Lesson 3: Five Industries
Completion requirements
Unit 1
Tourism Sector
Lesson 3: Five Industries
"It's not where you've been that matters. It's where you're going." ~ Brian Tracy
The Five Industries Within the Tourism Sector
Click on the + sign below to learn more information about each of the 5 industries within the tourism sector.
In Canada, approximately 25-35% of visitor spending is allocated to accommodations, making it a huge portion of a travellers' expenses. The accommodation sector encompasses multiple business models and employs 100 000+ Canadians. Although you will often hear reference to the term hospitality industry, it is not its own industry but is a term used when discussing a combination of the accommodations and food & beverage industries.
Hotels are typically referenced by their hotel type. The type of hotel is determined primarily by its size, then by function, target market, level of service, amenities, and industry standards. The Hotel Association of Canada (HAC) is the national trade organization advocating on behalf of over 8500 hotels. This association provides professional development resources and industry research including statistics monitoring to its extensive member database. According to HVS International Hotel Consultancy, the "industry rule of thumb is that a hotel room must make $1 per night for every $1000 it takes to build or buy. If the hotel costs $125 000 per room, the hotel has to rent for $125 per night on average with a 60-70% occupancy rate to break even." (McDonald, 2011)
A growing but important segment of the Canadian accommodations industry is camping and staying in RVs. As of 2011, 14% of Canadian households owned an RV. This translates to over 1 000 000 RVs on the Canadian roads heading to over 3000 independently owned and operated campgrounds in that year. Associated economic activity showed that Rv-ing generated approximately $14.5 billion. Obviously, these options in Canada are closely tied to the outdoors so it is no surprise that camping and RV accommodations are more popular in the summer season. The price of fuel has caused a decrease in RV long-haul usage but the market has made concessions by offering more long-term RV camping options where travellers can leave their RV for the entire season.
Hotels are typically referenced by their hotel type. The type of hotel is determined primarily by its size, then by function, target market, level of service, amenities, and industry standards. The Hotel Association of Canada (HAC) is the national trade organization advocating on behalf of over 8500 hotels. This association provides professional development resources and industry research including statistics monitoring to its extensive member database. According to HVS International Hotel Consultancy, the "industry rule of thumb is that a hotel room must make $1 per night for every $1000 it takes to build or buy. If the hotel costs $125 000 per room, the hotel has to rent for $125 per night on average with a 60-70% occupancy rate to break even." (McDonald, 2011)
A growing but important segment of the Canadian accommodations industry is camping and staying in RVs. As of 2011, 14% of Canadian households owned an RV. This translates to over 1 000 000 RVs on the Canadian roads heading to over 3000 independently owned and operated campgrounds in that year. Associated economic activity showed that Rv-ing generated approximately $14.5 billion. Obviously, these options in Canada are closely tied to the outdoors so it is no surprise that camping and RV accommodations are more popular in the summer season. The price of fuel has caused a decrease in RV long-haul usage but the market has made concessions by offering more long-term RV camping options where travellers can leave their RV for the entire season.
An emerging model is individuals renting out their own property. Perhaps you've heard of AirBnb or VRBO (Vacation Rental By Owner)? This model is increasingly popular, in fact, I've booked and stayed at AirBnB properties myself with much success. A word of advice . . . read the reviews from other travellers and make sure you fully understand the associated fees and cancellation policy because you must make full payment at the time of booking where with most hotels, you pay when you check out of the hotel.
The accommodation industry is sensitive to shifting local, regional, and global economics, social, and political conditions. Business must be flexible to meet the needs of their different markets and evolving trends. These trends affect all hotel types, regions, and destinations differently. However, hoteliers must respond to these trends in an increasingly competitive market where the supply is growing faster than the demand. (Hotelier, 2014). As broader societal trends continue to morph, owners and operators must stay abreast of the trends, continually altering their business model and services to remain relevant and competitive.
According to Statistics Canada, the food and beverage industry comprises "establishments primarily engaged in preparing meals, snacks & beverages to customer order, for immediate consumption on and off the premises." (Government of Canada, 2012). Tourism professionals commonly refer to this as F&B.
The food & beverage sector emerged as people travelling away from their homes often needed or wanted to eat or drink. Entrepreneurs used this opportunity to meet this demand by supplying food and drink. As the interests of the public became more diverse, so did the food and beverage offerings.
In 2014, Canadian food and beverage businesses accounted for 1.1 million employees at more the 88 000 locations across the country with an estimated $71 billion in sales. This represents around 4% of the country's overall economic activity. Many students are familiar with this industry as Canada's restaurants provide one in every five jobs for youth in the country, with 22% of Canadians starting their career in a restaurant or food-service business. As an interesting statistic, going out to a restaurant is the number one preferred activity for spending time with family and friends. (Restaurants Canada, 2014).
