Tourism Economics - Forecasting Applied to Destination Strategy · 2014-07-04 · Tourism...
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Tourism Forecasting Applied to Destination Strategy Strategy ETC-UNWTO Forecasting Seminar Vienna, 12 September, 2008 Prepared by: Tourism Economics 121, St Aldates, Oxford, OX1 1HB UK 303 W Lancaster Ave. Wayne PA 19087 USA ℡: +44 1865 268900 / +1 610 995 9600 : www.tourismeconomics.com
Transcript of Tourism Economics - Forecasting Applied to Destination Strategy · 2014-07-04 · Tourism...
Tourism Forecasting Applied to Destination
StrategyStrategy
ETC-UNWTO Forecasting Seminar
Vienna, 12 September, 2008
Prepared by:
Tourism Economics
121, St Aldates, Oxford, OX1 1HB UK
303 W Lancaster Ave. Wayne PA 19087 USA℡: +44 1865 268900 / +1 610 995 9600
�: www.tourismeconomics.com
Outline
1. Introduction
2. Why forecast?
3. Examples of forecasting approaches
4. Translating forecasts into strategy
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4. Translating forecasts into strategy
Oxford Economics
Oxford Economics is a world-leader in quantitative economic analysis forecasting, and in evidence-based business and public policy advice.
Our reputation is built on:
� The calibre of our staff: over 50 professional economists in the UK, US and France
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professional economists in the UK, US and France
� Our quantitative approach to issues, including our range of models and scenario tools to answer practical questions
� Our ability to answer the 'So what?' questions, helping our clients to understand, challenges and strategic choices they face
Regular quarterly, monthly, weekly & daily reports include:
� World Economic Prospects Monthly Review
� Euro Zone and US Weekly Briefs
� Commodity Price Monitor
� Emerging Markets Watch
These reports are based on the Oxford Global Economic Model
Oxford Economics
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These reports are based on the Oxford Global Economic Model
� 10-year forecasts provided quarterly
� Flexible and powerful software – easy to run simulations
� Rigorous and consistent structure for forecasting and scenario analysis
� Most widely used International Macro Model
� Clients include the IMF, World Bank, ADB, Finance Ministries, central banks, investment banks, fund managers and multi-national companies
Tourism Economics
� Tourism Economics is a subsidiary of Oxford Economics founded to tailor our international analysis for multinational businesses in the travel & tourism sector.
� By combining global economic expertise with an understanding of the real world issues facing tourism development, we assist our clients with:
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■ Market opportunity assessments
■ Tourism demand forecasting and scenario analysis
■ Economic impact studies
■ Policy analysis
Recent clients
Abu Dhabi Tourism Authority
Dubai Tourism & Commerce Marketing
New York City and Company
Singapore Tourist Board
Gulf Air
Etihad Airways
InterContinental Hotels Group
Airbus
Tourism Malaysia
Tourism Authority of Thailand
Discover America Partnership
London Tourism Authority
Travel Industry Association
Travel Business Roundtable
Grand Bahama Promotion
US Office of Tourism Industries
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Visit Britain
Tourism Ireland
Canadian Tourism Commission
Hungary Ministry of Tourism
Kerzner International
Airbus
Hong Kong Tourist Board
World Travel & Tourism Council
Bahamas Ministry of Tourism
Marriott
Washington DC CVB
Alaska Tourism Office
Saudi Tourism Commission
Visit Scotland
Israel Ministry of Tourism
Why forecast?
� The goal is not accuracy for its own sake. (On this basis alone, forecasting is rarely useful.)
� Purposes of forecasting:
■ Setting political expectations
■ Guiding industry’s decisions on capacity and investment
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■ Guiding industry’s decisions on capacity and investment (including public sector investments)
■ Provide an input into marketing strategy (to guide prioritization and allocation)
Essentials of a forecast model
� Origin market drivers (demographic, economic, travel patterns and preferences)
� Destination factors (new supply, policies, exchange rates)
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Recent examples: TDM
� Tourism Decision Metrics (TDM) is based on a 180-country model which predicts origin-destination visits and nights as well as inbound and outbound spending
� Its primary advantage is that each destination’s visitor forecasts are constrained as one piece of the
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visitor forecasts are constrained as one piece of the origin demand pie.
� Capable of scenario analysis by changing key economic assumptions and introducing external shock variables to reflect positive/negative changes in policies or events.
