Tourism demand

The demand side consists mainly of the tourism markets and buyers of tourism products and services. The supply is directly affected by tourism demand and determines the composition of the tourism offering as well as the level of demand for such products and services (Tassiopolous, 2008:10). The demand for tourism is derived from the reason for traveling, the destination of choice and the activities tourists engage in (Botha et al., 2006:3).

The demand for travel can be segmented into two broad categories based on the purpose of travel, namely business travel and leisure travel. The business travel

components consists mainly of activities such as meetings, conferences, exhibitions and trade whilst leisure travel consists mainly of visiting friends and relatives(VFR market), holiday and leisure activities (Botha et al., 2006:4). This segmentation is depicted in Figure 2.3 and indicates the primary activities associated with business and leisure travel respectively.

Figure 2.3 The purpose of travel

Source: Botha, et al., (2006:4).

Tourism demand can be analysed at the hand of three principles that include the following (Page, 2009:84):

 Effective or actual demand

These are referred to as the number of tourists and can be measured as the number of departing or arriving tourists at a specific destination or origin.

 Suppressed demand

This is the proportion of a population that is unable to travel due to circumstances (lack of disposable income, barriers to access, etc). Suppressed demand can be divided into potential demand, which is known as the potential to be converted into effective demand if the circumstance changes to such an extent that travel becomes possible, and

deferred demand that refer to people who could travel but are deterred because of supply side conditions such as terrorism, floods, etc. or due to a lack of information regarding travel opportunities.

PURPOSE OF TRAVEL Business _Leisure Primary Activities Meetings Conferences Exhibitions Primary Activities Tourism Recreation Sightseeing Visiting friends or relatives Holiday Other personal business

 No demand

This is a portion of a market that has no desire to travel and has permanent barriers to travel (e.g. illness, family commitments, etc.) (Keyser, 2009:251; Page, 2009:84).

The above demand principles can be influenced by many factors of which mobility is a major factor. This factor refers to the ability of an individual to move from one location to another. The individual needs to overcome various constraints related to tourism

mobility and include the following (Cooper et al., 2008:14):

 Income

Potential travelers need to have disposable income after their basic needs have been fulfilled. The level of income and disposable income will influence the travel choices that are made, e.g. mode of transport, distance traveled, etc.

 Time

The ability of the individual to take time off from paid income time is important as this result in opportunity cost to travel. This will also determine how far and for how long people will be able to travel.

 Political rights

In order to engage in international travel, political rights must be respected in terms of permission to travel from departing countries and receiving countries. These rights are supported by a system of travel regulations, visas and travel documentation.

 Health

The state of health of a potential traveler will determine if they can travel, the areas they may visit, the duration of stay, the activities engaged in at the destination, the kind of accommodation required, etc.

 Information and Education

Travelers need information to enable them to make informed choices and the education levels will improve access to information and improve the potential earnings of

 Safety and security

The perception of risk associated with travel, will encourage or deter potential travelers to embark on specific journeys or not.

 Family responsibilities

Individuals may want to travel but due to their family responsibilities, such as care- giving, they are prohibited of doing so.

 Legislated holidays

Public holidays are catalysts for tourism activities and countries around the world allocated a different number of days for this purpose. For example in the USA the legislated holidays of Thanksgiving and Christmas are the most significant in terms of the number of people traveling away from their homes.

 Work

The work environment might not encourage people to take holidays and it could harm their careers. The time trade-off between paid time and time off will determine the potential budget available for basic needs and travel, as explained in Figure 2.4.

 Culture

Different cultures will influence the way tourism is engaged with in different manners. A critical factor in this regard is the way cultures perceive tourism as non-essential or essential behavior in their communities (Cooper et al., 2008:15; Seaton & Bennett, 1996:13).

The above factors will influence the way in which tourism is supported or engaged with and lends itself to different combinations of consumption and reduction in income generating time (Hall et al., 2008:3). Consumers face the problem of limited time

available for leisure and work and need to decide how much income generating time will be sacrificed for leisure time. This trade off can be seen as the opportunity cost of leisure time in an attempt to maximize the consumers’ satisfaction for leisure (Tribe, 2005:70).

Hall et al., (2008:3) ascribe the pervasive innovation in tourism to internal (tourism) factors such as the increase in disposable income, more non-work time and changing consumption patterns. External factors such as the expansion of market-driven economies to previously socialist governed countries has also influenced the demand for tourism by unleashing a growing ,more affluent middle and worker class in these countries. The optimal choice in tourism demand can be analysed at the hand of peoples’ preferences and their expenditure budgets and how this influences their demand for tourism. The individuals’ budget is available to be spent on tourism and other goods and services.

