HOST.

5102
Topic 2
Structure & interrelationships of the
Tourism & Hospitality Industry

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Topic 2 - The Structure & Interrelationships of Tourism & Hospitality
Industry
Learning Outcome:
Identify the structure and interrelationships of the tourism and
hospitality industry, within the New Zealand context

Content:
- Structure and sectors of the tourism industry
- Interrelationship of participants

Skills required - being able to:

- understand roles and interrelationships between participants
- understand general concepts and models
- know key participants relevant to and part of the global and New
Zealand tourism and hospitality industry

This topic looks at the other side of tourism demand – the supply of the tourism product.
That is the goods and services visitors use and/or purchase to create their tourism
experience.
It focuses on the five tourism sectors: transport, accommodation, sales distribution (tour
operating and travel retailing), visitor attractions and ancillary visitor services.

In the text book these topics will cover Chapters 4 to 9.

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2A Transportation Sector:

Fast and efficient transport has transformed tourism in the second half of the twentieth
century. It is the dynamic element of the tourism product.

Tourists need transport to, from and around the host destination. The makeup of the
transport industry and importance of various types of transport for each destination
depends on the type of tourist, the transport needs of locals and the topography of the
destination.

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Exercise – Introduction
Refer to the power point and read pp.136 textbook to answer the following questions:

1. Transport is a vital facilitator of tourism. What role does it play?

2. Transport can be an attraction. Give two examples of transport options that are
also attractions in their own right.

In the next sections ensure you know each different mode of transport and its role within
New Zealand. There are three modes: water, land and air.

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Water based transport
Cruise Ships – Read pp. 137– 140 textbook
and hand out articles
1. What is the significance of the cruise industry to tourism in NZ? Include at least
four well supported points.

2. Identify three key cruise destinations in New Zealand.

Cruise ships are an important niche market for some parts of New Zealand and not just
coastal destinations. For example, Rotorua, within an hour’s drive of Tauranga, benefits
greatly from cruise tourists entering this port.

To see what a cruise trip offers a customer look at the websites of these three companies:
http://www.carnival.com

www.royalcaribbean.com

www.pocruises.com

Refer to the following website to gain an understanding of the cruise industry in New
Zealand:
www.cruisenewzealand.org.nz

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Ferries –
Read p.140 textbook

3. What is the key role of ferries?

In New Zealand the Cook Strait is a major transport barrier. The most important
carrier is the Interislander https://www.interislander.co.nz/About.aspx
Although there have been a number of attempts to establish other passenger ferry
services on the Cook Strait they have all struggled to be competitive. Currently there is
only one competitor, Strait Shipping's “Bluebridge.” www.bluebridge.co.nz

Ferries play an important role in access to some places – most notably Russell in the Bay
of Islands and to the islands near Auckland in the Waitemata Harbour and the Hauraki
Gulf.

Inland Water Transport – Read p.141 textbook

In Europe and other areas of the world there are well developed inland transport links
using rivers and canals. Many large rivers have cruises that take several days and link a
number of cities. In New Zealand any inland transport tends to be like the Lakeland
Queen or the Waimarie offering a short lake or river cruise that leaves and returns to the
same point.

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Land based transport
The Car - Read pp. 141, 144 textbook and refer to the power point
The car is an important form of transport in many countries for domestic tourism and for
FIT touring international visitors. It is the most important mode of transport for tourists
travelling within New Zealand.

1. List the different ways tourists can access car transport.

2. The use of the motorcar has flow-on effects for the rest of the tourism industry.
What are these effects and implications for the industry?

Road transport is the most important form of tourism transport in New Zealand (see
International Visitor Survey and Domestic Travel Survey). High private car ownership has
had implications for scheduled coach and rail transport. Rental car companies are
significant in the supply of vehicles to the international market. There has been a growth
in the second level of companies such as Rent-a-Dent. Another growing sector is the
campervan market especially with the development of smaller van-like vehicles eg Jucy

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Coach and Bus travel - Read p 142 textbook
In New Zealand bus travel refers to travel within a city or town. Coach is now used both
for inter-city scheduled services and package tour travel.
3. Define the following services. Give an example to illustrate each definition.

