Travel and Tourism Competitiveness Report Part 2/3

TT.part1.
r2 2/21/07 11:47 AM Page 1
Part 1
Selected Issues of T&T
Competitiveness
TT.part1.r2 2/21/07 11:47 AM Page 2
TT.part1.r2 2/21/07 11:47 AM Page 3
1.1: The Travel & Tourism Competitiveness Index

CHAPTER 1.1 Travel & Tourism (T&T) is a critical source of economic
growth and development in many countries around the
The Travel & Tourism

world, rendering the measurement of its competitiveness
an important undertaking. Over the past several decades,
Competitiveness Index: Travel & Tourism has become a key sector in the world
economy. In 1950, international tourism receipts totaled
Assessing Key Factors Driving a mere US$2.1 billion; by 2004 this had grown to an
impressive US$622.7 billion.1 Tourism has become an
the Sector’s Development extremely important employment and revenue generator
internationally, providing jobs directly through the
tourism industry itself (for example, hotels, visitor
JENNIFER BLANKE, Senior Economist, Global Competitiveness
attractions, restaurants, tourist transport, and so on)
Network, World Economic Forum
and indirectly through the supply of many goods and
THEA CHIESA, Head of Aviation, Travel and Tourism, World services that are inputs to the tourism industry.2 In
Economic Forum addition, there are many local revenue-generating
activities that are not formally registered in the national
accounts (for example, informal employment such as
street vendors and informal guides).This indirect tourism
revenue has been estimated to have a magnitude equal
to that of direct tourism expenditures.3
By 2006, the T&T sector accounted for 234 million
jobs or 8.2 percent of total employment worldwide, as
well as 10.3 percent of world GDP.4 And the sector
continues to grow.The World Travel & Tourism Council
(WTTC) estimates that in 2006 the T&T sector con-
tributed 2.5 million new jobs worldwide.When taking
into account both the direct and indirect impact of the 3
industry as described above,Travel & Tourism created
nearly 10 million new jobs globally.5
Behind these revenue and employment figures is
the large and growing number of international travelers.
According to the World Tourism Organization
(UNWTO), the number of international arrivals grew
from 25 million in 1950 to an estimated 763 million in
2004, corresponding to an average annual growth rate
of 6.5 percent.6 In the first eight months of 2006, inter-
national tourist arrivals totaled 578 million worldwide,
up by 4.5 percent from 553 million in the same period
of 2005—a year that saw a record 806 million people
traveling internationally.This growth is expected to
continue in 2007 at a pace of approximately 4 percent
worldwide.7
The industry is one of the world’s largest economic
activities: it is the main industry in many countries, as
well as the fastest-growing economic sector in terms of
foreign exchange earnings and job creation according to
the UNWTO. In other words,Travel & Tourism is an
important driver of growth and prosperity and, particu-
larly within developing countries, the sector is also
important for poverty reduction.The World Trade
Organization (WTO) estimates that developing countries
derive over 43 percent of their total services trade
The authors would like to thank Thierry Geiger for his excellent research
assistance in developing the Travel and & Tourism Competitiveness
Index and preparing the present chapter. They would also like to thank
Irene Mia for valuable input into the project over the past year.
TT.part1.r2 2/21/07 11:47 AM Page 4
revenue from tourism exports, and Least Developed to provide the industry with useful comparative infor-
Countries (LDCs) derive more than 70 percent.8 mation, and an important benchmarking tool, for making
According to WTTC research, most new jobs in devel- decisions related to business/industry development.
oping countries are created in tourism industries.9 In Second, and more importantly, the analysis provides an
addition,Travel & Tourism can help diversify economic opportunity for the T&T industry to highlight to
activity, enabling countries to redistribute wealth and national policymakers the obstacles to T&T competi-
jobs from core and urban areas to rural and regional tiveness that require policy attention, and to enable
communities.10 More generally,Travel & Tourism creates dialogue between the private and public sectors for
important backward linkages with products and services improving the environment for developing the T&T
sourced locally, producing beneficial effects for the local industry at the national level.The next section will
economy as a whole. describe the new Index we have developed aimed at
Tourism also has important indirect positive devel- providing such a tool.
opment effects. For example, it can encourage govern-
ments to make infrastructure improvements such as better
water and sewage systems, roads, electricity networks, The Travel & Tourism Competitiveness Index
and telephone and public transport networks, all of The Travel & Tourism Competitiveness Index (TTCI)
which can improve the economy’s development has been developed within the context of the World
prospects and the quality of life for residents, as well as Economic Forum’s Industry Partnership Programme for
facilitate tourism. According to the WTTC, the public the Aviation,Travel and Tourism sector.The TTCI aims
and private sector combined are expected to spend to measure the factors and policies that make it attractive
US$1,010.7 billion in new T&T capital investment, or to develop the T&T sector in different countries.The
9.3 percent of total worldwide capital investment.11 Index was developed between September 2005 and
The development of the T&T industry also has October 2006 by the World Economic Forum in close
important implications for the natural environment. collaboration with our strategic design partner Booz
The interdependence of tourism on the quality of the Allen Hamilton, and our data partners the International
environment places it in a special position in terms of Air Transport Association (IATA), the UNWTO, and the
4 environmental sustainability, as tourism provides direct WTTC.We have also received important feedback from
returns to environmental protection. As highlighted at a number of key companies that are industry partners in
the 1992 United Nations Conference on Environment the undertaking, namely Bombardier, Carlson Companies,
and Development (UNCED) Earth Summit, the T&T Emirates Group, Qatar Airways, Royal Jordanian Airlines,
industry has the potential to make a positive contribution Silversea Cruises Group, Swiss International Airlines and
to the quality of the natural environment.This can take Visa International.
place, for example, by providing the opportunity to The TTCI builds upon the work carried out by the
communicate the value of the natural environment to WTTC at the beginning of this decade. For three years,
residents, by creating business incentives for environ- between 2001 and 2004, the WTTC’s Competitiveness
mental improvements such as cost savings from adopting Monitor tracked a range of issues, aiming to measure the
waste- and energy-minimization practices, and by raising extent to which a country offers a competitive environ-
awareness of environmental issues and encouraging ment for Travel & Tourism development.The Monitor
tourists to advocate for environmental conservation.12 included a number of indexes, capturing concepts critical
And the T&T sector serves an important diplomatic to the development of the T&T industry such as price
as well as a development purpose, as it provides an competitiveness, infrastructure, human resources, the
important tool for furthering cultural understanding. environment, and technology.
National reputation is enhanced as the individuals who Although the Competitiveness Monitor was well
visit countries develop a more positive impression than received by the international community, it remained
those who have not done so, enabling countries to foster somewhat limited in scope. In this context, the WTTC
their “national brand.”This can also lead to investment decided that joining efforts with the World Economic
opportunities by enabling potential investors to develop Forum and other industry organizations would provide
a better understanding and impression of the country. access to a greater breadth of data and would better
The critical importance of fostering the T&T sector ensure the optimal use of the findings in promoting
is thus quite clear, yet a variety of national regulatory public-private dialogue with the goal of improving the
and other obstacles remain in many countries, hindering T&T environments of countries.Thus, the TTCI should
its development. In order to shed some light on these be seen as a natural extension of the work previously
issues, the World Economic Forum has embarked on an carried out within the context of the Monitor,
effort to identify the specific levers for improving T&T enhanced by further economic data and input from a
competitiveness in countries around the world.The goal variety of industry experts.13
is twofold. First, by providing a cross-country analysis of The TTCI is based on three broad categories of
the drivers of T&T competitiveness, the study intends variables that facilitate or drive T&T competitiveness.
TT.part1.r2 2/21/07 11:47 AM Page 5

Figure 1: Composition of the three subindexes of the TTCI
Travel & Tourism Competitiveness Index
Subindex A: Subindex B: Subindex C:

T&T regulatory framework T&T business environment T&T human, cultural, and
and infrastructure natural resources
Policy rules and regulations Air transport infrastructure Human resources
Environmental regulation Ground transport infrastructure National tourism perception
Safety and security Tourism infrastructure Natural and cultural

resources
Health and hygiene ICT infrastructure
Prioritization of Price competitiveness in

Travel & Tourism the T&T industry
These categories are summarized into the three Figure 1 summarizes the structure of the overall Index, 5
subindexes of the Index: (1) the T&T regulatory frame- showing how the 13 component pillars are allocated
work subindex, (2) the T&T business environment and within the three subindexes.
infrastructure subindex, and (3) the T&T human, cultural Each of the pillars is, in turn, made up of a number
and natural resources subindex.The first subindex of individual variables.The dataset includes both hard
captures those elements that are policy-related and data and Survey data from the World Economic Forum’s
generally under the purview of the government; the annual Executive Opinion Survey.The hard data were
second subindex captures elements of the business obtained from publicly available sources, international
environment and the infrastructure of each economy; T&T institutions, and T&T experts (for example, IATA,
and the third subindex captures the human and cultural the International Civil Aviation Organization or ICAO,
elements of each country’s resource endowments. UNWTO,WTTC, and the United Nations Educational,
Each of these three subindexes is composed in turn Scientific and Cultural Organization or UNESCO).The
by a number of “pillars” of T&T competitiveness, of Survey is carried out among CEOs and top business
which there are 13 in all.These are: leaders in all economies covered by our research; these
are the people making the investment decisions in their
1. Policy rules and regulations respective economies.The Survey provides unique data
2. Environmental regulation on many qualitative institutional and business environ-
3. Safety and security ment issues. Further, for the purposes of this study and
4. Health and hygiene this specific Report, a number of new questions related
5. Prioritization of Travel & Tourism to T&T competitiveness were added to the Survey on
6. Air transport infrastructure issues such as the quality of destination marketing and
7. Ground transport infrastructure the government’s prioritization of the T&T industry.
8. Tourism infrastructure These questions provide us with entirely new data
9. ICT infrastructure related to T&T competitiveness.
10. Price competitiveness in the T&T industry The policy rules and regulations pillar captures the
11. Human resources extent to which the policy environment is conducive to
12. National tourism perception developing the T&T sector in each country. Governments
13. Natural and cultural resources can have an important impact on the attractiveness of
developing this sector, depending on whether the policies
that they create and perpetuate support or hinder its
development. Sometimes well-intentioned policies can
TT.part1.r2 2/21/07 11:47 AM Page 6
end up creating red tape or obstacles that have the pillar we measure both the quantity of air transport, as
opposite effect than that which was intended. In this measured by the available seat kilometers, the number of
pillar we take into account the extent to which foreign aircraft departures, airport density, and the number of
ownership and foreign direct investment are welcomed operating airlines, as well as the quality of the air trans-
and facilitated by the country, how well property rights port infrastructure both for domestic and international
are protected, the extent to which visa requirements flights.
make it complicated for visitors to enter the country, Vital for ease of movement within the country is
and the openness of the bilateral Air Service Agreements the extensiveness and quality of the country’s ground
into which the government has entered with other transport infrastructure.Very important is the quality of
countries. roads, railroads, and ports, as well as the extent to which
The importance of the natural environment for the national transport network offers efficient, accessible
providing an attractive location for tourism cannot be transportation to key business centers and tourist attrac-
overstated, and it is clear that effective environmental tions within the country.
regulation is crucial for ensuring that a country will We have also included a pillar that captures a
continue to be an attractive destination going into the number of aspects of the general tourism infrastructure in
future. In this pillar we measure the stringency of the each country, as distinct from the general transport
government’s environmental regulations in each country, infrastructure.This includes a measure of the accommo-
as well as the extent to which the regulatory environment dation infrastructure (the number of hotel rooms) and
is stable and clear, facilitating implementation. And the presence of major car rental companies in the coun-
given the environmental impacts that tourism itself can try, as well as a measure of the financial infrastructure for
sometimes bring about, we also take into account the tourists in the country (the availability of automatic
extent to which governments prioritize the sustainable teller machines, or ATMs).
development of the T&T industry in their respective Given the increasing importance of the online
economies. environment for the modern T&T industry, for planning
Safety and security is a critical factor determining itineraries and purchasing travel and accommodations,
the competitiveness of a country’s T&T industry.Tourists we also capture the quality of the ICT infrastructure in
6 are likely to be deterred from traveling to dangerous each economy. Here we measure ICT penetration rates
countries or regions, making the T&T sector less attrac- (Internet and telephone lines), which provide a sense of
tive to develop in those places. Here, we take into the society’s online activity.We also include a specific
account the costliness of common crime and violence measure of Internet use by businesses in carrying out
as well as terrorism, and the extent to which police transactions in the economy, to get a sense of the extent
services can be relied upon for protection from crime. to which these tools are in fact being used for business
Health and hygiene is also an important factor driving (including T&T) transactions in the economy.
T&T competitiveness.Very important is the access with- The price competitiveness in the T&T industry is
in the country to improved drinking water and sanitation clearly an important element of T&T competitiveness,
for the comfort and health of travelers. And in the event with lower costs increasing the attractiveness of some
that tourists do become ill, it is important that the countries for many travelers.To measure countries’ price
country’s health sector can ensure they are properly competitiveness, we take into account factors such as
cared for.With regard to prevention, recent scares— airfare ticket taxes and airport charges (which can make
related for example to SARS and the threat of bird air travel much more expensive), fuel price levels com-
flu—have also highlighted the importance of govern- pared with those of other countries, taxation in the
ment efforts to reduce the health risks from pandemics. country (which can be passed through to travelers), and
The extent to which the government prioritizes the extent to which goods and services in the country
the T&T sector also has an important impact on T&T are more or less expensive than elsewhere (purchasing
competitiveness. By making clear that T&T is a priority power parity).
sector, and by reflecting this in its budget priorities, the It is also very important to have quality human
government can channel needed funds to essential resources in the economy, ensuring that the industry has
development projects. It also sends a signal of its inten- access to the collaborators it needs to develop and grow,
tions, which can have positive spillover effects, such as and who can communicate effectively.This pillar takes
attracting further private investment into the sector. into account the health and the education and training
Prioritization of the sector can be reflected in a variety levels in each economy, and is made up of three specific
of other ways as well, such as ensuring the country’s subpillars.The education and training subpillar measures
attendance at international T&T fairs and commissioning educational attainment rates (primary and secondary), as
high-quality “destination-marketing” campaigns. well as the overall quality of the educational system in
The air transport infrastructure is very important for each country, as assessed by the business community. As
providing ease of access to and from countries, as well as well as the formal educational system, we also take into
for movement to destinations within countries. In this account private-sector involvement in upgrading human
TT.part1.r2 2/21/07 11:47 AM Page 7

resources, including the availability of specialized training the index is highly correlated with both the number of
services and the extent of staff training by companies in tourists actually traveling to various countries, as well as
the country.The subpillar measuring the availability of the annual income generated from Travel & Tourism.
qualified labor further takes into account the extent to This supports the idea that the TTCI captures factors
which hiring and firing is impeded by regulations, and that are important for developing the T&T industry in
whether labor regulations make it easy or difficult to countries.
hire foreign labor. Finally, the workforce wellness The rest of this section will discuss some of the
subpillar measures the health of the workforce, taking highlights of the rankings in a regional context, grouping
into account health indicators such as the prevalence of countries into the following five regional groups:
specific diseases and inhabitants’ average life expectancy Europe and North America, Asia, Latin America and
in the country. the Caribbean, Middle East and North Africa, and
The national tourism perception pillar measures the sub-Saharan Africa. For further details for each of the
extent to which the country and society are open to 124 economies included in this Index, we provide two-
tourism and foreign visitors. It is clear that the general page profiles in section 2 of the Report.The profiles
attitude of the population to travel and to foreign visitors show the rankings on each subindex and pillar, as well
has an important impact on T&T competitiveness. In as “T&T competitiveness balance sheets,” which separate
particular we provide a measure of the extent to which each of the 58 factors included in the TTCI into T&T
people in the country are welcoming to foreign travelers, competitive strengths and weaknesses.
a measure of the extent to which business leaders are
willing to recommend leisure travel in their countries to Europe and North America
important business contacts, and a measure of tourism As shown in Table 1, most of the countries in the top
openness (tourism expenditures and receipts as a per- 10 rankings hail from Europe and North America.The
centage of GDP), which provides a sense of the impor- top spot is held by Switzerland, followed closely by
tance of tourism relative to the country’s overall size. Austria and Germany. Switzerland owes its position at
Finally, it is also clear that natural and cultural the top to strengths in all areas covered by the Index. As
resources are a critical driver of T&T competitiveness is well known, Switzerland is an extremely safe country,
around the world. Countries that are able to offer with excellent health and hygiene indicators and envi- 7
travelers access to natural or cultural assets clearly have ronmental regulation that is among the most stringent
a competitive advantage. In this pillar we include a and effective in the world. And in a country that has
measure of cultural heritage (the number of UNESCO some of the most well regarded hotel management
World Heritage sites), environmental attractiveness schools in the world, the quality of the country’s human
measures—including environmental damage and the resources is second to none, ensuring an adequate sup-
percentage of nationally protected areas—and a measure ply of high-quality staff for the industry.The transport
of health risks, in particular the risk of tropical diseases. and tourism infrastructure (both ground and air trans-
These 13 pillars are regrouped into the three port) are also among the best in the world, making it
subindexes described above, as shown in Figure 1, and very easy and comfortable for visitors to move around
the overall score for each country is derived as an the country. Further, the country’s natural and cultural
unweighted average of the three subindexes.The details resources are among the richest in the world.
of the composition of the TTCI are shown in the Switzerland is home to six World Heritage sites, a signif-
appendix to this chapter. icant number for such a small country, and nearly 30
Based upon data availability, this year the TTCI percent of the land area of the country is protected.
measures the T&T competitiveness for 124 economies, Given the importance of policy in driving T&T
covering all of the world’s regions and accounting for competitiveness, it is also notable that Switzerland—
approximately 90 percent of the world’s population and together with Spain–is one of the only two high-income
98 percent of world GDP. countries among the top 10 with regard to the prioriti-
zation of Travel & Tourism. In other words, Switzerland
has a number of underlying strengths that are reinforced
The Travel & Tourism Competitiveness Index by political will. All of this comes together to make
rankings 2007 Switzerland a very attractive place to develop the T&T
The rankings from this year’s TTCI are shown in Tables sector. Regarding weaknesses, Switzerland is assessed as
1 through 4, providing a summary of the T&T competi- one of the most high-cost economies for the sector,
tiveness of each country. As would be expected, the ranked 115th overall. Although this is primarily because
rankings are highly correlated with a number of T&T of the general costliness in the economy, Switzerland
indicators. For example, Figures 2 and 3 show the corre- also ranks 59th with regard to airport charges and taxes;
lation between the TTCI and tourist arrivals, and these could be reduced to improve the price competi-
between the TTCI and tourism receipts, respectively tiveness of the country, and thus improve the country’s
(both shown in log form) in 2005. As the figures show, T&T competitiveness even further.
TT.part1.r2 2/21/07 11:47 AM Page 8
Figure 2: T&T competitiveness and tourist arrivals
Correlation: 0.77
Log of international tourist arrivals
3
per 1,000 population, 2005
0
1 2 3 4 5 6 7
Travel & Tourism Competitiveness Index (score)
Source: United Nations World Tourism Organization; World Economic Forum.
8 Figure 3: T&T competitiveness and tourism receipts
7
Log of international tourism receipts (US$)
Correlation: 0.84
6
per 1,000 population, 2005
0
1 2 3 4 5 6 7
Travel & Tourism Competitiveness Index (score)
Source: United Nations World Tourism Organization; World Economic Forum.

