Analysis of Inflation's Impact on the Tourism Industry and Solutions

This research report delves into the multifaceted impact of inflation on the tourism industry. It begins by outlining the aims and objectives, focusing on analyzing the effects of inflation, identifying both positive and negative impacts, and proposing solutions. The report examines how inflation affects various aspects of the tourism sector, including hotel rates, consumer spending, and the overall financial health of businesses. It also explores the events leading to inflation, such as interest rates, global events, and increased money supply. The research methodology employs a positivism philosophy and a deductive approach with a systematic literature review. The findings highlight the challenges faced by small businesses, rising costs, and the need for strategic adjustments. The report concludes with a summary of key findings, emphasizing the importance of understanding and adapting to inflationary pressures to ensure the sustainability and growth of the tourism industry. The report provides valuable insights and potential strategies for mitigating the adverse effects of inflation within the sector.

Research Project

Table of Contents
Introduction.................................................................................................................................................3
Aims and objectives of research..............................................................................................................3
Impact of inflation on tourism industry...................................................................................................4
Positive negative impacts of inflation within tourism industry................................................................4
Solutions in order to deal with negative impacts of inflation significantly..............................................5
Research Methodology................................................................................................................................6
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8

Introduction
Inflation occurs as a result of imbalance between supply & demand of money, change in
distribution and production cost, increase in the amount of taxes on different products. At the
time of inflation, the value of currency gets reduce. As a result one can buy fewer units of goods
& services through each unit of currency. It puts profound impact on consumers. Due to high
prices customers are not even able to afford basic commodities to survive in life. In simple
words, inflation is a suitable measure of purchasing power which shows the rate by which price
of a product or service gets change over the period of time (Dimopoulos, Queiros and Van Zyl,
2019). Consumer spending are declined when prices rise as they cannot afford to buy much
products.
List of events that can lead to inflation
There are several events which can cause inflation. Here, the list of such events is given
below:
 Interest rate: There is reverse relations between inflation and interest rate. At the time of
lower interest rate, people tend to take huge loans which lead the inflation at higher rate
and further affect the overall operations of the entity profoundly (Boehm and Kusen,
2018).
 Global events: Nowadays, global events are likely to organize at different parts of the
world. The main aim of such events is to ensure economic growth of the nation. During
such events, individuals are likely to spend their money which increases flow of money
across the economy and further lead towards high inflation.
 Increased money supply: It demonstrates the total amount of money in circulation
within the economy that covers cash, balance, bank accounts and more. If supply of
money increases faster than production, this might lead the economy towards inflation
(Gricar and Bojnec, 2018).
Aims and objectives of research
Research Aim: “To analyze impacts of inflation on tourism industry and solutions to
deal with negative impacts of inflation significantly”. A case study on ACE cultural tours.

Research Objectives:
 To analyze different impacts of inflation on tourism industry.
 To assess positive negative impacts of inflation within tourism industry.
 To acknowledge the solutions in order to deal with negative impacts of inflation
significantly
Research Questions:
 What is the impact of inflation on tourism industry?
 What are the positive negative impacts of inflation within tourism industry?
 What are the solutions in order to deal with negative impacts of inflation significantly
Impact of inflation on tourism industry
According to Saragih, (2020), inflation is affecting small business units profoundly in the
current period of time. From the beginning of pandemic small business organizations are
struggling to deal with the impact of increasing cost. The COVID-19 enhanced the issues related
to supply chain and made it harder for the customers to avail the goods that increased the overall
prices. As per the survey, 92% of small business owners are likely to deal with constantly rising
cost. In present situation, supply and services needed to run the business are highly expensive
and 26% small business units owners have seen increase in their overall cost by 20%. As a result
of inflation, the price of hotel rooms is increasing significantly comparing to last years, it can be
see that price of hotel rooms and services is really high within UK. It is analyzed that prices of
rooms has been increased by 44.3% in London. In context of London, it is found that in London
in 2022 prices of rooms are outstripping 2019 by certain degree. Across all star ratings in
London, the average room price for the week commencing 20th June 2022 is 348 Euros while it
was Euro 252 in 2019 during same time duration. In future, the hotel rates are likely to increase
across Europe along with the hotel rates. This is all due to the inflation as hotel administration
needs to charge additional amount from customers to survive during inflation. Therefore,
additional cost is passed to guests through high room rates, limiting discretionary spending and
more. However, the prices of hotel services have been increased post pandemic (How is inflation
impacting travel demand and hotel rates across Europe?. 2022). But, still people are likely to
make travel plans as they might not have been on holiday for long time.