Scheduled services - Intracity and Intercity:

Coach tours:

In New Zealand the youth backpacking market has seen new developments like Kiwi
Experience http://www.kiwiexperience.co.nz/. Coach tours like Scenic Pacific Tours
http://www.scenicpacific.co.nz are also a
highly visible and important part of the
transportation sector in New Zealand.
Look up these sites – so you have some
understanding of the different services
offered by these companies.

Rail – Read pp.142– 144 textbook and answer the following questions:

In New Zealand rail plays a very small role

in tourism transport – it is confined to
services which are peripheral to tourist
destinations. These services include
scenic routes http://www.kiwirail.co.nz/ or
tourism attractions like the Taieri Gorge
train http://www.taieri.co.nz/.

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 4. What advantages does rail have over cars and air transport?

5. List train journeys that are considered attractions in their own right. Include
overseas and New Zealand examples.

Air Transport
The advances made in aircraft technology during the war led to the first viable commercial
aviation industry. Over time air travel has become more comfortable, safer and cheaper
and with the introduction of the jet engine in the late 1950’s air travel truly became global.

The international airline industry - Read pp.145 - 146 textbook

International regulation of the airline industry is crucial. In terms of the structure of the
airline industry there are two key conventions: the Freedoms of the Air and Bilateral
agreements.

Read pp 148 – 156 textbook and refer to the

power point.

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 1. Why are there regulations associated with the airlines?

2. What is a Bilateral agreement?

3. What are Freedoms of the Air?

The other important change has been the development of airline alliances. The two
major alliances are One World Global Alliance www.oneworld.com (look under news
media and benefits for information) and the Star Alliance www.staralliance.com (look
under Our Products). Also refer to textbook pp.154 – 155 and the power point.

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 4. What is an airline alliance? What benefits does it offer both the airlines and the
passengers?

Low-cost airlines (LCA’s)

Low-cost air travel, often termed no-frills or budget airline travel, refers to those airlines
who have managed to minimise their costs and pass on these savings to their customers
by way of reduced fares.

Jetstar Airlines – New Zealand’s low-cost travel alternative

Owned by Qantas, Jetstar began low fare flights in Australia on May 25, 2004 and
began its domestic NZ operation on June 10, 2009. Jetstar offers a simple travel
experience, consistent, low airfares and many business and holiday destinations
around New Zealand and Australia.

Extension Case Study: Air New Zealand

How has AirNZ responded to the global pandemic (Covid19) in order to ensure that, as an
airline, it remains economically viable.
Refer to the AirNZ website – www.airnewzealand.co.nz & other sources. Consider the
following:
How is AirNZ supporting its customers & meeting their needs?
What is AirNZ doing to reduce costs and remain competitive?

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2B Accommodation Sector

Learning Outcome:
Understand the roles of participants in the supply of the tourism
product and their interrelationships.
Content:
- Categorisation, classification, and grading of providers
- Qualmark –NZ’s official tourism industry grading system
- Characteristics of the accommodation product
- Demand for accommodation

Skills required - being able to:

- understand the role of accommodation as a component of the
tourism product
- understand terminology and characteristics related to the
accommodation sector
- apply knowledge of terminology and characteristics to a specific
case study

Accommodation is the static element of the tourism product. All tourists need some form
of accommodation so a key role of this sector is to enable overnight stays and cater for
their different wants and needs.

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Categorisation, Classification and Grading
Categorisation

Accommodation can be divided into categories based on type. The terms used for
categories is not standardised throughout the world and this can lead to confusion for
international tourists. The term ‘inn’ means quite different things. To the English it means
a small pub and to the Americans a motor inn, e.g. Flag Inn. In New Zealand some
motels have started to call themselves motor lodges or motor inns (because to the
Japanese the meaning of motel is - a place to take a prostitute).

Use http://www.newzealand.com/int/ (click on accommodation and then the different

types of accommodation) to give a brief description of the categories. Accommodation
types can include motels, hotels, backpackers and hostels, homestays, holiday parks and
campgrounds as well as luxury lodges to name a few. Read the descriptions to
understand what makes each accommodation type different.

