Effects of SARS on the Economic Contribution of Tourism to Australia Larry Dwyer, Peter Forsyth, Ray Spurr

Tough Times Australia’s tourism sector is experiencing a period of almost unprecedented difficulty and uncertainty Several major negative shocks have eroded travel confidence since the start of 2001 and have severely impacted upon the inbound travel sector in Australia

Interrelated Factors  Context of slow economic growth  September 11  Ansett Collapse  the bombings in Kenya, Bali, Jakarta  SARS  the Iraq war  Fears of terrorism generally

Aims of paper  to outline the nature of the SARS crisis and its effects on global tourism  to estimate the effects of the crisis on the Australian economy  to discuss some lessons that can be learned by managers of tourism organisations to help achieve destination competitive advantage

Effects of SARS  We distinguish the effects of SARS on  tourism  transport  other sectors  government activity

Tourism  GDP of the affected Asian economies estimated to decline by average of %  Tourism arrivals fell by %, clipping at least US$85 billion from collective travel income and a further $15 billion from corporate income  potential travellers were fearful of catching SARS on a plane or in transit at a foreign airport.  Occupancy levels in hotels plummeted in the Asian Pacific region  countries (eg. NZ) had vigorous tourism campaigns encouraging residents to travel domestically

Transportation  SARS emerged after two years of unprecedented airline industry losses, and in association with the Iraq war, led to a 10% decrease in traffic and a 20% cut in advance reservations  Many airlines restructured their routes while other cut capacity on Pacific or Asian routes serving certain destinations  Asian airlines were the hardest hit as a result of SARS  Almost all Asian carriers reduced services

Transportation (cont)  airlines continue to face higher costs through insurance, security, and other technology (such as temperature scanning required for detecting the SARS virus)  Heavy discounting by airlines  All major airlines, as well as tour operators, introduced a flexible cancellation & refund policy for flights to and from the affected areas  following IATA’s appeals for partnership, some airports rebated their charges

In Australia There was heavy discounting in domestic tourism the SARS effect extended to all tourism sectors Airlines, hoteliers, car rental agencies and tour operators offered discounts of up to 45 per cent Cruise tourism was also affected by SARS as certain cruise lines transferred their principal ports from China or Singapore to Australian ports

Government Response  governments in the Asia Pacific region made an effort to:  establish or expand measures to support tourism's productive structure  gear promotional actions towards markets, market segments and products that were more accessible to the potential demand  provide incentives to boost domestic and intra-regional tourism

Effects on Australian Tourism Flows (Tourism Forecasting Council)  travel to Australia was forecast to fall by 5.3 per cent (260,000 visitors) between 2002 and 2003, to around 4.6 million visitors  Outbound travel was forecast to decrease by 4.2 per cent in 2003  Domestic visitor nights were forecast to increase by 1.9 per cent in This partly reflects some expected switching by residents from outbound tourism to domestic tourism

Economic Effects on Australia (results of modelling)  The 5.3 per cent reduction in forecast inbound tourism numbers implies a $977 m fall in injected tourism expenditure. This translates into a reduction of real GDP of $109.2 m and loss of 2517 jobs  This is offset to an extent by an estimated reduction of $817 million in outbound expenditure  the expenditure foregone by outbound tourists must be allocated between expenditure on domestic tourism, purchases of other goods and services, and savings  under different assumptions about the pattern of such substituted expenditure  reduction in Real GDP is $38.98 m to $83.29 m  reduction in employment is 692 to 1642 jobs

Industry Effects  Some industries suffered reduced output and employment as a result of the crisis  Hotels  road, rail and air transport  transport services  education  Other industries experienced increased output and employment  agriculture, wholesale trade, food and drink, motor vehicles and communications  associated with changes in real exchange rates and real wages as a result of the changes in tourism flows and associated expenditure

Implications for 2004  In 2004, the additional ‘pent-up’ outbound tourism was estimated to reduce real GDP in 2004 by between $7.9 m and $13.1 m  The additional outbound tourism was also estimated to reduce employment by jobs  These are negligible relative to the size of the spending change

Some Lessons  Pre Crisis  Awareness of Risk and Importance of Risk Management  During the Crisis  Strategic Destination Management  Importance of Communication  Role of Travel Advisories  Destination Promotion  Post Crisis  Restoring Confidence in Tourism  Importance of Collaboration  Towards a Sustainable Tourism Industry

Conclusions  substitution effects must be taken into account in estimating the impact of some event or series of events on the economic contribution of tourism to a destination  Once substitution effects are accounted for the net impact of the events may be seen to be substantially less than might be thought  Depends on the size of the domestic tourism sector

Conclusion  Whatever the extent of the negative economic effects from a particular crisis, it is in the interest of all destinations to develop strategies to deal with crises before, during and after they occur  In this way, the negative economic effects can be minimised given coping mechanisms in place