How Economical Factors Determine the Demand for Tourism?

2 Important Economical Factors that Determine the Demand for Tourism are:

(a) Income:

It simply means that as income increases the demand for tourism is likely to increase. However, empirical studies indicate that in the developed countries the demand for tourism has actually increased faster than the growth of national income.

In the West when a person’s income rises by one unit they spend 1.5 units on tourism. This indicates a high propensity to travel. The emergence of two-income families has encouraged tourism. Total family income has risen steadily as more wives have entered the labour market.

Tourism is an expensive activity that demands a certain threshold of income before participation is possible. The most useful measure of the ability to participate in tourism is discretionary income i.e., the income left over when tax, housing and the basics of life have been accounted for.

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(b) Price of Holiday:

The second economic determinant of demand for tourism is the price of the holiday. The price that the tourist pays the holiday covers three components.

(i) Cost of travel,

(ii) Cost of accommodation, and

(iii) The cost of the activities undertaken by the tourist at the destination area.

The components of the cost of travel are as follows:

C, =f (F.O) +f(R)

Where C, = Cost of Transport F = Cost of fuel O = other travel costs, and R = Profitability of airlines,

In the case of holiday costs, approximately forty per cent of the price of a package holiday arises from the flight costs. Of the flight costs, an important variable is the fuel cost. Fuel costs are subjected to wide fluctuations.

Cost of accommodation is determined by the hotel costs, i.e.

Where, C_a = Cost of accommodation H = Hoteliers’ costs.

The growth of tourism demand has been stimulated by a combination of growth in income and increase in leisure time permitted by increases in paid holiday time and free weekends.

In addition, the introduction of flexible working patterns permits people to plan and take extended weekend breaks more easily than in the past.

Thus the tourism/work ratio has moved towards tourism as the number of hours of holidays has increased and the numbers of hours of work have decreased.