Travel Industry Economics: A Guide for Financial Analysis

353 Pages·2016·6.3 MB·English

by  Harold Vogel (auth.)

Harold L. Vogel
Travel
Industry
Economics
A Guide for Financial Analysis
Third Edition
Travel Industry Economics
ThiSisaFMBlankPage
Harold L. Vogel
Travel Industry Economics
A Guide for Financial Analysis
Third Edition
HaroldL.Vogel
NewYork,USA
ISBN978-3-319-27474-4 ISBN978-3-319-27475-1 (eBook)
DOI10.1007/978-3-319-27475-1
LibraryofCongressControlNumber:2016935870
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To my beautiful mom, whose love
and spirit knew no bounds
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Preface
trav·el—involvesatrip,ajourney,atransmission,andamovementfromoneplace
ortimetoanother
in·dus·try—a specific branch of a craft, art, business, or trade that involves a
divisionoflaborandthatrequiressignificantinvestmentcapitalandemploysmany
people in organizations with similar technological and organizational structures
usedtoprovidegoodsandservicesthatarelargelysubstitutable
ec·o·nom·ics—a social science that studies how wealth is created, distributed,
used,andconsumedandthatconsiderscostsandreturns
Weare,itseems,allbornwithanaturalcuriosity—withanurgetotravel.What
normalinfant,confinedtocriborplaypen,doesn’tsoonwanttoexploretheworld
beyond?Whatactiveteenagerdoesn’twanttoexploreanewneighborhoodorcity
or country? And what person hasn’t ever dreamt of how it would feel to travel
acrosstheboundariesofspaceortime?
Theurgetotravelisuniversal.Andthismakestravel,asbroadlydefined,abig
businessindeed.IntheUnitedStates,forexample,travelandtourismisestimated
to account for approximately 5 % of gross domestic product and to be the third
largest retail industry after automobile dealers and food stores. Clearly, in getting
from here to there and back again, we need lots of goods and services. In fact,
includingeverything,thetravelindustryturnsouttobeoneoftheworld’slargestin
terms of numbers of people employed and in total direct and indirect revenues
generated. Three hundred million people—one of every ten employees world-
wide—and more than US$3.5 trillion out of a total world economic output of
around US$75 trillion are probably reasonable estimates in the second decade of
thetwenty-firstcentury.
Withanindustrysolarge,itisdifficulttoevenknowwheretobegin.Thereare
textsrelatingtohotelorrestaurantorcasinomanagementproceduresandstrategies.
vii
viii Preface
Therearetomesandstockbrokeragehousereportsandconsultants’papersprovid-
ingforecastsforthevarioustravel-relatedbusinesssegments.Statisticsofalltypes
abound.
Yet what seems to be missing is a concise treatment that ties together all the
majorindustrysegmentsfromtheperspectiveofapotentialinvestorandfinancial
economist. The mission is to thus broadly cover—for anyone who analyzes or
manages or writes about travel-related investments—the financial and economic
dynamics of the businesses that service the needs of people who, whether for
pleasure (tourism) or commerce, require physical transportation: travel, in other
words.
Incontrast,theunderlyingconceptofmyrelatedwork,EntertainmentIndustry
Economics:AGuideforFinancialAnalysis,involvesadifferentkindoftranspor-
tation—that of people’s emotions. The style of that work, as well as the chapters
providing an economic overview and coverage of casinos and theme parks, has
beenlargelycarriedover.Asinthatvolume,onlythoseindustrysegmentsthathave
clearlydefinedbordersandreliabledatahistoriesareexamined.
Travel Industry Economics is primarily a text for graduate or advanced under-
graduatestudents.Theminimumrequirement,supportedbytheappendedglossary,
is for the reader to have some familiarity with general economics and financial
terminology.However,thisworkisalsointendedtobeofinteresttogeneralreaders
and should prove to be a handy reference for executives, financial analysts and
investors, agents and legal advisors, accountants, economists, legislators, regula-
tors, and journalists. The approach is holistic: It recognizes that managers and
analystsconcentratinginanyonesectorincreasinglyneedtoalsounderstandhow
relatedandadjacentsectorsoperate(e.g.,airlinesandairports,hotels,andtourism).
Instructorsshouldfinditeasytodesignone-semestercoursescenteredononeor
