Economic Crisis Management in Hospitality and Tourism Industry

Economic Crisis in Hospitality & Tourism Industry

Besides tourism, many other industries are in a position to create affluence and economic development opportunities, which also considered difficult to develop. After a significant reduction in 2009, tourism industry boomed strongly in 2010 and 2011 the international tourist arrivals were predictable to increase considerably. As tourism is a steadily growing sector, and a more globally connected, which is already indulged with a maximum population, so in such environment it is often considered different to think about Crisis Management.

But this thing is often neglected and also mostly considered a task to be only thought upon when Crisis actually takes place. Purpose This research study is done to know how financial crisis occurs in tourism industry and how it can be overcome. So this research article named Economic Crisis in Hospitality and Tourism Industry will tell about the impact of economic crisis on this industry and the recommendation to overcome it. Methodology It was an attempt to determine the impact of Economic Crisis in Hospitality Industry, and its main objectives were: To investigate negative effects of economic crisis in this industry.

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To investigate the possibilities and importance of preventive crisis management within corporate framework. To recognize the importance of crisis planning and organizational measures. Keywords: hospitality, tourism, crisis, economic uncertainty, growth, and tourism market Paper Type: Research Paper Introduction The word “crisis” is derived from the Greek word “krisis”, which means differentiation. (Dirk, 2003). In legal terms, crisis was used to describe the differentiation i. e. eparation between actual and proposed situation. National economics was the first to use crisis for its operations. Their business administration started to look into the matter when the conditions were getting worse due to shortage of crude oil in 1970s. The company was unable to solve this oil shortage due to lack of situation management, so this laid the consequence of coping with crisis. Crisis Management, the term usually refers to change of tasks and procedures done when a crisis materialize.

Crisis Management

Different types of crisis management and correlating activities are categorized in regards to the process and differentiation between different phases. Crisis Management as a system refers to the group of people who are responsible for crisis management activities. Mainly middle and lower level employees and the external factors join with the upper management as essential part of crisis. Although crisis management has abided through various attempts of explanations and theories, but till now none of the standards have been found to overcome it.

Crisis management should be implicit as a preparation to avoid uncertain damage or negative effects. Taking the process of crisis management into consideration, the prevention of actually surviving with the crisis is acknowledged. Therefore, both the activities of prevention and struggling should be comprehended to crisis management as should be apprehended as a comprehensive management problem. This part of crisis management is dependable on crisis terminology, both part of regular official planning are also independent from it. Literature Review

As quoted by Krystek and Schulten “Business administration predominantly terms crisis as a process that negatively influences the development of a company to a considerable extent” (Krystek, 1987; Schulten, 1995). According to this the crisis either endangers or makes the survival of the affected company impossible. In words of Burtscher, “… a company should only be spoken of when the achievements of existential or dominant goals, which are decisive factors in the survival of the entire system, are seriously endangered. ” (Burtscher 1996, p. 31).

Another group of authors Sonmez, Bachmann and Allen in 1994 defined tourism crises in even more concrete terms as “… any occurrence which can threaten the normal operations and conduct of tourism destination’s overall reputation for safety, attractiveness, and comfort by negatively affecting visitors’ perceptions of the destinations; and, in turn, cause downtown in the local travel and tourism economy, and interrupt the continuity of business operations for the local travel and tourism industry, by the reduction in tourist arrivals and expenditures. (Sonmez et. al. 1994, p. 22). Later after 2 years in 1996, Scheler defines crisis management as: “…. measures of all types which allow a business to cope with a suddenly occurring danger or risk situation in order to return as quickly as possible to normal business routine. ” (Scherler, 1996, p. 17). Another author Weinberg and Konert in 1985 argued that ‘…subjectivity experienced through the product, the service, the contribution made to the consumer’s quality of life…’ (Weinberg and Konert, 1985, p. 85).

Years later Haedrich in 1998, proved that in year 1991, ‘only 40. 6 percent of the companies interviewed were in a position to implement their planned competitive strategies unhindered by social demands. The onset of a negative event will increase this number even further. (Haedrich, 1998). Luhmann also quoted “…that risk assessment and the readiness for risk acceptance is not only a physiological but mainly a social problem. We behave as it is expected by the relevant reference groups or as we-whether in accordance with or against the opinion-are socialized’. Luhmann, 1991, p. 11). According to Romeo ‘if a high degree of object-specific involvement exists, it can be assumed due to the greater load and a strong discrimination effect in comparison to positive stimuli. (Romeo, 1991). Another author Krielkamp described risk as ‘the possible negative consequences of the consumer’s behavior as perceived by the consumer. Seen from this point of view, risk during the travel decision is the deviation that can exist between the expected and the final, subjectivity experienced tourism product.