TT.part1.r2 2/21/07 11:47 AM Page 9

Austria and Germany share a number of character- well-educated and healthy workers to the industry.
istics with regard to their own T&T environments. For Interestingly, health and hygiene is a relative weakness
example, both countries are among the top three coun- for the country, ranked 38th overall, attributable mainly
tries, together with Denmark, in the quality of their to a somewhat low physician density in the country
environmental regulation; and they are among the top (ranked 48th).
four in terms of safety and security in the country, with France, the most traveled-to destination in the
very low crime and violence and reliable police services. world, is ranked just outside the top 10 at 12th place.
Most strikingly they hold the top two spots in the area The country’s strengths lie in areas such as natural and
of natural and cultural resources, ranks attributable to cultural resources (for example, it has 30 World Heritage
several World Heritage sites in both countries (especially sites, among the highest in the world), the quality of the
in Germany) and to large nationally protected national air and ground transport infrastructure (both ranked
parks and such areas. But there are some nuances. For 4th), and health and hygiene (9th). However, these
example, Germany is rated as doing somewhat better strengths are offset by weaknesses such as the country’s
with the quality of transport infrastructure, particularly policy rules and regulations (ranked 40th), and most
ground transport infrastructure, where it is rated number particularly, issues related to national tourism perception,
1; Austria’s tourism-specific infrastructure is rated as the specifically the perceived attitude of the citizens toward
best in the world, ahead of Germany’s. And Austria also visitors (ranked a very low 122 overall).
outperforms Germany quite strongly in the country’s Spain, a country that has seen an impressive
prioritization of Travel & Tourism. increase in tourism over the years, is ranked 15th overall,
The United States is ranked 5th in the index. It is just behind France within Europe. Spain’s strengths can
among the top three of the 124 countries covered regard- be traced to its excellent tourism infrastructure (ranked
ing natural and cultural resources, with a large number 2nd, just behind Austria) and air transport infrastructure
of World Heritage sites (20 of them) as well as a high (ranked 7th), as well as excellent natural and cultural
percentage of protected land area, making the country resources (with the second-highest number of World
an attractive destination. Some aspects of the policy Heritage sites in the world (39—second only to Italy).
environment are also favorable, such as the strong property And Spain is notably ranked 3rd overall with regard to
rights in the country, although other policies, such as the prioritization of the T&T sector by the country— 9
the relatively stringent visa regime, have become a hin- it is the top-ranked European country in this area,
drance to attracting foreign visitors to the country.The demonstrating the recognition within Spain of the sector
country also has an excellent infrastructure and business as an important driver of economic growth. However,
environment for Travel & Tourism, ranked number 1 in interestingly, the accompanying policy environment is
the overall subindex, and it has the most well developed ranked a relatively low 45th overall, due for example to
air transport infrastructure in the world, by a significant somewhat stringent visa requirements (as in other
margin, as well as excellent tourism infrastructure (ranked Schengen countries), and a lack of openness within the
3rd) and very good ground transport infrastructure. Air Service Agreements into which the country has
The country’s human resources also get excellent marks entered (ranked 80th).
(ranked 5th overall). It should be noted, however, that Greece is ranked 24th overall, with very attractive
hiring foreign labor is highlighted as somewhat difficult cultural resources, excellent health and hygiene (ranked
(ranked 43rd).This is an area of concern because of the 3rd overall), and a safe and secure environment (18th).
seasonality of much of the tourism labor force. Among Further, there is a strong national tourism perception
the country’s weaknesses are in particular what is per- compared with many other European countries, with a
ceived to be a generally negative attitude toward tourists generally open and positive attitude toward tourists, as
(ranked 101st), as well as a lack of prioritization of the well as a higher prioritization of the T&T sector by the
sector by the government (84th). Safety and security is government (22nd) than many European countries.The
also a relatively more important problem than it is in country’s overall ranking is held back, however, by its
many other countries of the same income level (the regulatory environment (ranked 57th, with stringent
United States is ranked 45th), mainly because of fears rules governing foreign direct investment and foreign
about terrorist threats in the country. ownership restrictions as well as visa requirements for
Canada is ranked 7th in the TTCI, with excellent visitors from many countries). Another area of weakness
air transport infrastructure (second only to the United is the country’s air and ground transport infrastructure,
States), and very good ground transport and ICT infra- which are characterized as less efficient than in many
structure, facilitating the online T&T environment. other European countries. Human resources (ranked
Canada has a large number of World Heritage sites (13), 55th) is another area of concern, with, for example,
which attract visitors. And there is a greater prioritization insufficient training available in the country.
of the T&T industry within Canada than there is in the Italy, the country with the highest number of
United States.The country also does comparatively World Heritage sites in the world (43), ranks a mediocre
well with the quality of its human resources, providing 33rd in the TTCI ranking. Unsurprisingly, the country
TT.part1.r2 2/21/07 11:47 AM Page 10
Table 1: The Travel & Tourism Competitiveness Index
SUBINDEXES
Business environment Human, cultural,
OVERALL INDEX Regulatory framework and infrastructure and natural resources
Country/Economy Rank Score Rank Score Rank Score Rank Score
Switzerland 1 5.66 2 5.80 2 5.36 2 5.81

Austria 2 5.54 3 5.79 12 4.97 1 5.86
Germany 3 5.48 6 5.62 3 5.23 6 5.61
Iceland 4 5.45 5 5.69 8 5.04 5 5.61
United States 5 5.43 33 5.06 1 5.74 12 5.50
Hong Kong SAR 6 5.33 4 5.75 14 4.81 14 5.44
Canada 7 5.31 15 5.31 4 5.22 16 5.40
Singapore 8 5.31 1 5.81 11 5.01 42 5.11
Luxembourg 9 5.31 17 5.28 9 5.04 8 5.60
United Kingdom 10 5.28 21 5.20 6 5.08 10 5.58
Denmark 11 5.27 8 5.46 16 4.76 9 5.59
France 12 5.23 13 5.34 5 5.10 28 5.27
Australia 13 5.21 16 5.28 10 5.04 26 5.30
New Zealand 14 5.20 10 5.44 20 4.57 7 5.60
Spain 15 5.18 25 5.15 7 5.05 19 5.34
Finland 16 5.16 7 5.61 18 4.68 33 5.18
Sweden 17 5.13 19 5.25 13 4.88 27 5.27
United Arab Emirates 18 5.09 18 5.28 19 4.68 24 5.31
Netherlands 19 5.08 22 5.17 15 4.77 25 5.30
Cyprus 20 5.07 29 5.09 23 4.50 3 5.62
Belgium 21 5.07 24 5.16 29 4.41 4 5.62
Portugal 22 5.05 11 5.40 22 4.50 30 5.23
Norway 23 5.04 9 5.45 21 4.56 40 5.12
Greece 24 4.99 20 5.21 32 4.36 15 5.41
Japan 25 4.99 28 5.10 17 4.71 38 5.15
Malta 26 4.96 23 5.16 31 4.37 21 5.33
Ireland 27 4.93 14 5.32 26 4.44 46 5.03
10 Estonia 28 4.90 32 5.07 25 4.45 34 5.18
Barbados 29 4.86 31 5.08 36 4.14 17 5.38
Taiwan, China 30 4.82 45 4.73 28 4.43 23 5.32
Malaysia 31 4.80 27 5.12 27 4.44 57 4.84
Israel 32 4.80 36 4.93 33 4.28 35 5.18
Italy 33 4.78 42 4.77 30 4.38 32 5.18
Tunisia 34 4.76 12 5.34 47 3.77 37 5.15
Czech Republic 35 4.75 40 4.80 37 4.13 22 5.32
Qatar 36 4.71 34 5.04 39 4.10 49 4.99
Slovak Republic 37 4.68 37 4.86 45 3.81 18 5.37
Croatia 38 4.66 58 4.37 40 4.06 11 5.55
Mauritius 39 4.63 35 4.96 46 3.77 39 5.15
Hungary 40 4.61 26 5.15 51 3.71 51 4.98
Costa Rica 41 4.60 39 4.80 52 3.66 20 5.34
Korea, Rep. 42 4.58 46 4.61 24 4.46 73 4.67
Thailand 43 4.58 41 4.78 35 4.14 59 4.82
Slovenia 44 4.58 44 4.74 38 4.11 53 4.88
Chile 45 4.58 38 4.83 42 3.87 47 5.03
Jordan 46 4.52 30 5.09 54 3.65 58 4.82
Bahrain 47 4.45 61 4.24 34 4.24 54 4.86
Jamaica 48 4.41 49 4.54 59 3.53 36 5.17
Mexico 49 4.38 48 4.55 57 3.60 50 4.98
Dominican Republic 50 4.35 51 4.52 71 3.28 29 5.24
Lithuania 51 4.34 57 4.39 43 3.84 61 4.79
Turkey 52 4.32 53 4.45 63 3.49 48 5.00
Latvia 53 4.31 60 4.32 41 4.00 77 4.63
Bulgaria 54 4.31 66 4.17 56 3.64 41 5.11
Panama 55 4.28 56 4.41 53 3.66 63 4.76
Uruguay 56 4.28 43 4.76 67 3.32 64 4.75
Morocco 57 4.27 47 4.60 72 3.27 52 4.93
Egypt 58 4.24 50 4.52 60 3.51 68 4.70
Brazil 59 4.20 67 4.14 48 3.76 67 4.70
Indonesia 60 4.20 54 4.45 68 3.30 56 4.85
Serbia and Montenegro 61 4.18 79 3.99 80 3.09 13 5.47
South Africa 62 4.18 59 4.35 44 3.81 96 4.37
Poland 63 4.18 63 4.22 62 3.50 60 4.81
Argentina 64 4.18 85 3.90 58 3.58 45 5.05
India 65 4.14 62 4.24 55 3.64 81 4.55
Georgia 66 4.13 55 4.44 98 2.77 31 5.18
(cont’d.)
TT.part1.r2 2/21/07 11:47 AM Page 11

Table 1: The Travel & Tourism Competitiveness Index (cont’d.)
SUBINDEXES
Business environment Human, cultural,
OVERALL INDEX Regulatory framework and infrastructure and natural resources
Kuwait 67 4.08 71 4.07 50 3.71 86 4.46

Russian Federation 68 4.03 100 3.64 49 3.75 65 4.71
Guatemala 69 4.00 68 4.14 76 3.16 69 4.69
Botswana 70 3.99 64 4.21 69 3.30 85 4.47
China 71 3.97 78 4.00 61 3.51 93 4.39
Colombia 72 3.96 69 4.12 77 3.15 78 4.62
Namibia 73 3.95 73 4.05 64 3.44 95 4.37
Armenia 74 3.93 65 4.21 96 2.80 62 4.77
Azerbaijan 75 3.92 77 4.01 70 3.29 88 4.45
Romania 76 3.91 87 3.86 74 3.20 71 4.68
El Salvador 77 3.90 75 4.01 66 3.34 98 4.36
Ukraine 78 3.89 76 4.01 73 3.21 89 4.45
Sri Lanka 79 3.89 70 4.11 91 2.86 70 4.69
Tanzania 80 3.86 72 4.07 89 2.88 75 4.64
Peru 81 3.86 74 4.04 85 2.95 80 4.59
Kazakhstan 82 3.81 81 3.97 81 3.03 90 4.44
Macedonia, FYR 83 3.81 114 3.34 82 3.01 44 5.07
Gambia 84 3.81 52 4.48 106 2.66 101 4.28
Trinidad and Tobago 85 3.79 88 3.83 65 3.35 104 4.20
Philippines 86 3.79 80 3.98 79 3.10 100 4.29
Vietnam 87 3.78 84 3.91 95 2.81 76 4.63
Honduras 88 3.78 83 3.93 83 2.97 91 4.44
Nicaragua 89 3.76 82 3.97 99 2.76 82 4.54
Albania 90 3.75 94 3.70 114 2.49 43 5.07
Mongolia 91 3.72 92 3.74 109 2.57 55 4.86
Mauritania 92 3.71 95 3.68 97 2.80 74 4.67
Algeria 93 3.67 89 3.81 93 2.82 97 4.37
Zambia 94 3.66 86 3.87 120 2.44 72 4.67 11
Moldova 95 3.65 99 3.65 100 2.75 83 4.54
Cambodia 96 3.64 90 3.77 103 2.71 87 4.45
Ecuador 97 3.64 98 3.66 90 2.87 94 4.38
Kenya 98 3.62 91 3.76 86 2.94 107 4.15
Venezuela 99 3.62 117 3.32 78 3.12 92 4.41
Guyana 100 3.56 96 3.67 88 2.93 109 4.09
Uganda 101 3.56 105 3.54 119 2.44 66 4.70
Kyrgyz Republic 102 3.54 111 3.41 104 2.69 84 4.52
Pakistan 103 3.52 106 3.50 75 3.19 118 3.88
Bosnia and Herzegovina 104 3.51 101 3.59 94 2.82 108 4.14
Mali 105 3.50 93 3.72 121 2.41 99 4.36
Nepal 106 3.49 113 3.39 117 2.47 79 4.60
Zimbabwe 107 3.48 108 3.49 84 2.97 114 3.99
Suriname 108 3.47 110 3.44 87 2.94 112 4.02
Bolivia 109 3.46 109 3.46 101 2.73 103 4.20
Tajikistan 110 3.46 97 3.67 112 2.52 105 4.18
Paraguay 111 3.44 107 3.50 92 2.84 113 4.00
Madagascar 112 3.44 104 3.54 105 2.68 110 4.09
Burkina Faso 113 3.41 102 3.58 115 2.48 106 4.17
Malawi 114 3.31 103 3.57 118 2.46 117 3.90
Nigeria 115 3.30 118 3.32 102 2.72 119 3.86
Benin 116 3.28 112 3.40 116 2.47 115 3.96
Ethiopia 117 3.26 120 3.13 110 2.57 111 4.08
Cameroon 118 3.25 119 3.16 122 2.37 102 4.22
Mozambique 119 3.23 115 3.34 107 2.63 121 3.71
Bangladesh 120 3.21 121 3.07 108 2.61 116 3.96
Lesotho 121 3.12 116 3.34 111 2.54 123 3.48
Angola 122 2.89 122 2.91 113 2.50 124 3.25
Burundi 123 2.88 123 2.82 123 2.31 122 3.50
Chad 124 2.68 124 2.51 124 1.80 120 3.72
TT.part1.r2 2/21/07 11:47 AM Page 12
Table 2: The Travel & Tourism Competitiveness Index: Regulatory framework
PILLARS
Regulatory Policy rules Environmental Safety Health Prioritization
framework and regulations regulation and security and hygiene of Travel & Tourism
Country/Economy Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score
Albania 94 3.70 84 4.14 124 2.50 80 4.09 58 4.81 107 2.94

Algeria 89 3.81 113 3.37 82 3.66 74 4.18 53 4.91 109 2.92
Angola 122 2.91 121 2.93 115 2.92 92 3.85 119 2.61 121 2.27
Argentina 85 3.90 78 4.30 94 3.41 91 3.90 90 4.04 64 3.85
Armenia 65 4.21 92 3.81 102 3.28 49 4.79 40 5.46 67 3.68
Australia 16 5.28 52 4.81 13 5.58 20 5.50 22 5.91 30 4.62
Austria 3 5.79 22 5.33 2 6.09 4 6.20 14 6.18 14 5.17
Azerbaijan 77 4.01 96 3.76 104 3.18 38 4.97 63 4.70 84 3.42
Bahrain 61 4.24 62 4.71 77 3.74 61 4.55 61 4.76 81 3.46
Bangladesh 121 3.07 99 3.69 112 2.96 119 3.08 105 3.27 118 2.37
Barbados 31 5.08 27 5.24 42 4.43 35 5.13 42 5.40 11 5.19
Belgium 24 5.16 20 5.33 18 5.44 36 5.06 2 6.59 86 3.40
Benin 112 3.40 119 3.22 76 3.75 82 4.09 113 3.12 110 2.84
Bolivia 109 3.46 85 4.13 114 2.95 103 3.56 98 3.73 108 2.93
Bosnia and Herzegovina 101 3.59 83 4.18 119 2.79 75 4.16 57 4.85 123 1.97
Botswana 64 4.21 59 4.74 59 4.11 55 4.65 86 4.09 83 3.45
Brazil 67 4.14 75 4.35 46 4.38 90 3.91 72 4.43 71 3.64
Bulgaria 66 4.17 82 4.25 103 3.24 107 3.46 27 5.81 45 4.11
Burkina Faso 102 3.58 105 3.65 57 4.16 65 4.47 120 2.59 103 3.05
Burundi 123 2.82 122 2.92 118 2.85 108 3.45 111 3.16 124 1.75
Cambodia 90 3.77 93 3.78 73 3.82 98 3.72 122 2.21 7 5.34
Cameroon 119 3.16 111 3.39 116 2.91 89 4.01 110 3.19 119 2.32
Canada 15 5.31 16 5.46 19 5.43 21 5.40 38 5.66 32 4.60
Chad 124 2.51 123 2.78 123 2.62 120 2.98 123 1.78 117 2.38
Chile 38 4.83 7 5.66 36 4.61 30 5.22 51 5.03 73 3.61
China 78 4.00 97 3.76 88 3.53 83 4.08 84 4.09 33 4.54
Colombia 69 4.12 41 4.99 58 4.12 105 3.48 55 4.88 98 3.14
12 Costa Rica 39 4.80 17 5.40 35 4.63 67 4.40 50 5.05 34 4.54
Croatia 58 4.37 72 4.55 52 4.26 63 4.54 66 4.59 57 3.89
Cyprus 29 5.09 49 4.87 53 4.26 34 5.17 36 5.69 4 5.49
Czech Republic 40 4.80 32 5.15 31 4.82 52 4.74 44 5.32 52 3.97
Denmark 8 5.46 10 5.56 1 6.11 8 6.00 16 6.14 80 3.47
Dominican Republic 51 4.52 14 5.47 72 3.84 87 4.05 79 4.18 18 5.05
Ecuador 98 3.66 77 4.32 107 3.08 102 3.56 80 4.12 96 3.21
Egypt 50 4.52 69 4.59 75 3.79 64 4.54 69 4.50 12 5.18
El Salvador 75 4.01 9 5.63 63 3.97 118 3.10 73 4.27 100 3.11
Estonia 32 5.07 47 4.92 32 4.78 28 5.25 30 5.75 28 4.67
Ethiopia 120 3.13 115 3.33 111 2.98 58 4.60 124 1.67 102 3.10
Finland 7 5.61 15 5.46 5 5.98 1 6.55 6 6.32 65 3.76
France 13 5.34 40 5.00 15 5.50 29 5.22 9 6.27 27 4.69
Gambia 52 4.48 74 4.38 43 4.41 48 4.80 95 3.81 20 4.98
Georgia 55 4.44 80 4.27 68 3.89 47 4.80 43 5.37 59 3.87
Germany 6 5.62 6 5.67 3 6.05 2 6.26 11 6.23 56 3.90
Greece 20 5.21 57 4.77 45 4.39 18 5.53 3 6.53 22 4.85
Guatemala 68 4.14 18 5.37 79 3.68 114 3.17 76 4.23 38 4.24
Guyana 96 3.67 79 4.29 93 3.44 124 2.39 87 4.08 41 4.16
Honduras 83 3.93 37 5.12 87 3.54 113 3.24 83 4.09 70 3.65
Hong Kong SAR 4 5.75 2 5.76 24 5.11 6 6.07 1 6.62 13 5.18
Hungary 26 5.15 25 5.26 33 4.75 25 5.32 12 6.20 39 4.22
Iceland 5 5.69 36 5.12 12 5.60 3 6.21 4 6.42 16 5.10
India 62 4.24 86 4.12 41 4.45 39 4.96 100 3.59 48 4.06
Indonesia 54 4.45 43 4.97 81 3.66 50 4.77 103 3.48 6 5.36
Ireland 14 5.32 4 5.69 22 5.18 31 5.22 35 5.69 24 4.84
Israel 36 4.93 30 5.18 30 4.86 69 4.34 7 6.31 53 3.93
Italy 42 4.77 70 4.58 54 4.26 53 4.73 5 6.41 60 3.86
Jamaica 49 4.54 3 5.70 67 3.92 111 3.30 67 4.59 10 5.22
Japan 28 5.10 38 5.05 17 5.47 23 5.37 28 5.78 63 3.85
Jordan 30 5.09 29 5.18 56 4.21 19 5.53 41 5.41 17 5.10
Kazakhstan 81 3.97 106 3.54 80 3.67 76 4.15 45 5.30 97 3.20
Kenya 91 3.76 116 3.33 60 4.07 116 3.12 106 3.26 19 4.99
Korea, Rep. 46 4.61 56 4.78 37 4.60 37 5.00 60 4.78 58 3.87
Kuwait 71 4.07 100 3.69 96 3.35 22 5.38 37 5.67 120 2.28
Kyrgyz Republic 111 3.41 120 3.10 106 3.16 115 3.15 74 4.27 89 3.37
Latvia 60 4.32 71 4.57 49 4.31 41 4.92 68 4.56 94 3.22
Lesotho 116 3.34 87 4.04 105 3.17 94 3.80 109 3.21 115 2.46
Lithuania 57 4.39 68 4.59 51 4.29 57 4.60 47 5.24 95 3.21
(cont’d.)
TT.part1.r2 2/21/07 11:47 AM Page 13

Table 2: The Travel & Tourism Competitiveness Index: Regulatory framework (cont’d.)
PILLARS
Regulatory Policy rules Environmental Safety Health Prioritization
framework and regulations regulation and security and hygiene of Travel & Tourism
Luxembourg 17 5.28 5 5.67 11 5.65 13 5.70 19 5.97 85 3.41

