Impacts of Inflation on Tourism Industry: Strategies for Virgin Holidays

This research project analyzes the impacts of inflation on the UK tourism industry, with a focus on Virgin Holidays. It explores the positive and negative impacts of inflation and suggests strategies to reduce its negative impact.

PROJECT
(“What are the typical impacts that
inflation can have on the tourism
industry and what solutions, to ease the
negative impacts, can be
implemented?”)

Table of content
INTRODUCTION ........................................................................................................................3
Background information of topic ................................................................................................3
Research Aim ..............................................................................................................................3
Research objectives..................................................................................................................... 3
Research Questions .....................................................................................................................3
Research Rationale ......................................................................................................................4
LITERATURE REVIEW ............................................................................................................5
The concept and causes of inflation within the UK tourism industry......................................... 5
The positive and negative impact of inflation can have on the Virgins Holidays...................... 6
Strategies that can help Virgins Holidays to reduce negative impact of inflation ......................7
RESEARCH METHODOLOGY................................................................................................ 8
CONCLUSION............................................................................................................................. 9
REFERENCES ...........................................................................................................................10

INTRODUCTION
Background information of topic
Inflation is the term which means rise in the prices which can be can cause reduction in
the purchasing power of the consumer. It can be referred as the rate through which reduction in
purchasing power can be display by the increase in average price of a basket of selected products
and service within a given period of time (Herman, 2022). It impacts an economy adversely and
significantly. Higher rate of inflation in the economy can be riskier whereas lower or smaller
inflation rate may help economy to derive growth. Many industries and businesses are also
getting affected from the impact of inflation. Therefore, present project is conducting to analyse
the impacts on the company and suggesting strategies for reducing the negative impact on their
business. The selected organisation of this project is Virgin Holidays which provides tourism
service to their customers.
Research Aim
To analyse positive and negative impact of inflation on the UK tourism industry as well
as suggest strategies for reducing its negative impact. “A study on Virgins Holidays”
Research objectives
 To understand the concept and causes of inflation within the UK tourism industry.
 To analyse the positive and negative impact of inflation can have on the Virgins
Holidays.
 To suggest some strategies that can help Virgins Holidays to reduce negative impact of
inflation.
Research Questions
 What is the concept and causes of inflation within the UK tourism industry?
 Determine the positive and negative impact of inflation can have on the Virgins Holidays.
 What are the some strategies that can help Virgins Holidays to reduce negative impact of
inflation?

Research Rationale
The main reason for doing research in this topic is to gain knowledge about the negative
and positive impact that inflation may create on the businesses (Zherlitsyn, 2020). Higher
inflation rate of an economy decreases the purchasing power of consumer, due to which the sales
of the company is also got affected.

LITERATURE REVIEW
The concept and causes of inflation within the UK tourism industry
As per the perspective of Rastogi and Kanoujiya (2022) inflation is describe the rate that
increases the prices within a particular period of time. It can also be considered as the change in
the percentage of value of the WPI (Wholesale Price Index) per year basis. There are certain
reasons due to which inflation arises in the economy. These are increase in products taxes,
imbalance between supply and demand, change in distribution and production cost and so many.
It states that the sudden increase in price level of goods and services including reduction in
currency value then the inflation arises in the economy. It referred as each unit of the currency
buys lesser products and services. Inflation affects consumer adversely as rapid increase in price
level of goods and service create difficulties for the customers to make their purchases. Even
they face difficulty to purchase their basic needs of their life (Helmy, 2022). It enforces
government to keep their focus on under controlling inflation within their economy. It has been
identified that up to 2 to 3% inflation rate is good for a country as it influence public to buy more
as well as borrow more at the time of low inflation rate because at this time, interest rate level is
also remain low.
Figure 1 UK inflation jumps to highest level in 30 years, 2022

The positive and negative impact of inflation can have on the Virgins Holidays
In the opinion of Collins (2022) inflation is one of the components that have potential to
affects the business growth and success including bottom line. Many industries and businesses
were got affected from inflation in both significantly and adversely. Thus, the tourism industry is
also getting affecting from the inflation. This becomes a serious concern for the company to
manage their business more carefully and deal with the inflation more effectively. Inflation
impacts tourism sector in negative and positive manner. The Consumer Price Index is also
increases by the inflation as the customers have to pay more prices for purchasing the products
and service. Due to this costs are increased as well as buying power of the customers including
businesses are decreases. Interest rates in the economy are increased which results increase in the
borrowing costs for companies and it decreases their profitability (Chakraborty, 2023). Due to
higher inflation rate in the economy, the consumer spending is decreases that leads decline in the
revenue of the companies as the customer is required to pay more prices for purchasing specific
goods and services. High inflation rate also cause increase in overhead and inventory costs for
the company due to which their profitability and bottom line is also got affected. Despite from its
negative impact, the positive impact of inflation is it decreases the value of the old debt which
makes easier for the company to repay their loan.
Figure 2 3 Effects of Inflation, 2022

Figure 3 How is inflation impacting travel demand and hotel rates across Europe? 2022
Strategies that can help Virgins Holidays to reduce negative impact of inflation
According to the view of Ozturk and Ullah (2022) negative impacts of inflation creates
many problems for the company to operate their business appropriately. It enforces company to
find effective strategies for reducing the negative impact of inflation for operating their business
smoothly. The first strategy that helps company to reduce negative impact of inflation in their
business is to reduce their business consumption. Through rise in spending visibility and ability
to isolate drivers, business can tailor its approach for matching the inflationary surroundings. The
other important strategy for reducing negative impact is to eliminate work within their working
area (Charfeddine and Zaouali, 2022). Company can utilise a zero based redesign and a clean-
sheet mindset that assist in resetting the way by which work has been completed.

