Journal of Tourism & Hospitality
Open Access

Analyzing How Tourism Sub-Industries Expenditure and Price Elasticities Change Over Time

Adrian R. Fleissig^{* *}Correspondence: Adrian R. Fleissig, Department of Economics, California State University at Fullerton, Fullerton, USA, Email:

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Description

This study analyses how substitution and expenditure elasticities change over time for six U.S. sub-tourism industries. The six U.S. sub-tourism industries are air transportation, food and beverage, recreation and entertainment, shopping, travelers' accommodations, and other transportation-related commodities. A unique feature of the research is that it is the first study to use the Fourier flexible form to provide global estimates of elasticities and expenditure elasticities at each data point, instead of having a constant single estimate of an elasticity or expenditure elasticity. The estimated substitution and expenditures elasticities vary considerably over time, which should be taken into account by marketing strategies of tourism agencies and governments. There is evidence of increased variation in substitution and expenditure elasticities over the business cycle as well as from 2001-2003 and 2009-2011 when tourism expenditure declined.

Given that air transportation was found to have the most price elastic demand, tourism agencies and governments should pay less attention to marketing air transportation during an economic slowdown because consumers will spend more on the less price elastic sub-industries of food and beverages as well as other related-transportation commodities. Air transportation, shopping, and accommodation are typically found to be luxuries over the business cycle while food and beverages are necessary goods. Thus expenditure on food and beverages is the only subtourist industry that is likely to be more consistent and predictable over time. Another important result is that air transportation and other related-transportation commodities are substitutes with the degree of substitution changing over time. Thus for example, increases in the relative price of air transportation will induce consumers to turn to other relatedtransportation expenditure. In contrast, air transportation are complements with the remaining sub-industries so that increases in the relative price of air transportation will induce less expenditure on these sub-industries. There is much evidence of non-symmetry in the estimated elasticities of substitution as an increase in the price of accommodation would reduce food expenditure whereas a rise in food prices would have little impact on the accommodation industry. These results are consistent with the findings that tourists change their expenditures over the business cycle including less expensive accommodation, cheaper travel, and close destinations as in Eugenio [1,2].

The most important conclusion is that marketing strategies of tourism agencies and governments need to be flexible especially during economic slowdowns and economic expansions which is consistent with Song [3-6]. This is especially relevant during the pandemic.

What the research fails to address is are potential differences between tourist estimated substitution elasticities in the short run and long run. The use of aggregate data means that no comparisons can be made for the costs of alternative types of accommodations which would impact marketing strategies of tourist agencies and the government. In addition, since the data used cover around 80% of domestic travel, no conclusions can be made for international travel.

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