Macedonia, FYR 114 3.34 89 3.96 110 3.01 97 3.75 96 3.80 122 2.20
Madagascar 104 3.54 117 3.23 62 3.98 93 3.81 118 2.69 50 3.99
Malawi 103 3.57 73 4.45 86 3.56 81 4.09 104 3.28 114 2.47
Malaysia 27 5.12 26 5.25 20 5.31 26 5.30 62 4.75 21 4.98
Mali 93 3.72 110 3.45 69 3.87 66 4.45 114 3.12 66 3.71
Malta 23 5.16 53 4.79 55 4.21 16 5.62 26 5.82 5 5.37
Mauritania 95 3.68 112 3.38 98 3.34 54 4.71 115 3.05 55 3.90
Mauritius 35 4.96 63 4.67 34 4.67 40 4.95 46 5.25 9 5.24
Mexico 48 4.55 33 5.13 47 4.35 104 3.54 49 5.05 29 4.65
Moldova 99 3.65 118 3.22 92 3.46 88 4.01 56 4.87 113 2.69
Mongolia 92 3.74 94 3.78 117 2.87 77 4.13 75 4.26 68 3.66
Morocco 47 4.60 48 4.90 64 3.97 43 4.88 81 4.11 15 5.16
Mozambique 115 3.34 108 3.50 91 3.48 100 3.60 121 2.50 72 3.64
Namibia 73 4.05 44 4.95 48 4.32 85 4.07 107 3.23 69 3.66
Nepal 113 3.39 91 3.83 97 3.35 123 2.73 116 3.02 49 4.04
Netherlands 22 5.17 12 5.50 10 5.69 27 5.29 15 6.16 91 3.24
New Zealand 10 5.44 19 5.36 8 5.85 12 5.72 23 5.90 36 4.37
Nicaragua 82 3.97 39 5.04 99 3.32 68 4.36 97 3.76 88 3.38
Nigeria 118 3.32 109 3.49 78 3.69 117 3.10 108 3.21 101 3.10
Norway 9 5.45 34 5.13 9 5.83 9 5.96 10 6.24 46 4.10
Pakistan 106 3.50 98 3.73 85 3.57 106 3.46 91 4.04 111 2.71
Panama 56 4.41 31 5.16 70 3.85 59 4.58 65 4.63 62 3.85
Paraguay 107 3.50 95 3.77 121 2.68 101 3.58 88 4.08 87 3.39
Peru 74 4.04 35 5.13 71 3.85 110 3.38 93 3.97 61 3.86
Philippines 80 3.98 61 4.72 83 3.65 96 3.75 77 4.22 74 3.59
Poland 63 4.22 66 4.66 65 3.96 71 4.26 89 4.07 42 4.15
Portugal 11 5.40 28 5.23 26 5.05 11 5.82 17 6.13 26 4.78 13
Qatar 34 5.04 65 4.66 29 4.89 17 5.61 24 5.88 40 4.17
Romania 87 3.86 67 4.61 101 3.31 72 4.26 99 3.68 82 3.45
Russian Federation 100 3.64 124 2.71 113 2.96 99 3.66 31 5.73 99 3.13
Serbia and Montenegro 79 3.99 76 4.33 120 2.72 62 4.55 48 5.11 92 3.23
Singapore 1 5.81 1 5.78 6 5.92 7 6.02 29 5.77 2 5.57
Slovak Republic 37 4.86 24 5.30 38 4.59 24 5.37 18 5.99 104 3.05
Slovenia 44 4.74 81 4.27 27 5.01 33 5.21 34 5.69 77 3.51
South Africa 59 4.35 46 4.94 28 4.97 95 3.77 82 4.10 51 3.99
Spain 25 5.15 45 4.95 40 4.51 46 4.84 21 5.93 3 5.54
Sri Lanka 70 4.11 64 4.67 74 3.80 112 3.27 70 4.49 37 4.33
Suriname 110 3.44 107 3.54 122 2.67 84 4.07 71 4.48 116 2.43
Sweden 19 5.25 23 5.30 7 5.87 15 5.64 13 6.19 93 3.22
Switzerland 2 5.80 21 5.33 4 6.04 5 6.08 8 6.29 8 5.28
Taiwan, China 45 4.73 8 5.65 21 5.19 32 5.21 85 4.09 78 3.51
Tajikistan 97 3.67 102 3.68 89 3.52 78 4.11 92 4.00 106 3.03
Tanzania 72 4.07 101 3.68 44 4.40 79 4.09 101 3.55 31 4.61
Thailand 41 4.78 55 4.78 39 4.58 42 4.91 59 4.80 25 4.84
Trinidad and Tobago 88 3.83 60 4.74 100 3.32 121 2.85 64 4.68 75 3.57
Tunisia 12 5.34 42 4.98 16 5.47 14 5.64 52 5.02 1 5.59
Turkey 53 4.45 51 4.82 61 4.04 56 4.61 54 4.90 54 3.91
Uganda 105 3.54 103 3.66 66 3.94 109 3.44 112 3.13 79 3.51
Ukraine 76 4.01 88 3.99 109 3.04 73 4.23 39 5.55 90 3.25
United Arab Emirates 18 5.28 54 4.78 25 5.07 10 5.83 25 5.84 23 4.85
United Kingdom 21 5.20 11 5.54 14 5.52 44 4.88 33 5.70 35 4.38
United States 33 5.06 13 5.48 23 5.15 45 4.84 32 5.72 47 4.10
Uruguay 43 4.76 50 4.84 50 4.30 60 4.57 20 5.95 44 4.13
Venezuela 117 3.32 90 3.84 108 3.06 122 2.80 78 4.20 112 2.70
Vietnam 84 3.91 104 3.66 84 3.59 51 4.77 94 3.96 76 3.55
Zambia 86 3.87 58 4.76 95 3.39 70 4.33 117 2.69 43 4.15
Zimbabwe 108 3.49 114 3.36 90 3.51 86 4.07 102 3.48 105 3.04
TT.part1.r2 2/21/07 11:47 AM Page 14
Table 3: The Travel & Tourism Competitiveness Index: Business environment and infrastructure
PILLARS
Business environment Air transport Ground transport Tourism ICT Price competitiveness
and infrastructure infrastructure infrastructure infrastructure infrastructure in T&T industry
Albania 114 2.49 113 2.00 122 1.94 86 2.39 106 1.80 81 4.31
Algeria 93 2.82 101 2.25 78 3.00 114 1.69 118 1.63 9 5.52
Angola 113 2.50 98 2.29 120 2.00 115 1.63 121 1.58 30 5.01
Argentina 58 3.58 43 3.49 69 3.37 51 3.51 55 2.95 62 4.56
Armenia 96 2.80 95 2.32 98 2.56 110 1.86 84 2.20 28 5.05
Australia 10 5.04 5 5.41 20 5.18 14 5.44 8 5.57 111 3.59
Austria 12 4.97 23 4.10 17 5.49 1 6.92 22 4.79 113 3.55
Azerbaijan 70 3.29 77 2.75 49 3.87 101 2.14 73 2.39 17 5.30
Bahrain 34 4.24 27 3.95 39 4.21 31 4.18 52 3.00 3 5.84
Bangladesh 108 2.61 114 1.99 87 2.82 120 1.29 112 1.71 19 5.25
Barbados 36 4.14 53 3.22 41 4.14 42 3.78 25 4.62 33 4.93
Belgium 29 4.41 26 3.99 9 6.05 33 4.15 29 4.39 114 3.49
Benin 116 2.47 122 1.71 100 2.47 97 2.18 113 1.70 79 4.32
Bolivia 101 2.73 68 2.87 121 1.96 98 2.17 98 1.89 49 4.74
Bosnia and Herzegovina 94 2.82 117 1.88 114 2.12 56 3.27 61 2.67 92 4.14
Botswana 69 3.30 59 3.13 66 3.49 73 2.68 97 1.89 16 5.32
Brazil 48 3.76 28 3.94 79 2.96 28 4.36 48 3.22 80 4.31
Bulgaria 56 3.64 76 2.75 70 3.33 25 4.43 50 3.05 59 4.63
Burkina Faso 115 2.48 119 1.81 103 2.44 109 1.87 110 1.74 67 4.53
Burundi 123 2.31 123 1.58 117 2.10 111 1.86 123 1.46 66 4.54
Cambodia 103 2.71 89 2.54 82 2.93 122 1.09 111 1.71 18 5.27
Cameroon 122 2.37 120 1.80 113 2.19 89 2.29 122 1.51 100 4.04
Canada 4 5.22 2 5.68 13 5.67 16 5.31 4 5.76 110 3.68
Chad 124 1.80 124 1.54 124 1.63 117 1.44 124 1.32 123 3.08
Chile 42 3.87 41 3.59 30 4.61 61 3.12 41 3.54 69 4.52
China 61 3.51 36 3.78 45 3.99 113 1.72 63 2.62 11 5.42
Colombia 77 3.15 50 3.34 86 2.83 79 2.53 67 2.52 71 4.51
14 Costa Rica 52 3.66 44 3.49 93 2.59 36 4.10 45 3.32 42 4.83
Croatia 40 4.06 80 2.71 46 3.98 11 5.73 34 3.79 96 4.09
Cyprus 23 4.50 34 3.83 51 3.84 5 6.10 31 4.26 72 4.48
Czech Republic 37 4.13 48 3.39 38 4.27 23 4.49 26 4.49 101 4.03
Denmark 16 4.76 17 4.63 7 6.21 22 4.61 10 5.44 124 2.90
Dominican Republic 71 3.28 63 3.04 71 3.20 39 3.90 79 2.33 104 3.94
Ecuador 90 2.87 82 2.67 97 2.58 94 2.19 85 2.15 45 4.76
Egypt 60 3.51 49 3.35 58 3.73 85 2.39 74 2.39 5 5.68
El Salvador 66 3.34 57 3.15 63 3.54 78 2.55 66 2.54 36 4.89
Estonia 25 4.45 56 3.17 31 4.48 21 4.84 19 4.86 34 4.92
Ethiopia 110 2.57 94 2.35 118 2.07 118 1.43 119 1.60 13 5.39
Finland 18 4.68 19 4.55 10 5.88 29 4.33 15 5.24 117 3.41
France 5 5.10 4 5.45 4 6.44 15 5.40 21 4.83 118 3.35
Gambia 106 2.66 102 2.21 80 2.95 108 1.87 104 1.82 73 4.48
Georgia 98 2.77 106 2.16 76 3.07 106 1.87 87 2.09 58 4.65
Germany 3 5.23 6 5.39 1 6.58 18 5.28 13 5.31 112 3.56
Greece 32 4.36 37 3.72 34 4.42 7 6.02 38 3.65 103 3.99
Guatemala 76 3.16 55 3.18 73 3.12 76 2.64 71 2.46 74 4.41
Guyana 88 2.93 69 2.83 92 2.60 80 2.52 65 2.54 90 4.15
Honduras 83 2.97 74 2.77 75 3.09 82 2.45 90 2.03 68 4.53
Hong Kong SAR 14 4.81 12 4.83 2 6.46 70 2.79 16 4.98 31 4.98
Hungary 51 3.71 65 2.98 56 3.74 34 4.15 39 3.61 97 4.07
Iceland 8 5.04 13 4.81 29 4.61 10 5.82 2 6.16 108 3.80
India 55 3.64 33 3.86 40 4.17 96 2.18 75 2.38 6 5.61
Indonesia 68 3.30 64 2.98 89 2.80 87 2.36 80 2.28 1 6.10
Ireland 26 4.44 20 4.33 50 3.85 13 5.58 30 4.31 91 4.15
Israel 33 4.28 40 3.59 24 4.94 41 3.79 23 4.78 78 4.32
Italy 30 4.38 22 4.20 55 3.77 8 6.00 27 4.48 116 3.43
Jamaica 59 3.53 47 3.39 57 3.74 64 3.05 44 3.37 95 4.09
Japan 17 4.71 16 4.68 6 6.32 43 3.76 17 4.95 107 3.84
Jordan 54 3.65 67 2.88 47 3.95 49 3.56 72 2.44 12 5.42
Kazakhstan 81 3.03 75 2.76 72 3.19 100 2.15 78 2.34 51 4.72
Kenya 86 2.94 71 2.82 84 2.89 71 2.75 93 2.02 82 4.25
Korea, Rep. 24 4.46 24 4.10 19 5.30 68 2.88 3 5.81 84 4.24
Kuwait 50 3.71 62 3.06 43 4.02 52 3.49 53 2.98 29 5.01
Kyrgyz Republic 104 2.69 107 2.15 104 2.41 95 2.19 99 1.89 40 4.83
Latvia 41 4.00 54 3.19 36 4.29 37 4.08 36 3.73 55 4.68
Lesotho 111 2.54 121 1.75 115 2.11 103 1.98 117 1.67 24 5.17
Lithuania 43 3.84 61 3.07 32 4.47 40 3.80 40 3.54 77 4.35
(cont’d.)
TT.part1.r2 2/21/07 11:47 AM Page 15

Table 3: The Travel & Tourism Competitiveness Index: Business environment and infrastructure (cont’d.)
PILLARS
Business environment Air transport Ground transport Tourism ICT Price competitiveness
and infrastructure infrastructure infrastructure infrastructure infrastructure in T&T industry
Luxembourg 9 5.04 38 3.68 21 5.10 6 6.05 6 5.69 56 4.67

Macedonia, FYR 82 3.01 108 2.12 83 2.92 63 3.10 76 2.38 64 4.55
Madagascar 105 2.68 110 2.03 106 2.40 81 2.48 115 1.68 43 4.82
Malawi 118 2.46 118 1.87 111 2.32 112 1.74 116 1.67 54 4.68
Malaysia 27 4.44 31 3.91 15 5.58 60 3.14 37 3.69 2 5.89
Mali 121 2.41 116 1.92 105 2.40 105 1.89 107 1.79 98 4.06
Malta 31 4.37 42 3.58 60 3.62 12 5.60 11 5.39 109 3.68
Mauritania 97 2.80 111 2.03 99 2.47 72 2.71 96 1.90 38 4.88
Mauritius 46 3.77 60 3.12 53 3.79 38 3.99 59 2.75 20 5.23
Mexico 57 3.60 32 3.87 62 3.57 47 3.58 60 2.74 85 4.23
Moldova 100 2.75 103 2.19 110 2.35 88 2.32 81 2.26 60 4.62
Mongolia 109 2.57 96 2.31 109 2.35 116 1.45 91 2.02 52 4.71
Morocco 72 3.27 83 2.66 54 3.78 62 3.11 92 2.02 46 4.76
Mozambique 107 2.63 105 2.17 108 2.37 92 2.20 120 1.60 41 4.83
Namibia 64 3.44 45 3.45 33 4.46 83 2.43 86 2.10 47 4.75
Nepal 117 2.47 112 2.02 116 2.11 123 1.08 105 1.81 14 5.35
Netherlands 15 4.77 14 4.80 8 6.20 32 4.16 12 5.37 119 3.34
New Zealand 20 4.57 15 4.69 25 4.83 35 4.12 20 4.85 75 4.37
Nicaragua 99 2.76 73 2.78 112 2.24 77 2.58 103 1.85 76 4.35
Nigeria 102 2.72 104 2.18 88 2.80 107 1.87 102 1.85 35 4.91
Norway 21 4.56 18 4.61 22 5.10 17 5.30 24 4.70 121 3.10
Pakistan 75 3.19 84 2.64 52 3.84 99 2.17 89 2.09 22 5.19
Panama 53 3.66 39 3.66 42 4.04 57 3.18 62 2.63 44 4.79
Paraguay 92 2.84 66 2.89 119 2.04 90 2.28 109 1.76 21 5.22
Peru 85 2.95 88 2.55 96 2.58 66 2.96 68 2.49 89 4.15
Philippines 79 3.10 72 2.80 91 2.70 93 2.19 83 2.22 7 5.59
Poland 62 3.50 86 2.60 61 3.60 46 3.61 43 3.46 83 4.24
Portugal 22 4.50 35 3.81 23 4.99 9 5.89 33 3.83 102 3.99 15
Qatar 39 4.10 29 3.93 48 3.94 26 4.40 49 3.12 25 5.12
Romania 74 3.20 93 2.38 77 3.01 50 3.55 56 2.85 87 4.19
Russian Federation 49 3.75 21 4.23 65 3.52 58 3.17 51 3.01 39 4.84
Serbia and Montenegro 80 3.09 99 2.29 107 2.38 54 3.34 46 3.29 88 4.16
Singapore 11 5.01 10 4.88 3 6.45 44 3.73 18 4.87 26 5.10
Slovak Republic 45 3.81 97 2.30 44 4.01 30 4.29 35 3.78 57 4.66
Slovenia 38 4.11 79 2.72 37 4.28 20 5.22 28 4.47 106 3.87
South Africa 44 3.81 30 3.92 35 4.34 48 3.58 70 2.46 48 4.74
Spain 7 5.05 7 5.17 18 5.42 2 6.80 32 3.93 105 3.93
Sri Lanka 91 2.86 91 2.48 74 3.11 102 2.01 94 1.99 53 4.70
Suriname 87 2.94 81 2.71 102 2.46 59 3.14 82 2.26 93 4.11
Sweden 13 4.88 11 4.87 12 5.74 27 4.39 1 6.31 122 3.10
Switzerland 2 5.36 9 4.97 5 6.36 4 6.48 9 5.54 115 3.46
Taiwan, China 28 4.43 52 3.22 14 5.66 74 2.67 14 5.27 15 5.32
Tajikistan 112 2.52 109 2.09 94 2.58 124 1.01 101 1.86 27 5.08
Tanzania 89 2.88 100 2.26 68 3.39 84 2.40 108 1.77 63 4.56
Thailand 35 4.14 25 4.07 28 4.67 53 3.45 58 2.78 4 5.71
Trinidad and Tobago 65 3.35 46 3.43 90 2.77 65 2.97 57 2.85 50 4.72
Tunisia 47 3.77 78 2.74 27 4.78 45 3.70 69 2.46 23 5.17
Turkey 63 3.49 51 3.34 59 3.66 55 3.30 54 2.95 86 4.21
Uganda 119 2.44 115 1.98 101 2.46 119 1.36 100 1.86 65 4.55
Ukraine 73 3.21 87 2.56 67 3.39 75 2.66 64 2.56 37 4.89
United Arab Emirates 19 4.68 8 5.05 26 4.82 24 4.47 42 3.53 8 5.53
United Kingdom 6 5.08 3 5.59 16 5.52 19 5.23 5 5.73 120 3.30
United States 1 5.74 1 6.75 11 5.77 3 6.50 7 5.64 99 4.06
Uruguay 67 3.32 92 2.47 64 3.54 69 2.80 47 3.29 70 4.51
Venezuela 78 3.12 58 3.14 95 2.58 67 2.90 77 2.36 61 4.60
Vietnam 95 2.81 90 2.52 85 2.88 121 1.11 88 2.09 10 5.47
Zambia 120 2.44 85 2.61 123 1.90 104 1.91 114 1.69 94 4.10
Zimbabwe 84 2.97 70 2.82 81 2.94 91 2.21 95 1.90 32 4.95
TT.part1.r2 2/21/07 11:47 AM Page 16
Table 4: The Travel & Tourism Competitiveness Index: Human, cultural, and natural resources
PILLARS
Human, cultural, National Natural
and natural resources Human resources tourism perception and cultural resources
Albania 43 5.07 35 5.37 10 6.17 93 3.68

Algeria 97 4.37 86 4.82 114 4.01 65 4.28
Angola 124 3.25 118 3.09 121 3.64 119 3.02
Argentina 45 5.05 66 5.08 52 5.13 35 4.93
Armenia 62 4.77 53 5.23 53 5.11 78 3.98
Australia 26 5.30 17 5.64 80 4.60 15 5.64
Austria 1 5.86 23 5.53 33 5.53 2 6.52
Azerbaijan 88 4.45 36 5.36 65 4.82 116 3.15
Bahrain 54 4.86 79 4.94 36 5.37 66 4.27
Bangladesh 116 3.96 99 4.30 119 3.88 92 3.69
Barbados 17 5.38 42 5.32 2 6.56 68 4.25
Belgium 4 5.62 27 5.49 59 4.99 4 6.38
Benin 115 3.96 104 4.08 79 4.61 112 3.19
Bolivia 103 4.20 91 4.79 113 4.02 90 3.80
Bosnia and Herzegovina 108 4.14 90 4.79 111 4.10 100 3.52
Botswana 85 4.47 113 3.52 28 5.59 62 4.30
Brazil 67 4.70 83 4.85 87 4.54 42 4.71
Bulgaria 41 5.11 67 5.08 30 5.56 43 4.70
Burkina Faso 106 4.17 117 3.18 12 6.15 114 3.18
Burundi 122 3.50 119 3.08 98 4.42 120 2.99
Cambodia 87 4.45 105 4.08 32 5.53 91 3.75
Cameroon 102 4.22 103 4.16 24 5.67 123 2.83
Canada 16 5.40 12 5.69 76 4.66 11 5.86
Chad 120 3.72 120 2.99 37 5.34 122 2.83
Chile 47 5.03 24 5.52 92 4.44 32 5.13
China 93 4.39 74 5.00 120 3.82 60 4.36
Colombia 78 4.62 58 5.18 89 4.53 72 4.16
16 Costa Rica 20 5.34 28 5.49 39 5.30 28 5.22
Croatia 11 5.55 54 5.22 4 6.52 36 4.90
Cyprus 3 5.62 49 5.24 5 6.48 31 5.15
Czech Republic 22 5.32 26 5.50 77 4.65 12 5.80
Denmark 9 5.59 4 6.08 69 4.72 7 5.97
Dominican Republic 29 5.24 57 5.18 21 5.88 45 4.65
Ecuador 94 4.38 96 4.51 86 4.55 74 4.10
Egypt 68 4.70 69 5.06 85 4.55 55 4.49
El Salvador 98 4.36 41 5.32 102 4.36 103 3.41
Estonia 34 5.18 30 5.45 31 5.54 49 4.54
Ethiopia 111 4.08 112 3.55 101 4.36 61 4.32
Finland 33 5.18 8 5.87 109 4.15 18 5.52
France 28 5.27 32 5.42 96 4.42 9 5.95
Gambia 101 4.28 107 3.96 25 5.65 108 3.25
Georgia 31 5.18 33 5.40 7 6.26 81 3.89
Germany 6 5.61 25 5.52 88 4.54 1 6.75
Greece 15 5.41 55 5.21 23 5.71 23 5.29
Guatemala 69 4.69 78 4.95 74 4.67 56 4.46
Guyana 109 4.09 95 4.62 68 4.73 121 2.91
Honduras 91 4.44 82 4.86 63 4.83 97 3.62
Hong Kong SAR 14 5.44 7 5.93 27 5.60 39 4.78
Hungary 51 4.98 37 5.34 100 4.39 30 5.20
Iceland 5 5.61 3 6.19 49 5.19 22 5.44
India 81 4.55 85 4.83 81 4.60 70 4.22
Indonesia 56 4.85 62 5.14 57 5.00 58 4.40
Ireland 46 5.03 9 5.83 67 4.77 54 4.49
Israel 35 5.18 13 5.69 78 4.61 27 5.23
Italy 32 5.18 46 5.26 66 4.79 20 5.50
Jamaica 36 5.17 39 5.33 15 6.10 76 4.08
Japan 38 5.15 11 5.75 116 3.97 14 5.73
Jordan 58 4.82 63 5.13 34 5.51 86 3.83
Kazakhstan 90 4.44 60 5.17 58 5.00 117 3.15
Kenya 107 4.15 100 4.20 75 4.67 98 3.59
Korea, Rep. 73 4.67 48 5.24 118 3.88 37 4.89
Kuwait 86 4.46 16 5.64 117 3.94 89 3.80
Kyrgyz Republic 84 4.52 71 5.05 72 4.69 88 3.82
Latvia 77 4.63 38 5.33 107 4.29 67 4.27
Lesotho 123 3.48 116 3.37 103 4.34 124 2.72
Lithuania 61 4.79 61 5.15 93 4.44 38 4.80
(cont’d.)
TT.part1.r2 2/21/07 11:47 AM Page 17

