impacts of tourism and hospitality

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Chapter 1. History and Overview

1.5 Impacts of Tourism

As you can already see, the impacts of the global tourism industry today are impressive and far reaching. Let’s have a closer look at some of these outcomes.

Tourism Impacts

Tourism can generate positive or negative impacts under three main categories: economic, social, and environmental. These impacts are analyzed using data gathered by businesses, governments, and industry organizations.

Economic Impacts

According to the 2019 edition of the UNWTO International Tourism Highlights report , international tourist arrivals reached 1.4 billion, a 5% increase in 2018. UNWTO Secretary-General Zurab Pololikashvili stated that the sheer growth of the industry was driven by a strong global economy, surge of the travel-ready middle class from emerging economies, technological advances, and more affordable travel costs among others (UNWTO, 2019). At the same time, the UNWTO (2019) reported export earnings from tourism, or the sum of international tourism receipts and passenger transport, reached a staggering USD 1.7 trillion. This demonstrates that the industry is a major economic engine of growth and development.

Europe has traditionally been the region with the highest tourism dollar spending with USD 570 billion, followed by Asia and the Pacific (USD 435 billion), the Americas (USD 334 billion), Middle East (USD 73 billion), and Africa (USD 38 billion). Asia has shown to have the strongest growths in both arrivals (+7%) and spending (+7%). Africa equally shared a +7% growth in arrivals, suggesting a new interest in travelling to the continent.

What are the trends that are motivating people to travel? The six consumer travel trends, according to the UNWTO (2019) include:

• Travel “to change” or focusing on more authentic travel, transformation, and living like a local.
• Travel “to show” or capturing “instagramable” moments, experiences, and visiting selfie-worthy destinations.
• Pursuit of a healthy life or engaging into active travel that involves walking, wellness, and sports tourism.
• Rise of the “access” economy.
• Solo travel and multigenerational travel as a result of single households and an aging population.
• Rising awareness on travel with sustainable advocacies, thoughtful consideration about climate change impacts, and plastic-free travel.

Social Impacts

Because tourism experiences also involve human interaction, certain impacts may occur. Generally, social impacts in tourism are related to guest-to-host or host-to-guest influences and changes. Studies of these encounters often relate to the Social Exchange Theory, which describe how tourists and hosts’ behaviours change as a result of the perceived benefits and threats they create during interaction (Nunkoo, 2015).

Positive social impacts in tourism include learning about different cultures, increasing tolerance and inclusion through LGBTQ+ travel, increasing amenities (e.g., parks, recreation facilities), investment in arts and culture, celebration of Indigenous peoples , and community pride. When developed conscientiously, tourism can, and does, contribute to a positive quality of life for residents and a deeper learning and appreciation for tourists.

Unfortunately, tourism also has its shortcomings and is culpable for some detrimental impacts. However, as identified by the United Nations Environment Programme (UNEP, 2003a), negative social impacts of tourism can include:

• Change or loss of indigenous identity and values
• Culture clashes
• Physical causes of social stress (increased demand for resources)
• Ethical issues (such as an increase in sex tourism or the exploitation of child workers)

Some of these issues are explored in further detail in Chapter 12 , which examines the development of Indigenous tourism in British Columbia.

Environmental Impacts

Tourism relies on, and greatly impacts, the natural environment in which it operates. In many cases, the environment is an essential resource that outdoor recreation and ecotourism cannot exist without. Even though many areas of the world are conserved in the form of parks and protected areas, tourism development can still have severe negative impacts from misuse, overuse, and neglect. According to UNEP (2003b), these can include:

• Depletion of natural resources (water, forests, etc.)
• Pollution (air pollution, noise, sewage, waste and littering)
• Physical impacts (construction activities, marina development, trampling, loss of biodiversity)

The environmental impacts of tourism knows no boundaries and can reach outside local areas and have detrimental effects on the global ecosystem. One example is increased emissions from necessary tourism elements such as transportation. Air travel for instance, is a major contributor to climate change. Chapter 10 looks at the environmental impacts of tourism in more detail.

A overview of the negative and positive impacts:

Whether positive or negative, tourism is a force for change around the world that is capable of transforming the environment from micro- to macro-scales at a staggering rate.

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10 Economic impacts of tourism + explanations + examples

There are many economic impacts of tourism, and it is important that we understand what they are and how we can maximise the positive economic impacts of tourism and minimise the negative economic impacts of tourism.

Many argue that the tourism industry is the largest industry in the world. While its actual value is difficult to accurately determine, the economic potential of the tourism industry is indisputable. In fact, it is because of the positive economic impacts that most destinations embark on their tourism journey.

There is, however, more than meets the eye in most cases. The positive economic impacts of tourism are often not as significant as anticipated. Furthermore, tourism activity tends to bring with it unwanted and often unexpected negative economic impacts of tourism.

In this article I will discuss the importance of understanding the economic impacts of tourism and what the economic impacts of tourism might be. A range of positive and negative impacts are discussed and case studies are provided.