If this perceived risk exceeds a certain tolerance value, the consumer tried to reduce this risk using reductions techniques product than for a material product. (Krielkamp, 1998). According to Ritchie and Crouch, it is important for the tourist to know the dangers that exist in a destination in order to adjust their behavior and, secondly, to set these in relation to the usual danger at the location. (Ritchie and Crouch, 1997). Tschiderer’s defines the holiday location product as ‘a bundle of market services, which are made up of constant core part and a derived variable offer’.

And the natural offer as a core service of the service bundle, ‘with a few exceptions, is the core of holiday tourism and, therefore, the deciding element of the services’. (Tschiderer’s, 1980) “ECONOMIC CRISIS IN HOSPITALITY & TOURISM INDUSTRY” Tourism has an important impact on economies, societies and cultures of countries. From boosting economic growth to improving the social fabric and material resourcing to improve living conditions, the tourism has started to act upon.

It’s obvious that tourism contributes to economic and social process, but the strength of action differs remarkably from region to region depending upon the level of Obviously, tourism contribution to economic and social progress, the strength of its action differs significantly from country to country depending on its level of development and the regimen attended on them. As with the most industries hospitality and tourism sector is also experiencing number of challenges as a result of global economic crisis.

The industry is feeling the impact of a reduction capital market and non-mandatory spending by both corporate and individual customers. Tourism has suffered a lot during the global economic crisis; there was a turn down of 4% of international tourist arrivals in 2009, and revenues from international tourism fell by 6% by 2009. Motivations of travel for 2011 have been to traditional tourist destinations (58%), while 28% wanted to discover new destinations. (Global Financial Crisis Bulletin, Protiviti, 2009) Based on existing forecasting, the quarterly increase in hotel RevPAR is not expected until the second the second quarter of 2010.

Corporate Travel

Corporate travel which accounts to 18% of airline revenue has also decreased consecutively as companies all around the world are getting determined to reduce costs. With partial expansion contingencies, many hotels and companies are looking forward to improve the capability of their sales and marketing expenditure and maintaining prevailing brand value so as to gain customer loyalty and market share. According to a new report of UNWTO "2011 International Tourism Results and Prospects for 2012" during the year 2011 tourist arrivals grew up by about 4% to a total of 980 million.

As published in the report, in 2012 the same will continue to grow, at a slow pace most likely very close to one billion tourists. The increase in 2011 was 4. 4% (980 million in the year 2011, compared with 939 million in the year 2010). (Universitatea Danubius Galati, 2012) Tourism development during Global Economic Crisis Tourism industry in the recent decades has proved to be an important element in the economic growth. The increasing number of tourists, tourism business growth, but also being an area that is still a major employer in the labor market motivates positive development of the global Hospitality & Tourism sector.

Involvement of Tourism Industry

The involvement of tourism industry in global GDP is striking 9% with only slightly smaller than the banking sector representing 11%, but higher than the automotive industry that is 8. 8%. This figure is itself very impressing, but taking into consideration the global situation becomes even more valuable. The year 2011 was characterized by a deadlock in the global economy that seems to recover in a series of events leading to political instability in countries in the Middle East and North Africa, and natural disasters, also as in earthquakes in Japan.

The global economic crisis of 2008-2009 had a momentous impact on international tourism industry, the most severe so far in the last decades. International tourist arrivals declined by 4% and international tourism receipts by 6%. In 2010, the sector rebounded strongly (international tourist arrivals grew by 7%) demonstrating the resilience of tourism demand.

Businesses have reported a declination in sales of lodging, food service; events and other hospitality products and some have closed their doors forever. The declination has resulted not only from smaller number of customers in hotels, restaurants, conference and convention centers, etc. , but also from a momentous decline in the average expenditure per guest (Pizam, 2009) The decline in international tourism in 2009 was felt globally, but specifically affected destinations with a higher dependence on the European and US source markets.

All world regions suffered a decline in international tourist arrivals with the exception of Africa. By income level, low-income countries have been less adversely affected by the global crisis and have recovered comparatively faster. Business tourism was more affected than other segments, but available information does not allow for a detailed impact analysis by a segment. Employment in tourism was less impacted and tended to recover quicker than in other economic sectors according to data on employment in hotels and restaurants (the available proxy used in there port to evaluate the impact of the crisis on tourism employment).

