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Transport and Tourism
Lecture 4
The analysis of touristic transport
supply:
competitiveness, supply chain in
touristic travelling sector.
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Analysis of transactions, integration in
tourism.
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Analysis of supply issues
• Sakai (2006:266) highlights a key role in the
analysis of supply issues – namely the provision
of tourism infrastructure, such as roads, bridges,
ports and airports as:
– The provision of tourism infrastructure is of particular
importance to the long-term environment of tourism
growth.
– Expanded facilities are needed to accommodate
anticipated growth and to maintain a relatively
uninterrupted service level (Sakai 2006: 266).
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Theoretical perspectives on
tourism and transport supply issues
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Tourism supply is a complex phenomenon because of both the nature
of the product and the process of delivery.
Principally,
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it cannot be stored,
cannot be examined prior to purchase,
it is necessary to travel to consume it,
heavy reliance is placed on both natural and human-made resources and
a number of components are required, which may be separately or jointly
purchased and which are consumed in sequence.
It is a composite product involving
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transport,
accommodation, catering,
natural resources,
entertainment, and
other facilities and services, such as shops and banks, travel agents and
tour operators (Sinclair and Stabler 1997: 58).
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Theoretical perspectives on
tourism and transport supply issues /2
The main principles outlined by Sinclair and
Stabler (1997) are discussed as they focus
on four market situations:
– perfect competition;
– contestable markets;
– monopoly;
– oligopoly.
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Perfect competition
In economic models of conditions of perfect
competition, a number of assumptions exist:
– There are a substantial number of consumers and
firms, implying that neither can affect the price of an
undifferentiated product.
– There is free entry to and exit from the market,
assuming that there are no barriers.
However, in the real world, many economists
believe that markets are not perfectly
competitive.
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Contestable markets
• In this situation, there are insignificant entry and
exit costs, so that there are negligible entry and exit
barriers.
• Sunk costs which a firm incurs in order to produce
and which would not be recoupable if the firm left
the industry, are not significant.
• Firms in contestable markets are seen to operate in
a similar way to those in perfect markets, since
– they charge similar prices for a product;
– existing operators cannot charge more than average cost
because more competitors would enter the market.
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Monopoly
• This is probably best described as the opposite of
perfect competition, where a major business or firm is
able to exercise a high level of control over the price of
the product and level of output.
• The implications are that firms operating in a
monopolistic market charge prices above the average
cost of production to generate high profit levels, so
consumers pay a price higher than that which would
exist in a competitive market.
• In many countries, domestic air and rail networks
operate under monopoly conditions even though it
can be against the interests of consumers.
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Oligopoly
• An oligopoly exists where a limited number of producers dominate
the transport sector.
• Williams (1995: 163) highlights the situation in relation to tourism
and transport since
– ‘tourism has a highly dualistic industrial structure which is polarised
between
• large numbers of small firms (typically in retailing, accommodation services)
• and a small number of large companies (for example, in air transport)’.
• Although a domestic monopoly or oligopoly structure has been
common, with a single state-supported airline or a small number of
competing airlines, deregulation has made some markets
competitive in the short run.
• In the international market some routes are competitive, being
served by many carriers.
• Most of the others are served by at least two carriers, indicating an
oligopolist market, although a few routes are served by a single
carrier which may be tempted to exercise monopoly powers.
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The benefits of low-cost airlines
• The European Low Fares Airline Association (ELFAA) (2002)
report summarised the benefits of low-cost airlines for the
consumer:
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increased choice for consumers;
lower fares, especially on trunk routes;
removal of restrictive pricing practices, with one-way fare pricing;
greater accessibility of travellers with the use of secondary airports;
greater benefits for regional development through secondary airport
development and destination development associated with such
growth (e.g. the growth of new destinations such as Charleroi in
France, Gdansk in Poland and Knock in Ireland) and a greater tax take
from tourism in these new destinations from airline and tourism;
– a spreading of the weekly and annual patterns of demand and
seasonality through midweek cheap travel options with low-cost
airline air fares.
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Competitiveness, transport and tourism:
key relationships
• The link between transport and the competitiveness of
nations was developed in Porter’s (1990) influential study
which highlighted how places were able to compete with
each other, and transport was a key element of the access to
markets and attractiveness of places.
• The Travel and Tourism Competitiveness Report in 2008
constructs a Travel and Tourism Competitiveness Index
(TTCI) for 130 countries where tourism and destinations are
ranked and evaluated in terms of their competitiveness.
• The use of destination competitive measures and indices is
part of a wider shift towards performance measurement.
• The results for 2008, like 2007, ranked Switzerland on a
range of indices in a country where its massive investment in
public transport is seen as key attribute of developing a
prosperous tourism sector
Figure 5.1
Freedoms of
the air
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Goetz and Sutton (1997) explain the spatial patterns of deregulation in terms of core–
periphery concepts. They distinguish between two types of hub:
– domestic hubs;
– international gateways.