The food & beverage sector emerged as people travelling away from their homes often needed or wanted to eat or drink. Entrepreneurs used this opportunity to meet this demand by supplying food and drink. As the interests of the public became more diverse, so did the food and beverage offerings.
In 2014, Canadian food and beverage businesses accounted for 1.1 million employees at more the 88 000 locations across the country with an estimated $71 billion in sales. This represents around 4% of the country's overall economic activity. Many students are familiar with this industry as Canada's restaurants provide one in every five jobs for youth in the country, with 22% of Canadians starting their career in a restaurant or food-service business. As an interesting statistic, going out to a restaurant is the number one preferred activity for spending time with family and friends. (Restaurants Canada, 2014).
Americans spend significantly more of their total food dollars in food-service establishments than in grocery stores where Canadians spend more of their total food dollars in the grocery store vs food-service operations. Provincially, Alberta has the highest average unit volume at $828 860 per year, more than $200 000 over the national average due to greater disposable income and no provincial sales taxes on meals.
Food-service operations in Canada are split into two sections: commercial food-service, which is comprised of operations whose primary business is food and beverage and non-commercial food-service establishments where food and beverages are served but that is not their primary business.
Commercial food-service is the largest segment of the food and beverage industry in Canada with just over an 80% market share. This segment is broken into fast-food, quick-service restaurants (34.5% of total food sales in Canada), full-service restaurants (35% of the market share), banquet and special event catering (6.8% of the market) and drinking establishments (3.5% of total industry sales).
The non-commercial food-service earnings account for just under 20% of Canadian earnings. Non-commercial operations cater to consumers with limited selection or choice given their occupation or location. This type of consumer is often referred to as a captured patron. In a tourism capacity, since their patrons have less choice (eg., in airports, cruise ships, hospitals) the limited choice allows the food and beverage company to typically charge a higher price for the product thereby increasing the profit margin.
Recreation can be defined as the pursuit of leisure activities during one's spare time (Tribe, 2011) and can include vastly different activities such as golfing, sport-fishing, and rock climbing. There are some recreation-based terms commonly used in the tourism sector.
Outdoor recreation typically applies to outdoor activities in a natural setting that individuals engage in and that are located close to their community. When these activities are further away, where people must travel some distance to participate in them, they are often described as adventure tourism. Adventure tourism includes at least two of the following three elements: physical activity, natural environments, and cultural immersion (UNWTO), 2014). Examples of adventure tourism include river rafting, helicopter skiing, and rock climbing. Another term used is nature-based tourism where the experience is directly or indirectly dependent on the natural environment such as hiking or kayaking.
As you can see, there are challenges in classifying recreation in tourism. For instance, if you kayak near your home, is it outdoor recreation or nature-based tourism? The acceptable distinction is the distance factor. Using this scenario, this would be categorized as natural tourism.
In 2013, an adventure tourism market study discovered that people who travel for adventure experiences tend to be well-educated, with 48% holding a four-year degree or higher credential. They value natural beauty and rank this as the highest factor when choosing a destination, and the most cited reasons for their travel are “relaxation, exploring new places, time with family, and learning about different cultures.” (UNWTO, 2014)
Globally, it is estimated that the continents of Europe, North, and South America account for 69% of adventure tourism which equates to $263 billion US dollars of travel spending. Adventure tourists tend to be seen as high-value visitors because as much of 70% of their spending remains in the communities visited. (UNWTO, 2014)
Recreation and adventure tourism play predominant roles in the tourism and hospitality industry in Canada. However, there are challenges that impact the viability of this industry, as well as barriers that limit its growth. Access to wilderness areas for tourism operators is an ongoing challenge. Some zones across the country are set aside for recreation, such as provincial and national parks. However, when it comes to conducting commercial operations in these same places, gaining access often involves an extensive permit process that may impose restrictions on the type of activity and the number of visitors allowed. In addition, parks are generally limited to non-motorized activities, thus presenting barriers for tourism operators that seek to offer mechanized recreation.
Outdoor recreation typically applies to outdoor activities in a natural setting that individuals engage in and that are located close to their community. When these activities are further away, where people must travel some distance to participate in them, they are often described as adventure tourism. Adventure tourism includes at least two of the following three elements: physical activity, natural environments, and cultural immersion (UNWTO), 2014). Examples of adventure tourism include river rafting, helicopter skiing, and rock climbing. Another term used is nature-based tourism where the experience is directly or indirectly dependent on the natural environment such as hiking or kayaking.
As you can see, there are challenges in classifying recreation in tourism. For instance, if you kayak near your home, is it outdoor recreation or nature-based tourism? The acceptable distinction is the distance factor. Using this scenario, this would be categorized as natural tourism.