At the end of the post I have provided some additional reading on the economic impacts of tourism for tourism stakeholders , students and those who are interested in learning more.

 Foreign exchange earnings

Contribution to government revenues, employment generation, contribution to local economies, development of the private sector, infrastructure cost, increase in prices, economic dependence of the local community on tourism, foreign ownership and management, economic impacts of tourism: conclusion, further reading on the economic impacts of tourism, the economic impacts of tourism: why governments invest.

Tourism brings with it huge economic potential for a destination that wishes to develop their tourism industry. Employment, currency exchange, imports and taxes are just a few of the ways that tourism can bring money into a destination.

In recent years, tourism numbers have increased globally at exponential rates, as shown in the World Tourism Organisation data below.

There are a number of reasons for this growth including improvements in technology, increases in disposable income, the growth of budget airlines and consumer desires to travel further, to new destinations and more often.

Here are a few facts about the economic importance of the tourism industry globally:

• The tourism economy represents 5 percent of world GDP
• Tourism contributes to 6-7 percent of total employment
• International tourism ranks fourth (after fuels, chemicals and automotive products) in global exports
• The tourism industry is valued at US$1trillion a year
• Tourism accounts for 30 percent of the world’s exports of commercial services
• Tourism accounts for 6 percent of total exports
• 1.4billion international tourists were recorded in 2018 (UNWTO)
• In over 150 countries, tourism is one of five top export earners
• Tourism is the main source of foreign exchange for one-third of developing countries and one-half of less economically developed countries (LEDCs)

There is a wealth of data about the economic value of tourism worldwide, with lots of handy graphs and charts in the United Nations Economic Impact Report .

In short, tourism is an example of an economic policy pursued by governments because:

•      it brings in foreign exchange
•      it generates employment
•      it creates economic activity

Building and developing a tourism industry, however, involves a lot of initial and ongoing expenditure. The airport may need expanding. The beaches need to be regularly cleaned. New roads may need to be built. All of this takes money, which is usually a financial outlay required by the Government.

For governments, decisions have to be made regarding their expenditure. They must ask questions such as:

How much money should be spent on the provision of social services such as health, education, housing?

How much should be spent on building new tourism facilities or maintaining existing ones?

If financial investment and resources are provided for tourism, the issue of opportunity costs arises.

By opportunity costs, I mean that by spending money on tourism, money will not be spent somewhere else. Think of it like this- we all have a specified amount of money and when it runs out, it runs out. If we decide to buy the new shoes instead of going out for dinner than we might look great, but have nowhere to go…!

In tourism, this means that the money and resources that are used for one purpose may not then be available to be used for other purposes. Some destinations have been known to spend more money on tourism than on providing education or healthcare for the people who live there, for example.

This can be said for other stakeholders of the tourism industry too.

There are a number of independent, franchised or multinational investors who play an important role in the industry. They may own hotels, roads or land amongst other aspects that are important players in the overall success of the tourism industry. Many businesses and individuals will take out loans to help fund their initial ventures.

So investing in tourism is big business, that much is clear. What what are the positive and negative impacts of this?

Positive economic impacts of tourism

So what are the positive economic impacts of tourism? As I explained, most destinations choose to invest their time and money into tourism because of the positive economic impacts that they hope to achieve. There are a range of possible positive economic impacts. I will explain the most common economic benefits of tourism below.

One of the biggest benefits of tourism is the ability to make money through foreign exchange earnings.

Tourism expenditures generate income to the host economy. The money that the country makes from tourism can then be reinvested in the economy. How a destination manages their finances differs around the world; some destinations may spend this money on growing their tourism industry further, some may spend this money on public services such as education or healthcare and some destinations suffer extreme corruption so nobody really knows where the money ends up!

Some currencies are worth more than others and so some countries will target tourists from particular areas. I remember when I visited Goa and somebody helped to carry my luggage at the airport. I wanted to give them a small tip and handed them some Rupees only to be told that the young man would prefer a British Pound!

Currencies that are strong are generally the most desirable currencies. This typically includes the British Pound, American, Australian and Singapore Dollar and the Euro .

Tourism is one of the top five export categories for as many as 83% of countries and is a main source of foreign exchange earnings for at least 38% of countries.

Tourism can help to raise money that it then invested elsewhere by the Government. There are two main ways that this money is accumulated.

Direct contributions are generated by taxes on incomes from tourism employment and tourism businesses and things such as departure taxes.

Taxes differ considerably between destinations. I will never forget the first time that I was asked to pay a departure tax (I had never heard of it before then), because I was on my way home from a six month backpacking trip and I was almost out of money!

Japan is known for its high departure taxes. Here is a video by a travel blogger explaining how it works.

According to the World Tourism Organisation, the direct contribution of Travel & Tourism to GDP in 2018 was $2,750.7billion (3.2% of GDP). This is forecast to rise by 3.6% to $2,849.2billion in 2019.