Table 4: The Travel & Tourism Competitiveness Index: Human, cultural, and natural resources (cont’d.)
PILLARS
Human, cultural, National Natural
and natural resources Human resources tourism perception and cultural resources
Luxembourg 8 5.60 14 5.69 22 5.84 24 5.29

Macedonia, FYR 44 5.07 56 5.21 13 6.11 82 3.89
Madagascar 110 4.09 108 3.93 73 4.68 94 3.66
Malawi 117 3.90 121 2.84 40 5.29 99 3.56
Malaysia 57 4.84 34 5.38 26 5.64 101 3.52
Mali 99 4.36 114 3.49 8 6.21 104 3.37
Malta 21 5.33 43 5.32 16 6.03 44 4.66
Mauritania 74 4.67 101 4.19 1 6.58 110 3.23
Mauritius 39 5.15 89 4.80 14 6.10 50 4.54
Mexico 50 4.98 50 5.24 91 4.50 29 5.22
Moldova 83 4.54 80 4.94 48 5.19 102 3.49
Mongolia 55 4.86 68 5.07 11 6.16 105 3.34
Morocco 52 4.93 72 5.04 45 5.24 52 4.50
Mozambique 121 3.71 124 2.54 44 5.27 106 3.32
Namibia 95 4.37 122 2.83 9 6.17 73 4.12
Nepal 79 4.60 106 4.05 20 5.91 85 3.83
Netherlands 25 5.30 21 5.55 82 4.60 13 5.74
New Zealand 7 5.60 20 5.60 38 5.34 10 5.88
Nicaragua 82 4.54 59 5.18 84 4.58 83 3.87
Nigeria 119 3.86 102 4.18 110 4.13 107 3.25
Norway 40 5.12 18 5.62 108 4.26 21 5.46
Pakistan 118 3.88 98 4.45 123 3.57 96 3.62
Panama 63 4.76 88 4.81 61 4.92 48 4.56
Paraguay 113 4.00 92 4.79 115 3.97 109 3.24
Peru 80 4.59 77 4.95 105 4.32 53 4.49
Philippines 100 4.29 93 4.64 83 4.58 95 3.66
Poland 60 4.81 44 5.31 122 3.59 19 5.52
Portugal 30 5.23 40 5.32 54 5.10 25 5.28 17
Qatar 49 4.99 19 5.60 41 5.28 75 4.08
Romania 71 4.68 76 4.96 95 4.43 46 4.64
Russian Federation 65 4.71 70 5.05 104 4.34 41 4.74
Serbia and Montenegro 13 5.47 47 5.25 19 5.92 26 5.25
Singapore 42 5.11 2 6.21 47 5.20 79 3.94
Slovak Republic 18 5.37 10 5.78 71 4.71 16 5.62
Slovenia 53 4.88 52 5.23 60 4.99 57 4.43
South Africa 96 4.37 111 3.64 56 5.08 59 4.40
Spain 19 5.34 45 5.30 55 5.09 17 5.62
Sri Lanka 70 4.69 84 4.84 70 4.71 51 4.51
Suriname 112 4.02 97 4.48 97 4.42 115 3.17
Sweden 27 5.27 31 5.43 99 4.42 8 5.96
Switzerland 2 5.81 1 6.25 62 4.88 6 6.30
Taiwan, China 23 5.32 15 5.69 17 5.97 63 4.29
Tajikistan 105 4.18 87 4.82 90 4.51 113 3.19
Tanzania 75 4.64 110 3.69 42 5.28 34 4.96
Thailand 59 4.82 75 4.97 35 5.43 77 4.05
Trinidad and Tobago 104 4.20 64 5.10 106 4.30 111 3.21
Tunisia 37 5.15 22 5.54 50 5.17 40 4.75
Turkey 48 5.00 65 5.09 43 5.28 47 4.63
Uganda 66 4.70 109 3.88 18 5.94 64 4.29
Ukraine 89 4.45 73 5.00 46 5.21 118 3.12
United Arab Emirates 24 5.31 29 5.47 3 6.53 80 3.92
United Kingdom 10 5.58 6 5.97 94 4.43 5 6.32
United States 12 5.50 5 5.99 112 4.09 3 6.42
Uruguay 64 4.75 51 5.23 64 4.83 71 4.20
Venezuela 92 4.41 94 4.63 124 3.52 33 5.08
Vietnam 76 4.63 81 4.92 51 5.14 84 3.84
Zambia 72 4.67 115 3.40 6 6.39 69 4.23
Zimbabwe 114 3.99 123 2.60 29 5.56 87 3.82
TT.part1.r2 2/21/07 11:47 AM Page 18
is strongly assessed for its cultural aspects. Other areas of not well protected, and visa requirements for visitors
strength are the health and hygiene of the country (5th) from many countries. Environmental regulation, ranked
and its very good tourism infrastructure (8th). However, 113th, is also a serious weakness. More generally, the
Italy’s T&T competitiveness suffers from several weak- sector is not seen to be a priority of the government,
nesses, which bring the overall rating down.These ranked a low 120th overall. Much needs to be achieved
weaknesses include policy rules and regulations, where it in the country in order to fully exploit its T&T potential.
ranks a dismal 70th—below most European countries
because of its very strong foreign ownership restrictions Asia and Oceania
(ranked 103rd) and rules governing foreign direct invest- Within Asia, Hong Kong is the economy with the
ment (101st).There are also safety and security concerns strongest T&T competitiveness (ranked 6th overall), fol-
(53rd). Ground transport infrastructure also gets poor lowed closely by Singapore (8th).These economies have
marks, particularly the quality of railroads (49th) and excellent infrastructures: both their ground transport
ports (77th). Also the T&T sector is not assessed as infrastructures are assessed as among the top three in the
being an important priority for the government (ranked world, and their air transport infrastructures get high
a low 92nd). marks as well.They also have top-notch human resources,
Among countries that recently joined the European with healthy and well-educated people to work in the
Union, Cyprus is ranked highest, at 20th overall, sector.With regard to the policy environment, they hold
just behind the Netherlands.The country’s tourism the top two places out of all economies, with regulatory
infrastructure is ranked 5th overall, with top marks for environments that are extremely conducive to the
the availability of hotel rooms and major car rental development of the T&T industry (policies facilitating
companies, as well as good access to ATMs. Its tourism foreign ownership and foreign direct investment, well-
perception also gets top marks, ranked 5th overall, with protected property rights, and few visa restrictions).
Cypriots being extremely open to foreign visitors, for Further, they are among the safest countries of all
example. It is also notable that Cyprus is ranked 4th assessed in terms of crime and security issues. Hong
overall with regard to the prioritization of T&T, behind Kong is unsurpassed in the quality of health and
only Spain among European countries. However, more hygiene, and Singapore is ranked second in the overall
18 could be done in the policy environment, where the prioritization of Travel & Tourism.
country is ranked 49th overall, behind many other Australia is ranked 13th overall, just ahead of New
European countries, and in upgrading human resources Zealand (14th). Both countries are characterized by
in order to ensure more and better-qualified people for excellent natural and cultural resources, with much
the industry. nationally protected land area and, in the case of
Elsewhere in Europe, Turkey is ranked a relatively Australia, many World Heritage sites as well (there are
low 55th overall. Although the country has a rich cultural 16 such sites in Australia, placing the country 12th).
heritage (with nine World Heritage sites), its overall And, given the importance of the natural environment
T&T competitiveness is held back by onerous policy for much of their leisure tourism, it is notable that they
rules and regulations (ranked 51st), such as foreign also have comparatively stringent environmental regula-
ownership restrictions and rules on foreign direct tions, which are aimed at ensuring that this remains a
investment.There are also worries about safety and secu- sustainable strength (both countries’ governments get
rity (61st, particularly related to terrorism), health and good marks for making efforts to ensure that the T&T
hygiene (54th), and infrastructure inadequacies.These industry is developed sustainably). Given their distance
weaknesses might be tackled more readily if the sector from other continents, particularly Australia, and the
were further prioritized by the government (73rd). importance of domestic air travel to overcome the large
Russia is ranked 68th overall.The country gets distances between major sites, their competitiveness is
relatively high marks for natural and cultural resources, also buttressed by excellent air transport infrastructure
particularly because of the high number of World (especially Australia, ranked 5th), as well as good ground
Heritage sites (23). It also has a quite well developed air transport and general tourism infrastructure. Further,
transport infrastructure (21st). However, ground transport both countries are characterized by a relatively strong
infrastructure (65th) and tourism infrastructure (58th) prioritization of the T&T sector and by effective
get lower marks, with a very low concentration of hotel destination-marketing campaigns.
rooms and relatively few ATMs available. Safety and Japan is ranked 25th, quite a bit lower than its
security issues are also of serious concern (99th), with a overall economic competitiveness ranking (Japan is
high level of crime and violence and a lack of trust in ranked 7th in the World Economic Forum’s Global
the police to protect from crime. Most strikingly, with Competitiveness Index), inferring that the country’s
regard to the policy environment, Russia is assessed as many strengths are not fully translating into an attractive
having the worst policy environment of all countries environment for the development of Travel & Tourism.
covered (124th), due, for example, to extremely high Although Japan gets quite good marks for its cultural
foreign ownership restrictions, property rights that are resources (ranked 15th for its 14 World Heritage sites),
TT.part1.r2 2/21/07 11:47 AM Page 19

it does very poorly on the national tourism perception infrastructure in the country, including air transport (64th),
pillar (116th), because, for example, of a negative attitude ground transport (89th), and tourism infrastructure
toward foreign travelers in the country. Further, the sec- (87th).There are also some concerns related to safety
tor is not perceived to be a priority for the government and security, particularly the reliability of police services
(ranked 98th). to protect from crime.
Taiwan is ranked 30th, just ahead of Malaysia, India is ranked 65th overall.The country has some
which is ranked 31st.Taiwan’s strengths lie in the quality clear strengths, which are mainly linked to cultural
of its human resources (ranked 15th), good ground endowments. It ranked a very high 7th overall with
transport and ICT infrastructure (both ranked 14th), a regard to the number of World Heritage sites in the
policy environment that is conducive to developing the country, and it also benefits from a relatively welcoming
sector (8th), and strong price competitiveness (ranked attitude toward foreign travelers.The country also bene-
15th), indicating that much of the underlying structure fits from excellent price competitiveness—it is ranked
and environment exists for developing the sector. But its 6th overall, with very low ticket taxes and airport
overall T&T competitiveness is held back by a relatively charges (ranked 7th) and low prices in the economy as
underdeveloped tourism infrastructure (ranked a low a whole (ranked 11th). And with regard to the policy
74th) and the lack of prioritization of the sector by the environment, property rights are indeed well protected
government (ranked 78th). and foreign ownership is authorized, although the
Malaysia also has good ground transport infrastruc- stringency of visa requirements places India a very low
ture and excellent price competitiveness—it is ranked 106th overall. India also has quite a good air transport
2nd overall on this indicator, with very low ticket taxes network (ranked 33rd), particularly given the country’s
and airport charges, low comparative fuel prices, and a stage of development. But the tourism infrastructure
favorable tax regime.The country is perceived as quite remains underdeveloped (ranked a very low 96th),
safe (24th), although health and hygiene indicators lag with very few hotel rooms available by international
behind those of many other countries in the region, with comparison (ranked 113th) and low ATM penetration.
in particular a low physician density (placing the country Further, despite government and industry efforts to
86th).The country’s policy environment is measured as promote the country abroad (India is ranked 4th with
relatively conducive to the development of the sector regard to tourism fair attendance) and the exposure 19
(ranked 26th), and the government is prioritizing Travel given to recent promotional campaigns, the assessment
& Tourism, with one of the highest T&T fair attendances of marketing and branding to attract tourists remains
in the world (ranked 2nd) and an excellent evaluation somewhat mediocre (ranked 59th).
for its destination-marketing campaigns (ranked 6th). China is ranked 71st in the TTCI. Although China
Thailand is ranked 43rd in the TTCI, just behind is ranked 3rd in terms of World Heritage sites and 11th
Korea (ranked 42nd).Thailand does reasonably well in in terms of price competitiveness, there are many weak-
national tourism perception, where it is ranked 35th, nesses pulling the country’s ranking down. China has a
because of a very friendly attitude toward tourists policy environment that is not at all conducive for T&T
(ranked 6th) and general openness toward tourism in development (ranked a low 97th, just ahead of Pakistan),
the country. And the sector is indeed prioritized by the with property rights that are not sufficiently protected,
government (ranked 14th) with (as in Malaysia) excel- strong foreign ownership restrictions, and stringent
lent destination-marketing campaigns and an effort to visa requirements. Environmental regulation also gets
ensure national presence at major T&T fairs internation- low marks (88th), with the government not seen to be
ally. However, important weaknesses remain, particularly prioritizing the development of the sector in a sustainable
in the quality of transport and tourism infrastructure, way. China has a relatively good air transport infrastructure
both of which remain underdeveloped. And despite its (ranked 36th), and ground infrastructure that is ranked
prioritization by the government, some aspects of the 45th overall. However, tourism infrastructure remains
regulatory environment—such as stringent foreign highly underdeveloped (ranked 113th), with very few
ownership restrictions and rules governing foreign major international car rental companies operating in
direct investment—are not particularly conducive to the country, few hotel rooms given the size of the
developing the sector (ranked 55th). country, and few ATMs.There are also some safety and
Indonesia is ranked quite a bit lower, at 60th over- security concerns (83rd), as well as issues related to
all.The country does have a great number of nationally health and hygiene (84th), with a low physician density
protected areas and World Heritage sites, making it an and access to improved sanitation and drinking water
attractive place to visit for a number of reasons. Further, that is low by international standards. However, on a
Indonesia is ranked first overall in price competitiveness positive note, China does seem to be prioritizing the
in the T&T industry because of low ticket taxes and sector to a certain extent (33rd), with active participation
airport charges, favorable fuel prices, and overall relatively in most international tourism fairs.
low prices in the country. However, these strengths
are held back by weaknesses such as underdeveloped
TT.part1.r2 2/21/07 11:47 AM Page 20
Latin America and the Caribbean very low physician density in the country. Of even
Barbados, at 29th, is the highest-ranked country in the greater concern is the safety and security situation in
Latin America and the Caribbean region. Barbados is Jamaica, ranked a very low 111th overall, just behind
ranked 2nd overall in national tourism perception, with Uganda and Peru, with high levels of crime and violence
a positive attitude toward tourists and toward the value and a police force that is not relied upon to protect
of tourism in the country.The government is prioritizing from crime. Clearly the safety issue is hindering its over-
the sector to a very high degree (ranked 2nd), spending all T&T competitiveness.
a high percentage of GDP on the sector and ensuring Mexico, in 49th place, gets quite high marks for its
quality destination-marketing campaigns. Further, the natural and cultural resources (ranked 29th) with
country has a regulatory environment that is quite nationally protected areas and a large number of World
conducive to the development of the sector, with low Heritage sites (ranking the country 7th).This “natural
visa requirements and very open bilateral Air Service attractiveness” is reinforced by a relatively good policy
Agreements. environment for the development of Travel & Tourism,
Costa Rica, ranked 41st, is second in the region. ranked 33rd overall with low visa requirements and low
The country’s strengths are in the area of natural foreign ownership restrictions, for example. Mexico also
resources, where it is ranked 12th with regard to the has a relatively well developed air transport infrastructure
percentage of nationally protected areas. Its policy (32nd), although its tourism infrastructure (47th) and
environment is extremely conducive to the development ground transport (62nd) get lower marks. And it has
of the sector (ranked 17th), with very open bilateral Air some weaknesses that are eroding at its price competi-
Service Agreements, low visa requirements, and an envi- tiveness, ranked a low 85th, in particular very high ticket
ronment that welcomes foreign investment. However, taxes and airport charges (ranked a very low 114th
safety and security remains a concern (67th). And overall). Safety and security is also a major concern for
although tourism infrastructure is quite well developed the country, where it is ranked a very low 104—just
(36), with an excellent presence of major car rental after Bolivia and before Colombia—with high levels of
companies and a high hotel room concentration in the crime and violence and, as in Jamaica, a police force that
country, ground transport infrastructure remains highly cannot be relied on to protect from crime.
20 underdeveloped (93rd), particularly roads and ports, Brazil is ranked 59th overall.The country clearly
making travel in the country somewhat difficult. benefits from some excellent cultural and natural
Chile is ranked 45th.The country has an excellent resources, in particular many World Heritage sites. And
policy environment (7th), with well-protected property the air transport network gets relatively high marks
rights, few foreign ownership restrictions, and a con- (28th), as well as measures of the dedicated tourism infra-
ducive visa regime.The country also benefits from a structure (also 28th) such as the presence of major car
high level of safety and security by regional standards rental companies. However, the general ground transport
(30th), with low crime and reliable police services. Chile network remains underdeveloped with the quality of
also has a relatively well developed ground transport roads, ports and railroads ranked 96th, 88th, and 81st
infrastructure (30th), with quality roads and ports, respectively. Safety and security also continues to be of
although tourism infrastructure is less developed (61st), serious concern, ranked 90th overall, as it is for a number
in particular hotel rooms and car rental possibilities. of countries in the region.The country also suffers
Further, the government is not seen as prioritizing the greatly from a lack of price competitiveness (80th), attrib-
sector (ranked 93rd). utable in part to high ticket taxes and airport charges in
Jamaica is ranked 48th overall, followed by Mexico, the country. More generally, the overall policy environ-
in 49th place. Jamaica’s government is assessed as priori- ment is not particularly conducive to the development
tizing the sector significantly (ranked 15th), spending a of the sector (ranked 75th), with, for example, highly
large percentage of the government budget on the sector stringent visa requirements (ranked 89th) and foreign
(almost 17 percent, ranked 2nd) and ensuring effective ownership restrictions.
destination-marketing campaigns. In this context, it is Argentina is ranked a bit lower than Brazil, in 64th
perhaps not surprising that Jamaica gets good marks for place. Argentina gets relatively good marks for its cultural
its policy environment, ranked 3rd—just after Singapore and natural resources (ranked 35th), with eight World
and Hong Kong—with low visa requirements, very Heritage sites.The country’s air transport network also
open bilateral Air Service Agreements, and low foreign receives a moderately good evaluation, with a high airport
ownership restrictions. Air transport infrastructure is also density and several operating airlines, although the quality
quite developed given the country’s stage of development, of air transport is highlighted as a problem area (ranked
and although the country has quite a few hotel rooms, 84th). Some aspects of the quality of human resources
other aspects of tourism infrastructure—such as the are also strengths, such as the high primary and secondary
availability of ATMs and the presence of major car school enrollment rates. However, a number of weak-
rental companies—are weaker. Health and hygiene nesses are pulling the country’s overall score down. For
issues are also an area of concern (ranked 67th), with a example, several government policies—such as weak
TT.part1.r2 2/21/07 11:47 AM Page 21

