factor in posing
challenges for business organizations and affecting their ability to operate. In addition, the data
and information provided by the Office for National Statistics indicate that the rate's ongoing
increase is likely to be temporarily impacted because the scheme was implemented last summer
to help lower prices in cafes and restaurants, causing inflation to persist and create a challenging
path (Dogru, Isik and Sirakaya-Turk, 2019). Companies suffered as a result of the inflation,
which made it harder for them to acquire raw materials and raised the overall cost of
transportation. Their capacity to generate overall revenue was impacted as a result (Kim, Park
and Chen, 2021). Additionally, it had dynamic effects like rising food costs and labour shortages,
which presented numerous challenges.
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According to Khalid, Okafor, and Shafiullah (2020), the inflation had a number of serious
effects, but it also had some positive effects on businesses. Tourism organizations can benefit
from proper analysis of their business operations and align them with the market's current trends.
Organizations in this sector can take advantage of numerous opportunities provided by the
inflationary period to ensure a favourable impact, such as an increase in investment return as
investors in entrepreneurs receive investments for productive activities. With the assistance of
this company, employment production can be increased and income increased. In addition,
businesses in a given industry have the potential to significantly increase their investment
expenditures by making use of information and opportunities. Organizations can seize the
opportunities that arise during the inventory period by employing the appropriate strategies. The
company, on the other hand, needs to focus on some of the negative aspects of inflation because
doing so will help them analyse the situation and further overwhelm them with positive effects
(Hartley, 2016). In order to make use of technologies like robotic process automation, intelligent
document processing, and other technologies, businesses must not ignore the inflationary effects.
They will be able to use digital tools during the inflationary period, which will help them save
money on resources and expenses. Companies have a tendency to deliver more effective results
as a result of the digital transformation, which enables them to guarantee customer satisfaction
(Kim, Park, and Chen, 2021). The new pricing model can also be used by tourism businesses to
satisfy investors and encourage them to raise revenue. This organization can guarantee a strategic
response that will enable them to overcome the situation. In addition, it has been demonstrated
that organizations operating in the tourism industry can make use of a new pricing model to
satisfy investors and entice them to increase revenue. This organization can guarantee a strategic
response that will enable them to overcome the situation. In addition, it has been determined that
inflation has a negative effect on SMEs (Goodhart and Pradhan, 2017). However, according to
Kumar and Hussain (2014) and other sources, the government's statistics according to Pratt and
Alizadeh (2018), despite the fact that the rate of inflation is causing harm to businesses in the
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small-scale sector, companies in the tourism industry can seize opportunities and ensure growth
by analysing both the negative and positive effects. In order to accomplish this, they must
employ expert reliance on digital transformation to efficiently and cost-effectively analyse the
situation at the appropriate time.
Conclusion
According to the report's analysis described above, inflation has both positive and negative
effects on a business organization's growth and performance. In the context of the tourism
industry, inflation had a significant impact on businesses in this industry. However, in order to
take advantage of the opportunities presented by inflation, businesses must identify significant
opportunities. In order to avoid having their customers and employees negatively impacted by a
higher interest rate, businesses must also implement efficient strategies to effectively manage the
inflection. By utilizing resources and the cost of input to smooth out prices when input costs are
high, cyclic business organizations can carry out their operations without significantly affecting
their financial resources. In addition, this business needs to focus on input costs and technology
for skilled labour to ensure that inflation does not affect its entire operation due to a lack of
workers. Additionally, overcoming inflation will be made possible by making use of market
analysis to carry out operations and evaluate market issues. The situation of inflation has many
severe effects on SME, and in order for businesses to overcome them, they must employ
solutions, strategies, skilled labour, resources, and methods to deal with the inflation period.
Companies can operate effectively and positively with this assistance without experiencing any
significant disruptions to their business operations or performance.
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References
Alegre, J. and Sard, M., 2015. When demand drops and prices rise. Tourist packages in the
Balearic Islands during the economic crisis. Tourism Management, 46, pp.375-385.
Dogru, T., Isik, C. and Sirakaya-Turk, E., 2019. The balance of trade and exchange rates: Theory
and contemporary evidence from tourism. Tourism Management, 74, pp.12-23.
Goodhart, C. and Pradhan, M., 2017. Demographics will reverse three multi-decade global
trends.
Hartley, K., 2016. UK defence inflation and cost escalation. Defence and peace
economics, 27(2), pp.184-207.
How is inflation impacting travel demand and hotel rates across Europe?. 2022. [Online].
Available through<https://www.otainsight.com/resources/blog/inflation-hotel-rates-
europe>
Inflation: Prices on the Rise. 2022. [Online]. Available
throughhttps://www.imf.org/external/pubs/ft/fandd/basics/30-inflation.htm
Khalid, U., Okafor, L.E. and Shafiullah, M., 2020. The effects of economic and financial crises
on international tourist flows: A cross-country analysis. Journal of Travel
Research, 59(2), pp.315-334.
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Kim, Y.R., Williams, A.M., Park, S. and Chen, J.L., 2021. Spatial spillovers of agglomeration
economies and productivity in the tourism industry: The case of the UK. Tourism
Management, 82, p.104201.
Kumar, J. and Hussain, K., 2014. Evaluating tourism's economic effects: Comparison of
different approaches. Procedia-Social and Behavioral Sciences, 144, pp.360-365.
Pratt, S. and Alizadeh, V., 2018. The economic impact of the lifting of sanctions on tourism in
Iran: A computable general equilibrium analysis. Current Issues in Tourism, 21(11),
pp.1221-1238.
What is Inflation?. 2019. [Online]. Available
throughhttps://www.financialexpress.com/what-is/inflation-meaning/1618981/
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