Indirect contributions come from goods and services supplied to tourists which are not directly related to the tourism industry.

Take food, for example. A tourist may buy food at a local supermarket. The supermarket is not directly associated with tourism, but if it wasn’t for tourism its revenues wouldn’t be as high because the tourists would not shop there.

There is also the income that is generated through induced contributions . This accounts for money spent by the people who are employed in the tourism industry. This might include costs for housing, food, clothing and leisure Activities amongst others. This will all contribute to an increase in economic activity in the area where tourism is being developed.

The rapid expansion of international tourism has led to significant employment creation. From hotel managers to theme park operatives to cleaners, tourism creates many employment opportunities. Tourism supports some 7% of the world’s workers.

There are two types of employment in the tourism industry: direct and indirect.

Direct employment includes jobs that are immediately associated with the tourism industry. This might include hotel staff, restaurant staff or taxi drivers, to name a few.

Indirect employment includes jobs which are not technically based in the tourism industry, but are related to the tourism industry. Take a fisherman, for example. He does not have any contact of dealings with tourists. BUT he does sell his fish to the hotel which serves tourists. So he is indirectly employed by the tourism industry, because without the tourists he would not be supplying the fish to the hotel.

It is because of these indirect relationships, that it is very difficult to accurately measure the economic value of tourism.

It is also difficult to say how many people are employed, directly and indirectly, within the tourism industry.

Furthermore, many informal employments may not be officially accounted for. Think tut tut driver in Cambodia or street seller in The Gambia – these people are not likely to be registered by the state and therefore their earnings are not declared.

It is for this reason that some suggest that the actual economic benefits of tourism may be as high as double that of the recorded figures!

All of the money raised, whether through formal or informal means, has the potential to contribute to the local economy.

If sustainable tourism is demonstrated, money will be directed to areas that will benefit the local community most.

There may be pro-poor tourism initiatives (tourism which is intended to help the poor) or volunteer tourism projects.

The government may reinvest money towards public services and money earned by tourism employees will be spent in the local community. This is known as the multiplier effect.

The multiplier effect relates to spending in one place creating economic benefits elsewhere. Tourism can do wonders for a destination in areas that may seem to be completely unrelated to tourism, but which are actually connected somewhere in the economic system.

Let me give you an example.

A tourist buys an omelet and a glass of orange juice for their breakfast in the restaurant of their hotel. This simple transaction actually has a significant multiplier effect. Below I have listed just a few of the effects of the tourist buying this breakfast.

The waiter is paid a salary- he spends his salary on schooling for his kids- the school has more money to spend on equipment- the standard of education at the school increases- the kids graduate with better qualifications- as adults, they secure better paying jobs- they can then spend more money in the local community…

The restaurant purchases eggs from a local farmer- the farmer uses that money to buy some more chickens- the chicken breeder uses that money to improve the standards of their cages, meaning that the chickens are healthier, live longer and lay more eggs- they can now sell the chickens for a higher price- the increased money made means that they can hire an extra employee- the employee spends his income in the local community…

The restaurant purchase the oranges from a local supplier- the supplier uses this money to pay the lorry driver who transports the oranges- the lorry driver pays road tax- the Government uses said road tax income to fix pot holes in the road- the improved roads make journeys quicker for the local community…

So as you can see, that breakfast that the tourist probably gave not another thought to after taking his last mouthful of egg, actually had the potential to have a significant economic impact on the local community!

The private sector has continuously developed within the tourism industry and owning a business within the private sector can be extremely profitable; making this a positive economic impact of tourism.

Whilst many businesses that you will come across are multinational, internationally-owned organisations (which contribute towards economic leakage ).

Many are also owned by the local community. This is the case even more so in recent years due to the rise in the popularity of the sharing economy and the likes of Airbnb and Uber, which encourage the growth of businesses within the local community.

Every destination is different with regards to how they manage the development of the private sector in tourism.

Some destinations do not allow multinational organisations for fear that they will steal business and thus profits away from local people. I have seen this myself in Italy when I was in search of a Starbucks mug for my collection , only to find that Italy has not allowed the company to open up any shops in their country because they are very proud of their individually-owned coffee shops.

Negative economic impacts of tourism

Unfortunately, the tourism industry doesn’t always smell of roses and there are also several negative economic impacts of tourism.

There are many hidden costs to tourism, which can have unfavourable economic effects on the host community.

Whilst such negative impacts are well documented in the tourism literature, many tourists are unaware of the negative effects that their actions may cause. Likewise, many destinations who are inexperienced or uneducated in tourism and economics may not be aware of the problems that can occur if tourism is not management properly.

Below, I will outline the most prominent negative economic impacts of tourism.

Economic leakage in tourism is one of the major negative economic impacts of tourism. This is when money spent does not remain in the country but ends up elsewhere; therefore limiting the economic benefits of tourism to the host destination.

