Impact of Inflation on Tourism Industry: Solutions and Negative Impact

This research report discusses the impact of inflation on the tourism industry, along with solutions and negative impacts that can be overcome. It includes an in-depth analysis of statistics and qualitative research analysis to determine the impact of inflation on SMEs. The report also highlights the positive impact of inflation on the tourism industry and suggests strategies to reduce the negative impact of inflation.

Foundation Year Research
Project MGBBT0FYP
Introduction......................................................................................................................................3
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Main Body.......................................................................................................................................4
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
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Introduction
The International Monetary Fund defined inflation as a measure of how much more
expensive a set of services and goods has become over a certain period, this usually includes
year inflation (Inflation: Prices on the Rise. 2022). In simple terms, it is a rate of increase in
prices over a particular period. This is an abroad measure such as significant increase in the
overall prices for the increase in the cost of living in a particular country. Furthermore, it has
been underlined that the most widely used inflation indexes are inclusive of the consumer price
index as well as the wholesale price index. Inflation can be significantly viewed positively or
negatively according to the individual point of view alone with the rate of change. The present
research report includes a discussion on the impact that inflation have on the tourism industry
along with the solutions and the negative impact that can be overcome there are number of
events that duly lead to inflation such as interest rate global events. There are several causes of
inflation such as an increase in the supply of money along with giving and printing away more
money to citizens in a country. Furthermore, pressure on the demand and supply side of the
economy also cause inflation. The main aim of the present research is to evaluate the typical
impact that inflation can have on the tourism industry and the significant solution to ease the
negative impact that can be implemented to reduce the negative impact of inflation in a
significant manner. For this in depth analysis of statistics to identify the inflation which is
occurring and data that demonstrate the measured impact of inflation on SME is also been
included with the help of a government statistics report. In addition to this research also include
qualitative research analysis which helps in determining the negative and positive impact of
inflation that can disrupt the tourism industry along with the significant measure through which
they can be overcome through which real tourism companies can effectively conduct their
operations.
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Main Body
After the outbreak of COVID-19 the travel restrictions are starting to ease by government across
the country. The reopening of the economy is however providing significant opportunities who
are the organizations in the tourism industry. However, the sky rocketing inflation and supply
chain challenges are creating threat in front of this industry. In addition to this it has been
underlined that the global consumer price inflation has been significantly reached by 5.2% year
in November and December 2021 (Alegre and Sard, 2015). This rate is the highest since the year
2008. As per the IHS Markit, the rate of inflation will continue to remain high in 2022. This
states that inflation is having significant impact on the tourism or hospitality industry. The rising
inflation impacts practically in every business, but organisations particularly in tourism sector
inclusive of food, restaurant and hospitality sector are among the worst head industries as this
left no choice in front of many operators to completely cease down operations (Dogru, Isik and
Sirakaya-Turk, 2019). Furthermore, it has been underlined that no matter in which industry in
organization is operating the record level of inflation is having impact on their day to day
business operation, in this the tourism industry is no exception.
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Figure 1Pricing recovery destination comparison - Major European cities
Source: https://www.otainsight.com/resources/blog/inflation-hotel-rates-europe
It has been analyzed that by comparing average room rates of hotel pricing data across Europe
major cities from 2019 to 2022 summer it has been evaluated that the room prices for the month
for key European city destinations: Rome is up 51.4%, Berlin 50.2%, Dublin 44.5%, London
44.3%, Barcelona 29%, Amsterdam 12.1% and Paris 19.8%. This analysis of the data and
qualitative accounts from hoteliers states that inflation is causing a bigger impact on their
operations (Hartley, 2016). In addition to this as per the office for National Statistics data it has
been analysed that the increase in the rate is likely to be temporarily effect as the last summer it
out to help out scheme price in the restaurant and café lead the inflation continue to have a
bumpy path in this year, but it creates adverse impact on organisations such as increase in price
of freight and raw material which impacts on the business operations and revenue (Kim, Park
and Chen, 2021). The increase in the inflation is likely to cause adverse impact in terms of
higher food cost labour shortage and wage rises that influences this industry in an adverse
manner.
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In addition to this it has been underlined that there are some positive impact on inflation that the
tourism industry can undertake in order to conduct their business operations by taking
opportunities from the inflation prevailing in the economy (Kumar and Hussain, 2014). In this
with the help of taking inflation tourism industry can have favourable impact such as better
investment return since entrepreneurs and investor receive investing for investing in productive
activities. It also helps in increasing production and more employment and better income. With
the help of taking inflation companies in tourism sector can increase spending and investment
and can develop a strong consumer base. These are some of the significant ways that will benefit
companies in this sector to grab opportunities effectively. However it is essential for organization
in tourism sector to overcome the negative impact of flexion as it overpowers positive impact on
the economy. In this with the help of taking advantage of effective solution the tourism industry
can significantly reduce the negative impact of inflation. In this company can take advantage of
implement more technologies like robotic process automation and intelligent document
processing to have more effective performance rate. In addition to this the present era enhances
the important of automation, in this digital transformation will help in delivering more
appropriate results that will help organization in tourism industry to overpower negative impact
of inflation on the companies. Companies in this sector can also undertake advantage of new
pricing model to encourage and satisfy investors to upfront revenue this will help to undertake
strategic response to tackle the situation in effective way. From the above analysis it has been
underlined that inflation impact on SMS in adverse manner (Pratt and Alizadeh, 2018).
According to the government statistics and sources from past many years the rate of inflation is
causing disruptive impact on organization in small scale industry. The inflation create both
negative and positive impact on tourism industry (Goodhart and Pradhan, 2017). However with
the help of taking advantage of significant strategies such as taking advantage of experts digital
technologies and reliance on digital transformation will benefit them to reduce the negative
impact of inflation.
Conclusion
According to the above mentioned report it has been concluded that inflation have both
negative and positive impact on business organization. It is essential for them to identify the
opportunities that inflation bring in order to take advantage in the situation. However it is
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essential for business to encourage effective handling of inflation in order to satisfy consumers
with the help of taking views of cost of key inputs and having resources to smooth out prices
where input costs are cyclic organization can conduct operations without affecting financial
resources. In this companies needs to emphasise on input cost in skilled labour technology in
order to conduct their operations in inflation time period in effective manner. Organization can
also take advantage of evaluating the market to operate efficiently while determining the issues
in the market the report states that inflation have many adverse impact and affects organization
and SME’s in adverse manner. However in this with the help of implementing significant
solutions these can be overcome at significant rate. This will also benefit organization in this
sector to conduct their business operations in a positive manner while overcoming the situation
on inflation in effective way, that will further benefit to conduct business operations efficiently
while overcoming the negative impact of inflation.
References
Books and Journals
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>
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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.
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.
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