In 2013, an adventure tourism market study discovered that people who travel for adventure experiences tend to be well-educated, with 48% holding a four-year degree or higher credential. They value natural beauty and rank this as the highest factor when choosing a destination, and the most cited reasons for their travel are “relaxation, exploring new places, time with family, and learning about different cultures.” (UNWTO, 2014)
Globally, it is estimated that the continents of Europe, North, and South America account for 69% of adventure tourism which equates to $263 billion US dollars of travel spending. Adventure tourists tend to be seen as high-value visitors because as much of 70% of their spending remains in the communities visited. (UNWTO, 2014)
Recreation and adventure tourism play predominant roles in the tourism and hospitality industry in Canada. However, there are challenges that impact the viability of this industry, as well as barriers that limit its growth. Access to wilderness areas for tourism operators is an ongoing challenge. Some zones across the country are set aside for recreation, such as provincial and national parks. However, when it comes to conducting commercial operations in these same places, gaining access often involves an extensive permit process that may impose restrictions on the type of activity and the number of visitors allowed. In addition, parks are generally limited to non-motorized activities, thus presenting barriers for tourism operators that seek to offer mechanized recreation.
Environmental impacts from climate change, deforestation, and resource extraction all have significant potential to affect this segment of the tourism economy. On a local scale, without reliable access to pristine wilderness, many operators are facing threats to their sustainability.
Concerns over risk management and litigation are ongoing for any operator that offers activities with an element of risk. When lawsuits in adventure tourism occur, they are often extensively publicized by the media, creating a perception of risky, dangerous and irresponsible adventure operators. This can negatively affect the sector through rising insurance rates, increasing governmental regulation, challenging certification requirements, and permit difficulties when interfacing with land management agencies.
Despite some of the challenges faced by recreation, outdoor recreation, and adventure tourism, it remains an exciting, dynamic, and growing industry in global tourism. Employment opportunities abound and the potential for economic contribution, protection of wilderness areas, and diversification of rural economies are exciting prospects. Students looking to develop professionally in this field should strive to gain both hands-on experiences in a specialized activity and a strong tourism focussed education; this combination will offer the best chance to open doors to a long-term career in this industry.
The transportation industry is vital to the success of the tourism sector. If people cannot move from place to place -- whether by air, sea, or land -- there is no tourism. Regardless of the means of transport, maintaining fuel costs is crucial as the highest factor to determine transportation profitability.
According to the International Air Transport Association (IATA), in 2014, airlines transported 3.3 billion people across 50 000 routes generating 58 million jobs and $2.4 trillion in business activity (International Air Transport Association, 2014). Aviation is a highly regulated industry as it crosses many government jurisdictions. The term open skies refers to policies that allow national airlines to fly to, and above other countries. These policies lift restrictions where countries have good relationships, freeing up the travel of passengers and goods.
Airlines are faced with many challenges. In addition to operating in a strict regulatory environment, airlines yield extremely small profit margins. A key to airline profitability is passenger load factor, which relates to how efficiently planes are being used. Load factor for a single flight can be determined by dividing the number of passengers by the number of seats.
Within the Canadian airline market, three key challenges to airline success have been identified (Owram, 2014):
Railways hold a historic significance by laying the foundation for the modern tourism industry. In many places throughout Canada, trains were an excellent way to move people across vast expanses of land. However, between 1989 and 1990, VIA Rail lost over 45% of its ridership when it cut unprofitable routes, focussing on areas with better potential for revenue and passenger volumes. Since then, annual ridership has stabilized to around 3.5 to 4.0 million passengers per year, slowly increasing throughout the 1990s and 2000s. While the industry overall has been in a decline, touring companies like Rocky Mountaineer have found a financially successful model by shifting the focus from transportation to the sightseeing experience. The company has weathered financial storms by refusing to discount their luxury product, instead focussing on the unique experiences.
Water-based travel has come a long way since the steamship. Today, the 20-story tall, world's largest cruise ship has an outdoor park with 12 000 plants, an 82-foot zip-line wire, and a high-diving performance venue. It holds 5400 passengers and a crew of up to 2394. In 2014, total passengers reached 21.7 million travelling worldwide on 63 member cruise lines. Over 55% of the world's cruise passengers are from North America with the leading destinations as:
By Air
According to the International Air Transport Association (IATA), in 2014, airlines transported 3.3 billion people across 50 000 routes generating 58 million jobs and $2.4 trillion in business activity (International Air Transport Association, 2014). Aviation is a highly regulated industry as it crosses many government jurisdictions. The term open skies refers to policies that allow national airlines to fly to, and above other countries. These policies lift restrictions where countries have good relationships, freeing up the travel of passengers and goods.
