Economics of Tourism and Hospitality

A Micro Approach

Yong Chen

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000372427
• Edition: 1
• Topic: Économie
• Subtopic: Microéconomie

This book offers students an accessible and applied introduction to microeconomics in tourism and hospitality through a comprehensive analysis of the market mechanism, demand and supply, firm behavior and strategy, and transaction and institution.

This book not only helps students to master core microeconomic theories that are essential for understanding the tourism and hospitality industry, but, more importantly, it guides students to analyze consumer behavior and firm strategy specific to the industry. Throughout the book, readers are guided to develop the economic analysis of tourism and hospitality that progresses from economic intuition to graphical representation and to mathematical quantification. Carefully corralled case studies showcase the applications of key microeconomic theories in solving a wide range of real-world problems, including Uber's surge pricing, Airbnb's supply adjustment, and McDonald's and Burger King vying for prime locations. This book is written in an accessible style, illustrated with exquisite diagrams, and enriched with a range of other features, such as chapter summaries, review questions, and further readings to aid readers' further understanding.

By reading this book, students will be able to develop an economist's way of thinking, which will enable them to analyze tourism and hospitality businesses in a rigorous and critical manner. This book is essential reading for all tourism and hospitality students and teachers.

MODULE 1

The market

1 Economic approach to tourism and hospitality

We begin the economic analysis of tourism and hospitality by, first and foremost, providing an economic description of the industry from both demand and supply sides. On the one hand, we regard modern tourism as an economic phenomenon dating back to Thomas Cook’s tour operating business in England in the 1840s. On the other, the legitimation of tourism in the national economy depends on its contribution to gross domestic product (GDP), among others. The economic approach to tourism and hospitality allows us to elicit the demand and supply forces that drive the tourist economy and are subject to economic analysis. The economic description of tourism and hospitality is not only set up for this book, but applies to the tourism and hospitality industry as a whole insofar as the economic aspect of the industry is concerned. Throughout the book we shall adhere to the economic description outlined in this chapter, and analyze the key components of the industry for both demand and supply.

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Understand what makes up modern tourism and hospitality;
• Describe the supply side of tourism and hospitality, referred to as the breadth and depth of the industry;
• Describe the demand side of tourism and hospitality, namely the tourist and the tourist economy; and
• Appreciate the economic significance of tourism at both national and international levels.

1.1 Tourism and hospitality

1.1.1 The making of modern tourism

The making of modern tourism was, above anything else, an entrepreneurial endeavor. It began in England on July 5th, 1841 when Thomas Cook (1808–1892) chartered a train taking some 500 people on a one-day excursion between Leicester and Loughborough, two towns in central England merely eleven miles apart. Prior to his foray into what became known as the tourist business, Thomas Cook had been a preacher and social activist devoting his lifetime to the temperance movement prevailing in England in the second half of the nineteenth century for promoting complete abstinence from alcohol consumption. As a matter of fact, this excursion by and large was not only a byproduct of the temperance movement, but his later tourism business also had a more or less religious bent. It was not until 1845 that Thomas Cook inaugurated commercial package tours from Leicester to Liverpool and started to make profits from tourism.¹ In 1841 he founded Thomas Cook & Son in Leicester, a travel company specializing in the tour operating business, which to a large extent shaped the tourism industry in England and presaged mass tourism across Europe and North America. Over the decades in his tourism operation, Thomas Cook not only contracted with individual service providers, such as railway companies and hotels, to arrange package tours, but he himself would also escort tourists on their trips to Europe and beyond.

By today’s standard the first package tour executed in 1841 was barely modern in terms of demand and supply. First of all, since the tourists were temperance activists, their travel had little bearing on the kind of leisure or recreation that underpins tourism in modern times. Second, the number of tourists was small and thus insufficient to entice suppliers in the majority of hospitality sectors such as accommodation and catering at the destination to deploy resources in producing goods and services for tourists. However, a series of these tours in the 1840s was a necessary prelude to modern tourism, because for the first time in history travel activities were commercialized in the form of package tours and institutionalized through the founding of tour operators. These revolutionary changes eventually allowed mass tourism to flourish in the late nineteenth and early twentieth centuries. The tour operating business did not only make tourism along with all sorts of hospitality products and services accessible and affordable to the burgeoning British leisure class, but it also unleashed the potential of tourism consumption far beyond Europe. For instance, in 1851, Thomas Cook was capable of organizing a whopping 150,000 visitors to attend the Great Exhibition in London.² During 1872−1873 he organized and escorted the first round-the-world tour, which took 222 days to complete and covered more than 29,000 miles.³

There is no doubt that massive human movement across England and beyond would not have been possible without the railroad revolution. By 1850 the United Kingdom already had 6,500 miles of railway line in operation, adding more than 500 miles per year in the decades that followed.⁴ By the late nineteenth century, certain railway companies in England even started to operate package tours by themselves and competed with Thomas Cook. Above anything else, tour by train was not only a predominant travel mode but the very definition of tourism in the late nineteenth and early twentieth centuries. The technology brought about tremendous opportunities for tourism and hospitality businesses to flourish in England as it did for the whole economy as well. Yet the role that package tours had played in shaping the modern tourism industry was by no means in the shadow of the railroad revolution. The business of package tours manifests the economic principle of mass and standardized production. As Thomas Cook put it:

[t]he major cost of each train trip was the coaling and the ‘steaming up,’ so the idea was to pack it with people... I now see no reason why a hundred may not travel together as easily as a dozen.⁵

This principle is practiced by today’s tour operating enterprises as well, including online travel agencies (OTAs). This business model would also mirror the mass production of automobiles by Henry Ford in the United States in the 1910s and 1920s through the assembly line in producing the Model T.

1.1.2 The essence of hospitality

Long before the nineteenth century when the word tourism entered the English language, a couple of synonyms, such as travel and hospitality, had been widely used to refer to one aspect of tourism or another. Nevertheless, these words are inadequate to capture the meaning of tourism even after tourism becomes mainstream in society. In modern connotations tourism is far beyond the displacement of people from their usual environment to an alien destination for subsistence, but instead it has a hedonic and utilitarian pursuit of well-being which can partially be fulfilled by travel. By no means is hospitality merely about offering food, shelter, and benevolence to friends at home or practicing the doctrine of Christianity that accommodates the needy and strangers in churches.⁶ Because tourism in modern times encompasses recreational and hedonic experiences on the demand side, hospitality is accordingly morphed into a sophisticated business on the supply side. The business of hospitality aims to elevate various human needs and wants far beyond subsistence and material gratification in the pre-tourism era. Regardless of the context in which specific hospitality products and services are delivered, at the heart of hospitality is...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of tables
• List of acronyms
• List of symbols
• Preface
• Instruction to readers
• Acknowledgments
• Module 1 The market
• Module 2 Demand
• Module 3 Supply
• Module 4 Firm behavior and strategy
• Module 5 Transaction and Institution
• Author Index
• Subject Index