Tuesday, September 30, 2014

Tourism to grow with income inequality

It may be uncomfortable to acknowledge, but tourism destinations’ competitiveness will depend increasingly upon the choice they make to cater to either the luxury or the economy market. Remaining open to every budget will become increasingly difficult to meet the expectations of both ends of the market as income inequality enlarges the divide between classes. The higher end of the market expects more exclusiveness and distinction while the lower end of the market requires accessibility and affordability. While the concept is hardly new as the hospitality industry has always separated economic and social classes through distinct properties, what is new is the propagation to airlines and terminal facilities which are becoming increasingly segregated along the same economic divide as driven by market demand. The FSC (Full Service Carriers) are moving up market as the LCC (Low Cost Carriers) focus almost exclusively on the economy segment. Terminals and even entire airports are now built or reconfigured to serve either the economy or the luxury class exclusively.

Most destinations always had some degree of predominance with one economic group or another, but generally remained fairly egalitarian with features and amenities for most if not all budgets. As long as everyone arrived on the same plane, it made perfect sense to offer a range of properties matching the diverse economic capacity of the travelers. Now, not only do people of similar mean travel on either a full-service or an economy airline, but LCC also favor certain airports over others for economic reasons resulting in some destinations' choice of market becoming dependant on that of their nearest gateway.

To take two examples in Thailand, Koh Samui airport serves mainly full-service carriers and neither of the two major LCC in Thailand. With the nearest LCC airport three hours away by bus and ferry, Koh Samui's future is clearly upmarket. On the other hand, as most travelers arrive at Phuket airport on either a LCC or a charter flight, Phuket is primarily an economy destination. Other factors contribute further to their respective natural markets: Phuket is much larger and linked to the continent by a highway which favor a larger tourism economy while Samui, smaller, more remote and more costly, needs more revenue from the fewer tourists the island can accommodate.

The tourists themselves are encouraging this economic separation with both the luxury and the economy segment each seeking out more services, facilities and shopping matching their economic capacity. Which leads to the development of entire shopping and entertainment districts or the destination itself becoming increasingly targeted to appeal to one or the other economic group.

Cultural destinations face a similar problem which I addressed in two previous articles:

Should cultural tourism be limited to luxury tourists?

The price of cultural tourism

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