The biggest culprits of economic leakage are multinational and internationally-owned corporations, all-inclusive holidays and enclave tourism.

I have written a detailed post on the concept of economic leakage in tourism, you can take a look here- Economic leakage in tourism explained .

Another one of the negative economic impacts of tourism is the cost of infrastructure. Tourism development can cost the local government and local taxpayers a great deal of money.

Tourism may require the government to improve the airport, roads and other infrastructure, which are costly. The development of the third runway at London Heathrow, for example, is estimated to cost £18.6billion!

Money spent in these areas may reduce government money needed in other critical areas such as education and health, as I outlined previously in my discussion on opportunity costs.

One of the most obvious economic impacts of tourism is that the very presence of tourism increases prices in the local area.

Have you ever tried to buy a can of Coke in the supermarket in your hotel? Or the bar on the beachfront? Walk five minutes down the road and try buying that same can in a local shop- I promise you, in the majority of cases you will see a BIG difference In cost! (For more travel hacks like this subscribe to my newsletter – I send out lots of tips, tricks and coupons!)

Increasing demand for basic services and goods from tourists will often cause price hikes that negatively impact local residents whose income does not increase proportionately.

Tourism development and the related rise in real estate demand may dramatically increase building costs and land values. This often means that local people will be forced to move away from the area that tourism is located, known as gentrification.

Taking measures to ensure that tourism is managed sustainably can help to mitigate this negative economic impact of tourism. Techniques such as employing only local people, limiting the number of all-inclusive hotels and encouraging the purchasing of local products and services can all help.

Another one of the major economic impacts of tourism is dependency. Many countries run the risk of becoming too dependant on tourism. The country sees $ signs and places all of its efforts in tourism. Whilst this can work out well, it is also risky business!

If for some reason tourism begins to lack in a destination, then it is important that the destination has alternative methods of making money. If they don’t, then they run the risk of being in severe financial difficulty if there is a decline in their tourism industry.

In The Gambia, for instance, 30% of the workforce depends directly or indirectly on tourism. In small island developing states, percentages can range from 83% in the Maldives to 21% in the Seychelles and 34% in Jamaica.

There are a number of reasons that tourism could decline in a destination.

The Gambia has experienced this just recently when they had a double hit on their tourism industry. The first hit was due to political instability in the country, which has put many tourists off visiting, and the second was when airline Monarch went bust, as they had a large market share in flights to The Gambia.

Other issues that could result in a decline in tourism includes economic recession, natural disasters and changing tourism patterns. Over-reliance on tourism carries risks to tourism-dependent economies, which can have devastating consequences.

The last of the negative economic impacts of tourism that I will discuss is that of foreign ownership and management.

As enterprise in the developed world becomes increasingly expensive, many businesses choose to go abroad. Whilst this may save the business money, it is usually not so beneficial for the economy of the host destination.

Foreign companies often bring with them their own staff, thus limiting the economic impact of increased employment. They will usually also export a large proportion of their income to the country where they are based. You can read more on this in my post on economic leakage in tourism .

As I have demonstrated in this post, tourism is a significant economic driver the world over. However, not all economic impacts of tourism are positive. In order to ensure that the economic impacts of tourism are maximised, careful management of the tourism industry is required.

If you enjoyed this article on the economic impacts of tourism I am sure that you will love these too-

• Environmental impacts of tourism
• The 3 types of travel and tourism organisations
• 150 types of tourism! The ultimate tourism glossary
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• 23 Types of Water Transport To Keep You Afloat

Tourism and Hospitality Trends and Sustainable Development: Emerging Issues in the Digital Era

• First Online: 28 August 2024

Cite this chapter

• Emmanuel Ndhlovu   ORCID: orcid.org/0000-0002-2339-3068 4 ,
• Kaitano Dube   ORCID: orcid.org/0000-0002-7482-3945 4 &
• Catherine Muyama Kifworo   ORCID: orcid.org/0000-0001-5581-2258 4  

30 Accesses

This chapter introduces the book Tourism and Hospitality for Sustainable Development—Volume Two: Emerging Trends and Global Issues by summarising the key aspects covered by the chapters that make up the volume. This chapter argues that the emergence of new trends in the tourism industry and the pursuit of sustainable development have been accompanied by the advent of digital technology emerging from the Fourth Industrial Revolution (4IR). There have been, however, concerns about the implications of novel technologies for pressing global concerns such as the environment, labour market, energy utilisation, and global poverty. However, studies that comprehensively problematise these aspects either do not exist or are still in their embryonic stages. As a result, our understanding of tourism and hospitality trends and sustainable development in the digitalisation era and the various issues accompanying the digitalisation wave remains limited. In seeking to close this gap, the chapters in this volume explore the trends and emerging issues in the global tourism and hospitality industry in the era of digitalisation. The current introductory chapter revisits some conceptual and practical debates on the usefulness of digitalisation in the industry. This is achieved by referring to various sources from grey and academic literature. This is meant to provide a background discussion of the chapters contained in the book. The chapter also outlines the sections and chapters in the book.