Positive negative impacts of inflation within tourism industry
According to Su, (2020), price Inflation seems the major important benefits for travel
companies who are looking forward to grow business to July 2022. In May 2019, nearly 19% of
the business organizations have complaint that they are unable to get timely raw material, goods,
services and other necessary equipments. Nearly 26% of business owners admitted that the major
issues they are facing is input price inflation for July 2022. More than 75% of business owners
reported that they have major concern for their business in July 2022 due to increasing rate of
inflation (Business Insights and impact on the UK economy: 16 June 2022).The entity also faced
inflation significantly. Here, inflation put a major impact on the overall functions & operations of
the respective company. It also tends their prices at higher level which eventually creates burden
over customers. In terms of positive impact of Inflation hospitality organizations got
opportunities to sell their services at higher price which will allow them in terms of earning
substantial amount of profit margin. Further, it also helps in getting better returns as investors
and entrepreneurs are likely to get better incentives in terms of investing in productive activities.
Solutions in order to deal with negative impacts of inflation significantly
According to Rinaldi and Salerno, (2020), As per travel price index (TPI) published by U.S.
travel association provides an overview regarding monthly changes in prices across various tour
and travel industries within United States of America. In August 2022, TPI was the main driver
of inflation for US travel and tourism industry with increase in the price index of airline fair by
33.4 % over the previous year. In contrast, lodging experience was a less-dramatic year on year
increase along with the growth in price index by 4.5 %. At the same time, inflation rates of
hotels, motels, and other similar accommodation established in Europe grew up by 19.2% in july
2022 comparatively to july 2021. Due to increasing cost of travel and tourism services, spending
of customers on this specific sector is also affecting. In this regard, travelers across the world are
considering this risk which is caused by high inflation and they are likely to adjust their plans
accordingly. As per the data collected, in may 2022, most of the people are likely to use
alternative forms of transport instead of flying with an aim to avoid the high charges (Impact of
inflation on travel and tourism worldwide - statistics and facts, 2022). In this context, the entities
can deal with inflation by reducing consumptions significantly that will prove useful in terms of
dealing with negative impacts on inflation. There are another ways to deal with inflation by

eliminating the work. For this purpose, the entities are required to use a clean-sheet mindset or
zero based redesign that will help in resetting the way of work significantly.
Research Methodology
In case of current project, there is selection of positivism philosophy as it is useful in
terms of analyzing the data and information in objective format to get appropriate outcomes in
future. Apart from this, deductive approach has been used in terms of develop significant
knowledge regarding the topic along with systematic literature review strategy that is helpful in
terms of developing vast knowledge about the given topic. Data has been collected from
different sources with an aim to reach at meaningful conclusion.

Conclusion
Out of the above-mentioned information, it is monitored that inflation puts a profound
impact on tourism industry in terms of affecting rates of rooms and other such services
significantly. The above-report is based on analyzing positive negative impact of inflation over
tourism. It is analyzed that from the beginning of pandemic small business organizations are
struggling to deal with the impact of increasing cost. The COVID-19 enhanced the issues related
to supply chain and made it harder for the customers to avail the goods that increased the overall
prices. Apart from the negative impacts, there are certain positive effects of inflation have also
been identified in terms of increasing the overall price of rooms which will increase the overall
revenue of the respective business organization significantly. Further, it is monitored that there
are various ways in terms of maintaining the adequate level of price and more in order to deal
with the inflation significantly.

References
Books and journals
Boehm, B. and Kusen, I., 2018. Iceland: High Growth, Low Inflation and Current Account
Surpluses: What's behind this Remarkable Performance? (No. 037). Directorate General
Economic and Financial Affairs (DG ECFIN), European Commission.
Dimopoulos, D., Queiros, D. and Van Zyl, C., 2019. Sinking deeper: The most significant risks
impacting the dive tourism industry in the East African Marine Ecoregion. Ocean &
Coastal Management, 181, p.104897.
Gricar, S. and Bojnec, S., 2018. Tourism price causalities: Case of an Adriatic
country. International Journal of Tourism Research, 20(1), pp.82-87.
Rinaldi, A. and Salerno, I., 2020. The tourism gender gap and its potential impact on the
development of the emerging countries. Quality & Quantity, 54(5), pp.1465-1477.
Saragih, R.E., 2020, July. Development of Interactive Mobile Application with Augmented
Reality for Tourism Sites in Batam. In 2020 Fourth World Conference on Smart Trends
in Systems, Security and Sustainability (WorldS4) (pp. 512-517). IEEE.
Su, X., 2020. Simulation of economic development of tourism industry based on FPGA and
machine learning. Microprocessors and Microsystems, p.103523.
Online
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/>
Business Insights and impact on the UK economy: 16 June 2022. [Online]. Available through :<
https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/bulletins/
businessinsightsandimpactontheukeconomy/16june2022/>
Impact of inflation on travel and tourism worldwide - statistics and facts, 2022. [Online].
Available through :< https://www.statista.com/topics/9662/impact-of-inflation-on-travel-and-
tourism-worldwide/#dossierKeyfigures/>