TDM Model Format
Oxford Economics Macroeconomic Model (180 Countries)
Real GDP For each origin market Consumer Spending
Exchange rates (bi-lateral)
Outbound Spending by Market (180) Business Leisure
Global Tourism Market
Destination
Competitiveness Indices
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Inbound Spending by Market (180) Business Leisure
Origin-Destination Travel Flows (180 Countries) Visits
Nights
Policy
Infrastructure
Attractiveness
Inbound Visits by Market (180) Business / Leisure
Air / road / sea Overnight / day
� Built on Oxford Economics’
global macroeconomic model
� Forecasts of origin market
economic growth and currencies
drive outbound spending and
visits projections.
Components of Tourism Competitiveness Index
Sub-index A: Regulatory framework
Pillar 1: Policy rules and regulations
Pillar 2: Environmental regulation
Pillar 3: Safety and security
Pillar 4: Health and hygiene
Pillar 5: Prioritization of tourism strategies
Sub-index B: Tourism infrastructure
Pillar 6: Air transport infrastructure
TDM: Destination
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� Destination forecasts are
predicted on the basis of their
weighting of origin markets and
a “tourism competitiveness
index” developed by the World
Economic Forum / Oxford
Economics and adjusted by
Tourism Economics.
Pillar 6: Air transport infrastructure
Pillar 7: Ground transport infrastructure
Pillar 8: Tourism infrastructure
Pillar 9: ICT infrastructure
Pillar 10: Price competitiveness
Sub-index C: Human, cultural, natural resources
Pillar 11: Human resources
Pillar 12: National tourism perception
Pillar 13: Natural and cultural resources
Model relationships – Outbound Spending
y = 0.656x + 57.765
100
150
200
250
Exchange Rate and Tourism Spending
% Growth in International Tourism
Spending (US$) 2002-2007
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-100
-50
0
50
100
-150 -100 -50 0 50 100
Source : Tourism Economics, IMF
% Appreciation in currency, 2002-2007
Model relationships – Outbound Spending
15
20
25
Economic Activity and Tourism Spending% year
International Tourism Spending (US$)
13
-5
0
5
10
1990 1994 1998 2002 2006
Source : Tourism Economics, Haver Analytics, IMF
World GDP (US$)
France: Outbound Spending
� R-Squared = 0.97
� Model equation tracks both the trend and cyclical movements of French outbound spending well.
� Peak and trough years are well identified. The magnitude of growth in such years is not exactly
determined, but there is not bias or systematic error. For example growth for the latest trough in 2006 is
overestimated while other troughs are underestimated.
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France: Outbound spendingUS$ mn
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France: Outbound spending% growth
14
0
5
10
15
20
25
30
35
1995 1999 2003 2007
Source : Tourism Economics
Data
Estimated growth
-15
-10
-5
0
5
10
15
20
25
30
1995 1999 2003 2007
Source : Tourism Economics
Data
Estimated growth
UK: Outbound Spending
� R-Squared = 0.98
� Trend and cycles are well determined for UK outbound spending
� However, data was significantly stronger than equations suggest in 1998 while growth is weaker than
suggested by equations in 2004, possibly due to a strong weight in US exchange rates.
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UK: Outbound spendingUS$ mn
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UK: Outbound spending% growth
15
0
10
20
30
40
50
60
70
1995 1999 2003 2007
Source : Tourism Economics
Data
Estimated growth
-5
0
5
10
15
20
25
1995 1999 2003 2007
Source : Tourism Economics
Data
Estimated growth
US Inbound Visits: France
� R-Squared = 0.75
� The cycle of French inbound visits is tracked accurately, but volatility is not fully captured, especially in
recent years when sentiment has been a key factor on this relationship. This is hard to quantify in
model equations. But such factors are taken into account when compiling forecasts.
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France: US Inbound visits% growth
1200
France: US Inbound visits'000s
16
-25
-20
-15
-10
-5
0
5
10
15
1995 1999 2003 2007
Source : Tourism Economics
Data
Estimated growth
0
200
400
600
800
1000
1995 1999 2003 2007
Source : Tourism Economics
Data
Estimated growth
US Inbound Visits: UK
� R-Squared = 0.87
� Equations track fluctuations well in determining cyclical movements as well as the magnitude of cycles
over the cycle.
5000
UK: US Inbound visits'000s
Estimated growth
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UK: US Inbound visits% growth
Estimated
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0
500
1000
1500
2000
2500
3000
3500
4000
4500
1995 1999 2003 2007
Source : Tourism Economics
Data
growth
-15
-10
-5
0
5
10
15
1995 1999 2003 2007
Source : Tourism Economics
Data
Estimated growth
Recent examples: TIA
Travel Industry Association of America semi-annual domestic travel forecast
� Business Travel
■ Business travel is a function of business activity (profits etc).
