Presentation on theme: "Forecasts of Demand for Hong Kong Tourism"— Presentation transcript:
1 Forecasts of Demand for Hong Kong Tourism 2005-2020 Prof. Haiyan SongSchool of Hotel and Tourism ManagementThe Hong Kong Polytechnic UniversityTourism in Hong Kong has become the second largest foreign currency earner since 1995 and the income generated from tourism has contributed around 6% to the Hong Kong gross domestic products (GDP) over the last decade (HKTB, 2002 and 2003). International tourism arrivals in Hong Kong increased from 0.93 million in 1975 to million in 2004, representing an average annual growth rate of around 10.9% which was higher than most of the destinations in the Asia-Pacific region during the same period. The growth of tourist receipts has been even more spectacular, rising from HK$2,975 million in 1975 to HK$91,850 million in 2004 with an annual growth rate of about 12.1%. The total number of tourist arrivals dropped by 7% (9.9 million) in 2003 due to SARS, resulting in a substantial decline of incoming tourism receipts of 11%. This shows the industry is vulnerable to external shocks, and appropriate crisis management strategies and policies within the public and private sectors are crucial for minimizing the negative impacts of external shocks to the industry.Inbound tourism in Hong Kong has been dominated by arrivals from mainland China, and this trend will continue, as the independent travelers scheme will be extended to more cities in China. Total arrivals of Mainland China visitors increased from almost none existence in the early 1980s to 4.8 million in million mainland Chinese visitors visited Hong Kong in 2004, accounting for 56.1% of the total arrivals. The influx of mainland travelers poses a number of issues such as tourism carrying capacity, provision of new products and services, and the social, cultural and environmental consequences.Although the tourism industry has played an ever-increasing role in the generation of wealth and employment in Hong Kong, it also faces the critical problem of creating and maintaining a sustainable competitive advantage in an environment of increased globalization and economic integration in Southeast Asia. In particular, Hong Kong will have to compete for international tourists with such destinations as Singapore, Taiwan, Thailand and China. In order to respond effectively to this challenge, the policymakers and businesses need to be aware the comparative position of the industry in the region in their policy formulation. To achieve this, the factors that influence international tourism demand and the future trend of this demand in Hong Kong need to be accurately assessed and forecast. The proposed research project is, therefore, to develop an econometric forecasting system, which can be used in tourism policy analysis and planning.
2 Methods Econometric Model (VAR) Forecast variable Visitor arrivalsExplanatory variablesIncome level of origin countries/regions (GDP index)Cost of tourism in Hong Kong (Exchange rate adjusted CPI)Cost of tourism in substitute destinations (Exchange rate adjusted CPI indexes)One-off events (1997 handover, 9.11, 2003 SARS and Iraqi War, etc.)Tourism practitioners are interested in tourism demand forecasting for the following reasons. Firstly, tourism demand is the foundation on which all tourism-related business decisions ultimately rest. Companies such as airlines, tour operators, hotels, cruise ship lines, and recreation facility providers are interested in the demand for their products by tourists. The success of many businesses depends largely or totally on the state of tourism demand, and ultimate management failure is quite often due to the failure to meet market demand. Because of the key role of demand as a determinant of business profitability, estimates of expected future demand constitute a very important element in all planning activities. It is clear that accurate forecasts of tourism demand are essential for efficient planning by tourism-related businesses, particularly given the perishable nature of the tourism product. Secondly, tourism investment, especially investment in destination infrastructures, such as airports, highways and rail-links, requires long-term financial commitments and the sunk costs can be very high if the investment projects fail to fulfill their design capacities. Therefore, the prediction of long-term demand for tourism related infrastructure often forms an important part of project appraisal. Thirdly, government macroeconomic policies largely depend on the relative importance of individual sectors within a destination. Hence, accurate forecasts of demand in the tourism sector of the economy will help Hong Kong in formulating and implementing appropriate medium-long term tourism strategies.The vector autoregressive (VAR) approach will be used to model and forecast the demand for Hong Kong tourism by tourists from all origin countries/regions. One reason why this approach is selected is that it has been shown in empirical studies that the VAR model can generate relatively accurate medium and long term forecasts of tourism demand (Witt et al 2003 and 2004). Another advantage of this approach is that the VAR model does not require the generation of forecasts for the explanatory variables before the forecasts of the dependent variable can be obtained. In addition, an impulse response analysis can be carried out, which can provide useful information for policymaking purposes.Standard economic theory suggests that the most important factors that influence demand for tourism are the own price of tourism product, the price of substitute tourism products, tourists’ income, tourism marketing expenditure, travel costs from origin countries/regions to the destination and one-off social-economic events, etc..
3 MethodsForecast visitor arrivals from the top 10 tourism generating countries/regionsForecasts of individual countries/regions are aggregated to achieve the total arrivalsModel estimation period: 1984Q1 – 2004Q4Forecasting period: 2005Q1 – 2020Q4Only annual forecasts will be reported
14 Average Growth Rates of Top 10 Countries/Regions (%)Mainland China10.46Taiwan3.43Japan2.84USA1.82Macau3.48Korea7.84Singapore3.81UK4.07Australia3.19Philippines6.54
15 Average Growth Rates of Top 10 Countries/Regions over 1984-2004 and 2005-2020 (%)(%)Mainland China22.4010.46Taiwan13.433.43Japan3.342.84USA3.181.82Macau18.173.48Korea13.197.84Singapore5.193.81UK4.474.07Australia1.953.19Philippines6.376.54
16 Forecasts of Market Share in 2020 Countries/regionsVisitor ArrivalsMarket Share (%)Mainland China52,910,54371.89Taiwan3,795,8765.16Japan2,473,7433.36USA1,389,4711.89Macau1,626,3252.21Korea2,054,1972.79Singapore909,8261.24UK827,0001.12Australia604,3830.82Philippines1,237,8641.68Other Countries5,771,1997.84