Analyzing the Impact of Inflation on Tourism and Mitigation Strategies

This report, structured as a Foundation Year Research Project, investigates the multifaceted impact of inflation on the tourism industry. It begins by defining inflation and outlining key economic events contributing to its rise, such as interest rates and global occurrences. The research aims to analyze how inflation affects the tourism sector, with a specific focus on small and medium enterprises (SMEs) and major companies like Hays Travel, and to identify effective strategies for mitigating its negative effects. The report employs quantitative research methods to assess inflation's influence on consumer behavior, business profitability, and overall industry demand. The findings highlight the challenges faced by tourism-related businesses due to rising costs and decreased spending. Moreover, the report explores various solutions, including government policies like controlling the money supply and implementing fiscal measures, as well as business strategies such as recalibrating portfolios and adjusting pricing models. The conclusion emphasizes the need for proactive measures from both governmental bodies and tourism organizations to navigate the complexities of inflation and ensure the industry's sustained viability.

Foundation Year Research
Project

Table of Contents
INTRODUCTION...........................................................................................................................1
Concept of inflation ..................................................................................................................1
List of the events that can lead to inflation e.g. interest rates, global events etc. sourced from
the research..................................................................................................................................1
Aims and objectives of research ................................................................................................1
Main Body ......................................................................................................................................2
Quantitative research ..................................................................................................................2
To analyse impact of the inflation on tourism industry..............................................................2
To determine solution for minimizing negative impact of inflation on tourism industry ..........4
CONCLUSION................................................................................................................................5
References:.......................................................................................................................................6

INTRODUCTION
Concept of inflation
It is defined as a stat of general rise in the price. Inflation occur when price of the
services and goods increase (Chien and et. al., 2022). It frequently impact the consumer's buying
capacity. Mostly Central banks make efforts to limit the inflation so that that respective
economies can function efficiently. When there is an inflation within any nation, the it decrease
the individual's purchasing power as product's price are high. Value of the currency unit decline
that impact cost of the living within nation.
List of the events that can lead to inflation e.g. interest rates, global events etc. sourced from the
research.
A higher interest rate lead to higher borrowing cost. In this situation, people start
spending less due to which demands for services and goods drop. Thus, it will cause inflation to
fall. Interest rate is used with the motive to control the inflation by central banks. High rate of
interest lead to high borrowing cost. It makes the borrowing more expensive. Thus borrowing
will decline & as such money supply will fall (Goh and et. al., 2022). Due to fall in money
supply, individual will have lesser money for spending on the services and goods. Thus, they will
buy less goods and services. Along with this, in this, interconnected worlds, scarcity & surplus
travel swiftly. People's money can not escape troubles when the other parts of this world are hit
by the inflation. Apart from this, Certain policies or regulation also result in either a cost-push &
demand-pull inflation. When country's government issues the tax subsidies for certain products,
it increase demand. If demand is higher than supply, costs could rise. In addition, stringent
building regulations & even rent stabilization policies could inadvertently enhance costs & create
an inflationary surroundings by passing those costs to residents & artificially reduce supply of
the housing.
Aims and objectives of research
Aim- To identify impacts that inflation can have on tourism industry & what solutions, to ease
the negative impacts, can be implemented?”
1

Objectives
 To analyse impact of the inflation on tourism industry
 To determine solution for minimizing negative impact of inflation on tourism industry
Main Body
Quantitative research
Inflation is hitting small and medium enterprises at present time as it has been founded
that 85% of the owners of small and medium enterprises surveyed expresses concern regarding
inflation. The actuality is that the concept of inflation is always happening and therefore, the
owners of SMEs are required to get prepared for it. This has also become significant to gain the
understanding that how inflation impacts the business and to overcome with solutions for
managing it. Most of the people treat inflation as a bad aspect however, it is always happening.
For example, the Federal Reserve really aims for an inflation rate of 2% per annum as if inflation
is too low, it weakens the economy. But, the inflation becomes a fiscal burden for the market
share as well as small medium enterprises when it is too high. Since the pandemic situation of
COVID-19 began, SMEs have been struggling for dealing with the increased costs of inflation.
The epidemic just fast-tracked the inevitable, that is, ongoing supply chain problems made it
typical for accessing products that increased the prices. Some of the most common ways in
which SMEs are impacted by inflation include higher costs, rising prices, cutting overhead
expenses, tighter profit margins and many others.
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Interpretation:
From above graph, it can be interpreted that the owners of small and medium enterprises
as well as consumers have been dealing with the inflation and supply chain crises that are
impacting the prices since the pandemic situation of COVID-19 began in the year 2020. There
has been an increase in the inflation in the month of March and April of 2021.
To analyse impact of the inflation on tourism industry
High inflation has been considered as a significant element affecting the tourism demand
& the tourism sector within developing countries like UK. International tourism is extremely
susceptible to changes internal (prices) & external (global economic trends) to the sector.
Consequences of inflation on tourism can arise in different ways. For instance, retailers in the
tourist areas frequently raise their prices in knowledge that they will continue to find the market
among the affluent tourists. Inflation in the tourism organisations like Hays Travel company is
also caused by the land values, with the tourism generating additional demand for land.
It has been identified that after being struck by the lockdown & emergency measures
enacted at the time pandemic, industries commonly connected with the tourism industry- might
face another challenging time due to a dramatic increase in the global inflation (Shah, 2022).
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Illustration 1: The Effects of Inflation on US Small
Businesses