■ This is important for origin as well as destination markets
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� Leisure Travel
■ Leisure is a function of income and spending
■ Costs are a more important here than for business
■ Costs cover travel (especially day visits), lodging (for overnight) as well exchange rate costs for international
Recent examples: TIA (business)
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20
25
30
Business visits, investment and profits% growth
Company profits
Real fixed investment
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-10
-5
0
5
10
15
1995 1999 2003 2007 2011
Source : Tourism Economics
Business visits
investment
Recent examples: TIA (leisure)
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10 -10
-5
0
Leisure visits, income and costs% growth
Real incomes
Domestic cost relative to international costs
(inverted - rhs)
20
-5
0
1995 1999 2003 2007 2011
0
5
10
15
Source : Tourism Economics
Leisure visits
Example: Using external events for scenario analysis
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Example: Using external events for scenario analysis
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Putting forecasts to work: global tracking
� Good analytical tools can help translate forecasts into strategy.
� The Tourism Decision Metrics forecast database is housed in a visualization software.
� This enables ad hoc analysis of forecasts to assess:
■ Overall growth of key markets
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■ Overall growth of key markets
■ A destination’s market share of a key market
■ Competitor tracking for a destination
■ Track economic trends by market
Example: Overall growth of key markets
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Example: Track origin market trends
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Example: Destination market share
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Example: Tracking competitors
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Example: Cartographic analysis
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Putting forecasts to work: market strategy
� Destination marketing strategies are typically based on current market size. However, the goal is to attract new visitors so growth forecasts matter.
� By combining forecasts with market indicators we can prioritize marketing.
� TE has developed the “Market Analysis Platform”
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� TE has developed the “Market Analysis Platform” (MAP) which incorporates a broad range of metrics—including growth forecasts—to provide a consistent measurement of market opportunity.
Example: Market strategy using MAP
Market Analysis Platform
Internationalwww.tourismeconomics.com
Current Outlook: Long-term Risk: Balanced
Select or de-select components.
Country ListSelect Outlook and Risk Year: 2008
{Please select Outlook} {Please select Risk}
China, 88Saudi Arabia, 25
Lebanon, 20
Italy, 14
Select all
Australia
Canada
China
Egypt
Select all
Growth alone is misleading, other factors affect strategy
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Opportunity
Propensity
Value
Constraint
Select or de-select components.
Market Size Country Size Growth Saturation
Sentiment Alignment
Purchase Power Visitor Value Affordability Presence
Risks Accessibility
India, 66
Russia, 60
Egypt, 43
Japan, 40Qatar, 39
US, 38
Canada, 34
UK, 34
Australia, 33
France, 32
Germany, 29Select all
Germany
Egypt
France
India
Italy
Japan
Lebanon
Saudi Arabia
Qatar
Russia
UK
US
Example: market strategy using MAP
Market Analysis Platform
Internationalwww.tourismeconomics.com
Current Outlook: Long-term Risk: Balanced
Select or de-select components.
Country ListSelect Outlook and Risk Year: 2008
{Please select Outlook} {Please select Risk}
UK, 61Egypt, 39
Russia, 35
Select all
Australia
Canada
China
Egypt
Select all
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Opportunity
Propensity
Value
Constraint
Select or de-select components.
Market Size Country Size Growth Saturation
Sentiment Alignment
Purchase Power Visitor Value Affordability Presence
Risks Accessibility
Germany, 55
France, 54
Australia, 51
Qatar, 48
Canada, 47
US, 47Saudi Arabia, 46
China, 46
Japan, 45
Italy, 44
India, 43
Lebanon, 42
Select all
Germany
Egypt
France
India
Italy
Japan
Lebanon
Saudi Arabia
Qatar
Russia
UK
US
MAP: How does an origin market score?