The recession had caused serious problems for luxury hotels all around the world. However, many hotels in international markets, especially the ones catering to leisure travelers, were not as much of affected. The popularity and growth of the luxury hotel sector in recent years commend that a strong return may not be idealistic (Barsky, 2009). (UNWTO, 2010) More specifically: *Europe ended the year 2009 by 6% declination. Destinations in Central, Eastern and Northern Europe were predominantly poorly affected, as compared to the results in Western, Southern and Mediterranean Europe that were relatively better. Asia and the Pacific (? 2%) showed an unexpected rebound. The second half of 2009 measured a 3% growth, reflecting enhanced regional economic results and scenarios.  In the Americas (? 5%), the Caribbean returned to growth in the last four months of 2009. The Middle East (? 6%), though far-far better from the growth levels of previous years, had a positive second half in 2009. Africa (+5%) was a strong performer, with sub-Saharan destinations doing particularly well business. (Q Finance, 2012) Crisis Handling Strategies

The further area of crisis management concerns with the application of basic courses of action for crisis handling. The basic aim of crisis handling strategy is the pressure of the developments of the effects caused by negative consequence of global economic crisis. The forms of a crisis handling strategy can be either of the two i. e. Offensive handling and defensive handling.

1. Offensive handling strategy: The aim of an offensive handling strategy is to timely and systematically implement the measures that eradicate and contains the cause and the effects related to identifying the problem area.  To make this handling strategy work the organization must be prepared, intended and independently, to accept all the parts of activities, particularly customers, stakeholders and the state, that something has not worked as anticipated. An essential part of the offensive handling strategy is the attempt to eradicate the causes of the problems. Despite large number of efforts, there will remain always some problem areas for which this is not possible; for example, natural disasters. In such cases, a long-term well thought-out offensive strategy can be used to agree to and capitalize on the event. Dirk, 2003)
2. Defensive handling strategy With a defensive handling strategy, it is taken in consideration without knowing the consequences and knowledge of the circumstances, not to act upon them, but to wait to react in order to bring the situation under control. The aim is to elude the crisis as far as possible and not to strengthen the circumstances with an individual’s action. In practice, the defensive handling strategy can be often observed. This is certainly also affected by the verity that offensive handling strategy and information given come with unknown attention in the preliminary stage. The greater scope with regard to handling and structuring but also the sensibleness of voluntarily talking on social responsibility means that an offensive handling strategy has a lot going for it. If the crisis is understood in such terms, it offers the chance to develop the organization further and ensures the influence in the various spheres of activities. ” (Dirk, 2003) Crisis Planning and Organizational measures Planning is defined as a constructive process that defines how the organization’s stakeholders want to see a future process to be developed.

Hence planning is the opposite of brain-storming, ad-hoc decisions that are dependent on chance. In the crisis process and implementation process, there are three discrete stages i. e. Generic Planning, Contingency Planning and Preventive Planning (WEU, 1995).

Generic Planning

It reclines planning basis for possible crisis situations. The aim is to identify fundamental requirements and potentials. In addition, the ensuring planning stages should be made simple and plans that speed up the process. The questions that are related to organization’s structure as well as to the workflow organization that are much influence and unwavering by it.

Generic planning is followed by the predictable investigation of certain crisis synopsis. The basic aim is to work out and evaluate different privileges in order to keep them accessible as tactics of action. This outline of planning is also known as ‘alternative planning’ or emergency planning.

Contingency Planning

In brief, contingency planning for predictable events enables the organization to get a boost up start that fundamentally helps the company to be more reliable about their decisions in critical situations like under pressure.

The planning process in terms of detailing is limited to economic and human necessities as on the well as within boundaries of imagination. So a lot of attention is required when it concerns with situations for which there is very short reaction time left. 3. Preventive Planning- Whenever a negative is prevailing on an organization, then preventive planning is used. Depending on the need with which the task should be completed, i. e. depending on the speed with which the crisis is increasing, this can only happen through the adaptation of various option plans.

The aim of these option plans, which are made up on the outline of preventive planning, is the application and preparation of feasible solutions to the increasing crisis situation. For all planning actions of preventive planning, the findings and result of previous steps and also the contingency planning are used as an initial point of start. Although these rare results of the applied contingency are being used in this application, the use of the least part of the contingency plan considerably shortens the preventive planning process.