Airlines are faced with many challenges. In addition to operating in a strict regulatory environment, airlines yield extremely small profit margins. A key to airline profitability is passenger load factor, which relates to how efficiently planes are being used. Load factor for a single flight can be determined by dividing the number of passengers by the number of seats.
Within the Canadian airline market, three key challenges to airline success have been identified (Owram, 2014):
- Canada's large geographic size and spare population mean relatively low demand for flights.
- Canada's higher taxes and fees compared with other jurisdictions such as the United States makes pricing less competitive.
- Canada's two dominant airlines (Air Canada and WestJet) are able to price new entrants out of the market.
By Rail
Railways hold a historic significance by laying the foundation for the modern tourism industry. In many places throughout Canada, trains were an excellent way to move people across vast expanses of land. However, between 1989 and 1990, VIA Rail lost over 45% of its ridership when it cut unprofitable routes, focussing on areas with better potential for revenue and passenger volumes. Since then, annual ridership has stabilized to around 3.5 to 4.0 million passengers per year, slowly increasing throughout the 1990s and 2000s. While the industry overall has been in a decline, touring companies like Rocky Mountaineer have found a financially successful model by shifting the focus from transportation to the sightseeing experience. The company has weathered financial storms by refusing to discount their luxury product, instead focussing on the unique experiences.
By Water
Water-based travel has come a long way since the steamship. Today, the 20-story tall, world's largest cruise ship has an outdoor park with 12 000 plants, an 82-foot zip-line wire, and a high-diving performance venue. It holds 5400 passengers and a crew of up to 2394. In 2014, total passengers reached 21.7 million travelling worldwide on 63 member cruise lines. Over 55% of the world's cruise passengers are from North America with the leading destinations as:
- The Caribbean (37%)
- The Mediterranean (19%)
- Northern Europe (11%)
- Australia / New Zealand (6%)
- Alaska (5%)
- Asia (4%)
- South America (3%)
By Land
When travellers aren't using their own cars, automobile travel is traditionally split between rental vehicles and taxes. Although, at a glance, there appear to be many different car rental companies, in North America there are only three main brands that represent 85% of the rental car business:
- Enterprise (which includes National and Alamo)
- Hertz (which includes Dollar and Thrifty)
- Avis
One of the reasons these brands have consolidated over time is the high fixed cost of operation as vehicles are purchased, maintained, and disposed of. Fierce competition means prices are checked and updated thousands of times a day. The business is also highly seasonally dependent, with high traffic in summer and spring, so fleet management is critical for profitability.
The right to operate a taxi is based on a permit system. Let's use BC as an example. The taxi license is issued by the BC Passenger Transportation Board for $100 for each permit. Because of the limited number of permits available, permit owners are able to auction it off for over $800 000 and keep the profit! As a result, passengers in Vancouver paid an average of 73% more per trip than in similarly sized cities. Ridesharing apps like Uber, which allow people to find a ride using their mobile phone, have emerged to exert influence on car travel in key destinations, thereby cutting into taxi business profits.
The travel services sector is made up of a complex web of relationships between a variety of suppliers, tourism products, destination marketing organizations, tour operators, and travel agents. Under the North American Industry Classification System, travel services are comprised of businesses and functions that assist with planning and reservation components of the visitor experience. Essentially, travel services are those processes used by guests to book components of their trip.
A travel agency is a business that operates as the intermediary between the travel industry (supplier) and the traveller (purchaser). Part of the role of the travel agency is to market prepackaged travel tours and holidays to potential travellers. The agency can also function as a broker between the traveller and hotel, car rental company, and tour companies. The huge influence of internet savvy travellers means that as tourists are able to do their own research, bookings and trip customization, they are less reliant on the travel agency services. The travel agency business needs to rapidly adapt for continued longevity.
A travel agency is a business that operates as the intermediary between the travel industry (supplier) and the traveller (purchaser). Part of the role of the travel agency is to market prepackaged travel tours and holidays to potential travellers. The agency can also function as a broker between the traveller and hotel, car rental company, and tour companies. The huge influence of internet savvy travellers means that as tourists are able to do their own research, bookings and trip customization, they are less reliant on the travel agency services. The travel agency business needs to rapidly adapt for continued longevity.
A tour operator packages all or most of the components of an offered trip and then sells them to the traveller. These packages can be sold through retail outlets or travel agencies. They typically specialize in one area of the tourism market. Tour operators may be inbound (bringing travellers into a country as a group), outbound (working within a country to take travellers to another country) or receptive (selling packages to overseas markets and creating awareness around possible products.
Destination marketing organizations (DMO) include national tourism boards, provincial tourism offices, and community convention and visitor bureaus around the world. DMOs promote the long-term development and marketing of a destination, focussing on convention sales, tourism marketing, and service.