Germany - Market Overview
Component summary
score summary - scale = 0-100
Total
55.2 55.2 55.2 55.2 45.7 45.7 30.6 30.6 30.6 30.6 81.6 81.6
Market
Size
Country
SizeGrowth
Saturatio
nSentiment Alignment
Purchasin
g Power
Visitor
Value
Market
AffordabiliMarket
PresenceRisk
Accessibil
ity
opportunity propensity value constraints
80
100
Super component score
Component Score
Total Market Score
Score Summary
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Size Size n g Power Valuety
Presence ity
25.8 59.7 28.8 78.3 31.8 54.0 77.0 23.2 21.9 19.4 87.0 59.7 55.2
55.2 55.2 55.2 55.2 55.2 55.2 55.2 55.2 55.2 55.2 55.2 55.2
4 5 6 7 10 11 14 15 16 17 20 21 23
0.02 0.01 0.04 0.07 0.07 0.12 0.05 0.14 0.07 0.05 0.29 0.07
0
20
40
60
Market Size Country Size Growth Saturation Sentiment Alignment PurchasingPower
Visitor Value MarketAffordability
MarketPresence
Risk Accessibility
Opportunity ValuePropensity Constraint
MAP: How do origin markets compare?
Market ComparisonsCompare component score for Germany
with scores for up to 3 other markets
Market
Size
Country
SizeGrowth
Saturatio
nSentiment Alignment
Purchasin
g Power
Visitor
Value
Market
Affordabili
ty
Market
PresenceRisk
Accessibil
ityTotal
Germany
25.8 59.7 28.8 78.3 31.8 54.0 77.0 23.2 21.9 19.4 87.0 59.7 55.2
{Select 1st market} {Select 2nd market} {Select 3rd market}
80
100
Germany France Italy UKScore Comparison across Markets
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25.8 59.7 28.8 78.3 31.8 54.0 77.0 23.2 21.9 19.4 87.0 59.7 55.2
France
17.9 55.0 32.1 92.8 20.8 75.5 77.1 25.6 2.1 19.4 78.8 56.8 54.3
Italy
7.7 49.1 14.3 73.4 22.2 36.7 82.6 18.0 11.7 19.4 66.8 64.0 44.4
UK
35.7 59.0 34.1 83.6 93.2 55.2 61.0 20.4 23.6 19.4 94.1 53.3 61.0
0
20
40
60
80
Market Size CountrySize
Growth Saturation Sentiment Alignment PurchasingPower
VisitorValue
MarketAffordability
MarketPresence
Risk Accessibility Total
MAP: comparing origin markets
Top Markets according to following criteria:
Top Markets according to: GrowthTop markets lie in the upper right-hand quadrant (listed to the right) 1 {Select Criteria}
Raw Potential
- Size
- Growth
- Spare Capacity
Real Potential - Most Aligned
- Least Resistant Markets in upper right quadrant
- Yield 1 China
Exp
ec
ted
ou
tbo
un
d s
pe
nd
ing
gro
wth
{Select Criteria}
China
7.0
8.0
9.0
10.0
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- Yield 1 ChinaC3 Stability 2 Russia
3 India
4 Egypt5 US
6 Japan7 Canada
8 -
9 -10 -
Bubble size=
-Exp
ec
ted
ou
tbo
un
d s
pe
nd
ing
gro
wth
Expected GDP growth for each market
IndiaJapan
Australia
France
Germany
Italy
UK
Russia
CanadaUS
Lebanon
QatarSaudi Arabia
Egypt
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
MAP: comparing origin markets
Top Markets according to following criteria:
Top Markets according to: Real PotentialTop markets lie in the upper right-hand quadrant (listed to the right) 1 {Select Criteria}
Raw Potential
- Size
- Growth
- Spare Capacity
Real Potential
- Most Aligned
- Least Resistant Markets in upper right quadrant
- Yield 1 UK
Le
as
t re
sis
tan
ce (
acc
ess
ibilit
y &
se
nti
men
t)
{Select Criteria}
IndiaChina
UK
Lebanon
Qatar
Saudi Arabia
Egypt7.0
8.0
9.0
10.0
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- Yield 1 UK
C5 Stability 2 Lebanon
3 Saudi Arabia
4 Qatar
5 Egypt
6 -
7 -
8 -
9 -
10 -
Bubble size=
Yield (value & purchasing power score)
Le
as
t re
sis
tan
ce (
acc
ess
ibilit
y &
se
nti
men
t)
Alignment score
Japan Australia
France
GermanyItaly
Russia
Canada
US
Egypt
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
Conclusions
� The goal of forecasting is not accuracy for its own sake.
� To maximize the value of forecasting:
■ Tell the story of what is driving the forecast (income, exchange rates, labour markets, supply disruptions)
■ Effectively analyse the results in concert with other indicators of
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■ Effectively analyse the results in concert with other indicators of opportunity
■ Present the results in ways to guide strategy
Thank you!
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