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Ndhlovu, E., Dube, K., Kifworo, C.M. (2024). Tourism and Hospitality Trends and Sustainable Development: Emerging Issues in the Digital Era. In: Ndhlovu, E., Dube, K., Kifworo, C.M. (eds) Tourism and Hospitality for Sustainable Development. Springer, Cham. https://doi.org/10.1007/978-3-031-63073-6_1

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Tourism’s Importance for Growth Highlighted in World Economic Outlook Report

• All Regions
• 10 Nov 2023

Tourism has again been identified as a key driver of economic recovery and growth in a new report by the International Monetary Fund (IMF). With UNWTO data pointing to a return to 95% of pre-pandemic tourist numbers by the end of the year in the best case scenario, the IMF report outlines the positive impact the sector’s rapid recovery will have on certain economies worldwide.

According to the World Economic Outlook (WEO) Report , the global economy will grow an estimated 3.0% in 2023 and 2.9% in 2024. While this is higher than previous forecasts, it is nevertheless below the 3.5% rate of growth recorded in 2022, pointing to the continued impacts of the pandemic and Russia's invasion of Ukraine, and from the cost-of-living crisis.

Tourism key sector for growth

The WEO report analyses economic growth in every global region, connecting performance with key sectors, including tourism. Notably, those economies with "large travel and tourism sectors" show strong economic resilience and robust levels of economic activity. More specifically, countries where tourism represents a high percentage of GDP   have recorded faster recovery from the impacts of the pandemic in comparison to economies where tourism is not a significant sector.

As the report Foreword notes: "Strong demand for services has supported service-oriented economies—including important tourism destinations such as France and Spain".

Looking Ahead

The latest outlook from the IMF comes on the back of UNWTO's most recent analysis of the prospects for tourism, at the global and regional levels. Pending the release of the November 2023 World Tourism Barometer , international tourism is on track to reach 80% to 95% of pre-pandemic levels in 2023. Prospects for September-December 2023 point to continued recovery, driven by the still pent-up demand and increased air connectivity particularly in Asia and the Pacific where recovery is still subdued.

Related links

• Download the News Release on PDF
• UNWTO World Tourism Barometer
• IMF World Economic Outlook

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Related content, international tourism reached 97% of pre-pandemic level..., international tourism to reach pre-pandemic levels in 2024, international tourism to end 2023 close to 90% of pre-p..., international tourism swiftly overcoming pandemic downturn.

The impact of tourism: How can we all do this better?

John perrottet, beril benli.

Tourism is growing, and growing fast. After surpassing 1 billion international visitors in 2012, we are expecting 1.8 billion by 2030. Tourism is growing faster than the global economy and, for the first time, the statistics for 2015 are expected to show that there were more trips taken to the developing world than to the developed world. But what does this actually mean? Growth, on its own, is not enough. Destinations and their stakeholders are responsible for ensuring that growth is well-managed; that benefits are maximized; and that any negative externalities are minimized. This requires a continuous process of planning and management that evolves and that can be measured over time. For the World Bank Group, our clients and our development partners, this process of planning and management is a central interest. How can we help these processes to deliver more and better development impact? What kinds of interventions or types of assistance will deliver the best results? How do you define the best results – for whom? – and how do we measure them? Being able to demonstrate how the tourism sector contributes to the Bank Group’s twin goals of eliminating extreme poverty and promoting shared prosperity is an imperative for all stakeholders. It’s relevant for national governments, sub-national state agencies, businesses (both multinationals and SMEs), multilateral development banks, NGOs, academics and think tanks. Moreover, it’s vital in helping guide future planning and development, gaining access to and applying for funding, and demonstrating progress to constituents at all levels.

Despite the great breadth and depth of existing impact information, however, serious concerns remain about the accuracy, complexity, gaps, comparability and sustainability of the types of the impact analyses that have been carried out. The Bank Group’s Sustainable Tourism Global Solutions Group recently convened a thought-leadership event in Washington to begin a preliminary discussion about how all stakeholders can come together to try and address some of the current shortcomings. During the “ Measuring for Impact in Touris m” event, we heard about a wide range of challenges for those working in this area and we began to map out the greatest gaps and issues. As Anabel Gonzalez, the Senior Director of the Trade and Competitiveness Global Practice, said at that conference: “We want to be better at monitoring and evaluating our impact, we want to learn from others, and we want to contribute more effectively to tourism development.  I believe these are goals most of you will share. We invite you to join this discussion – and be frank, open and provocative.”The findings can be found in our report, “ Towards More Effective Impact Measurement in the Tourism Sector: Observations and Key Issues ,” which highlights a number of priorities. Some of those challenges concern the availability, quality and consistency of data; the high cost of impact measurement for SMEs; the proliferation of different systems; issues of attribution; quantifying notions of “value”; and the ability to communicate effectively to a wide range of audiences. Some key areas for immediate follow-up and further analysis were also identified. They include:

• Exploring the theory of change by examining more closely the proposition  that, when tourism growth occurs, those living in extreme poverty benefit and by digging deeper into what tourism growth really means for the poor, especially in terms of employment. 
• Assessing the impact value of different types of tourism.
• Assessing and developing the role of technology for data collection, impact measurement and communication.
• Evaluating the use of training for better communication – including assessing what has been tried and what has worked and considering how it could be scaled up. 
• Analyzing the necessity and practicality of improving collaboration among various actors, and assessing the alignment of frameworks along with proposals for greater alignment.
• Developing ideas and proposals for the enhanced sharing and pooling of impact data.
• Developing ideas and proposals for greater inclusion of SMEs.
• Competitiveness
• Digital Development
• Urban Development

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Six trends shaping new business models in tourism and hospitality

As destinations and source markets have changed, tourism and hospitality companies have evolved too. Six key trends have shaped business models in this sector over the past decade.

About the authors

This article is a collaborative effort by Caroline Tufft , Margaux Constantin , Matteo Pacca , and Ryan Mann , with Ivan Gladstone and Jasperina de Vries, representing views from McKinsey’s Travel, Logistics & Infrastructure practice.

In accommodation, asset-light models like franchising and management have proliferated, though luxury and small-scale brands are opting out. Consolidation has driven economies of scale. Hotels are looking to reclaim their relationship with guests, and almost two decades in, home sharing is charting its own course.

In the experiences space, reinvention is the name of the game. Cruises and theme parks have both focused on attracting new demographics while fine-tuning their revenue management strategies. Experiences remains a highly fragmented, legacy sector, creating massive opportunity for those able to crack the code on aggregation.

By considering the six trends, tourism and hospitality companies can gain insights on business practices for today—and on areas of future opportunity.

Accommodation: New models and value propositions

Large hotel brands have increasingly turned away from hotel ownership, scaling their business through franchising and management instead. The move is paying off. We find there is a 0.84 correlation between a hotel company’s share of franchised properties and its net profit margin.

Not all of hospitality is embracing asset-light model, however. Luxury hotel chains have resisted the trend, largely retaining in-house ownership to control standards. And smaller brands may find that they cannot reach the economies of scale that make the math of a franchise business work—focusing instead on creating distinctive experiences on a smaller scale.

Consolidation set the stage for the past decade. Several hotel brands quickly grew their foothold in key geographies and customer segments through strategic acquisitions, achieving economies of scale along the way.

As major hotels take a breather from a series of substantial acquisitions, further mergers between large hotel brands seem unlikely. However, tuck in acquisitions to target key growth demographics, like the luxury and youth categories, are likely to continue.

Another trend on the horizon is direct booking. Long reliant on online travel agencies, hotels are looking to reclaim their relationships with customers—both to cut down on intermediary booking fees and to learn more about their guests. Hotels are encouraging direct bookings through a variety of levers, ranging from best-rate guarantees to higher reward-earnings rates and improved mobile applications. 1 For example, Hyatt offers a best-rate guarantee for booking on hyatt.com and Marriott International is growing direct bookings. For more, see “Marriott sees record direct bookings at its hotels,” Skift, May 4, 2022.

Home sharing is here to stay. The segment has grown from 10 to 14 percent of booking value between 2017 and 2023, experiencing ups and downs in profitability along the way.

Recently, home sharing has positioned itself as more than a stand-in for traditional hotels. Airbnb’s recent advertising campaign “Get an Airbnb” leaned into the differences of home sharing from other hospitality offerings, emphasizing the space and privacy that renting a house can offer. 1 Samantha Shankman, “‘Get an Airbnb’ campaign challenges hotels,” Skift, August 30, 2023.

Home-sharing companies have also become a key distribution channel for smaller hotels, as they can offer more control over inventory and lower fees than other channels. In 2019, Airbnb reported a 152 percent increase in the number of rooms available for booking through its platform in boutique hotels, bed and breakfasts, and resorts. 2 “More hotels are using Airbnb,” Airbnb news release, January 16, 2019.

Experience providers: New segments and revenue streams

Cruises may only account for 2 percent of the overall travel and tourism market, but they have achieved 6 percent yearly revenue growth in the past decade. 1 McKinsey analysis of publicly listed tourism and hospitality companies’ Form 10-Ks. Attracting new travelers and providing new experiences have been key growth strategies.

Luxury hotels are capturing the new-to-cruising segment with the launch of yacht brands, purposefully positioned as a distinct experience from traditional cruises. Meanwhile, millennials are challenging stereotypes about cruising: of all cruise passengers, they are the demographic most likely to say they plan to cruise again (88 percent). 2 State of the cruise industry 2023: September 2023 update, CLIA, September 2023.