two areas. A minimal grasp of what travel industry economics is all about would
requirethatvirtuallyallstudentsreadatleastChap.1and,attheendofthecourse,
the first section of Chap. 8. But different modules can be readily assembled and
tailored. Among the most popular might be a concentration on transportation
modes,primarilyairlines(Chap.2).Anotherpossibilitywouldbeacoursecovering
hotels,gamingandresorts,themeparks,cruiseships,andtourism(Chaps.3–7).
Tostayfocused,however,thelargeraspectsoftransportationindustries—which
mightfurtherincludestudiesofairportplanningandurbanpublictransit—havebeen
omitted.Analysesoftourism-relatedsubjectsthatwouldtakethetextintoareassuch
astradeandregionaldevelopmentarealsomerelysketched,asgivingthosetopicsthe
fulltreatmentsthattheydeservewouldonlydistractfromtheprimarypurpose.For
much the same reason, there is only tangential coverage of subjects that are com-
monly discussed in transport economics—externalities, infrastructure investment
criteria,peak-loadpricing,regulation,andsocialcost-benefitanalysis,tonameafew.
This third edition updates, refreshes, and significantly broadens coverage of
tourism economics. It further includes new sections pertaining to power laws and
priceindexingeffects.Newchartscomparingairlineandhotelrevenuechangesand
lodging revenue changes versus GDP are also introduced. And end-of-chapter
further readings items that can conveniently form the basis for case studies and
classdiscussionsarenowindicatedinboldfacetype.
Preface ix
I am indebted to the transportation and travel industry economists upon whose
academicshouldersthisworkrests.Particularlynoteworthyformakingthetaskof
exposition a lot easier than it would have otherwise been are Kenneth Button’s
Transport Economics; Kenneth Boyer’s Principles of Transportation Economics;
Adrian Bull’s The Economics of Travel and Tourism; Rigas Doganis’s airline
economics masterpiece, Flying Off Course, and J. P. (Pat) Hanlon’s Global Air-
lines.AlsoprovinginvaluablewereMorrell’stextonairlinefinance,Graham’son
managing airports, Block’s on REITs, Dickinson and Vladimir’s on cruise ships,
Meyer and Oster’s on intercity passenger travel, Hayes and Ninemeier’s Hotel
Operations Management, and the pioneering works in the casino gaming field by
Friedman,Greenlees,andScarne.Andintourism,Vanhove’sEconomicsofTour-
ism Destinations, Candela and Figini’s Economics of Tourism Destinations (same
title),andTisdell’sHandbookofTourismEconomicsprovidedastrongfoundation
fortheexpandedexpositionhere.
Inaddition,thebookhassubstantiallybenefitedfromdatamadeavailablebythe
various industry trade groups including the Airline Transport Associations (ATA
and IATA) and the International Civil Aviation Organization (ICAO). Similar
benefit was derived from data of the Cruise Lines International Association
(CLIA),theUnitedNationsWorldTourismOrganization(WTO),andtheInterna-
tionalAssociationofAmusementParksandAttractions(IAAPA).
For the previous first edition, I thank Michael Lenz, Director of Investor
Relations at American Airlines, for taking time to review a draft of the airline
chapter,andErinWilliams,ManagerofInvestorRelationsatRoyalCaribbean,for
reviewingthecruiseshipsection.ThankssimilarlytoLauraPaugh,VicePresident
for Investor Relations at Marriott International, for reviewing the hotel chapter. I
amfurtherindebtedtoBobbyBowersofSmithTravelResearch(STR)whokindly
guided my quest for essential aggregate hotel industry data. And additional
acknowledgmentsareduetoVanceGulliksen,HeadofPublicRelationsatCarnival
Cruise,toRyanWahlstromofcruisemarketwatch.com,andtoRobertMandelbaum
ofPKFHospitalityResearch.
Thisprojectandseveralearlieronesalsobenefitedenormouslyfromthesupport
of Scott Parris, former longtime economics editor at Cambridge University Press,
and,forthisedition,fromChristianRauscherofSpringer.
Even with such impressive backup, however, the responsibility for any errors
thatmayinadvertentlyremainisminealone.
Inall,IhopeandexpectthatreaderswillfindTravelIndustryEconomicstobea
truly enjoyable and moving experience. As Danish storyteller Hans Christian
Andersenwrote,“totravelistolive.”
Allaboard!
NewYorkCity HaroldL.Vogel
March2016