Figure 2.4 The effect on tourism consumption by the trade-off decisions between paid and unpaid time.

I2 C I2 C2 E I1 I1 C1 D C* B O U2 U1 U Unpaid time Paid time Source: Stabler, Papatheodorou & Sinclair, 2010:25.

The size of the budget will be determined by the hours spend in a paid work time period, the income per time period and the rate of taxation on income. The net result will deliver disposable income that can be utilized for purchasing goods and services. People have

Con s umpt ion, Inc om e

to trade off the number of time units they want to spent in unpaid activities against those that yield and income (Stabler et al., 2010:24).

This is supported by Tribe (2010:77) whom suggests that people have to choose if they will devote their limited time to leisure or work and relates the cost of leisure time to the opportunity cost associated with giving up income generating work time in order to have leisure time. Figure 2.4 depicts this trade off and explains the relationship between consumption, paid work and unpaid time.

The vertical axis in Figure 2.4 represents consumption or income whilst the horizontal axis represents unpaid time if it is read from left to right and paid time if read from right to left. Line CBU represents the different combinations between consumption and unpaid time; one may have and is also known as the budget line. Point B to U represents the level of consumption by an individual who is unemployed but still

receives some social benefits. Point C represents the highest consumption that can be achieved by spending the maximum time on

paid work.

The individual can now trade-off a portion of consumption against unpaid time and these preferred combinations for different individuals are depicted by the indifference curves I2 I2 and I1 I1. For a consumer with an indifference curve I1 I1 the optimal point of satisfaction along the budget line CB would be at point D with a combination of

consumption at OC1 and unpaid time at OU1. A different individual could prefer a different combination of these variables and the indifference curve could be depicted by I2 I2 with an optimal point of satisfaction at point E. This person would consume at a higher level at OC2 with a lower value of unpaid time at OU2.

The above scenario assumes a certain fixed level of income in calculating the individual indifference curves. If the income level would increase, two possible effects can be expected on the demand for leisure time. The increase in income would mean a greater opportunity cost for leisure time and consumers might reduce their leisure time.

This effect is known as the substitution effect. The second effect can be that of an increase in leisure activities as a result of increased income and spending power. This is known as the income effect (Tribe, 2005:71). This effect is illustrated in Figure 2.5 and depicts the effects of a rise in income on tourism consumption.

Figure 2.5 The income effect on tourism consumption

T* I2 T I1 T2 E I2 T1 D I1 I3 T3 F I3 0 G1 G2 G G3 G* Other goods

Source: Stabler et al., 2010:30)

The demand for tourism goods will rise if an increase in income is experienced. This is only true if the tourism goods are considered to be normal or superior goods that are positively related to a rise in income (Tribe, 2005:46; Tribe, 2010:71). There are cases where the demand for tourism goods decline as a result of an increase in income. In this case the tourism goods that experience the decline can be seen as inferior goods and the consumer demands other tourism goods that are considered to be superior tourism goods. This is evident in the rapid growth of the middle class in South Africa of which 9,3 million (2007) are black people (SA Good News, 2010a:1).

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Touris

In Figure 2.5 the vertical axis measures tourism and the horizontal axis measures other goods. The original income curve or budget line is depicted as line TG. At this income level the consumer with an indifference curve of I1I1 will consume optimally at point D with tourism consumption at OT1 and other goods at OG1. If all prices remain constant, an increase in income will result in the income line TG moving parallel to the new consumption line T*G*.

A new indifference curve I2I2 with an optimal consumption point at E will be expressed by the consumer. Tourism goods will be consumed at level OT2 and other goods at level OG2 if the tourism goods are normal goods. If the tourism goods are inferior goods then an indifference curve of I3I3 will be preferred by the consumer. This preference is depicted by the movement of the optimum consumption point E to point F, along the income curve T*G*. This will result in a decline in the consumption of tourism goods, from level OT2 to OT3, and an increase in consumption of other goods, from level OG2 to OG3 with the optimal consumption point indicated by point F on the indifference curve (Stabler et al., 2010:30).

Another factor that influences the demand for tourism goods is price and the

responsiveness of demand to a change in price. This responsiveness is known as the price elasticity of demand and is calculated by dividing the percentage change in quantity demanded by the percentage change in price. The following elasticities of demand can be observed:

 Perfectly inelastic

In this case demand is unresponsive to a change in price. It can be that the tourism product is a necessity or the only product available.