property rights (ranked 121st) and stringent rules on people to work in the T&T sector. Further, its infra-
foreign direct investment (ranked 111th)—are not structure is quite well developed compared with that of
supporting the development of the sector. Further, envi- other countries in the region, although some improve-
ronmental regulation is not sufficiently stringent (ranked ments could be made in the areas of air transport (40th)
87th) nor sufficiently clear and stable (ranked 110th), and tourism infrastructure (41st)—by increasing the
and, in relative terms, the government is not seen to be number of ATMs and hotel rooms, for example. Israel’s
developing the concept of sustainable tourism actively regulatory environment, ranked 30th, is somewhat con-
(ranked 91st). ducive to the development of the sector, with very well
Despite its very good natural resources, Venezuela protected property rights and low foreign ownership
is ranked much lower than most other countries in the restrictions. And the country’s environmental regulation
region at 99th overall. Among the significant weaknesses also gets relatively good marks, with the government
in the country are a lack of safety and security (ranked seen as prioritizing the development of the T&T sector
122nd) and the state of infrastructure, particularly in a sustainable way (27th). But while Israel gets excel-
ground transport infrastructure (ranked a low 95th).The lent marks related to health and hygiene (ranked 7th)
policy environment is also not very conducive to the with one of the highest physician densities in the world,
development of the T&T sector. Although visa require- it is not surprising that safety and security continues to
ments are not particularly onerous, property rights are be a major concern, placing the country a low 69th out
not well protected in the country (ranked 123rd) and of 124 countries, primarily related to concerns about
foreign direct investment is also not encouraged (ranked terrorism (ranked 120th).
120th). More generally, the Venezuelan government has Tunisia is ranked very close to Israel, at 34th place.
not pursued an international program to promote and Tunisia is the number 1 country within the prioritiza-
support the T&T sector (ranked 124th), as several other tion of Travel & Tourism pillar, just ahead of Singapore
Latin American countries have. and Spain, with high government spending on the
sector, effective destination-marketing campaigns, and
Middle East and North Africa attendance at most major international tourism fairs.
Among countries in the Middle East and North Africa Further, unlike some other countries in the region,
region, the United Arab Emirates (UAE) ranks high- Tunisia is perceived as extremely safe from crime and 21
est, at 18th, well ahead of the second-ranked country, violence (ranked 14th), including terrorism. On the
Israel at 32nd place. Although UAE ranks quite low other hand, health and hygiene remains an area of
with regard to natural and cultural resources (80th), it concern (52nd), with a relatively low physician density
makes up for this with a number of strengths in other and a lack of access to improved drinking water that
areas captured by the Index. For example, national places the country 78th.Tunisia’s competitiveness could
tourism perception is rated 3rd in the world, with an also be improved with a more conducive regulatory
extremely positive attitude toward foreign travelers and environment, where it is ranked 42nd, with a less
the attractiveness of the country for tourism. UAE is restrictive visa regime, for example.
also seen as extremely safe from crime and violence Egypt, a country so rich in cultural heritage (with
(ranked 10th).The country also perhaps surprisingly seven World Heritage sites), ranks a low 58th overall in
does very well in terms of price competitiveness, ranked the TTCI. And this is despite a number of clear
8th in this area, despite a very high price level.This is strengths beyond the cultural richness. For example,
because of its very low ticket taxes and airport charges, Egypt has excellent price competitiveness, where it is
low taxation more generally, and comparatively low fuel ranked 5th overall with low comparative prices, including
price levels. UAE’s infrastructure also gets good marks— fuel prices, and relatively low ticket taxes and airport
particularly its air transport infrastructure, ranked a very charges. Further, there is a prioritization by the govern-
high 8th out of all countries assessed.The government is ment of the sector, with relatively high government
seen as prioritizing the sector strongly (ranked 4th), car- spending on Travel & Tourism and ensuring the country’s
rying out very effective destination-marketing campaigns presence at major tourism fairs.This level of prioritization
(ranked 1st) and ensuring the presence of the country at is reflected in some policy areas such as the favorable
major T&T fairs internationally. On the other hand, the policy on visa requirements, ranked 15th overall. On the
policy rules and regulations could be adapted to better other hand, the country’s infrastructure is somewhat
support the sector’s development; this is ranked 54th underdeveloped, particularly tourism infrastructure
overall because of foreign ownership restrictions and (85th) and ICT infrastructure (74th). An upgrading of
relatively stringent visa requirements, for example. the quality of the country’s human resources available to
Israel, ranked 32nd, is quite strong with regard to work in the sector, ranked 69th, would also improve the
natural and cultural resources, with a large percentage of country’s overall T&T competitiveness.
land that is nationally protected, and with five World
Heritage sites.The country also has excellent human
resources (13th), providing healthy and well-trained
TT.part1.r2 2/21/07 11:47 AM Page 22
Sub-Saharan Africa weakness that have brought down the country’s overall
Mauritius is by far the most competitive country in the ranking. Safety and security is of serious concern
region with regard to Travel & Tourism; it is ranked 39th (ranked 95th), with the costs of crime and violence in
overall, a ranking that is attributable to a number of particular ranked a low 112th.The country also has
strengths.To begin, Mauritius demonstrates significant weaknesses in the area of health and hygiene, where it is
openness to tourism, with the sector representing an ranked 82nd overall, with a low physician density (84th)
important part of the economy and the general attitude as well as concerns about access to improved sanitation
of the population to foreign travelers being quite wel- (70th) and drinking water (65th). Finally, there are some
coming.This openness is buttressed by great support areas for improvement with regard to human resources.
from the government, which demonstrates the greatest Although the country has quite good educational
prioritization of the industry of all countries analyzed. indicators, such as educational enrollment rates and
The country’s tourism infrastructure is quite well on-the-job training by companies, health indicators are
developed, ranked 38th overall, with a high concentration extremely worrisome. South Africa’s life expectancy is
of hotel rooms and many major car rental companies very low at 48 years, placing the country 111th overall,
operating in the country. And with regard to human related in large part to the very high rates of communi-
resources, the country has strengths in the area of educa- cable diseases such as HIV/AIDS and tuberculosis.The
tion—having attained universal primary enrollment— situation is thus one of precariousness with regard to the
and with quite good on-the-job training (ranked 33rd). quality of human resources available for the T&T sector,
And although there are some areas of concern, compared as well as all sectors in the economy.
with other countries in the region, Mauritius has excel- The next most competitive T&T sector in the region
lent health indicators, including higher life expectancy is in Botswana, ranked 70th overall. Botswana, known
and a very low HIV prevalence rate—among the very for its beautiful natural parks, is evaluated very highly in
lowest in the world—in a region with the highest terms of its nationally protected areas, where it is ranked
prevalence rate in the world. On the negative side, there 19th, and its lack of environmental damage.The country
are some areas that could be addressed to further also does quite well in terms of price competitiveness,
enhance Mauritius’ competitiveness. For example, the where it is ranked 16th; this is not attributable to price
22 policy environment could be improved; it is ranked a differences with richer countries (Botswana’s price level
low 63rd in this area because of foreign ownership as measured by purchasing power parity places it 65th
restrictions and rules on foreign direct investment, as overall, or slightly more expensive than the average).
well as a visa regime that could be simplified to allow Instead, this is attributable to low ticket taxes and airport
foreign tourists to enter the country with less hassle charges (16th), for example, and a favorable tax regime
(ranked 43rd). And although the government is seen in the country (16th). However, the country does also
to be making an effort to develop the industry in a have some weaknesses that lead to the rather low ranking
sustainable way (ranked 7th), this could be backed up overall.The policy environment is not extremely con-
by more stringent and clearer environmental regulations ducive to the development of the sector. Although the
(ranked 47th). country does not have an onerous visa policy (where it
The rest of the countries of sub-Saharan Africa are is ranked 15th), foreign direct investment and ownership
situated quite a bit lower in the rankings. South Africa are somewhat restricted and property rights are not
is the region’s second-strongest performer, ranked 62nd sufficiently protected.There are also some concerns in
in the TTCI.The country is endowed with a significant the area of health and hygiene because of a very low
number of World Heritage sites, placing it 30th overall physician density (96th) and very limited access to
in this indicator. Infrastructure in the country is also improved sanitation (also 96th). Further, unlike South
well developed, particularly for the region. Specifically, Africa, Botswana’s transport infrastructure is somewhat
its air transport infrastructure gets good marks (ranked underdeveloped, as is its tourism infrastructure, with a
30th), as well as its ground transport infrastructure low hotel room concentration (71st) and a limited
(35th), with a particularly good assessment of road presence of international car rental companies (66th).
quality. Some aspects of the regulatory environment Finally, similar to South Africa, the country is primarily
are conducive to the sector’s development, such as the held back by weaknesses in the area of human resources.
excellent protection of property rights and visa require- Although primary education has become universal,
ments that are not extremely onerous. In particular, secondary enrollment remains low at 75 percent (placing
environmental regulation is a strength, with the govern- the country at a very low 78th place), and training
ment prioritizing the sustainable development of the facilities are also limited. But the greatest concern relates
sector quite strongly. And the government is seen to be to the health of the workforce, where life expectancy of
prioritizing the development of the T&T sector as a just 40 years places the country 121st, in a tie with
whole, through, for example, effective destination mar- Angola and Zambia and followed only by Zimbabwe.
keting (ranked 16th) and ensuring attendance at tourism Botswana has the highest HIV prevalence rate of all
fairs (35th). However, there are also some areas of countries covered (124th).
TT.part1.r2 2/21/07 11:47 AM Page 23

Looking much lower in the rankings, we see that together to improve the T&T competitiveness of their
Zimbabwe, a country with such rich natural and respective economies and thus contribute to improving
cultural resources, such as the famous Victoria Falls, is growth prospects and the prosperity of their citizens.
ranked a very low 107th overall.The country has five
World Heritage sites and many nationally protected
areas (national parks). Despite these strengths, which Notes
have attracted tourists to Zimbabwe over the years, the 1 UNWTO, “Historical Perspective of World Tourism,” available online
at http://www.unwto.org/facts/menu.html (accessed December
Index highlights mainly weaknesses in all of the other 2006).
areas. Its policy environment is among the worst in the 2 See, for example, International Trade Centre UNCTAD/WTO (2005).
world, with very stringent foreign ownership restrictions
3 See the Tourism Satellite Accounting research of the World Travel &
(114th); in any event there is a complete lack of property Tourism Council (WTTC) and Accenture (2006).
rights in the country once those investments have been 4 WTTC 2006b.
made (it is ranked a rock bottom 124th on this indica-
5 See the Tourism Satellite Accounting research of the World Travel &
tor). Safety and security is also a major concern, with Tourism Council (WTTC) and Accenture (2006).
high crime and violence and a lack of trust in the relia- 6 UNWTO, “Historical Perspective of World Tourism,” available online
bility of police services to protect from crime (112th), at http://www.unwto.org/facts/menu.html (accessed December
2006).
reflecting the general breakdown in law and order in
the country in recent years. Human resources are also 7 UNWTO 2006.
a serious weakness, with very low enrollment rates 8 International Trade Centre UNCTAD/WTO 2005.
by international standards in primary and secondary 9 See the Tourism Satellite Accounting research of the World Travel &
education, and among the worst health indicators in Tourism Council (WTTC) and Accenture (2006).
the world: life expectancy is just 36 years, placing it last 10 Wason 2001.
of all countries covered, at 124th (with HIV prevalence 11 See the Tourism Satellite Accounting research of the World Travel &
placing the country 122nd, and tuberculosis prevalence Tourism Council (WTTC) and Accenture (2006).
placing it 121st). Better governance will be imperative 12 See UNCED (1992).

to get the country back on track for improved Travel & 13 For more details on the WTTC’s Competitiveness Monitor, see
Tourism competitiveness. chapter 1.3 of this Report by Richard Miller. 23
Conclusions References
This chapter has introduced a new comprehensive International Trade Centre UNCTAD/WTO. 2005. Servicexport E-
Newsletter 1 (8).
index, the TTCI, which measures the T&T competitive-
ness of 124 economies spanning all regions of the world. UNCED (United Nations Conference on Environment and
Development). 1992. Agenda 21 Programme of Action. Earth
The results have shown that, on average, high-income Summit June 3–14, Rio de Janeiro.
countries tend to do well in the overall rankings, a UNWTO (World Tourism Organization). “Historical Perspective of World
tendency that is generally attributable to their more- Tourism.” Available at http://www.unwto.org/facts/menu.html.
developed policy and infrastructure environments.Yet ———. 2006. “2007 Will Be the Fourth Year of Sustained Growth.”
performance remains varied, with some economies World Tourism Barometer. Madrid, November 6.
demonstrating strengths across most areas, and others Wason, G. 2001. Speech at the WTO/OMC Tourism Symposium,
lagging behind. February 22–23, Geneva. Available at
http://www.wto.int/english/tratop_e/serv_e/wttc.doc.
Developing countries, on average, tend to score
World Economic Forum. 2006. The Global Competitiveness Report
lower in the Index.This can be attributed to a large 2006–2007. Hampshire: Palgrave MacMillan.
extent to the legacy of less-developed economies and
WTTC (World Travel & Tourism Council). 2006a. Tourism Satellite
structural endowments. However, some have made great Accounting research of the World Travel & Tourism Council
strides, putting into place the necessary factors and (WTTC) and Accenture.
policies to make developing the T&T sector attractive. ———. 2006b. “Breaking Barriers: Managing Growth.” November 6.
London: WTTC Media and Resource Centre. Available at
More generally, the weaker performance of a number of http://www.wttc.org/news135.htm.
countries in the developing world should be seen as an
opportunity for sectoral improvements. As has been
demonstrated in other industry sectors, there should
be significant potential for learning from international
success stories and leapfrogging to higher levels of T&T
competitiveness.
It is our hope that, by highlighting success factors
and obstacles to T&T competitiveness in these countries,
the TTCI will serve as a useful tool for the business
community and for national policymakers to work
TT.part1.r2 2/21/07 11:47 AM Page 24
Appendix A: Composition of the Travel & Tourism Competitiveness Index
This appendix provides details about the construction Subindex A: T&T regulatory framework
of the Travel & Tourism Competitiveness Index
Pillar 1: Policy rules and regulations
(TTCI).The TTCI is composed of three subindexes:
1.01 Foreign ownership restrictions
the T&T regulatory framework subindex, the T&T 1.02 Property rights
business environment and infrastructure subindex, and 1.03 Rules governing foreign direct investment
the T&T human, cultural, and natural resources 1.04 Visa requirements (hard data)
subindex.These subindexes are, in turn, composed of 1.05 Openness of bilateral Air Service Agreements
(hard data)
the 13 pillars of T&T competitiveness shown below:
namely, policy rules and regulations, environmental Pillar 2: Environmental regulation
regulation, safety and security, health and hygiene, 2.01 Stringency of environmental regulation
prioritization of Travel & Tourism, air transport 2.02 Clarity and stability of environmental regulations
infrastructure, ground transport infrastructure, tourism 2.03 Government prioritization of sustainable Travel &
Tourism
infrastructure, ICT infrastructure, price competitiveness
in the T&T industry, human resources, national Pillar 3: Safety and security
tourism perception, and natural and cultural resources. 3.01 Business costs of terrorism
These pillars are calculated on the basis of both “hard 3.02 Reliability of police services
3.03 Business costs of crime and violence
data” and “Survey data.”
The Survey data comprise the responses to the Pillar 4: Health and hygiene
World Economic Forum’s Executive Opinion Survey 4.01 Government efforts to reduce health risks from
and range from 1 to 7; the hard data were collected pandemics
from various sources, which are described in the 4.02 Physician density (hard data)
4.03 Access to improved sanitation (hard data)
Technical Notes and Sources section at the end of the
4.04 Access to improved drinking water (hard data)
Report. All of the data used in the calculation of the
24 TTCI can be found in the Data Tables section of the Pillar 5: Prioritization of Travel & Tourism
Report. 5.01 Government prioritization of the T&T industry
5.02 T&T government expenditure (hard data)
The standard formula for converting each hard
5.03 Effectiveness of marketing and branding to attract
data variable to the 1-to-7 scale is tourists
5.04 T&T fair attendance (hard data)
country value – sample minimum
6 x
( sample maximum – sample minimum ) + 1
The sample minimum and sample maximum are Subindex B: T&T business environment and
the lowest and highest values of the overall sample, infrastructure
respectively. For some variables, a higher value indicates Pillar 6: Air transport infrastructure
a worse outcome. For example, higher carbon dioxide 6.01 Quality of air transport infrastructure
damage is bad. In this case we “reverse” the series by 6.02 Available seat kilometers (hard data)
subtracting the newly created variable from 8. In some 6.03 Departures per 1,000 population (hard data)
6.04 Airport density (hard data)
instances, adjustments were made to account for
6.05 Number of operating airlines (hard data)
extreme outliers in the data. 6.06 International air transport network
Each of the pillars has been calculated as an
unweighted average of the individual component Pillar 7: Ground transport infrastructure
7.01 Road infrastructure
variables.The subindexes are then calculated as
7.02 Railroad infrastructure
unweighted averages of the included pillars. In the 7.03 Port infrastructure
case of the human resources pillar, which is itself 7.04 Domestic transport network
composed of three subpillars (education and training,
availability of qualified labor, and workforce wellness), Pillar 8: Tourism infrastructure
8.01 Hotel rooms (hard data)
the overall pillar is the unweighted average of the
8.02 Presence of major car rental companies (hard data)
three subpillars.The overall TTCI is then the 8.03 ATMs accepting Visa cards (hard data)
unweighted average of the three subindexes.
The variables of each pillar and subpillar are Pillar 9: ICT infrastructure
9.01 Extent of business Internet use
described below. If a variable is one of hard data, this
9.02 Internet users (hard data)
is indicated in parentheses after the description. 9.03 Telephone lines (hard data)
TT.part1.r2 2/21/07 11:47 AM Page 25

Appendix A: Composition of the Travel & Tourism Competitiveness Index (cont’d.)
Pillar 10: Price competitiveness in the T&T industry

10.01 Ticket taxes and airport charges (hard data)
10.02 Purchasing power parity (hard data)
10.03 Extent and effect of taxation
10.04 Fuel price levels (hard data)
Subindex C: T&T human, cultural, and natural

resources
Pillar 11: Human resources

Education and training
11.01 Primary education enrollment (hard data)
11.02 Secondary education enrollment (hard data)
11.03 Quality of the educational system
11.04 Local availability of specialized research and
training services
11.05 Extent of staff training
Availability of qualified labor

11.06 Hiring and firing practices
11.07 Ease of hiring foreign labor
Workforce wellness
11.08 HIV prevalence (hard data)
11.09 Malaria incidence (hard data)
11.10 Tuberculosis incidence (hard data)
11.11 Life expectancy (hard data) 25
Pillar 12: National tourism perception
12.01 Tourism openness (hard data)
12.02 Attitude toward tourists
12.03 Recommendation to extend business trips
Pillar 13: Natural and cultural resources

13.01 Number of World Heritage sites (hard data)
13.02 Carbon dioxide damage (hard data)
13.03 Nationally protected areas (hard data)
13.04 Business concern for ecosystems
13.05 Risk of malaria and yellow fever (hard data)
TT.part1.r2 2/21/07 11:47 AM Page 26
TT.part1.r2 2/21/07 11:47 AM Page 27
1.2: Taking Travel & Tourism to the Next Level