In parallel, cruises have fine-tuned their profitability through economies of scale and new revenue streams. Megaships have become the new normal, as ships with over 3,000 berths have grown from 27 to 47 percent of the global cruise fleet since 2015. Ancillary purchases such as onshore excursions and onboard casinos have also become a major source of growth, now accounting for 30 percent of revenue on average. 3 Calculated using the weighted average based on 2023 Form 10-Ks statements of publicly listed cruise companies.

Theme park attendance has grown 3 percent a year over the past decade, as theme park providers capitalize on new demographics and refine their revenue management strategies. 1 Global attraction attendance report , joint report from AECOM and Themed Entertainment Association, 2019.

Two new groups of visitors in particular are powering growth. First, the Asia–Pacific region accounted for much of the growth in theme park attendance in the past decade: of the total number of new visitors between 2013 and 2018, 57 percent were from Asia. Second, millennials are heading to parks in greater numbers, and not just for their children. A similar proportion of millennial parents (78%) and millennial nonparents (75%) say they are interested in going to a theme park. 2 Morning Consult survey, 2,201 participants, June 14–19, 2018.

To increase value from growing attendance, theme parks have become increasingly sophisticated in the field of revenue management. Demand-based pricing, tiered annual passes, and skip-the-line fees are all poised to go from pioneering to widespread practices.

Experiences are increasingly important to travelers, but the segment remains a highly fragmented space. Operators of activities ranging from walking tours to snorkeling outings tend to be small businesses with a limited digital presence.

This has created an opportunity for tech-forward companies to help travelers discover and book experiences. Destination marketing organizations have long played a role in this. For instance, VisitScotland helps visitors discover interesting activities like attending Harry Potter filming locations and whiskey tastings.

Several private companies that offer online discovery and booking platforms for travel activities, like Viator, GetYourGuide, and Klook, have achieved considerable growth in the US, European, and Asian markets. 1 Yeoh Siew Hoon, “GetYourGuide gets into pole position to win in $250b experiences market,” WIT, September 20, 2023. GetYourGuide grew its revenue fourfold between 2022 and 2023, Viator revenue was up 49 percent for the same time period, and Klook reported twice as many new customers in 2023 as in 2019. 2 “Klook completes US$210 million funding, embarks on a new era of profitable growth,” Klook news release, December 6, 2023; Mitra Sorrells, “With speculation of a sale in the air, Tripadvisor reports record revenue driven—again—by Viator,“ Phocus Wire, February 14, 2024.

Looking forward: Strategies to stay ahead of the curve

Where does this leave tourism and hospitality companies? Companies in any given sector tend to follow a power law curve : a small share of companies account for an outsize portion of both profits and losses. The tourism and hospitality sector is no different.

Over the past decade, publicly listed accommodation and experience providers grew revenue at 3 percent and 4 percent, respectively, roughly in line with global GDP growth. Accommodation providers increased their profits by five percentage points, while experience providers remained at an 18 percent average profit margin.

As stakeholders gear up for the next decade, there are things that businesses across the sector can do to sustain their hard-won growth—and profits. Moving forward, three strategies in particular can help tourism and hospitality companies stay on the leading edge of innovation.

Unbundle offerings

Hotel and experience providers can take a page from the airline playbook by unbundling rates and letting consumers pay for the exact experience they want. For example, at the time of booking, hotels can present guests with an individually priced bundle for a room on a higher floor, including breakfast and free parking—features that the guest’s past behavior suggests they would particularly value. Ensuring that guests can find their ideal room can lead both to increased revenue and increased satisfaction. A major hotel brand reported that guests chose to spend an additional $22 per night, on average, to customize their hotel room to their liking. 1 “IHG Hotels & Resorts revolutionizes booking experience through next-gen cloud solutions,” InterContinental Hotels news release, September 12, 2023.

Cross-sell exclusive experiences

For accommodation and transportation companies, partnering with experience providers to cross-sell a full journey provides an opportunity to tap into a growing area of traveler spending—and a chance to deepen the relationship with customers as a vacation creator. For example, airlines can partner with museums to offer discounted rates if booked at the time of the flight, or hotels can partner with a historical site nearby to offer early-hours admission. For uptake rates to become significant, the partnership needs to add value beyond mere cross-selling. Offering features like insurance or an option to buy now and pay later is one way to add value; creating a distinctive experience like a combined train and historic hotel journey is another.

Embrace a data-powered strategy

Tourism and hospitality entities individually hold a treasure trove of untapped data. Take Paris: hotels may see a surge in bookings for the “shoulder season.” Experience aggregator platforms might see that street food tours have attracted rising interest. Social media might reveal that a particular neighborhood is exploding in popularity. What special guest experiences could be created by combining these insights? Stakeholders can unlock new revenue streams by thinking through what data they hold that can be of value to others. More broadly speaking, combining multiple sources of data can help guide a strategy of unbundling and cross-selling to create more gratifying and pertinent experiences for travelers around the world. Embracing data isn’t just smart—it’s the future of travel.