Classification

Classification of accommodation involves grouping accommodation on the basis of

physical amenities and features. Thus it is a quantitative measure. For example: location
– city centre, airport etc, features – ensuite bathroom, restaurant, swimming pool etc.

Grading

Grading of accommodation is making a quality judgment on the standard of facilities and

services. Many accommodation operators object to these judgments as they see them as
being personal and not objective. It is important that grading systems have specific
performance criteria.

Many countries have grading and classification systems. Although some countries have
attempted to make the systems compulsory the tourism industry is always resistant.

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Qualmark
In New Zealand a voluntary grading system called Qualmark was introduced in 1994 for
motels and holiday parks, and later extended to all accommodation.

Currently the Qualmark licensing system is made up of an endorsement system for visitor
activities and transport, and a star grading system for accommodation.

Having a quality mark was a key strategy in the New Zealand tourism strategy 2010 so in
2002 Qualmark was re-launched to include all tourism businesses. In 2008 a new
environmental criteria was introduced - Qualmark Green. “The new criteria contributes to
one of the important outcomes in the New Zealand Tourism Strategy 2015 which
highlights the need for the tourism sector to take a leading role in protecting and
enhancing New Zealand’s environment” (Damien
O’Connor, 2008)

Exercise - What is Qualmark?

Refer to the the textbook pp. 179, 422 – 426 and the
www.qualmark.co.nz to answer the following
questions:

1. What is Qualmark?

2. What is the difference between star assessments for accommodation

and the endorsement assessment for other tourism operators?

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3. What are the benefits of joining Qualmark?

4. What are the benefits for visitors in going to a Qualmark business?

5. Why has an Enviro Award been included in the Qualmark assessment

programme?

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Ownership and Management systems
There are three basic types of accommodation ownership and management in New
Zealand: owner operated (some of these belong to voluntary chain associations),
franchise and management contract.

1. Owner operator is when a company owns and operates the accommodation

facility. e.g. many of the motels on Fenton Street are owner operators. A number
belong to a voluntary chain association. Best Western is one of the best known
examples. Next time you drive down Fenton Street note the number of different
voluntary chains there are.
The Best Western website www.bestwestern.co.nz (under hotel directory) will show you
which Rotorua accommodation operators are part of the Best Western chain.

Hotel chains often have a range of ownerships within their business. Some may be
owned and operated by the chain but most are either run by a management contractor or
franchise.

2. A management contract is when the accommodation owner employs an

individual or a company to manage the facility. e.g. Until June 2006 The Royal
Lakeside Novotel was owned by a Thai family but managed by the Accor Hotel
company which has Novotel as one of its brands.
See the following website for more information: http://www.accorhotels.group/en

3. A Franchise allows an owner of a hotel to be part of an established chain with a

standard name, logo and specified standards and systems. The best known
hospitality franchise is probably McDonalds.

Consider the advantages and disadvantages of each type of accommodation ownership

or management system.

Exercise – Factors affecting demand for accommodation pp. 182 – 186 Textbook
If you own or manage tourism accommodation you need to consider the factors that affect
a consumer’s decision to buy accommodation.

Location is the key factor in a

consumer’s decision. If
accommodation is situated too
far from the demand then it is
unlikely to be profitable. The
location required depends on the
market you are targeting –
business (often located near city
centres), leisure (located near
attractions) or transit (located on
transit routes – main roads or
near airports).

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 What other factors affect demand for accommodation?

Characteristics of the Accommodation Product – pp. 186 – 188 Textbook

Seasonality and Periodicity

Demand for tourism is not uniform over a year or a week.
Tourism tends to be seasonal - demand changes over a year. The main factor
determining high demand is the climate. For most destinations summer is the high season
but in hot countries where heat, monsoon or cyclones are a problem the dry season is the
high season.
High seasons can be due to other factors like:
* Habit and tradition - the way New Zealanders travel at Christmas
* Special events - bring people who would not normally visit
* Discounting prices

Seasonality is used to describe highs and lows in demand over a year.

Periodicity is the term for highs and lows in demand over a week.

These highs and lows will vary depending on the type of accommodation. Hotels with a
large business market sometimes have low demand in the weekends. Motels in small
towns have high demand in the weekends.