Hays travel should considered different elements when looking at recent sharp increase in the
consumer price which are, indirectly or directly, also affecting respective company.
According to according to Sean O'Neill, Skift, (2021), inflation is an increase in price of the
goods and services. High price level lead to demand for money to rise. If there will be high
inflation, then it will impact the tourist as they start to spend less on their travel. Therefore it will
impact the Hays Travel company negatively as there will be a decline in its customers. Overall,
regardless of whether individual are considering to change their travelling plans or not, the
inflation has become major cause of the distress among business travellers and leisures. Beside
it, a little inflation could be good for the travelling industry (Hays Travel) as many people within
UK have suddenly get disturbed about the inflation. But executive and expert say that latest price
hike are mostly good inflation... at least as far as travel industry is concerned.
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To determine solution for minimizing negative impact of inflation on tourism industry
According to the Tejvan Pettinger, (2022), government can resolve the issue of inflation
through certain policies which are mentioned below:
 Control of the money supply- It has been argued by the monetarists that there is a close
link between inflations and money supply, hence by controlling supply of money,
government can control the inflation.
 Fiscal policy- Higher rate of the income tax could lowered the spending, demand &
inflationary pressures. In order to reduce inflation, government can increase the tax & cut
spending as it will improve government budget situation & also help in reducing demand
in economy.
 Price/wage controls- Practice of controlling price and wages could, in theory, aid in
reducing the inflationary pressures. Nevertheless they are rarely used because they are
not ordinarily effective
According to the Oded Koenigsberg, (2022), inflation is becoming an urgent short term
consideration for mostly organisation throughout the world-wide. Organisations like Hays Travel
tend to deal with the inflation by raising price of their product and services, accepting smaller
margin and reducing the product cost & quality. However, a better analytics allow the
organisation to consider more effective and sophisticated strategic responds to inflation. Classic
response to the inflation is to chose one of the three unattractive options (Wong Wu and Kim,
2022). An organisation na upset its customers by raising prices, upset practically all by cutting
corners to cut cost and upset their investors through cutting the margins. In order to deal with
inflation organisation can recalibrate & clean up the portfolio, reposition their brand and replace
their price model.
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CONCLUSION
From the above report, it has been concluded that biggest risk of the inflation going
forwards is not a sequel of forces currently at wok in goods sector: it will not be persistent.
Instead, biggest risk is that inflation is impact the tourism industry vastly. This report has
discussed impact of inflation on tourism, in which it has been identified that if there is high
inflation then it will impact customer buying power. inflation also hit the airline industry as
demand for the air travel continue to rise, but airline do not have adequate inventory to support
that demand. Apart form this, respective report has also discuss about solution that help the
government or organisation to overcome issue of inflations. In this context it has been identified
that government can implement few policies or regulations so that they can control the inflation.
Government con implement the supply side policies in order to increase competitiveness &
efficiency of an economy, putting downward pressure on the long terms costs as it will help in
reducing impact of the inflations. Along with this, fiscal policy is another major support in
reducing inflation as it reduce growth of the aggregate demand. If the economic growth is very
repaid, then reducing growth of the Aggregate Demand can lowered the inflationary pressure
without causing recession. Another major significant way to curb the inflation is to control
money supply in an economy as if supply of money goes down, demands for the goods will also
reduce that will cause a price fall. This report has determined that with the global unrest &
customer prices hitting the new highs, what antecedently seemed like a transitory inflation is
shaping up as longer term issue. These elements along with the labour shortage & supply chain
bottleneck are mainly driving several business organisation to take actions. Therefore, it has been
advised that government and tourism organisation like Hays Travel should formulate effective
strategies so that they can deal with the situation of inflation efficiently.
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References:
Books and Journals
Chien, F. and et. al., 2022. The impact of economic and non-economic determinants on the
natural resources commodity prices volatility in China. Resources Policy, 78, p.102863.
Goh, T.S. and et. al., 2022. Factors Affect Tourism Stock Price in Indonesia. International
Journal of Communication and Society, 4(1), pp.163-171.
Shah, V.K., 2022. The Notorious Impact: Due to Insufficient Competition Laws in the GCC
Countries. Issue 2 Int'l JL Mgmt. & Human., 5, p.1860.
Wong, A.K.F., Wu, H. and Kim, S., 2022. Residents’ perceptions of tourism influence and
intention to support tourism development: Application of the theory of planned
behavior. Journal of China Tourism Research, 18(4), pp.710-734.
Online
Sean O'Neill, Skift, 2021 Why a Little Inflation Could Be Good for the Travel Sector (online)
available through
<https://skift.com/2021/05/27/why-a-little-inflation-could-be-good-for-the-travel-sector/ >
Pettinger. T, 2022 methods to control inflation (online) available through
<https://www.economicshelp.org/blog/2269/economics/ways-to-reduce-inflation/>
Oded Koenigsberg, 2022, Strategic Options to Deal with Inflation (online) available through
<https://hbr.org/2022/01/3-strategic-options-to-deal-with-inflation>
Camberato. J., 2022. The Impact Of Inflation On Small Business And How To Manage
It. [Online]. Available
Through:<https://www.forbes.com/sites/forbesfinancecouncil/2022/05/25/the-impact-of-
inflation-on-small-businesses-and-how-to-manage-it/?sh=5aeafb7cae41>
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Appendix
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