RESEARCH METHODOLOGY
The research method which has been uses for doing the present research project is
qualitative research methods. This research method help researcher to collect non-statistical and
in-depth information related to research title. It enable researcher to generate factual and reliable
outcome information for the present project (Bush and Amechi, 2019). It also enable researcher
to explore and use experience and concepts while doing the research. While doing research by
using qualitative method allow researcher to answerers the research question from the already
exist data. In the present research project, secondary data collection method is uses for collecting
the detail and wide information related to the project title. Secondary data collection provides
several sources such as journals articles, books and scholarly articles that make easy for the
researcher to collect large amount of the information for the research. These sources helps
researcher to gain views and opinion of other authors related to the project title. Its key benefit is
it helps in saving expenses and efforts of researcher because the data can be gained from the
different sources without putting extra efforts and investing time. Consequently, researcher’s
time is also saved for doing the research (Maher and Dertadian, 2018). The research strategy
selects in this research is systematic literature review for collecting relevant information for the
research.

CONCLUSION
From the above gathered information, it has been summarised that inflation has both
adverse and significant impact on the company. Due to the negative impact of inflation, company
faces many difficulties to operate their business in smooth manner. It leads reduction in
profitability, sales and decline in their bottom line. It has been analysed from the above, inflation
is the reason that decreases the buying power of the money because it increase the price level of
goods and services. High inflation rate in the economy creates problem for the customers to
make their purchases due to which company’s profitability and revenue is decline. For dealing
with these impacts in better manner, it is important for the company to find effective strategies
that helps in reducing the negative impact of inflation. These strategies ensure company to make
their business operations smoother as well as earn more profit. From the above research, it has
been analysed that tourism industry is affected negatively and positively from the inflation. It is
because inflation increases the consumer price index and rate of interests, decreases consumer
spending, increases overhead and inventory costs along with the competition. Due to this
reasons, many difficulties are arise for the company that affects their revenue and profitability.
The positive impact that inflation creates for the company is it decreases the value of older debt.
Rise in inflation in the economy, increases the value of the currency which makes profitable for
the company to repay their older loan in easy manner. High inflation rate creates problem for the
normal public because they have to faces many difficulties in to purchases their necessity goods
and services. It directly affects the tourism industry it is because when the consumer is not able
to make their daily purchases how they can make their travelling decision. Thus, it become
essential for the tourism industry to find the effective strategies that reduces the impact of
inflation on their business.

REFERENCES
Books and Journals:
Herman, H., 2022. Impact Of Percapita Expenditure And Inflation On Poverty In Pekanbaru
City:(Before And After The Covid-19 Pandemic). International Journal of Islamic
Business and Management Review, 2(1), pp.69-75.
Zherlitsyn, D., 2020. The Impact of Inflation Targeting on Macroeconomic Indicators in
Ukraine. Mykhailo Kuzheliev, Dmytro Zherlitsyn, Ihor Rekunenko, Alina Nechyporenko
and Figuram Nemsadze (2020). Banks and Bank Systems, 15(2), pp.94-104.
Rastogi, S. and Kanoujiya, J., 2022. The volatility spillover effect of macroeconomic indicators
and strategic commodities on inflation: evidence from India. South Asian Journal of
Business Studies, (ahead-of-print).
Helmy, A., 2022. The Impact of Interest, Exchange, and Inflation Rates on the Efficiency of the
Real Sector: Empirical Study of Egypt. African Journal of Business and Economic
Research, 17(1), p.77.
Collins, T., 2022. Inflation Targeting in New Zealand: Does Policy Match Practice?. Journal of
Applied Business & Economics, 24(1).
Chakraborty, O., 2023. Inflation and COVID-19 Supply Chain Disruption. In Managing Inflation
and Supply Chain Disruptions in the Global Economy (pp. 10-23). IGI Global.
Ozturk, I. and Ullah, S., 2022. Does digital financial inclusion matter for economic growth and
environmental sustainability in OBRI economies? An empirical analysis. Resources,
Conservation and Recycling, 185, p.106489.
Charfeddine, L. and Zaouali, S., 2022. The effects of financial inclusion and the business
environment in spurring the creation of early-stage firms and supporting established
firms. Journal of Business Research, 143, pp.1-15.
Bush, A.A. and Amechi, M.H., 2019. Conducting and presenting qualitative research in
pharmacy education. Currents in Pharmacy Teaching and Learning, 11(6), pp.638-650.
Maher, L. and Dertadian, G., 2018. Qualitative research. Addiction, 113(1), pp.167-172.
Online:
UK inflation jumps to highest level in 30 years, 2022 [Online]. Available through: <
https://www.ft.com/content/9188e191-4c1c-4968-a3af-9a43f086de6b>
3 Effects of Inflation, 2022, [Online]. Available through:
https://www.forbes.com/advisor/personal-finance/why-is-inflation-bad/ >

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>