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Schematic diagram of airline
strategies in route planning
and
provision
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Schematic diagram of
airline strategies in route
planning and
provision (continued)
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Summary of the advantages and disadvantages of deregulation
of the US domestic airline market
Advantages
• Price drop in cost of air travel (1950–78, prices fell
by 2.8 per cent; 1978–93, prices dropped by 1.7 per
cent)
• Growth in passenger traffic from 275 million
passenger enplanements in 1978 to 769 million in
2007
• Increased frequency on flights on trunk routes, as
low-cost airlines introduce point to point routes to
improve accessibility and challenge oligopolistic
behaviour of legacy carriers
• Greater competition
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Summary of the advantages
and disadvantages of
deregulation of the US domestic airline market
Disadvantages
• Rise in consumer concerns over service standards, delayed flights,
mishandled baggage, involuntary ‘bumping’ of passengers off overbooked
flights
• Concerns over the safety of an ageing fleet which led to several airlines
grounding aircraft in March 2008 to complete safety checks to comply
with Federal Aviation Administration guidelines
• Lack of a recognition of the business impact of the airline industry as
having special characteristics that do not fit well with deregulation:
excessive price competition on some routes has made operations too
unprofitable even to recover the costs of operation
• The failure of US airlines to reinvest in new fleets for domestic operation
due to profitability and affecting their efficiency in terms of fuel
consumption and emissions
• Declining profitability and declining yields amidst greater volumes of
travellers
• Major casualties across the sector with 165 airlines collapsing/merging or
operating in bankruptcy protection 1978–2008
• Concerns about the effect on seasonal tourism markets that are not on
major trunk routes.
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The supply chain in tourist transport
services
• Generally there is little research on the tourism [and
transport] industry and its operation which is
analytical in emphasis (Sinclair and Stabler 1991: 2).
• This is perpetuated by
– the treatment of supply issues in many general tourism
texts that broadly discuss ‘passenger transportation’, since
– there are methodological problems in differentiating
between the supply and use of transport services by the
local population for travel to work, leisure and
recreational travel purposes and more specific tourist use.
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Transaction analysis
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Buckley (1987) describes some typical transaction chains for
tourism that identify the integral role of transport services in
linking origin and destination areas.
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Corporations are controlling the
transaction chain to:
• maximise profit by eliminating
costs;
• reduce the price to the consumer
to boost market share;
• increase their level of
concentration in the tourism
industry.
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Integration in the tourism sector: implications
for the supply of tourist transport
• Integration is based on the concept of common ownership,
which may involve the coordination or control of the
production process or may have no direct effect on it.
• Horizontal integration occurs where two enterprises with the
same output combine to increase the companies’ control over
output.
– It can occur through mergers, acquisitions, collaboration, franchising
agreements and more complex contractual arrangements, and may
induce concentration in the same business.
• Vertical integration occurs when an enterprise with different
interests and involvement in the supply chain acquires or
merges with companies contributing inputs to its activities,
or where output purchasers provide a ready market for the
service.
– This has the advantage of decreasing economic uncertainty in the
supply system and the avoidance of problems related to contract
breaking.
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Analysing supply issues in tourist
transport
• There are two key elements within company accounts:
– a balance sheet;
– a profit and loss account.
• Within the balance sheet, items of value (assets) are
listed and any claims against them are set out.
• A claim is a liability, such as an unpaid bill.
• Assets are divided into fixed assets, which are those
acquired for use within the business, and current
assets, comprising cash and other items that are to be
converted into cash.
• Liabilities within the accounts are also divided into
current liabilities, where settlement will be made within
one year, and long-term liabilities to be settled after
one year
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Summary
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The analysis of tourist transport issues has attracted comparatively little research in
contrast to the analysis of demand issues.
More recent theoretical syntheses of tourism supply issues by economists (Sinclair
and218 Stabler 1997) highlight the importance of understanding the competitive
conditions and markets in which tourist transport businesses operate.
The discussion highlights the dominant influence of the tour operator sector in the
supply of package holidays and the purchase of transport services on behalf of
customers at discounted prices.
The ability of tour wholesalers to negotiate discounts with transport operators
reflects the capital-intensive nature of the tourist transport business and the need to
achieve high load factors to improve profitability.
The fixed costs of transport operations (e.g. repayments on loans to purchase capital
equipment) mean that the incremental costs of selling existing capacity on a transport
service are low once it has reached its break-even point.
This is one explanation of the reduced price of airline tickets and stand-by fares as it is
more efficient to sell a reduced-priced ticket if the carrier has capacity than to
underutilise the capacity.
The provision of services that meet certain quality standards is one of the reasons why
labour costs are so high in the supply of tourist transport services.
Employees cannot easily be substituted where a service is dependent on face-to-face
contact with customers.
Analysis of company reports provides a useful source to assess both the role of the
transport operator’s involvement in the supply chain and their development of more
sophisticated ways of serving the customer’s needs
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