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Fixed Location and Capacity
Operating an accommodation business is high risk as it has:
- fixed location (an accommodation facility can’t move when demand changes)
- fixed capacity (the number of rooms are fixed)

Perishability and Yield Management

The accommodation product is perishable (if rooms are not sold then the possible
revenue for that day is lost, you cannot store the bed space that is not used, unlike cans
of peaches, and sell them another day). For maximum profit all rooms need to be full
every day.

The success of any accommodation business is dependent on how it manages

seasonality and this is done primarily by revenue or yield
management

Exercise -
Refer to the power point to answer the following question

What is yield management and why is it important?

Note - one part of yield management is hot deals (check www.wotif.co.nz )

Extension Case Study: Rotorua Accommodation Outlet

Choose a specific accommodation outlet in Rotorua. Research information relating to its:

 Categorisation (according to Qualmark)

 Classification (of key facilities/amenities provided)
 Quality grading/s held by the business
 Strategies adopted by the business to cope with seasonality and/or competition

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2C Sales Sector &
Distribution Chain

Learning Outcome:
Understand the roles of participants in the supply of the tourism
product and their interrelationships
Content:
- Interrelationship of participants
- Sales distribution system operating in New Zealand
- Roles of wholesalers and retailers
- Global trends in the travel industry
- The concepts of horizontal and vertical integration

Skills required - being able to understand and:

- draw a diagram of the sales distribution system operating in NZ
- describe the roles of wholesalers and retailers
- explain how a key global travel trends, such as the internet, has
affected the way the sales sector now operate
- describe the concepts of horizontal and vertical integration

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New Zealand Distribution Chain.
Tourism can be sold:
• Direct from the supplier to the customer e.g. arriving at the ticket office of an
attraction or buying an airline ticket off the Air NZ internet site
• OR it can be sold via one intermediary - a retail travel agent – who deals with the
supplier e.g. when you book an airline ticket through a travel agent
• OR it can be sold via two intermediaries - a retail travel agent who deals with a
wholesaler (who may have worked with a tour operator to create tour package) or
a supplier.

Exercise - Refer to Fig. 8.1, p.243 of your textbook and power point
Draw a diagram to show the various stages (levels) of the distribution chain.

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 1. Tour Operator / Wholesaler – pp.247 – 251

In New Zealand many inbound tour operators belong to Tourism Export Council of
New Zealand (formerly ITOC - Inbound Tour Operators Council). Refer to their
website www.tourismexportcouncil.org.nz for background information on this
organisation.

2. Travel Agent / Retailer – pp.251 - 254

In New Zealand many travel agents belong to TAANZ (Travel Agents Association
of New Zealand). www.taanz.org.nz

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Integration Refer textbook pp. 246 – 247

In recent years the Sales Distribution Chain has become less structured and more
confused.

Horizontal Integration is when businesses offering products from the same part of the
distribution chain merge. For instance when suppliers merge such as attractions and
transportation operators (Discover Waitomo and Kiwi Experience are both owned by
Tourism Holdings Ltd ), or travel agents (House of Travel and AA travel) merge.

Vertical Integration is when organisations from different parts of the distribution chain
merge into one business. The new business is now performing at least two distinct roles
within the distribution chain.
For instance: suppliers setting up wholesale operations
suppliers setting up retail travel outlets
wholesalers buying into a supplier
wholesalers setting up retail travel agencies
retailers establishing wholesaler operations
(the last two are particularly common in New Zealand.)

An example of Vertical Integration being Air New Zealand as a transport operator and a
retail travel agent.

Exercise - Integration

What is the effect of vertical integration on consumers?

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Exercise - Internet Selling pp 255 – 258 Textbook
The key global trend impacting on the travel industry
worldwide, as well as within New Zealand, is the use of the
internet for marketing, and selling tourism and travel
products.

The internet is changing the face of independent travel and

operators within the sales distribution chain have had to
change the way they operate their businesses in order to
remain competitive and keep abreast of global trends.