It is important to think through crisis planning and organizational preparation in good times as it is to be implemented in reality. With its implementation, one of the essential factors for a successful crisis management is met (Mileti and Sorensen, 1987; Reilly, 1987) Conclusion In 2011, world tourism has emerged fully from the crisis, say experts unanimously. Trend of increasing profits and the number of tourists will continue over the next few years, and this year could be even set a new record for number of trips, reports World Travel Monitor Forum.

As shown in the statistics world tourism industry activity increases in importance. The main index, tourist arrivals, is increasing, and sales in 2011 of 4. 4% are significant. According to the WTO officials, tourism is very important in emerging economies, tourism affects the entire economy by reducing debt, trade deficit and creating jobs. Besides the critical economic dimension, tourism is very important socially and culturally, favoring communication between different cultures, it can have an influence on mentality and geopolitical developments worldwide.

This paper was part of a research which has been conducted in Penang and uses qualitative research methodology. The level of impacts was different for industry and their businesses decreased for a certain period of time. It was found that the recent economic crisis formed many negative impacts for businesses in Penang and various strategies have been applied to lessen the negative effects. The paper also argues that the crisis had consequent effects and created many challenges for tourism industry. Key Point-2

Recent economic and financial crises that affected tourism industry from 2007 through 2010 and further has thrown considerable attention on the role that crisis measures play in tourism. (Hall, 2010). The scope and size of impacts were so severe, that the World Tourism Organization estimated that international tourist arrivals fell by 4% in 2009, and many destinations in the world reported negative growth. As Penang is a mature tourist destination in Malaysia was also affected by recent global economic crises. Attracting many international leisure and business tourists gives threats and opportunities to this destination.

Threats because these markets highly depend on global economic situations; and variation in the number of arrivals can create negative impacts for tourism industry. Comment and analysis The above study tells us that tourism industry in Penang was struck by global financial and economic crises. However they were not equal for different hospitality industries in Penang, although they approved that the crisis created many opportunities for their business. It is also important to note that although economic crises affected Penang as a tourist destination.

Tourism Business

Tourism business in Penang also looked at this crisis as an opportunity for organizational learning and they obtained valuable experiences on how to manage the difficult situations. They also believed that there is an immediate need to develop a tourism crisis management plan that integrates all tourism business in the State as the industry is very delicate to external factors. Article Summary-2 Carmen Babaita, Marilen Pirtea, Andreia Ispas (2010). Professional tourism – before and after economic crisis in the hotel industry from Timisoara, Romania. WSEAS Transactions on Business and Economics. , pp. 10 Key Point-1 This article demonstrates information on the concept of proficient tourism and its associated terms and how the global economic crisis has affected this valuable segment financially, particularly in tourism industry. The research was conducted in two periods: before and during the economic crisis and targeted 13 hotels of 3 and 4 stars from the hotel market in Timisoara. The study projected a series of related research regarding the tourism and services from the hospitality field, which was in the position of finding new ways to attract and retain business customers.

Also according to authors Hotels surveyed in 2009-2010 except for a 4 Star Hotel said they were affected by the financial crisis. Key Point-2 According to the article, the competitive advantages for Romania as tourist destination were unusual destination markets; location in Central-Eastern Europe, the existence of large international hotel chains; knowledge of English by a large part of the young population; upcoming professional specialization of the Romanian companies with the opportunity to become trusted partners for any global organizations, also placed in Romania.

Taking into account the addition of the professional travel motivation in the definition of tourism and tourists, there were numerous clashes of opinion, having prevailed the opinion that professional tourism produces the same economic effects at the destination of the traveler or visitor as the recreational tourism; these effects can be: an increasing or a stimulating economic activity, an increased turnover of firms specialized in tourism benefits and an increased revenue from tourism balance. Comment and analysis

According to the above study, it can be analyzed that the economic crisis had a major affect on the hotel market activity in Timisoara. The hotel management has always been in a position to find intellectual and resourceful solutions to attract customers, which are scarce and more demanding. Accommodation are still limited, their number is significantly lower to the accessible needs. Starting a project with European funds that include design, site plan of new hotels, even hotel chains, could be the key to improve job prospects, the number of events, business tourists coming to western markets.

With limited expansion opportunities, many hotels and companies are looking to improve the effectiveness opportunities, many hotels and companies are looking to improve the effectiveness of their sales and marketing spend and maintain existing brand value to gain customer loyalty and increase market share. Their strategies include print and online advertising, and marketing directly to national groups that initially have arranged events at their properties. As in other industries, cost management and controls spend have become important areas of focus for owners and operators.