CHAPTER 1.2 Governments all over the world are striving to support
and increase the well-being of their citizens through
Taking Travel & Tourism

sustainable economic growth and the resulting improve-
ments in commercial and social welfare. As globalization
to the Next Level: brings every country closer together,Travel & Tourism
(T&T) has become an increasingly important means of
Shaping the Government stimulating development, accelerating local investment,
and boosting employment. But as the world grows
Agenda to Improve the smaller, the competition for business travelers and
tourists is heating up. And everyone around the world
Industry’s Competitiveness has watched as disruptive forces such as pandemics and
terrorism have adversely affected a country’s T&T
JÜRGEN RINGBECK, Senior Partner, Booz Allen Hamilton industry and even set back its entire economy. Given
these conditions, what can countries do to sustain and
STEPHAN GROSS, Senior Associate, Booz Allen Hamilton
improve their T&T industry, whatever their stage of
economic development?
Factors that impact the competitiveness of the T&T

industry
The Travel & Tourism Competitiveness Index (TTCI) is
a primary indicator of a country’s T&T sector competi-
tiveness. As such, it provides a useful measure to identify
the critical success factors governments and business
leaders need to foster a flourishing T&T industry. By
using the TTCI to evaluate and compare an economy’s
T&T performance with the country’s peers within their 27
particular development stage, we have identified a num-
ber of “best practice” examples.These can help govern-
ments looking to improve the competitiveness of their
own T&T sectors, and thus positively influence their
country’s economic growth.
The overall TTCI is built on three primary sub-
indexes: the T&T regulatory framework subindex (1),
the T&T business environment and infrastructure
subindex (2), and the T&T human, cultural, and natural
resources subindex (3).Together these are composed of a
total of 13 pillars that, in turn, are made up of a total of
58 variables. Looking across the different components of
the TTCI, it is evident that it pays off for governments
to adopt a balanced regulatory framework that attracts
private investors, facilitates access for domestic and
international travelers, and encourages competition in
the market.These factors improve the sector’s operational
efficiency, services, and price levels. State subsidies and
government investments should be limited to areas that
are not yet attractive enough for private investment, but
always with the intention of moving toward a self-
sustaining competitive environment—a necessary pre-
condition for long-term growth. Keeping a good balance
between maintaining regulatory control and providing
business incentives that attract private investors provides
the foundation for an efficient T&T sector.
The authors would like to thank Dr Timm Pietsch for his excellent
research assistance.
TT.part1.r2 2/21/07 11:47 AM Page 28
Figure 1: Overview of correlations between the TTCI and its subindexes
Regulatory framework 90% Business environment

and infrastructure
97% 96%
Travel & Tourism

Competitiveness
85%
Index 79%
Human, cultural,
and natural resources
Source: World Economic Forum; Booz Allen Hamilton analysis.
28 It is therefore not surprising that the regulatory • maintaining high standards of health and hygiene
framework and the business environment and infrastruc- for both citizens and travelers (86 percent), and
ture subindexes show the highest positive correlation in
• implementing and monitoring environmental
the TTCI: these two factors are correlated with the
regulations (87 percent).
overall Index by 97 percent and 96 percent, respectively
(see Figure 1).The high correlation of 90 percent between
those two subindexes demonstrates that government Political and economic stability is a critical pre-
policies are strongly related to the quality of the sector’s requisite for attracting private capital, foreign investors,
business environment for Travel & Tourism. By provid- and international business travelers and tourists. Because
ing a powerful regulatory framework that fosters the the global business community is averse to very risky
build-up of an efficient T&T environment, encourages economic environments, countries with insecure legal
private investments, and guarantees respect for the local policies are at a significant disadvantage when trying to
culture and social welfare, government action obviously leverage their business potential. Government regulations
contributes directly to the sector’s competitiveness. that encourage foreign ownership and direct investments,
T&T regulatory framework. Addressing the various clearly define and protect property rights, and promote
factors that make up a country’s regulatory environment business foundations and technical innovation provide
is a prerequisite for sustainable growth in a country’s an effective framework for a competitive T&T industry.
T&T sector.The top factors that we found to be the If a country’s regulatory environment allows its
most highly correlated with a country’s T&T sector public and private sectors to work together effectively,
competitiveness are: sustainable growth can be strategically planned—further
stimulating the sector’s potential and defending it against
severe disruptions from external events beyond its direct
• ensuring political stability and a high standard of
control.
safety and security (80 percent),
T&T business environment and infrastructure. In
• securing investments in the sector by adopting addition to a well-designed regulatory framework, an
and maintaining favorable rules and regulations efficient business environment and transport infrastructure
(80 percent), is a key driver that directly influences the competitiveness
of a country’s T&T industry. Ground, air, tourism,
and information and communications technology
TT.part1.r2 2/21/07 11:47 AM Page 29

Figure 2: TTCI score vs. gross national income per capita
Low-income countries Lower-middle- Upper-middle- High-income countries

($875 or less) income countries income countries ($10,726 or more )
6
($876–$3,465) ($3,466–$10,725)
5
TTCI score
2
2 3 4 5
Log of GNI per capita (2005)
Source: World Bank, 2005; World Economic Forum; Booz Allen Hamilton analysis.
infrastructure are key factors that correlate highly with a be e-booking services, travel and vehicle management 29
country’s overall TTCI.Those factors include: systems, or Radio Frequency Identification (RFID)
technologies for baggage and passenger tracking—plays
• an accessible, high-quality air traffic network— a critical role throughout the T&T value chain, boosting
for example, in terms of routes, frequencies, and efficiency and service quality.
number of destinations offered (84 percent); Stages of Development. The importance of the
various factors that make up the TTCI is likely to vary
• established tourism infrastructure, such as a high depending on each country’s stage of development.
density of hotels, rental car companies, and banks Although some of the factors are a “must have” for
(86 percent); high-income economies, they might not yet be
• a well-developed ground transportation network, absolutely necessary for developing countries. Political
including roads, railroads, mass transit, port facilities, stability, for instance, is a prerequisite for any country
and waterways (89 percent); and looking to attract foreign business and international
travelers; government investments in environmental pro-
• broad coverage of Information and Communication tection and new technologies, on the other hand, might
Technologies (ICT) services, such as television, tele- become relevant only once basic infrastructure is in
phones, and high-speed Internet access (90 percent). place. A less-developed country that is in the process of
building up its air and ground transport network may
To attract private investors to a country’s T&T consider environmental regulations a secondary priority.
economy, governments need to create a business envi- Comparing economies within each stage of devel-
ronment that provides the required air, ground, and opment makes it possible to identify specific key success
tourism networks, either through direct government factors and lessons learned that are specifically applicable
investment or state subsidies, or by entering into public- within each peer group (see Figure 2).
private partnerships for those projects too difficult for a Travel & Tourism naturally increases as a country’s
state authority or a single company on its own. Involving economic and social welfare improves, and as it does so,
private investors in infrastructure projects deepens it becomes more important to its government and
everyone’s long-term commitment to the sector. Such business leaders.That is why the TTCI naturally ranks
commitment benefits not only those who work in the advanced economies higher than countries at lower
T&T industry or use its services, but also the surrounding stages of development.Taking the gross national income
community, thanks to the tax revenues the sector (GNI) per capita as an indicator, it shows that the first
generates. Finally, information technology—whether it 27 rankings in the TTCI are all countries that belong to
TT.part1.r2 2/21/07 11:47 AM Page 30
Table 1: Top 10 TTCI rankings based on stage of development
HIGH-INCOME PEER GROUP UPPER-MIDDLE-INCOME PEER GROUP

Index rank Economy Score Index rank Economy Score
1 Switzerland 5.66 28 Estonia 4.90

2 Austria 5.54 29 Barbados 4.86
3 Germany 5.48 31 Malaysia 4.80
4 Iceland 5.45 35 Czech Republic 4.75
5 United States 5.43 37 Slovac Republic 4.68
6 Hong Kong SAR 5.33 39 Mauritius 4.63
7 Canada 5.31 40 Hungary 4.61
8 Singapore 5.31 41 Costa Rica 4.60
9 Luxembourg 5.31 45 Chile 4.58
10 United Kingdom 5.28
LOWER-MIDDLE INCOME PEER GROUP LOW-INCOME PEER GROUP

Index rank Economy Score Index rank Economy Score
34 Tunisia 4.76 65 India 4.14

43 Thailand 4.58 80 Tanzania 3.86
46 Jordan 4.52 84 Gambia 3.81
48 Jamaica 4.41 88 Vietnam 3.78
50 Dominican Republic 4.35 91 Mongolia 3.72
54 Bulgaria 4.31 92 Mauritania 3.71
57 Morocco 4.27 94 Zambia 3.66
58 Egypt 4.24 96 Cambodia 3.64
59 Brazil 4.20 98 Kenya 3.62
60 Indonesia 4.20 101 Uganda 3.56
(71) (China) (3.97)
Source: World Economic Forum; Booz Allen Hamilton analysis.

30
the high-income category. Only seven high-income Travel & Tourism as a driver of economic growth:
economies have been surpassed by countries in either The application of best practice examples across
the upper-middle-income or the lower-middle-income defined peer groups
categories. Looking at the TTCI score bandwidth with- As the pace of globalization has increased, many countries
in the four different country groupings shows that some have experienced rapid GDP growth rates over the past
economies emerge as high performers relative to their few years. In such countries,Travel & Tourism is taking
peers—serving as a first starting point for a more off at the same speed, granting people first-time access
detailed investigation of key success factors that drive an to foreign travel destinations and directly adding to
economy’s T&T competitiveness.Table 1 highlights the domestic economic development.With its direct and
top 10 “fly-wheel” countries for each of the four seg- indirect impacts on overall welfare,Travel & Tourism
ments shown in Figure 2, illustrating their overall TTCI may be a key enabler helping low-income, lower-middle-
rank and their respective scores. income, and upper-middle-income countries to move
According to the World Tourism & Travel Council upward into the ranks of the more advanced nations.
(WTTC), China’s T&T demand is expected to grow Virtually every country in the three less-developed cate-
8.9 percent by 2013—adding an astonishing 11.5 million gories are achieving relatively high T&T growth rates,
new jobs in this sector. Since in both absolute and rela- suggesting that they are investing heavily in this sector
tive terms China’s T&T economy grows at an impressive in hopes of moving toward the next development stage.
speed and thus serves as a good case example, we show Going beyond the individual TTCI scores and comparing
it in the table of lower-middle-income countries even average GDP growth with increase in GDP specific to
though it does not rank in the top 10 scores but comes the T&T sector reconfirms this trend: low-income and
“only” in 14th place among the other 39 economies in lower-middle-income countries show proportionally
its peer group. higher than average sector growth rates compared to the
other country segments (see Figure 3).
If supported by open domestic market conditions—
fostered by a focused and well-balanced political and
regulatory approach—Travel & Tourism can provide
promising economic opportunities in many countries,
especially among low-income and lower-middle-income
TT.part1.r2 2/21/07 11:47 AM Page 31

Figure 3: Travel & Tourism industry vs. overall economic growth
10
Over-proportional growth of the T&T sector

9 Upper-middle-income group
Low-income group
T&T industry GDP CAGR 1993–2005
8
Lower-middle-income group
or
ect
7 &Ts
T
he
th of t
ow
l gr
6
rtiona
po
Pro
5 High-income group
Under-proportional growth of the T&T sector
4
4 5 6 7 8 9 10
GDP CAGR 1993–2005
Source: WTTC, 2006a; EIU, 2006; Booz Allen Hamilton analysis.

Note: CAGR is the compound annual growth rate.
nations. In that way boosting the T&T sector can help worst-case scenario did not take place:TTCI results 31
equalize economic differences among countries and show that Hong Kong ranked second in the policy rules
become a major contributor to a nation’s overall welfare. and regulations pillar, particularly in the categories of
Countries that understand the positive impact of Travel favorable foreign direct investments and lack of foreign
& Tourism on their overall economies—and thus out- ownership restrictions.
perform their peer group’s average—make excellent Since the handover, Hong Kong has succeeded in
“best practice” case studies for understanding how and restoring both its markets and its tourism industry.The
why a focus on Travel & Tourism pays off. Hong Kong Tourism Board (HKTB) was established in
early 2001 as an independent cross-sector network for
Case Study 1: High-income economy group: promoting the travel industry from both the demand
Hong Kong SAR and Iceland and the supply sides.The board’s activities range from
The T&T markets in the high-income economies of the global and regional marketing campaigns, monitoring
western hemisphere are highly sophisticated from both a the industry’s quality standards and improvement efforts,
demand and a supply perspective. As these economies’ and providing guidance to the domestic industry to sup-
T&T sectors reach a high level of saturation, the sector’s porting the further development of Hong Kong as a
average top-line growth typically becomes relatively world-class tourism destination.Today, Hong Kong is a
moderate. very successful Asian destination for shoppers from all
Some regions, however, are breaking the rule. across the world. And it has become the gateway to the
Iceland and Hong Kong could hardly be more different, People’s Republic of China, a trend that has also steadily
but both have managed to grow their T&T industries increased visitors flows. Meanwhile, city officials are
more quickly than the average of their peers (see Figure considering the privatization of the Hong Kong
4). A detailed look at Hong Kong and Iceland (ranked Airport—the plan is to float 25 percent of the airport’s
6th and 4th, respectively, in the TTCI) makes clear the shares—the main goal being to subject the airport to
initiatives and policies each country has taken to drive even stronger market and commercial discipline.
their industries to perform so well. An island on the outskirts of the inhabited world,
The United Kingdom handed Hong Kong back to Iceland isn’t as easy for visitors to reach as Hong Kong
China in 1997.The immediate effect in Hong Kong was is. In the past, Iceland has been a major destination for
a sudden and severe economic collapse, as private “eco-tourists,” but the country is making a major effort
investors feared that public policies and regulations to place its tourism industry on more than one leg.
would be tightened, thus increasing overall business By combining effective marketing efforts with a clear
risks; that fear also affected the tourism industry. But the economic liberalization policy, Iceland has successfully
TT.part1.r2 2/21/07 11:47 AM Page 32
Figure 4: High-income economy group: Travel & Tourism industry vs. overall economic growth
10
Iceland (4)
Over-proportional growth of the T&T sector
6
Hong Kong (6)
0
0 1 2 3 4 5 6 7 8 9 10
GDP CAGR 1993–2005

Note: Numbers in parentheses show the economy’s TTCI rank and its position within its peer group. CAGR is the compound annual growth rate.
32 managed to redirect a significant share of international Estonia emerges as a high flyer at rank 28, leaving other
convention travelers to Reykjavik, a success that shows more advanced countries—such as Italy, at rank 33—
up in the country’s number 5 ranking in the T&T behind.
regulatory framework subindex. Since several low-cost carriers expanded their
Iceland’s banking sector clearly demonstrates how networks to Tallinn, tourists have been pouring into
privatization has aided the island’s overall economy. the country in growing numbers. In order not to get
Privatization has allowed banks to compete far beyond branded as a destination for “booze trips” from its
the island’s borders, attracting an increasing number of western neighbors, Estonia’s Tourism Board is following
business travelers to the country.Within Iceland’s T&T a multiple strategy:
sector, privately held conglomerate Icelandair has suc-
ceeded along the same lines by avoiding governmental • First, to keep the travel industry growing steadily,
influence or international alliances. Since its establishment low-budget tourists have remained a top priority.
as Icelandair resulting from a merger of two domestic
• Second, the country has worked to brand itself as a
airlines in 1973 it has expanded rapidly, and in 2004 it
tourist destination with a strong cultural heritage
bought a 10 percent stake in EasyJet. Although based in
and traditional countryside getaways.
a domestic market of only 300,000 people, Icelandair
transported roughly 1.5 million passengers in 2005 and • Third, Estonia is keeping an eye on newly
Reykjavik has established itself as a hub for international emerging sources of tourism, especially Russian
traffic, carrying more than a third of its passengers on tourists, and has decided to significantly ease visa
transatlantic flights. requirements for short-term travelers.
Case Study 2: Upper-middle-income economy group: Since Estonia joined the European Union in 2004, it
Estonia and the Slovak Republic has followed the path of privatization of former state-
As the European Union has expanded its borders into owned businesses. In late 2004, the privately held Go
Eastern Europe, with the result that its markets there are Group was set up to consolidate a number of trans-
continuously opening up to private investors, a fresh portation and hospitality companies in order to raise
group of small countries have become tourist destinations efficiency and provide better service to Estonians and
and dynamic business climates. So it is not surprising visitors alike.The group is made up of four businesses—
that some Eastern European countries rank relatively international train services, bus services, tourism, and a
high in the overall index, with T&T sectors growing hotel business—operating under one integrated brand.
faster than their overall economies (see Figure 5).
TT.part1.r2 2/21/07 11:47 AM Page 33

Figure 5: Upper-middle-income economy group: Travel & Tourism industry vs. overall economic growth
20
Estonia (28/1)
18 Over-proportional growth of the T&T sector
16
14
Slovak Republic (37/5)
12
10
2 Under-proportional growth of the T&T sector
0
0 2 4 6 8 10 12 14 16 18 20
GDP CAGR 1993–2005

Note: Number in brackets shows the country’s TTCI rank and its position within its peer group. CAGR is the compound annual growth rate.
With its strong focus on improving infrastructure access Case Study 3: Lower-middle-income economy group: 33
and efficiency, it is not surprising that Estonia scores rel- Bulgaria and Egypt
atively high in the T&T business environment and infra- Several lower-middle-income economies have been
structure subindex, ranking 25 and outperforming such using their long-standing, if underdeveloped,T&T
high-income countries as Belgium, Greece, and Ireland. industries as a stepping-stone to long-term economic
The Slovak Republic has chosen a similar path. It stability to catch up to their economic peer group.
has successfully built its capital, Bratislava, into a dynamic Bulgaria and Egypt both rank in the top 10 in the
business hub that attracts multinational manufacturing TTCI group of lower-middle-income economies,
and corporate affiliations, thanks to its flat-tax scheme significantly outperforming the group as a whole (see
and low prices.The Slovak Republic’s aviation sector Figure 6).
has taken off in recent years, with Bratislava airport Without its booming tourism industry, which has
emerging as a regional hub that has experienced double- successfully redirected large numbers of travelers from
digit growth in passenger traffic. Although the Slovakian Mediterranean beaches to the coast of the Black Sea,
government recently postponed the privatization of Bulgaria would continue to suffer from a sky-high trade
this airport, the country’s largest air hub, the sale of a deficit.Yet today the country celebrates its entrance into
majority stake in the country’s second-largest hub— the European Union. Bulgaria intends to invest heavily
Koŝice airport—has been finalized. It is not surprising in its sometimes archaic infrastructure in order to put its
that the Slovak Republic shows up among the top 20 skyrocketing tourism industry on a more stable basis for
percent within the TTCI’s policy rules and regulations further growth. As a sign of its strong economy and
pillar, at rank 24. ambitious future plans, Bulgaria’s government has drafted
Other outperforming countries in this peer group, an ambitious plan to spend 3.3 billion euros on improv-
such as Turkey and South Africa, already have a well- ing roads, railways, ports, and waste treatment facilities in
established reputation in the T&T industry, yet just in the country by 2015.The plan will be funded in part by
the past decade, Estonia and the Slovak Republic have the European Investment Bank and in part through a
managed to build up this sector virtually from scratch. variety of public-private partnerships (PPPs). Bulgaria is
They are now well positioned to continue their success now looking to take its mass-tourism markets to the
stories, assuming they carry on their policies of economic next level, with plans to develop more high-end offerings
and regulatory liberalization. for visitors. Its success has allowed Bulgaria to score
relatively well in the TTCI tourism infrastructure pillar,
ranking 25 and outpacing several other well-established
TT.part1.r2 2/21/07 11:47 AM Page 34
Figure 6: Lower-middle-income economy group: Travel & Tourism industry vs. overall economic growth
20
18 Over-proportional growth of the T&T sector Bulgaria (54/7)

16
14
Egypt (58/9)
12
10
4
2
0
0 2 4 6 8 10 12
GDP CAGR 1993–2005

Note: Numbers in parentheses show the country’s TTCI rank and its position within its peer group. CAGR is the compound annual growth rate.
34 tourism destinations, such as the Dominican Republic of tourism that have a higher value, such as eco-tourism.
(39),Tunisia (45), and Thailand (53). In addition, investments in shopping, entertainment, and
Thanks to its incomparable cultural heritage and a conference facilities have lagged the region.This repre-
coastline perfect for seaside vacationers and scuba divers, sents another opportunity to attract higher-value tourist
T&T is one of Egypt’s key engines of economic segments such as Meetings, International Conferences,
growth, contributing close to 8 percent of the country’s and Exhibitions (MICE) visitors and luxury shoppers.
GDP and 28 percent of total investments.While other Currently, Egypt is highly dependent on tour oper-
sectors of the economy remain state-run and highly reg- ators, which creates a mismatch between the supply and
ulated, there are no such limits in the tourism industry. demand for hotel rooms. Although the average length of
For example, Egypt’s government has long allowed stay for a tourist in Egypt is high and increasing, the
unlimited foreign direct investments, granted the right revenue per hotel room is low. This is due in part to
to liquidate and transfer capital and profits abroad, and aggressive resort package promotions offered by tour
adopted open skies policies for all major tourism airports. operators and the high rate of hotel room overcapacity;
This has helped the Egyptian travel industry to overcome but it is also due to an underdeveloped domestic air and
several disasters, such as the Luxor attacks of 1997. land transport network. Because tourists cannot easily
Today, Egypt has undertaken an extensive tourism travel around the country, they tend to stay in one
development program aimed at expanding its already- city for the entire duration of their visit—thus visitors
rich offerings, with, for example, a special focus on short are spending more time in Egypt with very little
getaways for Middle East visitors. Egypt’s focus on its incremental increase in spending.
T&T sector is strongly confirmed in the country’s To further improve T&T competitiveness Egypt
exceptionally high score in the TTCI prioritization of needs to address these challenges, include balancing
Travel & Tourism pillar, where Egypt ranks 12 out of all hotel capacity investments with demand characteristics,
124 countries. transferring knowledge from global hotel and airport
Although Egypt’s tourist arrivals are growing at a operators to the local market, and capturing more value
greater rate than the world average, the country has not from long average stays per tourist.
yet extracted the full value of its T&T industry. For
example, Egypt’s 24 natural protectorates and its Case Study 4: Growing giants: China and India
Mediterranean coast still represent a large number of Because of their large populations, China and India are
tourism “white spots”—areas that have yet to reach their categorized as “lower-middle-income” and “low-income”
full potential. These areas represent another way to countries, respectively, because their per capita gross
increase average visitors’ stays and to attract new forms national incomes are relatively low on average across
TT.part1.r2 2/21/07 11:47 AM Page 35