1. How has the internet changed the way tourism suppliers and retail travel
agents operate?

2. What advantages and disadvantages has the internet created for both tourists
and tourism businesses?

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2D Attractions and Activities Sector /
2E Visitor (Ancillary) Services

2D Attractions and Activities

Learning Outcome:
Understand the roles of participants in the supply of the tourism
product and their interrelationships
Content:
- Importance of attractions and activities as components of the
tourism product
- Categorisation and special interest tourism
- Role and contribution of ancillary services

Skills required - being able to understand:

- the importance of attractions and activities as components of the
tourism product
- what is meant by special interest tourism
- additional service providers in the provision of the tourist product

Attractions are one of the central components of the tourism experience - vital to visitors’
enjoyment and can be one of the major pull factors to a destination.

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Special Interest Tourism pp 204 – 209, power point
Define the key characteristics of the following:
- Cultural tourism

- Heritage tourism

- Rural tourism

- Event tourism

- Nature tourism

- Adventure tourism

- Eco-tourism

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A summary of New Zealand’s more popular attractions is found in the Tourism New
Zealand website www.tourismnewzealand.com under Markets and Stats> research –
special interest.

From the data collected it is evident that activities involving natural scenery are those with
the highest levels of satisfaction eg scenic bush walks, climbing, caving and sporting
events.

2E Visitor/Ancillary Services
Visitor/Ancillary services meet a variety of tourist
needs. These services along with
accommodation are sometimes known as
destination amenities. They are essential for a
successful destination

The type and standard of visitor services

required depends on the type of tourists a
destination wishes to attract. The appropriate
type (and standard) of services is required as
visitors see them as essential to meet their needs and wants. Coach tours demand a high
standard of hotel type accommodation whereas FITs may require backpacking hostels. If
the appropriate service is not available it may stop that visitor type travelling to the
destination.

These ancillary services include:

• food and beverage (convenience food, eating out, or a taste of the culture)
• retail shopping (for basic necessities and for souvenirs and gifts)
• financial services (foreign exchange, credit, travel insurance)
• tourist information and publications (accessible both in format and language)
• conference and convention facilities
• entertainment services (night time activities - often not pre-booked)
• infrastructural facilities such as sewerage, water supply, roads, rubbish
collection, parks and reserves.

Sometimes a particular visitor service can be an attraction as well. For instance many
visitors would see shopping as an attraction of Hong Kong or the recreational activities of
a resort might be the attraction for a holiday with children.

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Exercise - Vistor/Ancillary services - pp 261 – 262 Textbook

Select 2 different ancillary providers and describe two different contribution they each
make to the visitors overall tourism experience

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Extension Case Study: Agrodome

The Agrodome was opened in 1971 as a joint

venture between the Rotorua
A & P Association, Godfrey Bowen and George
Harford. The original idea was Godfrey Bowen’s
who had trained sheep to perform as part of the
New Zealand exhibit in Japan at the 1970 World
Trade Expo. He believed an identical display of
different sheep breeds would work in New
Zealand because of its immense success in Japan.

Originally it was a taped commentary as the sheep paraded followed by a sheep shearing
demonstration. It has evolved into a show where the shearer is also a performer.

The Agrodome has diversified in several ways. One is by adding various farming activities
to the show and other experiences like the farm tours, the woolen mill and baby animal
nursery. Secondly the Agrodome have moved into the recreation/adventure tourism
market. These are joint ventures with other operators who own the equipment. These
include Zorb, Swoop, Bungy, Sweeb, Helicopter and Agrojet (Velocity Valley). One of the
effects of these activities has been to increase the number of domestic and FIT visitors to
the Agrodome show. The third diversification is building of the Agrodome in Japan.

Over the last 15 years, The Agrodome unique brand has targeted five major international
markets and the success of their advertising campaigns has helped the business to grow
despite a recent economic crisis. The foresight of the original directors to establish market
managers and operational staff to look to these markets was unique to the industry and
allowed this growth. Ngai Tahu now have a majority shareholding in the Agrodome
business.

Answer the following questions

1. List the different nationalities at the show. How does the Agrodome meet the
needs of these nationalities?

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2. Critique the show and the actual business – what are its strengths and
weaknesses, what needs to be improved.

3. Identify and describe external factors that may threaten this business and affect its
viability.

4. Describe possible opportunities that Agrodome has got to grow its business and
become more competitive. Why do you think Agrodome should consider these?

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