Caroline Tufft is a senior partner in McKinsey’s London office, Margaux Constantin is a partner in the Dubai office, Matteo Pacca is a senior partner in the Paris office, Ryan Mann is a partner in the Chicago office, Ivan Gladstone is an associate partner in the Riyadh office, and Jasperina de Vries is an associate partner in the Amsterdam office.

The authors wish to thank Abdulhadi Alghamdi, Alessandra Powell, Alex Dichter, Cedric Tsai, Diane Vu, Elisa Wallwitz, Lily Miller, Maggie Coffey, Nadya Snezhkova, Nick Meronyk, Paulina Baum, Peimin Suo, Rebecca Stone, Sarah Fellay, Sarah Sahel, Sophia Wang, Steffen Fuchs, Steffen Köpke, Steve Saxon, and Urs Binggeli for their contributions to this article. The authors also wish to thank Mabrian for providing data.

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Northland tourism operators divided over hiked international visitors levy

Northland tourism operators are divided on whether a hiked international tourist levy will impact the region.

Northland tourism and hospitality businesses have mixed views on the Government’s move to make international visitors pay more to visit New Zealand.

From October 1, an international tourism levy charged to visitors to New Zealand will increase from $35 to $100 to ensure they contribute to public services and boost economic growth.

Minister for Tourism and Hospitality Matt Doocey and Minister of Conservation Tama Potaka announced the change on September 3.

Business Paihia spokesman Andy Larsen, who owns Bay of Islands Lodge, said he had “mixed views” on the hiked tax.

“We don’t like seeing international visitors paying more to come into the country. It’s just another fee.

“Any more costs to tourists are always a bit of a burden but on the other hand if it’s going to pay for the upkeep of our parks and we’ll see an improvement, it’s not that much.”

Larsen said he didn’t think the levy would stop people visiting New Zealand.

“Possibly the lower end of the market, it might affect more; it’ll add up for families and sports teams ... certain markets might think twice.

“But I don’t think it’ll have a major effect.”

Duke of Marlborough hotel co-owner Anton Haagh said the levy hike was “good in theory” but after several tough years it would be good to “leave things alone”.

“Northland is still well behind pre-Covid levels.

“If we’re facing a change in tourism strategy, it may be making it harder to get back to where we were.

“After five years, can you please just let us get back to where we were before it changes, things have been tough enough.

“We had [Cyclone] Gabrielle and then the Brynderwyns – it’s enough.”

The International Visitor Conservation and Tourism Levy (IVL) was introduced in 2019 to ensure international visitors were contributing to regional infrastructure and conservation costs.

It is currently set at $35 and is charged to most tourists, people on working holidays, some students and some workers coming to New Zealand.

The levy goes towards maintaining public services utilised by tourists during their stay in New Zealand and supporting tourism sites.

Earlier this year the Government opened consultation on whether it should be $35, $50, $70 or $100.

Doocey said the Government was “serious about enabling the tourism sector to grow as part of our overall goal of doubling exports in 10 years”.

“Public consultation by the Ministry of Business Innovation and Employment (MBIE) found 93% of submitters supported raising the IVL, with the main rationale being an increase would be reasonable to help cover the costs of tourism,” he said.

“The new IVL remains competitive with countries like Australia and the UK, and we are confident New Zealand will continue to be seen as an attractive visitor destination by many around the world.”

Bay of Islands businesswoman Vanessa Owen, who owns Driftwood Seaside Escapes and just returned from four months in Greece, said visitor levies were “everywhere” in Europe.

Tourist taxes are added on to accommodation in most European countries, including around €4.50 a night in Venice and €2.50 in Greece.

“People accept it, that’s how it is, so it’s probably how it’s going over here.

“I don’t think it’ll stop people coming to New Zealand.

“But the marketing behind it has to be that we’re a premium place, we’re a premium product.

“Europeans won’t think twice about it.”

The IVL is paid when someone requests a NZeTA (New Zealand Electronic Travel Authority) or applies for a visa.

Not everyone entering New Zealand needs to pay it - those exempt include anyone travelling on an Australian or New Zealand passport, a passport from many Pacific Island nations, transit passengers, and those holding a New Zealand or Australian resident visa.

Northland Inc head of destinations Tania Burt said New Zealand was already “relatively expensive” for international visitors to access.

“We don’t expect Northland tourism to be affected more than any other region in New Zealand... especially given Australian visitors are excluded from the levy, who make up Taitokerau Northland’s largest international visitor market.”

Burt said there was an opportunity for regional tourism organisations like Northland Inc to work alongside the Government on funding solutions “which look at the entire system, rather than just the International Visitor Levy in isolation”.

“We need a strategy for tourism funding, not just what we charge but also how we invest it at places where the tourism activity occurs.”

Jenny Ling is a news reporter and features writer for the Northern Advocate . She has a special interest in covering roading, lifestyle, business, and animal welfare issues.

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