Figure 7: Number of domestic flights per capita on a typical weekday
50,000 180
44,491
45,000 160
Number of domestic flights per day
40,000
Domestic flights per million capita

140
35,000
120
30,000
100
25,000
80
20,000
60
15,000
40
10,000
4,468 20
5,000
1,429
0 0
China India United States
Source: OAG MAX Online (accessed September 2006); Booz Allen Hamilton analysis.
Note: Domestic flights as scheduled on Wednesday, September 6, 2006
their overall population. Although they show strong overall population. Domestic travel—with a total of 1.2 35
economic growth in their industrial regions, there are billion trips—has become the backbone of the Chinese
still many rural areas with limited accessibility and tourism industry.
transportation infrastructures. China’s T&T sector has been a major beneficiary of
However, both countries’ strong and growing the country’s “open-door” policy, yet it remains one of
domestic demand and burgeoning workforce potential the least progressive industries in terms of property-
have long attracted international business. Both countries rights reform and financial performance. Most of
have been outpacing the rest of the world in terms of China’s tourism infrastructure is still publicly owned—
economic growth, and they represent huge markets for the government still owns 63 percent of the country’s
inbound tourism. But there are still significant differences hotels, for instance.That puts China near the bottom
in personal income and consumption between China end of the tourism infrastructure pillar of the TTCI, at
and India and the industrialized world.Therefore, the rank 113 out of 124. Just recently, however, the central
two countries’T&T sectors are more likely to take off as government has proposed speeding up ownership
domestic industries than as international tourism desti- reforms and encouraging the gradual withdrawal of state
nations, at least for the foreseeable future. capital from commerce and distribution.
Figure 7 compares the total and relative number of China’s T&T score of 3.97 puts it below India, at
domestic flights in China and India to domestic flights 4.14, which would suggest that the country is not fully
in the United States, an advanced air traffic market. leveraging its potential in the sector.Yet China has been
Domestic travel demand in the two Eastern giants has improving its ground and air infrastructure assets
great potential in the years to come. (through consolidation of its national airline industry, for
Although comparable in size and overall growth instance), in order to keep up the pace of economic
rates, a closer look at the two countries reveals different growth. And in order to boost business Travel &
starting positions and perspectives for future development. Tourism, the government plans to construct up to 50
China is looking ahead to the 2008 Olympics, to be new airports by 2010.Thus it ranks relatively high in
held in Beijing, which will certainly boost the domestic the air and ground transport infrastructure pillars, at 36
as well as the international tourism industry. As a result, and 45, respectively. In expanding its transport infra-
the Chinese T&T industry has already seen rapid structure, however, China should not forget about the
growth over the past few years. According to the China economic split between its much wealthier eastern coast
National Tourism Administration, 31 million Chinese and the rural hinterland:While major economic centers
people traveled out of the country in 2005—a large such as Beijing, Shanghai, and the southern province of
number, but still a tiny figure compared with the country’s Guangdong are well served, the government must not
TT.part1.r2 2/21/07 11:47 AM Page 36
Figure 8: Policy toward private enterprise rating vs. TTCI score (averages per defined peer group)
High-income group
5
Average TTCI score
Upper-middle-income group
4 Lower-middle-income group
Low-income group
3
2 3 4 5 6 7 8 9 10
Average EIU policy toward private enterprise rating (10 = good)
Source: World Economic Forum; EIU, 2006; Booz Allen Hamilton analysis.
Note: Bubble size indicates overall average 2005 GDP of country cluster. The EIU Index rates countries between 1 and 10 on a variety of measures including pro-
tection of property rights and government attitudes to competition, with 1 being low and 10 being high. The average is made up of the 59 countries that are
included in the EIU rating.
36
lose sight of the need to expand the infrastructure Deregulation and privatization: Increasing demand and
connecting the rest of the country. improving T&T industry efficiency
India, meanwhile, has already gained a reputation as The T&T industry has established itself as an ongoing
a popular tourist destination, with tourist arrivals expected success story in countries both advanced and still devel-
to grow 10 percent annually for the foreseeable future. oping. However, rapidly changing economic and social
Yet India’s tourism sector faces a number of constraints, conditions mean that every country must maintain its
including a severe shortage of budget hotels, regulatory pace of growth just to keep up with the competition
barriers, high visa costs compared with neighboring around the world.That can happen only through further
regions, and significant delays for inbound travelers from liberalization and deregulation of both the domestic and
South Asia. As a result, ranked 106, India is near the international T&T industry.
bottom end of the list in the visa requirements variable. Over the past decades, most high-income countries
Within the low-income group of countries, have opened their domestic and international transport
however, India is far outperforming its peers, surpassing markets to competition.Today, these countries are profit-
several countries in the lower-middle-income and even ing from a rock-solid tourism industry that lays the
the upper-middle-income segments. In terms of infra- groundwork for long-term economic prosperity.The
structure, accessibility, and safety, India shows relatively Economist Intelligence Unit (EIU) private enterprise
good scores, ranking 33 in air transport infrastructure rating, an indicator of a country’s degree of economic
and 40 in ground transport infrastructure. But, although liberalization, shows that the competitiveness of a country’s
India is among the fastest-growing aviation markets in T&T sector is very highly related to its degree of
the world, it has attained that position despite an infra- liberalization. Countries that engage in deregulation and
structure system that is still inadequate to deal with privatization encourage competition, which forces all
projected further growth. However, the country has economic players to improve operational efficiency; that,
plans for numerous major infrastructure projects, not in turn, drives up the T&T sector’s competitiveness.
just in the aviation sector, but in its road and rail systems Figure 8 indicates the relationship between the four eco-
as well.The Indian government and the US Federal nomic groups’ liberalization rating and their TTCI scores.
Aviation Administration (FAA) have agreed on a major
knowledge transfer effort to help develop and modernize Case Study: Increasing T&T competitiveness by
the management, operations, and technology of India’s liberalizing the European aviation sector
civil aviation infrastructure. For Western Europe, the connection between economic
liberalization and the competitiveness of its T&T sector
TT.part1.r2 2/21/07 11:47 AM Page 37

Figure 9: State-owned vs. privatized European airlines
Bottom line
(average operating profit margin in %) Operational performance
(average operating cost/RPK in US$)
~ 7.8%
0.08
+42%
0.12
~ 4.5%
0.13
+543%
~ 0.7%
Capacity utilization efficiency
State-owned Privatized flag Privately owned (average seat load factor across fleet)
carriers carriers (>50%) low-cost carriers
• Alitalia • Air France / KLM • Ryan Air 82%
• Austrian Airways • British Airways • Easy Jet
• Turkish Airways • Lufthansa • Norwegian 76%
• Finnair • Iberia • Transavia
• LOT Polish Airlines 72%
Source: ATW, 2006; Booz Allen Hamilton analysis.

Note: RPK = Revenue Passenger Kilometer.
can be seen in the two-decade-old history of Europe’s The rise of the European aviation industry clearly 37
decision to open up its aviation industry.The market’s demonstrates that privatization efforts pay off, even in
development since then has clearly shown that a cross- the short term:
country liberalization plan can have a strong impact on
growth, both within Travel & Tourism and beyond. • Deregulation of the airline market triggered indus-
Since the countries that make up Europe are at similar try consolidation and fostered the development of
stages of development—they are all politically stable broad domestic and international aviation networks.
and boast comparable social welfare systems—Europe’s
• These global networks have provided better access
experience with market deregulation provides valuable
to more destinations, stimulating air-travel demand
lessons that can be applied both domestically and
and lowering prices.
internationally across borders.
The deregulation of the European aviation industry • Communities throughout the region have seen
was driven by the 12 member states of the European higher employment and economic growth enabled
Union at the time, under the basic premise of improving by the increased access to and from key European
access and encouraging overall competition.This shift business centers.
away from state protection opened the door not to the
kind of competition that was first imagined (that of the Meanwhile, most of the surviving flag carriers have
state’s respective flag carriers competing in each other’s transformed themselves from government air transport
territories) but to competition in the form of new agencies into smart global players that compete success-
entrants. Indeed, once state subsidies were eliminated, fully in a highly competitive and global business
some established carriers, such as Sabena, were forced environment. In this market, ticket prices to the end-
into bankruptcy. consumer are no longer subject to bilateral negotiations
Once the airline market itself was deregulated, the between country representatives, but to the principle of
European airport landscape entered into a phase of pri- supply and demand under strong competition.
vatization, which started with the initial public offering A comparison of fully privatized flag carriers with
of the British Airport Authority and was followed by those in which governmental bodies still hold significant
many others. Now that the British air traffic service shares shows that airlines under private leadership
provider (NATS) has been privatized, and plans are on operate much more profitably than state-owned airlines,
the table to sell off DFS (the German air traffic control thanks to their tighter rein on costs, better operational
provider), the overall European air traffic control sector efficiency, and higher seat-load factors (see Figure 9).
is also expected to follow this trend soon.
TT.part1.r2 2/21/07 11:47 AM Page 38
Figure 10: Yield development of European carriers (1997–2004)
20
US cents/revenue passenger kilometers
19
18
–17.5%
17
16
15
14
1997 1998 1999 2000 2001 2002 2003 2004
Source: AEA, 2005.

Note: Passenger revenue per kilometer at constant prices (1991).
38 The private investors who control the newly emerging the importance of non-aeronautical revenue and the
European Low Cost Carriers demand even more potential for improved efficiency that comes with new
efficiency, which shows up not only in the bottom line, technologies. Putting more emphasis on the travelers
but also in terms of better operational performance and themselves means a higher proportion of revenues from
capacity utilization. non-aviation operations. A benchmark of bottom-line
Market deregulation has forced incumbent airlines performance among Europe’s national and regional hubs
into competition and introduced a wide range of new reconfirms the efficiency gains privatized airports have
competing players into the marketplace, driving down made since deregulation (see Figure 11).
overall market prices by more than 17 percent since As a result of deregulation, all industry players have
1997 (see Figure 10).Today, European travelers can been forced to improve efficiency and to expand their
chose from more direct connections within a vastly network at competitive prices to survive competition.
expanded route network. Most importantly, the rise of As a result, beyond the conventional growth that has
the low-cost carriers has shaken up not just the industry occurred prior to deregulation (~6 percent), additional
but customer behavior as well. Altogether, these market demand of approximately 81 million passengers has
changes have added both more traffic and more money been stimulated, triggering an overall air traffic market
to the skies of Europe than was ever envisioned in the increase of 20 percent since 2002 alone (see Figure 12).
early days of liberalization. Meanwhile, the number of intra-community routes
For Travel & Tourism, basic infrastructure such as grew by more than 40 percent, creating an entirely new
roads, rails, public transport, and—most importantly— market of weekend travelers.Today, low-cost carriers
airports are essential to get travelers into, around, and carry nearly a fifth of all air passengers in Western
out of the country. In Western Europe, former state- Europe. Lower flight fares and new direct connections
owned airports that have been privatized during the have attracted many European travelers to visit places
last decade work significantly better than those still they would not have gone to otherwise.
controlled by governments. Open market conditions in The deregulation of the European aviation sector
the airport sector have led to a variety of ownership and has also contributed significantly to the growth of eco-
operating models for airports, ranging from state-owned nomic and social welfare in the European Union. Direct
to partially and fully privatized. stakeholders in the aviation industry now account for
The connection between airport profitability and 4 million jobs and €220 billion of added value—making
the degree of privatization makes clear the value private up an additional 1.5 percent of Europe’s gross domestic
operators put on factors that go far beyond simply pro- product (GDP).
viding the necessary infrastructure. Such factors include
TT.part1.r2 2/21/07 11:47 AM Page 39

Figure 11: Bottom-line differences of different airport ownership models
Comparison of average EBIDTA profit margin (%) Share of non-aviation revenue

of total revenue (%)
+65% 46
~43% 39
+39%
33
+19% ~ 31%
~ 26%
Non-aviation revenues per
terminal square meter (€)
1,684
State-owned Partially privatized Privatized airports 844
airports airports 595
• Heathrow/
• Munich • Frankfurt Gatwick/
• Orly Rhein-Main Stansted/Bristol
• Malpensa • Zurich • Fiumicino Aeronautical revenue / ATM (€)
• Dublin • Dusseldorf • Manchester 788
• Oslo International • Vienna • Copenhagen
857
• Geneva • Hannover • Brussels National
922
• Cologne/Bonn • Helsinki-Vantaa
Source: Company Annual Reports, Booz Allen Hamilton analysis.
39
Figure 12: Growth of European air traffic demand after deregulation
Total air transport passengers (2002–05)
+20% 675
650 Stimulated growth
(post market deregulation) +13%
589 10% 18%
560 + 81.4 Mio. Pax
3% 7%
Air transport passenger EU-15
Conventional growth
(prior to market deregulation) +6%
+ 33.6 Mio. Pax
97% 93% 90% 82%
2002 2003 2004 2005
Other established carriers New entrants (low cost)
Source: Eurostat, 2006; Eurocontrol, 2006; Booz Allen Hamilton analysis.

Note: Numbers refer to intra-European traffic only.
TT.part1.r2 2/21/07 11:47 AM Page 40
Lessons learned than the established industrialized nations, some upper-

The goal of this chapter has been to use the TTCI to middle-income countries, such as the Baltic states, have
lay out both a rationale and a strategy for how countries already built out more advanced ICT technologies than
at various stages of economic development can make their larger neighbors—and thus can benefit from more
their T&T sectors more competitive. So how should efficient T&T sales channels.
countries in each of the four economic development Upper-middle-income countries should focus on
groups help boost their T&T sectors? Here are some making sure they have enough leeway in their national
lessons learned. strategies, policies, and budgets for T&T development,
High-income economies. These economies typically leveraging this sector as an additional source of income
score high in the TTCI. However, that is not necessarily and as an accelerator for the exchange of people, knowl-
because they actively manage their T&T sectors, but edge, and money—within their national boundaries,
because their overall economic environment—in terms between their regional neighbors, and around the world.
of regulation, business environment, and resources—is Lower-middle-income and low-income economies.
favorable. In other words, these countries are not suc- These countries should pay the closest attention to the
cessful because their T&T industries are strong; rather, build-up of their T&T sectors, since they will reap the
their T&T industry is successful because the countries best return-on-investment from such efforts. Because
themselves are strong.Their T&T infrastructure is state- these countries usually have limited sources of income
of-the-art, not primarily for the sake of foreign visitors, and access to foreign capital, they may have only partial-
but for the sake of their own citizens and businesses. ly started to invest in industry and trade. In such cases,
Their advanced economies require a high level of regu- investment in Travel & Tourism is an ideal incubator for
latory sophistication, so industry policies and regulations their national economy, contributing to overall develop-
are clearly defined and monitored. Even though mere ment in four ways:
size is not a factor in the TTCI, large countries such as
the United States do benefit in their ranking from their • Money raised through the T&T sector can be
economic power. Yet smaller high-income economies invested in other sectors.
and regions, such as Iceland and Hong Kong, can make
• Necessary upgrades to Travel & Tourism are also
40 it to the top of the Index, too.
beneficial for their own citizens and domestic
Nonetheless, even high-income countries have
business environment.
room to improve their T&T sectors.To do so, they
should continue to fully leverage their existing potential • Domestic workforce working in the T&T sector
and concentrate on preserving their T&T-related assets. will further develop their skills and can act as role
For the first goal, an explicit T&T strategy and marketing models for advanced education for all citizens.
campaign is instrumental; for the latter, consistent envi-
ronmental regulations as well as rules for conservation • Growth in the T&T industry will have spillover
of monuments, tourism sites, and areas of natural beauty effects in other markets—by attracting foreign
are key factors. investors, for example.
Upper-middle-income economies. These boast many
of the same advantages as high-income economies, and These effects also underline the priorities for national
they should set similar goals for maximizing their T&T governments: build attractive resorts and business cen-
competitiveness.There is one major difference, however: ters, train people, and bring transportation infrastructure
most upper-middle-income economies are currently up to international standards. Strong property rights,
working to build up state-of-the-art infrastructure— reliable health care, and adequate security standards will
transportation, information and communications tech- be required to attract investors as well as travelers.
nology, and the like—in the hopes of creating a business Globalization is forcing every country—large or
environment that the high-income economies already small, rich or poor—to compete with one another for
possess.The risk from the perspective of the TTCI is the benefits of strong business Travel & Tourism.That
that upper-middle-income economies may focus too means governments need to create an environment that
much on achieving world-class standards in basic indus- best prepares their economies for the opportunities aris-
trial categories, leaving little attention for the T&T sec- ing of the T&T sector. In an era where business travelers
tor. If that happens, improved Travel & Tourism may end and tourists alike have many choices for travel and
up the result of economic development, not a driver of it. investment, every country—but especially lower middle
The upside of such a strategy is that, by building an income and upper middle income countries—must
advanced economy almost from scratch, countries can strengthen their T&T sectors rapidly and intelligently,
avoid a lot of the entrenched structures and legacy issues addressing the real needs of their domestic economies
—the complex taxation models and multiple layers of while taking into account the actions of their regional
regulation—that still hinder some of the more advanced neighbors.
countries. Furthermore, because they can be more agile
TT.part1.r2 2/21/07 11:47 AM Page 41

Figure 13: Steps toward a competitive T&T industry
Geographic scope
Domestic Global
Intercontinental
liberalization
Intraregional
liberalization • Reduction of regional
Domestic boundaries across all
deregulation & • Reduce cross-border T&T industries
privatization • Substitution of
trade barriers (e.g.,
Expand service traffic & ownership bi-lateral agreements
provision • Introduce competition
rights, taxes & duties) with Open Skies
to local T&T markets
Build T&T • Expansion of interna- traffic rights
• Facilitate and build-up • Improve efficiency of
infrastructure tional T&T service • Relaxation ownership
of operations on operations and serv-
offerings rights (e.g., airlines
established platforms ice quality
• Provide air and • Facilitate international and hotels)
• Increase depth of • Further engage private
ground infrastructure T&T flows
service offering (e.g., capital
• Ensure domestic & • Enhance overall T&T
international access frequency, routes)
industry efficiency and
• Consider public- • Fulfill customer quality
private partnerships requirements
as source of funding (service quality)
Source: Booz Allen Hamilton.
How to realize the opportunity: Steps toward improving between Europe and North America), even this vision 41
T&T competitiveness may become reality in the years to come.
Successfully building a highly competitive T&T sector The positive correlation between a healthy T&T
requires several evolutionary steps (see Figure 13). sector and the wealth of individual nations, along with
Governments must first make sure the appropriate infra- the examples of countries and economies that have suc-
structure capacity is in place to provide access for cessfully leveraged that correlation, provide a clear indi-
domestic and international travelers; preferably by lever- cation that governments can influence the competitive-
aging private capital early in the process through such ness of their T&T sectors and their impact on overall
strategies as public-private partnerships. And both public GDP and welfare. Any government that wants to start
regulators and private investors need to ensure that they the evolutionary process to improve its T&T sector
jointly manage such partnerships efficiently, by focusing competitiveness needs to shape its political agenda
on the demand characteristics of their markets. accordingly, aligning both public and private interests,
Once infrastructure is in place, governments should evaluating its current situation, initiating relevant measures
focus to ensure that market demand is fully met—both and targets, and applying lessons learned from the
in terms of service quality and quantity (for example, strongest of their peer economies (see Figure 14).
routes and level of frequency served).To increase per- Achieve commitment. Before governmental bodies
formance efficiency of the T&T sector, governments and business leaders can agree on the steps required to
should engage in deregulation and privatization, provid- boost their T&T sector, they must agree on just how
ing a platform for further demand stimulation and beneficial the further development of the T&T sector
growth. Following domestic deregulation, a cross-border can be for their country’s welfare. Once they choose a
liberalization of a whole region’s policy framework, such direction to pursue, it must be followed tenaciously,
as Europe’s Open Skies agreement, can effectively attract since only persistent action will bring about real progress.
new market entrants and improve the industry’s overall Commitment on the part of a country’s public and
performance.That in turn can drive down both prices private stakeholders is the first step, but aligning closely
and costs while stimulating service quality and demand with neighboring governments and business leaders are
across all T&T players within the region. just as necessary for all the stakeholders to understand
The last step, a full intercontinental—or even glob- the full picture of a country’s strategic options.
al—liberalization of travel regulations has not yet been Economies with close regional ties must set their
reached, but given what the global T&T sector has strategic agendas jointly in order to define an aligned
achieved over the past two decades and what is current- approach to the successful development of an efficient
ly underway (for example, the Open Skies agreement and effective T&T system.That alignment can also help
TT.part1.r2 2/21/07 11:47 AM Page 42
Figure 14: Action steps toward unleashing the T&T sector’s potential
Achieve Strategic Target Master

commitment diagnostic definition plan
• Align government and • Baseline current • Align short-term and • Acquire public/
business needs T&T sector long-term goals private capital
• Agree on desired T&T • Benchmark to other • Identify investment • Attract expertise
strategy economies requirements (education & training)
• Allocate responsibilities • Define strategic options • Define regulatory and • Set-up implementation
industry targets
Stakeholder Strategic Performance

alignment direction goals
Source: Booz Allen Hamilton.
42 mitigate cross-border risks, such as the possibility of infrastructure, support services, and sector capabilities,
investing in ground infrastructure with overlapping and then identify the gaps. As they do so, they need to
catchment areas. (This risk was highlighted for the review their regulatory policies and evaluate the size of
Middle East in a Booz Allen Hamilton study, “Mastering the infrastructure investments required, as well as any
the Challenges of the Middle East Aviation System,” that additional budget needed for new services and education
was developed as a result of a 2006 World Economic of travel professionals.The resulting performance goals
Forum meeting in Sharm-el-Sheikh.) will set the stage for the subsequent master plan.
Strategic diagnostic. Developing a workable plan Master plan. The most critical prerequisite for an
requires a thorough understanding of the current state efficient T&T master plan is the liberalization of the
of a country’s and region’s T&T industry.This baseline transportation sector as well as of financial markets.
approach involves not only the evaluation of the sector’s Domestic as well as international air and ground travel
current competitiveness but also a gap analysis that should be opened to competition, including, ideally,
compares its own performance, on both the regulatory competition from other countries. Investors in the sector
and the business side, with comparable “best practice” should be able to own capital equipment, real estate, and
countries.The strategic assessment must include a sound the companies that provide travel services (if only in
analytical foundation, and the TTCI should serve as a the form of public-private partnerships). In considering
first indicator.The critical factors described in this study how state-owned infrastructure is to be shared, nondis-
must be carefully screened and, if appropriate, adapted to crimination clauses need to be enforced to ensure fair
the country’s specific social, economic, and regulatory and efficient competition between former incumbents
environment.The results of the baselining and bench- and new entrants into the market.
marking analysis can then set the overall strategic The master plan should focus on several major
direction that both private and public stakeholders will elements to enable the improvement of the T&T sector’s
pursue, and can serve as a solid basis for defining the competitiveness, including:
required operational targets going forward.
Target definition. Once all the stakeholders agree • accelerating the national deregulation plans of
on an overall strategic plan, the tradeoffs between major transportation markets, while taking into
short-term expenses and long-term benefits must be account spillover effects with neighboring regions;
clearly evaluated, and a target for a satisfactory return
• reducing subsidies and public investments by limiting
on investment determined.These targets need to be
them to critical areas where private investors are
translated into sound and realistic planning. Governments
not yet willing to take on the full business risk; and
must compare the targets with their plans for T&T
TT.part1.r2 2/21/07 11:47 AM Page 43

