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High Oil Prices Yet to Impact on Tourism says WTO

Higher oil prices have so far had limited effect on international tourism growth according to the United Nations World Tourism Organization (WTO).

A recently concluded WTO report demonstrates that up to the moment, the impact of high oil prices in international tourism has been little. Experts consulted in the framework of this research project note that only a small percentage of the increase in oil prices as been passed onto consumers in terms of final purchase price, says WTO Chief of Market Intelligence, Augusto Huéscar. In addition, the imposition of surcharges by many airlines does not appear to have discouraged demand for air transport - at least for the time being. According to the latest data from IATA, passenger traffic from January through September 2005, increased by 8.3 per cent, with airlines in the Middle East and in Africa reporting double-digit growth rates.

Demand for international tourism has remained strong through 2005. WTO’s estimates for the year, as published in the October issue of the WTO World Tourism Barometer, show that 2005 is expected to end with a growth of 5 to 6% in international tourist arrivals, which can be considered exceptional.
International tourism is not only on track to consolidate the bumper year it had in 2004 (+10.7%), but it will also exceed the forecast long-term average growth of 4%.

The full WTO report on the impact of high oil prices in international tourism, due to be published next month, highlights moreover that, in recent crises higher oil prices had no direct impact on tourism. The effect was rather indirect, as price hikes contributed to the deterioration of the economic situation, and consequently to the corrosion of consumers’
purchasing power. “But, while the past oil price peaks had a significant negative impact on tourism through to the economy at large, on this occasion the global economy has remained relatively steady and the inflationary pressure appears to be limited for now” underscores WTO Secretary-General, Mr Francesco Frangialli. Unlike previous crises it is not an unexpected shock, but rather a progressive escalate predominantly reflecting a strong demand for energy driven by economic growth. Oil prices might affect the bottom-line results of tourism companies through higher costs. But for the moment consumer confidence is still high and tourism demand has not been affected.

Transport companies suffer increases in fuel price of course the first and most directly. “The airlines hardest hit by the rises will be those in the US still dealing with the aftermath of previous year’s negative events”, he explains, “although continuing high oil prices may also affect tourist flows to developing nations as their airlines’ capacity to absorb such increase is significantly lower”. Consequently tourism to these countries, in which distance and air access from important source markets are already in many cases a bottleneck, may also be affected, in case transport costs rise further.


“But we need to keep this in perspective,” he adds. In real purchasing terms oil prices are now below those of the early 1980s peak and nearly all the major losses reported in the airline sector are concentrated in the United States. “While IATA anticipates a slow down in passenger traffic growth in 2006, it still forecasts a 3.6 per cent increase.”

Barring other unforeseen shocks, WTO is confident that tourism will “continue to show healthy growth globally”, albeit with changes in the strength of particular generating markets and destinations and perhaps a bigger push in intra-regional travel, says Mr. Frangialli.