The price of tourism in the The price of tourism in the context of global oil pricescontext of global oil prices

S. Becken: Lincoln UniversityA. Carboni, A. Schiff, S. Vuletich, J. Small: Covec Ltd

J. Lennox: Landcare Research

BackgroundBackground

• 3-year FRST-funded project on Tourism & Oil

• Aim: to help manage tourism’s vulnerability to global oil prices

• Three objectives:1. Modelling tourist behaviour IN and TO

New Zealand2. Analysing economy-wide effects (CGE)3. Adaptation measures for the sector

Fuel priceFuel price

Source: Ministry of Economic Development (Dec. 2008)

Source: Ministry of Economic Development (Dec. 2008)

SegmentSample size in 2007

Market share in 2007

Total Adults arrivals in 2007

Australia FIT Holiday 312 13.0 291,087 Australia FIT VFR 296 12.7 286,005 Australia FIT Other 252 8.7 195,029 Australia Tour 79 3.9 86,823 UK Holiday 305 6.3 141,995 UK VFR and Other 257 5.6 126,081 USA FIT Holiday 265 4.2 93,247 USA FIT VFR and Other 226 2.9 64,537 USA Tour 97 1.6 35,032 Japan FIT Holiday 107 1.4 30,509 Japan FIT VFR and Other 138 1.2 26,957 Japan Tour 161 2.5 56,418 South Korea All 238 3.8 85,592 China FIT 174 1.2 27,000 China Tour 217 3.7 82,995 Germany All 182 2.5 55,082 Rest of World FIT 1760 22.4 503,736 Rest of World Tour 180 2.5 55,862 Total 5246 100.0 2,243,987

Segments used in this researchSegments used in this research

Fuel purchaseFuel purchase

The average amount spent on fuel (directly) by a tourist in each segment

Spend per trip on fuel, based on Car+Campervan kms

$-$50.00

$100.00$150.00

$200.00$250.00

$300.00$350.00

Austra

lia F

IT H

oliday

Austra

lia F

IT V

FR

Austra

lia F

IT O

ther

Austra

lia T

our

UK Hol

iday

UK VFR

and

Oth

er

USA FIT

Hol

iday

USA FIT

VFR

/Oth

er

USA Tour

Japa

n FIT

Holi

day

Japa

n FIT

VFR/O

ther

Japa

n Tou

r

South

Kor

ea A

ll

China

FIT

China

Tou

r

Ger

man

y All

Rest o

f Wor

ld F

IT

Rest o

f Wor

ld T

our

0

200

400

600

800

1000

1200

1400

UK Holiday UK VFR and Other

USA FIT Holiday

USA FIT VFR and

Other

USA Tour

2006 2007

0

200

400

600

800

1000

1200

1400

UK Holiday UK VFR and Other

USA FIT Holiday

USA FIT VFR and

Other

USA Tour

2006 2007

0

200

400

600

800

1000

1200

1400

UK Holiday UK VFR and Other

USA FIT Holiday

USA FIT VFR and

Other

USA Tour

2006 2007

Example: UK and USA segments

BUS/COACH

CAR

DOMESTIC AIR

Comparisons across segments Comparisons across segments and change over timeand change over time

Consumption bundles and Consumption bundles and Price IndicesPrice Indices

• We determined the consumption bundle for each segment based on: – Accommodation– Road and air transport– Fuel (petrol)– Other

• We have calculated price indexes (based on Statistics NZ) to represent the price of the bundle of tourism products consumed by tourists in each market segment.

• We fixed consumption bundles at their 2006 levels, and apply that pattern to price indices.

Consumption bundlesConsumption bundles

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Australia FIT HolidayAustralia FIT VFR

Australia FIT OtherAustralia Tour

UK HolidayUK VFR and Other

USA FIT HolidayUSA FIT VFR and Other

USA TourJapan FIT Holiday

Japan FIT VFR and OtherJapan Tour

South Korea AllChina FIT

China TourGermany All

Rest of World FITRest of World Tour

ACCOMMODATION AIR TRANSPORT OTHER TRANSPORT FUEL ALL OTHER

Underlying NZ Price IndicesUnderlying NZ Price Indices

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Accommodation

Domestic air transport

Domestic road transport

Fuel

All other (CPI)

Price Change in NZD 1997-2007Price Change in NZD 1997-2007

28.0%28.0%

27.2%27.2%27.2%

27.0%26.8%

26.7%26.6%

26.5%26.5%

26.3%26.3%

26.1%26.1%26.0%

25.8%25.8%

25.4%

25.0% 25.5% 26.0% 26.5% 27.0% 27.5% 28.0%

Australia FIT HolidayUSA FIT Holiday

USA FIT VFR and OtherUK VFR and Other

UK HolidayGermany All

AVERAGERest of World FITJapan FIT Holiday

Rest of World TourAustralia FIT VFR

Australia FIT OtherJapan FIT VFR and Other

Japan TourUSA Tour

Australia TourChina FIT

South Korea AllChina Tour

CPI increased 24.1% over the same period.

Exchange Rate EffectsExchange Rate Effects

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

USA FIT Holiday

USA FIT VFR and Other

USA Tour

South Korea All

Japan FIT Holiday

Japan FIT VFR and Other

Japan Tour

China FIT

China Tour

Germany All

Australia FIT Holiday

Australia FIT VFR

Australia FIT Other

Australia Tour

UK VFR and Other

UK Holiday

Price Change inForeign Currency

Price Change inNZD

Total price change 1997 – 2007

International ArrivalsInternational Arrivals

• Linear regression• Quarterly data 1997-2006• General – to – specific model selection

process• Real consumption per capita (foreign)• Real GDP per capita (foreign)• CPI (foreign)• Exchange rate (foreign with $NZ)• Oil price (world price)• OTG price index (in foreign currency)• Airfare (in foreign currency)• Quarterly dummy variables

© Covec Ltd 2008 October 2008

Variable Coefficient

Consumption 0.05

CPI -2827

Exchange Rate -364

OTG Price 0.45

Oil Price -215

q1 7626

Constant 215032

For example: KoreaFor example: Korea

OutlookOutlook

• More work on price elasticity

• Input into Computable General Equilibrium Model

• Research on energy behaviour in tourism businesses (published)

• Tourist behaviour

• Identifying at risk destinations, products and markets