Understanding and

Managing Tourism Supply:

An Introductory Framework
Chapter 5
Learning Outcomes

• Be familiar with the concept of tourism supply.

• Understand how different sectors are involved in tourism supply.
• Be aware of issues relating to supply and the interconnections
which exist in the tourism supply chain.
• Understand the significance of management as a tool to guide the
development of supply in tourism enterprises.
Overview

• The purpose of this chapter is to provide the reader with an

appreciation of the many types of tourism supplier.
• Providing key examples of organizations involved and the scale of
operations together with some of the issues facing them.
• Notably the management of tourism and strategy issues.
• The significance of the travel distribution sector, transport, visitor
attractions, accommodation and hospitality sector as components of
supply are introduced together with the challenges involved in ensuring
the supply is able to meet demand.
Introduction

Economists examine how the supply of tourist services are produced.

In the real world, the tourism industry consider supply in terms of three
basic questions:

1. What to produce?
2. How to produce it?
3. When and where to produce it?
(Bull 1991)
What is supply?

• Sessa (1983: 59) ‘productive activities that involve the provision of

goods and services required to meet tourism demand and which are
expressed in tourism consumption’.
• Although the tourist is a mobile consumer, much of tourism supply is
geographically fixed at specific places.
• Can be classified into 3 main categories:
1. Descriptions of the industry and its operation, management and marketing.
2. The spatial development [the geographical development] and interactions which characterize
the industry on a local, national and international scale.
3. The effects which result from the development of the industry.
The determinants of tourism supply

• It is a composite product
involving transport,
accommodation,
catering, natural
resources, entertainment,
and other facilities and
services, such as shops
and banks, travel agents
and tour operators.

Figure 5.1
Cont. on next
slide
The determinants of tourism supply
The influence of global transnational companies

Tourism is inherently a form of international business which manifests itself

in:

• Tourists and host cultures interacting with each other.

• The movement of capital and labour to facilitate international business,
especially tourist infrastructure.
• The formation of supply chains which are organized internationally as
the key function of TNCs, or where TNCs organize these elements of
tourism to package and supply tourism.
The influence of global transnational companies
(Types of Market)

• Perfect competition: economists make a number of assumptions related to

tourism issues; free entry to and from the market with no barriers (few conditions
in real world where can prevail).
• Contestable markets: Businesses compete for the consumer by adopting
different pricing strategies; yet mass markets mean nobody can charge more than
average cost as competitors would enter market to compete with them.
• Oligopoly: where a limited number of suppliers who dominate the tourism sector
can control the output and pricing level.
• Monopoly: businesses can charge a price which is above the average cost of
production as they have high control over a product i.e. a national service
uncontested by private sector.
The tourism supply chain
Typical supply chain will have four components:
• Tourism supplier, Tour operator
• Travel agent and Customer
 The tourism supply chain

• For destinations to have sufficient

capacity to accommodate
seasonal increases in a visitor
population, forecasting is crucial
to the assessment of the
management of demand (see next
slide).
• Supply chain partners must have
a sound grasp of the product life-
cycle of a product from its
evolution, development, growth
and maturity
The tourism supply
chain
The tourism supply chain

Management of tourism supply: normally occurs in the context of a formal environment –

the organization. Departments specialising in e.g. sales, HR, accounts, finance etc. and
hierarchy within structure.

Managers are necessary to implement processes of planning, organisation, controlling and

leading teams to achieve objectives.

• Understanding what needs to be done (i.e. critical reasoning, strategic vision and
business know-how).
• Getting the job done (i.e. confidence, being proactive, control, flexibility, effectiveness).
• Taking people with you (i.e. motivation, interpersonal skills, persuasion and influence).
Tourism business strategies and supply issues

• Building a range of strategic elements e.g. long-term objectives and different

courses of action to adapt into a constantly changing industry.
• Aims: gain competitive advantage via differentiation, cost leadership and use of
either approach to set out a narrow focus on the market.

• Internal drivers: risk sharing, economies of scope and scale, accessing assets
such as limited slots at airports and shaping the competition).
• External drivers: (i.e. the changes induced by information technology and
turbulent economic climates, rapid product and market changes as well as global
competition).
Tourism business strategies and supply issues

• Tactical partnerships: designed to derive marketing benefits, characterized by

code sharing among cooperating partners.
• Strategic partnerships: where an investment or pooling of resources by partners
aims to achieve a range of common objectives focused on the partners’ strategic
ambitions.
– Reducing risk by sharing it
– Gaining economies of scale to improve profitability
– Access to other assets
– Reduce incapacity in mature markets and could reduce competition
– Achieving high degree of adaptability to the industry
Tourism business strategies and supply issues

KEY CHARACTERISTICS OF LOW-COST CARRIERS

Insight 5.1
EasyJet’s growth as a tourist supply firm – a major success
story of growth and competition

• Dominance of low-cost market in Europe.

• Derivation of simpler products that consumers can understand and purchase without
caveats and restrictions.
• One class service, simple pricing of seat segments
• Simple mechanism of distribution: internet and call centres

• Attributes success to:

• using internet to reduce distribution costs (93% bookings)
• maximising assets to reduce unit cost of travel
• Ticketless travel, eliminating free catering on-boards
• Most importantly: cost control of operations
Insight 5.1
EasyJet’s growth as a tourist supply firm – a major success
story of growth and competition
Conclusion

• Responsive and strategic management is vital for both the private and
public tourist sectors.
• Aims to reduce costs, pursue growth strategies and monitor competition.
• Re-examine traditional methods of production due to reduced profit
margins and competition from new entrants via technology
advancement.
• Internet builds direct efficiency and communication with customers and
can be utilised extensively.
Discussion Questions

1. Why is an understanding of tourism supply fundamental to the

analysis of how the tourism sector is organized and operates?
2. How do transnational tourism companies impact upon the
organization and management of tourism?
3. What are the principal features of management relevant to the
supply of tourism?
4. What types of business strategy have airlines pursued to address
competition?