Tourism Economics

1. Tourism Economics Chapter 6: Economics of Other Tourism Sectors TRM 490

2. Car rental economies • Overview • A multibillion dollar business • Controlled by Major Rental Companies: Enterprise, Hertz, Avis, Budget, and National • Companies borrow heavily, have thousands of employees and licensees and are international • Has financial or ownership relationship with all three major US auto companies (Ford, GM, Chrysler) • Alliance or ownership with major car manufactures has advantages • Rental car company is assured car availability and favorable prices • Enterprise, Hertz, Avis, Budget, and National control about 80% of the US market in terms of number of locations. http://www.autorentalnews.com/fileviewer/2229.aspx

3. Car rental economies • Revenue and profit sources • Factors affecting car rental economics. • General economy (rising and falling as economy moves up or down • Car locations managers have the responsibility of keeping cars available where needed and ensuring the cars are sold at favorable times. • Difference between prices (30% or more discount) paid for cars and prices the cars are sold for after being used by customers • Some auto manufacturers own parts of rental car company (Ford-Budget rental car; GM-National rental car and Avis; Chrysler-Thrifty, Dollar) • A chance to showcase new cars • Length of time cars are kept in service is a factor in containing costs because cars must still bring in a good resale value • New models are purchased as they come out and operated for about 20,000 miles before sold to wholesale buyers • Major costs • Purchase or lease of automobiles • Cost of borrowing money • Labor costs

4. Car rental economies • Measurement of a company’s performance • Fleet utilization • Airport car rentals correlate with amount of travel. • Increase in international visitors and leisure travel can increase rentals. • Leisure travel has grown in importance. • Have to protect themselves against legal liability. • Contracts hold renter’s insurance company liable. • Liability insurance is charged when renter has no insurance. • A fee is charged to absolve the renter of responsibility for losing or damaging the rental car.

5. Cruise line economics • Cruise Line Economics • Rapid growth since the fly/cruise introduced in 1971 • The fastest growing business in the travel industry • Carnival cruise lines is the biggest and most profitable • CLIA 2015 Report • Very successful at promotion and marketing • Mass-marketing to middle and upper class • Vary in size from small exploration-type vessels to megaships • Once the breakeven point is reached, marginal cost of an additional passenger is low • Food cost does increase as number of passenger increases, but labor costs for service personnel increases very little • Wages and salaries remain fixed, tipped employees’ income increases at no cost to the ship. • Gambling has become a large factor in cruise ship economics.

6. Cruise line economics • State of the Cruise Industry, 2015 • In 2014, with 22.1 million passengers cruising globally—a 4% increase over 2013’s previous high of 21.3 million—and about 12 million sourced from North America. • The cruise industry is the fastest-growing category in the leisure travel market. • Since 1980, the industry has experienced an average annual passenger growth rate of approximately 7.2% per year. • The cruise industry’s establishment of over 30 North American embarkation ports provides consumers with unprecedented convenience, cost savings and value by placing cruise ships within driving distance of 75% of North American vacationers. 2015-Cruise-Industry-Overview-and-Statistics.pdf

7. Cruise line economics • A large number of cruise ships based in and controlled by the US are not registered by US companies known as “Flags of convenience”. • Companies that owned cruise ships are typically tax-sheltered countries. • The list of Bahamas-registered cruise ships include some of the largest passenger ships in the world from the fleets of RCCL, NCL and Carnival. • Done to avoid US labor laws. • Get cheap labor and have less taxes. • In terms of employment, cruise lines contribute little to US economy. • Shore-based jobs, marketing and reservations, for US owned cruises do provide jobs. Cruise ship registry: flags-of-convenience

8. Cruise line economics • Food costs are high due to top-of-the-line menus served around the clock • Companies that specialize in food service operate under contract with the ship’s owners • Effort to sail 100% booked even though some cabin styles are deeply discounted • Factors that affect price are… • Cruise duration • Season • Cabin size and location • Ship’s reputation • To reduce fuel cost, use diesel fuel and sail to fewer ports • Sailing done at night and at slow speeds • Use of lighter building materials helps to reduce weight • Cruise prices include lavish food, entertainment and interesting itineraries • Fly/cruise packages include round-trip airfare • The longer the cruise, the older the traveler • Greatest number of passengers are from the US, Britain, Germany, Australia and Canada

9. Travel agency economics • Agencies no longer get a commission from airline tickets • Commission comes from booking cruise line packages and creating tour packages • Work for low wages considering the level of expertise needed • Independent companies are few these days as most agencies have become franchises or joined a cooperative travel group • These large companies can negotiate commissions with carriers • Independent agencies can survive by joining a cooperative marketing service or a group of agencies that together create clout to negotiate • Helps with securing bonds, getting corporate rates from hotels, mutual purchasing and insurance plans, and member educational plans • Can set up a 24/7 service • Agencies can target corporate travelers • Have tickets and itineraries ready for pick-up at the corporate offices • Most agencies make a profit from leisure and international travels.