Centralizing or Outsourcing Business Processes

Centralizing or outsourcing business processes (e. g. , payroll, accounts payable) is among numerous strategic initiatives hospitality management is undertaking. Comment and analysis Based on the article it can be concluded that companies are using different strategies to maintain themselves during the global economic crises. For firms in hospitality and tourism industry, it is important for management to maintain customer expectations, manage to maintain customer expectations, manage costs, optimize cash flows and working capital, and maintain debt obligations.

Additionally, many in the industry are using the current economic crisis as an opportunity to gain market share. Through increased marketing and advertising initiatives, companies are striving to maintain existing customers while also positioning themselves to be top-of-mind for industry consumers once the economy begins to recover. Summary-4 Crises Management in Hospitality Industry: Case of Croatia Cizmar, Sanja: Vlahov, Antonio. An Enterprises Odeyssey. International Conference Proceeings: 1576-15-89, 4, 20. Zagreb: University of Zagreb, Faculty of Economics and Business. (May 26-May 29, 2010)

A survey done in on a small fraction of Hospitality companies in Croatia, revealed that top level managers understood the importance of crises management measures and also they were regular in their implementation. The authors also concluded that global economic crises cannot be stopped but, the impact on hotel industry can be limited both by private organizations and public sectors. Key Point-2 In 2009, world economy has faced a rare crisis, activating severe recession that critically affected tourism industry.

In Croatia two percent drop of overall tourist arrival, and one percent increase of overall overnights has been recorded in 2009 in comparison to 2008. The drop in tourism receipts of Croatia has been much stronger than the drop in the arrivals, and is expected to reach 15. 5% compared to next year. A typology of crises, which is important for further discussion in the paper, is based on the types of domains or origins or causes of the crises. Complexity of the crises’ origins affects that lifecycle and duration of the crises, thus impacting its intensity and impacts to organizations. Since tourism industry is very ulnerable to different crisis, the scope of crises impacts in tourism is multilevel. Out of all 24 crises management measures, 14 measures have significant correlation between managers have significant correlation between managers’ perception of importance and its usage. Four measures belong to group ‘operation, investment, and environment’ and three measures to group ‘human resources’. Comments & Analysis This article analysis’s the way of coping with the economic crisis on government and company managerial level in the hospitality industry of Croatia, with regards to 2009 economic crisis.

Professional Tourism

In deep economic crisis as it was in 2009, which has had a significant impact on the hospitality industry market and financial position, only synchronized actions of government and companies’ management may generate positive results in crisis prevention and especially in a phase of coping with the crisis. Empirical survey shows that top managers of Croatian hospitality companies’ management may generate positive results in crisis prevention and especially in a phase of coping with crisis.

The survey should be done on the same sample of hospitality companies in order to reveal which company has succeeded to recover operational performance in a shorter period. Parallel, the research should aim to reveal which group of crisis management measures generates the fastest recovery of companies operating performance in a post crisis period. Article Summary-5 Carmen Babaita, Marilen Pirtea, Andreia Ispas (2010). Professional tourism – before and after economic crisis in the hotel industry from Timisoara, Romania. WSEAS Transactions on Business and Economics. 7, pp. 10

Also according to authors Hotels surveyed in 2009-2010 except for a 4 Star Hotel said they were affected by the financial crisis. Key Point-2 According to the article, the competitive advantages for Romania as tourist destination were unusual destination markets; location in Central-Eastern Europe, the existence of large international hotel chains; knowledge of English by a large part of the young population; upcoming professional specialization of the Romanian companies with the opportunity to become trusted partners for any global organizations, also placed in Romania.

Conclusion

Taking into account the addition of the professional travel motivation in the definition of tourism and tourists, there were numerous clashes of opinion, having prevailed the opinion that professional tourism produces the same economic effects at the destination of the traveler or visitor as the recreational tourism; these effects can be: an increasing or a stimulating economic activity, an increased turnover of firms specialized in tourism benefits and an increased revenue from tourism balance. Comment and analysis

According to the above study, it can be analyzed that the economic crisis had a major affect on the hotel market activity in Timisoara. The hotel management has always been in a position to find intellectual and resourceful solutions to attract customers, which are scarce and more demanding. Accommodation are still limited, their number is significantly lower to the accessible needs. Starting a project with European funds that include design, site plan of new hotels, even hotel chains, could be the key to improve job prospects, the number of events, business tourists coming to western markets.

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