 Inelastic

Demand changes by a smaller proportion than price. It can be that the specific tourism product forms a small percentage of the tourism spend or that the product is highly sort after.

 Unit elasticity

The demand changes by the same proportion as price. This is normally in a situation with lots of competition and consumers aware of alternative products.

 Elastic

Demand changes by a larger proportion than price which Page (2009:482) ascribes to the nature of tourists and their lack of loyalty to a destination.

 Perfectly elastic

Any increase in price will have demand drop to zero and the specific product forfeited or replaced by another. In this case the consumer might not have any additional funds available to sustain the demand and the product might not be divisible in smaller

These price elasticities of demand are influenced by many factors of which the following are the main factors according to Tribe (2005:74):

 Necessity of goods and service  Number of substitutes

 Addictiveness

 Price and usefulness  Time period

 Consumer awareness

These main factors can individually or collectively influence the price elasticity of

demand for tourism products and the composition of the total tourism product must take cognisance of how the contributing components of the final product, influence the overall price elasticity of demand (Tribe, 2005:78). In a study conducted by Nicolau and Mass on the micro segmentation of individual tastes on attributes of tourism destinations, price and distance were two attributes that were analysed. They found that in the process of segmenting the market according to these attributes, four market segments emerged.

All four groups were clearly adverse to higher prices to different degrees (elastisities), whilst one of the groups indicated a preference for longer journeys. This confirms the theory that the journey in itself can also contribute to the positive utility derived from the tourism activity (Liu, 2006:116). Price remains a negative factor in deriving utility from the tourism activity but is seldom calculated in its totality before a journey is embarked upon due to a lack of information. Another important factor that influences demand is the influence of income elasticity of demand for tourism goods. Income elasticity of demand measures the responsiveness of demand to a change in income and can be calculated by dividing the percentage change in quantity demanded by the percentage change in income (Tribe, 2005:78). This is relevant to the goals of BEE as the growth in the black middle class lends itself to growth in demand emanating from the domestic market.

In order to determine if tourism products are substitutes, complements or unrelated, one needs to examine the cross-price elasticity of demand for tourism products. The cross- price elasticity of demand for tourism products can be calculated by dividing the

percentage change in quantity demanded of good A by the percentage change in price of good B. Substitute goods have a positive cross-price elasticity of demand and an increase in the price of good A will result in a positive growth in demand for good B. Complementary goods have a negative cross-price elasticity of demand and an increase in the price of one of these goods will have a negative impact on the demand for the rest of the goods (Stabler et al., 2010:29). If a price change of a good has no impact on the demand for other goods then it is considered an unrelated good with a cross-price elasticity of demand of zero (Tribe, 2005:79).

The future of tourism demand will be shaped by many factors including those outside of tourism. The world economic crisis (2008-2010) has negatively influenced the demand for tourism goods and positive tourism growth can be expected when world economic growth improves. Before the world economic crisis, large scale growth has emerged from the Chinese outbound market and it is expected that China will become a major outbound market by 2020 (Page, 2009:112). The following consumer trends have been

identified by Page (2009:112) as factors that will shape the quality and nature of future tourism demand:

 Consumers will have high expectations of quality irrespective of the price.  Consumers derive satisfaction from the tourism product as well as the purchase

process and therefore the purchase process must meet raised expectations.  Consumers utilize electronic media to inform themselves of the various tourism

products available and therefore require more value add in the purchasing process than before.

 Consumers seek products that address their specific needs and are not satisfied with generalized products that are not consumer specific.

 The tourism industry will have to provide for more discerning tourists that have time-poor and cash-rich lifestyles that demand stress free products with ease of consumption being the new trend.

 Tourism providers will have to compile and market their products through market segmentation, target marketing and tailor-made techniques.

 Low cost, mass products aimed at independent price sensitive consumers, will continue as a specific niche market.

 Branding and advertising will continue to be used to influence consumers on market position, consumer benefits and the promise of tourism offerings.

 Product offerings will be designed to meet individualized aspects of demand (e.g. health and wellness) and focus on niche market development

In conclusion, tourism demand will consist of decisions that consumers make based on their own needs and requirements whilst external factors will influence these decisions. The demand composition that consists of the mix and character of the potential

customers; the size of the demand in terms of the number of trips and spending power; as well as the growth rate of demand are critical factors that will influence supply

decisions and future developments in tourism (Tassiopolous, 2008:103). Future demand will emanate from the BRICS (Brazil, Russia, India, China and South Africa) countries as well as regional African source markets for South Africa (Department of Tourism, 2010:3). Disposable income in these countries is on the rise and therefor the demand for tourism and travel are also increasing.