10. Rocky relationship with hotel industry • Disputes over commission payments owed to travel agents by hotels have strained relationships. • Conversion costs of bank drafts have nearly equaled the commissions. • The time and costs of making international hotel reservations other than through some of the large international hotel chains may exceed the commission.

11. Top 10 consortia 2015 ASTA Agency Profile 2015

12. Travel agency profitability • Depends on management, marketing, sales volume and cost control. • Full service agency needs a good location and accessibility to its clients. • Owning an agency is not the road to fortune. • Owners enjoy benefits provided by the carriers in form of discounted prices and familiarization trips. • Agencies emphasis sales that produce highest profit. • For example, some sell only tours or cruises. • Some agents work only part-time, taking only a commission on their sales.

13. Doing the numbers • Biggest cost is labor, lease arrangements with an airlines computer system can be costly and are tied to sales volume • Need to be busy to meet sales objectives • A definite trend in travel agency operation has been the rapid growth of on-site reservations and ticketing locations. • Travel agencies assume risk by granting credit lines to its customers. • The agency controls credit and costs.

14. Theme park economics • Attracts millions of people from thousands of miles away. • Employ thousands of people • Number one operating cost is labor • In the US alone, there are over 400 amusement parks and attractions • Visited by 290 million people in 2012 • Copenhagen’s Tivoli Gardens, was opened in 1843, considered the first theme park.

15. Top 10 theme parks, 2014 www.teaconnect.org

16. Disney theme parks • Most theme parks originate from the US due to the large success of Disneyland (1955) and Disney World (1971). • Disney bought cheap land in FL and convinced the Florida State Road Department to construct highway interchanges off the nearby highways. • Year-round warm weather is a large advantage at both US locations. • Disneyland Paris (Euro Disney,1992) was a disappointment due to weather and European cultural differences from the United States. • Today, there are Disney theme parks in Tokyo (1983), Hong Kong (2005) and Shanghai (2015), as well as cruises and beach resorts.

17. Theme park costs • Full and part-time salaries, food and beverage, service, marketing, maintenance and utilities are highest cost factors. • Attendance will change with weather, gasoline prices and the general economy. • Training of employees is continuous due to the seasonality of the industry. • Problems with crowding diminishes returns. • Use mathematical modeling techniques to reduce long wait lines. • Capital investments are high. • Huge capital gains from land and other sales. • Popular theme parks are pressed to add rides that are bigger and more exciting before their competitors. • Virtual reality and simulator rides do not take up as much space, are easy to update and have low insurance costs. • Today, many thrill rides are combined with casinos, zoos, shopping and restaurants. • Markets for the larger theme parks are not only regional but international.

18. Camping grounds economics • Public and private camping spaces that are part of the RV business that sells or services RVs in the US • Labor cost is low, need 30% occupancy to break even • A surge in gasoline price, an economic recession, or bad weather can cut revenues. • Campers in comparison to a hotel stay can reduce the cost of their food by cooking themselves. • Financially, campgrounds are seen as a real estate land development investment with land appreciation and sales.

19. Rail travel economics • Theoretically, most cost-efficient and safest way for tourists to travel. • North Americans prefer privately owned cars over the schedules and depots of train industry as it is more convenient. • Most rails around the world operate at a loss, except India because it produces a large income for the government • European and Japanese rails have improved over the years, but the US has not. • Rail Unions drove up the costs by rigid work and pay rules. • Around the world, rail travel is part of the experience and most will pay big money for it. • Europe’s rail system provides service to almost every city, town and hamlet.

20. Other tourism sectors • Intercity Buses • Provides travel to those without other forms of transportation. • Insurance rates can be high and can force small companies to close. • Motorcoach Tours • Tours are assembled by tour operators and travel agents, almost all are marketed by travel agencies. • Fixed costs are high and the goal is 100% occupancy. • Costs include transportation, marketing, office expenses and cost of an escort. • Compete with airlines for international tourists. • Convention Centers and Visitor Bureaus • Charged with attracting visitors to their communities. • Convention center are built and funded by public money and financed by a separate tax on room sales. • A Chamber of Commerce may also fund a visitor bureau.