• improving safety and security, especially along major Hong Kong Tourism Board. 2005. Annual Report 2004/2005. Hong Kong
SAR: Hong Kong Tourism Board. Available at http://www.discover-
travel routes and business centers. hongkong.com/eng/worldwide/annu/report.04-05.jhtml (accessed
November 2006).
The master plan must also align T&T policies with a The Hindustan Times (India). 2006. “300,000 Chinese Tourists through
broader agenda of national economic growth, including Nathu La by 2011.” September 21.
a coherent roadmap for air and ground travel that builds OAG MAX Online (accessed September 2006).
on realistic projections of future traffic growth. And the SESAR Consortium. 2006. “Air Transport Framework: The Current
plan needs to include a comprehensive education and Situation.” Version 3.0, July 2006.
training agenda for the national T&T sector, which may Tang, F-F. Tang, Y. Xi, and G. Chen. 2006. “Ownership, Corporate
Governance, and Management in the State-Owned Hotels in the
involve turning to international service partners to help People’s Republic of China.” Cornell Hotel and Restaurant
kick-start the transformation. Administration Quarterly 47 (2): 182–91.
Creating a coherent long-term plan for the T&T Wang, Z. H. 2004. “Deregulation and Globalisation: Process, Effects
market and its needed capacities is essential. A plan and Future Challenges to Air Transport Markets.” Journal of
American Academy of Business 5 (1): 455 ff. September, 2004.
will strengthen the positive elements of national trans-
World Bank. 2005. World Development Indicators 2006. Washington,
formation programs, such as employment benefits and
DC: World Bank.
strengthened privatized national companies, and it
WTTC (World Travel & Tourism Council). 2006a. 2006 Tourism Satellite
will prevent potential overinvestment in misplaced Accounting, Country Reports. London: WTTC.
infrastructure.
———. 2006b: China, China Hong Kong SAR and China Macau SAR.
To succeed along those steps, governments must The Impact of Travel & Tourism on Jobs and the Economy.
define a clear vision and a commitment to engage all London: WTTC.
stakeholders in the process, and they must make a deter-

mined effort to work together hand-in-hand with the
private T&T sector.
References
AEA (Association of European Airlines). 2005. “STAR 2005.” Brussels: 43
AEA.
ATW (Air Transport World). 2006. World Airline Report 2006, July. Silver
Spring, MD: ATW.
Booz Allen Hamilton. 2005. “Aerodynamics in the European Airports

Sector: Realignment Needed due to Changes in Demand and
Cost Pressure.” Viewpoint published by Jürgen Ringbeck, Richard
Hauser, Markus Franke, and Edward Clayton.
Booz Allen Hamilton. 2006. Dubai: “Mastering the Challenges of the

Middle East Aviation System.” Viewpoint published by Jürgen
Ringbeck, Fadi Majdalani, and Ahmed Galal Ismail.
Business Day (South Africa). 2006. “Open Skies Would Boost Jobs,
Tourism.” October 19.
The Edge (Singapore). 2005. “40 and Beyond: Where the Economy
Should Go from Here.” August 8.
EIU (Economist Intelligence Unit). 2006. WorldData Online Database

(accessed November 2006). London.
Eurocontrol/STATFOR. 2006. “Low Cost Carrier Market Update.”

Brussels: Eurocontrol/STATFOR, May. Available at
http://www.eurocontrol.int/statfor/gallery/content/public/analy-
sis/195%20LowCostMarketUpdateMay06.pdf (accessed
November 2006).
European Commission, Directorate-General for Energy and Transport.

2006. “Air Transport Portal of the European Commission.”
Brussels: European Commission. Available at
http://ec.europa.eu/transport/air_portal/internal_market/index_en.ht
m (accessed November 2006).
European Low Fares Airline Association. 2004. “Liberalisation of

European Air Transport: The Benefits of Low Fares Airlines to
Consumers, Airports, Regions and the Environment.” Brussels:
ELFAA. Available at http://www.elfaa.com/documents/
ELFAABenefitsofLFAs2004.pdf (accessed November 2006).
Eurostat. 2003. “International Air Transport of Passengers 1993–2000.”

Statistics in Focus: Transport. Publish date March 22. Brussels:
Eurostat.
———. 2006. “Air Transport in Europe 2004.” Statistics in Focus:

Transport. Publish date January 26. Brussels: Eurostat.
TT.part1.r2 2/21/07 11:47 AM Page 44
TT.part1.r2 2/21/07 11:47 AM Page 45
1.3: Using Policy Measures and Economics to Improve Travel & Tourism
CHAPTER 1.3 The World Economic Forum is launching in this Report
the first Travel & Tourism Competitiveness Index (TTCI).
Using Policy Measures and

The objective of the present chapter is to analyze the
implications of the results of the TTCI from a policy-
Economics to Improve Travel & making perspective and to describe our initial thoughts
on how the index might be used by the industry to
Tourism-Related Policy and engage in an active dialogue with the public sector so
as to generate concrete actions in those economies of
Business Decision Making interest.
In order to set the stage for this dialogue, this paper
first provides a brief overview of the mission of the
RICHARD R. MILLER, Executive Vice President, World Travel &
World Travel & Tourism Council (WTTC) to raise
Tourism Council
awareness of Travel & Tourism’s contribution and the
economic research called Tourism Satellite Accounting that
it has produced for the past 16 years to assist policy and
business leaders in their decision-making processes.
It also describes WTTC’s efforts to create a policy
vision for Travel & Tourism (T&T), as well as the two
approaches—qualitative and quantitative—it has taken
to measure performance against this vision.
The paper then presents some of WTTC’s initial
thoughts about how the public sector of a country
should interpret and react to the TTCI’s results in order
to improve its country’s T&T competitiveness.
Finally, this paper presents an innovative analysis
of the results of the TTCI, which is designed to assist
business leaders to understand how countries’ TTCI 45
findings correlate to the basic question of risk versus
return. Our aim is to assist policy leaders to understand
how their countries are perceived in this regard and
thereby help them plan their strategy for decreasing risk
or increasing return, thus making investment in their
economy more attractive.
The World Travel & Tourism Council

When the World Travel & Tourism Council (WTTC)
was established in 1989, the founding members of this
private sector industry association decided that the
quantification of Travel & Tourism’s impact on world
and national economies would be the most important
contribution they could make toward their goal of raising
awareness among policy leaders and decision-makers of
the sector’s economic contribution and its potential for
creating wealth and employment around the world.The
subsequent 16 years of investment in solid, professional,
and credible research—which to date has exceeded
US$5.0 million and is now sponsored by Accenture, a
global management consulting, technology services and
outsourcing company—made a significant contribution
to the development of the new international standard
for Tourism Satellite Accounting (TSA) research,
adopted in 2001 by the United Nations Statistical
Commission.
TT.part1.r2 2/21/07 11:47 AM Page 46
Tourism Satellite Accounting • the interplay between a tangible, but unsatisfactory,

Over the years,WTTC and its research partner, supply-side perspective of employment generated
UK-based Oxford Economic Forecasting (OEF), have by characteristic activities and the more theoretical,
endeavored to create a pioneering system of Tourism but accurate, perspective of demand-side generated
Satellite Accounting research, which now covers 174 employment.
economies around the world. Using the most sophisticated
combination of macroeconomic research and forecasts, Full implementation of the a TSA can help industry
national accounting data and information, and T&T understand:
variables and econometric modeling,WTTC/OEF have
produced a comprehensive and universal system of • a wealth of customer and consumer information
research covering all concepts of T&T “demand”—from on tourism-related purchases (domestic and
personal consumption and business purchases to capital international, imported or exported goods, services,
investment, government spending, and exports.This durables or nondurables, and purchases made
information is then translated into economic concepts before, during, and after a trip) that has never
of production, such as gross domestic product (GDP) before been available;
and employment, which can be compared with those of
• the full tourism product service chain and
other industries and the economy as a whole to provide
government’s ability to deliver quality and timely
credible statistical information that will assist in policy
service to visitors;
making and business decision-making.
Over the past 16 years years,WTTC has endeavored • the history and forecast for public works that
to produce the most comprehensive TSA provided have benefited or will benefit visitors and travel
for within the UNWTO conceptual framework—by companies in order to capitalize on public sector
developing the narrow concept of the T&T industry in intentions and priorities for growth;
addition to the broader concept of the T&T economy—
and in so doing, has generated a number of benefits • the opportunities for domestic production and for
available to government and industry worldwide. negotiating incentives from the public sector to aid
46 Full implementation of a TSA can help governments in the growth of businesses, which help alleviate
understand: trade balance issues; and
• the critical dual-perspective employment

• the economic dynamics of tourism well beyond the
information that will allow industry to plan their
traditional scope of expenditure research and pro-
human resource requirements and develop new
duction by the travel service sector;
and innovative ways to attract, retain, and grow
• the relationship between tourism and the crucially their workforce.
important durables sector of the economy;
There is little doubt that WTTC’s Satellite
• the relationship between tourism and government Accounting Research program has made a major
spending, thus helping establish a clear link between contribution to ensuring that Travel & Tourism is today
tourism results and tourism support; increasingly considered an industry that fully justifies
mainstream economic and policy consideration. It has
• the balance of payments arising from the compre-
also enabled the industry to initiate a broader and more
hensive flow of tourism goods and services neces-
in-depth dialogue with government about how Travel &
sary to make tourism possible and, in the process,
Tourism can be used as an economic development tool.
discover hidden trade surpluses or deficits;
Tables 1 through 4 present data about the dramatic
• the relationship between tourism and capital invest- effect of Travel & Tourism on specific economies.
ment to assist in long-term planning for infrastruc-
ture, resort development, promotion, and so on;
• the difference between the immediate impact of

tourism industry GDP and employment and the
broader impact of tourism economy GDP and
employment, which can facilitate policy analysis
and decision-making; and
TT.part1.r2 2/21/07 11:47 AM Page 47
Table 1: Travel & Tourism demand (2006) WTTC’s Blueprint for New Tourism
From a global strategic perspective, the critical policy
Rank Economy US$ (millions)
issues concerning T&T growth are encapsulated in
1 United States 1,652,646.0
2 Japan 522,894.9
WTTC’s Blueprint for New Tourism, a contemporary and
3 Germany 412,607.5 historic call to action involving a coherent partnership
4 China 353,672.6 between all stakeholders—both public and private—to
5 France 336,535.4
strengthen industry efforts and turn future challenges
6 United Kingdom 328,298.6
7 Spain 251,972.5 into opportunities.
8 Italy 246,927.3 The Blueprint for New Tourism, which resulted from
9 Canada 189,082.4
WTTC’s Global Travel & Tourism Summit in the spring
10 Mexico 140,450.0
of 2002, is the latest version of the industry’s policy
Source: WTTC.
vision following WTTC’s Millennium Vision and its
Seven Strategic Priorities. It provides a new strategic
framework for ensuring that Travel & Tourism works for
all stakeholders in the future.
Table 2: Travel & Tourism industry GDP (2006)
In short, “New Tourism” is a new sense of coherent
Rank Economy Total GDP (%) partnership between the private sector and public
1 Macau 34.8 authorities. It is geared to delivering commercially
2 Maldives 34.2
successful products—but in a way that ensures benefits
3 Seychelles 29.2
4 Anguilla 25.3 for everyone. New Tourism looks beyond short-term
5 Antigua and Barbuda 24.3 considerations. It focuses on benefits not only for those
6 Aruba 23.0 who travel, but also for the local communities they
7 British Virgin Islands 22.9
8 Vanuatu 19.9
visit and for their respective natural, social, and cultural
9 Saint Lucia 18.7 environments.
10 Bahamas 16.8 New Tourism is also a new vision—of Travel &
Source: WTTC. Tourism as a partnership, delivering consistent results
that match the needs of economies, local and regional 47
authorities, and local communities with those of
business, based on:
Table 3: Travel & Tourism industry employment (2006)
Rank Country Jobs (thousands) 1. governments recognizing Travel & Tourism as a top
1 China 17,383.2 priority;
2 India 10,679.6
3 United States 5,834.3 2. business balancing economics with people, culture,
4 Japan 2,683.8 and environment; and
5 Indonesia 2,579.3
6 Brazil 2,336.7
3. a shared pursuit of long-term growth and prosperity.
7 Thailand 1,842.3
8 Mexico 1,566.0
9 Spain 1,472.8
10 France 1,392.3 Governments recognizing Travel & Tourism as a top priority
New Tourism depends on governments recognizing
Source: WTTC.
Travel & Tourism’s valuable flow-through effects for all
sectors of the economy and across the whole population
—and having the sense of leadership to act on that
Table 4: Travel & Tourism demand (2007–16) recognition. Leadership at the highest levels of govern-
ment should factor Travel & Tourism into all policies
Rank Economy Annualized real growth (%)
and decision-making; should coordinate all strategies
1 Montenegro 10.2
that have an impact on, or are impacted by,Travel &
2 China 8.7
3 India 8.0 Tourism; and should reorganize structures and funding
4 Romania 7.9 so as to ensure effective planning and management.The
5 Croatia 7.6
most effective policy responses are those that encompass
6 Vietnam 7.5
7 Latvia 7.3 key government responsibilities, such as coordinating
8 Maldives 7.2 infrastructure development and fostering competitiveness,
9 Albania 7.0 rather than focusing on short-term protectionism or
10 Cambodia 7.0
micro-intervention in market mechanisms.
Source: WTTC.
TT.part1.r2 2/21/07 11:47 AM Page 48
The benefits, which can be enjoyed by every of sustainable development and as a contributor to the
economy that adopts measures to help deliver on the dignity of the people and cultures it touches.
promise, include: Internally, the sector must adjust business planning,
product, and service quality, and adopt policies that
• long-term tourism planning at national and respect the interests of the people for and with whom
regional/local levels; it works. Externally, it must systematically embrace
opportunities to spread its benefits—from helping to
• the creation of a competitive business environment kick-start developing economies into conserving the
that avoids inflationary taxation, guarantees environment to transferring skills and promoting the
transparency, and offers more attractive corporate dignity of people in local communities.
ownership rules; Many of New Tourism’s key tasks for the private
• the assurance that quality statistics and information sector are very concrete.They comprise:
feed into policy and decision-making processes;
• expanding markets, while promoting and protecting
• the inclusion of new professionalism, funding, natural resources and local heritage and lifestyles;
and coordination in promotion and marketing,
employment and training needs, infrastructure, • developing careers, education, and employee
and regional and local policy; relations;
• the development of the human capital required for • promoting small firms;
T&T growth. Governments should lead investment
• raising the environmental awareness, and helping
in human resources—through education and by
to narrow the gap between the “haves” and the
bridging the gap between authorities and the
“have-nots”;
industry—to help plan ahead for future needs.
An online and easily accessible market monitoring • ensuring a range of tourism products that helps
network could link reliable tourism market diversify a country’s tourism product mix so as to
information with data on employment; reduce seasonality and increase yields;
48
• the liberalization of trade, transport, and • improving the quality of tourism products and
communications and the easing of barriers to services, and adding value for money while
travel and to investment; increasing consumer choice;
• the building of confidence for customers and • agreeing and implementing quality standards at all
investors on safety and security; levels and in all areas, including staff training;
• the promotion of product diversification that • transferring industry skills and best practice that
spreads demand; spread the benefits of Travel & Tourism widely
and efficiently;
• sustainable tourism expansion in keeping with
cultures and character; and • ensuring increasingly sophisticated and more
precise measurement of the sector’s own activity,
• investment in technological advances, such as
to feed into strategic business decisions; and
satellite navigation systems, to facilitate safe and
efficient T&T development. • communicating more effectively with the world
in which it operates—for example, including
This is the agenda that makes it possible to explore and energetic input from T&T umbrella organizations
support the opportunities in the broadest spectrum of to government, at strategic and local levels.
T&T businesses. It will not only develop product range
and quality, but also ensure that the patterns of tourism The cumulative effect will be a shift toward Travel &
flow respect the natural and built heritage as well as Tourism that continues to serve the private sector’s own
local interests. needs while embracing the wider interests of the coun-
tries and communities in which it operates.
Business balancing economics with people, culture, and
environment A shared pursuit of long-term growth and prosperity
New Tourism requires the T&T industry to achieve the New Tourism needs new joint strategies, using new
right balance between business imperatives and the mechanisms springing from new partnerships with pub-
wider needs of local communities in terms of quality lic authorities. Industry’s recognition of its broader
of life. Private sector growth can be deployed as a driver responsibilities has to be matched by that of govern-
ment, and both sides must be prepared to adopt a new
TT.part1.r2 2/21/07 11:47 AM Page 49
form of long-term thinking—and a new degree of economy’s performance against the vision of its Blueprint
openness and cooperation—to develop contingency for New Tourism.This is a time-consuming exercise that
planning as well as development strategies. Specific tasks involves months of desk research and numerous inter-
that can be successfully undertaken by the widest coop- views and focus group sessions with local industry
eration include: officials, business leaders, consultants, academics, experts,
and the media. Nevertheless, the analysis of what is
• allying best practice in tourism development with working and what is not working in each economy is a
policies on regional affairs, transport, human function of perspective and experience and, since no
resources, the environment, infrastructure, and rural two economies or analysts are exactly alike, it is
development; difficult—if not impossible—to provide a meaningful
comparative analysis of one economy’s policy situation
• promoting public-private sector partnership in versus another’s.
the joint preparation of sustainable master plans for
the development of entire destinations or holiday WTTC’s Competitiveness Monitor
regions—a task that is too demanding for a single It is because of the difficulty of providing a truly
company or state authority to undertake on comparative analysis that, in 2001,WTTC undertook a
its own; pioneering effort at the request of its former chairman,
• creating locally driven processes for continuous Harvey Golub (who is also past chairman and CEO of
stakeholder consultation, involvement and benefit; American Express) to develop a competitiveness index
similar in nature to that produced by the World
• restructuring national tourism organizations Economic Forum to rank global competitiveness.
(NTOs) as public-private sector partnerships; WTTC’s Competitiveness Monitor tracked a wide
range of information that indicated to what extent a
• averting the dangers of excessive, unplanned
country offers a competitive environment for T&T
development, and setting environmental policy
development. Produced for three years, the Monitor
goals that can realistically be met;
was researched and compiled in partnership with the
• developing human resources and the deploying Christel DeHaan Tourism and Travel Research Institute 49
skills through planning and legislation that avoids at the University of Nottingham.
limits based on residence or other requirements; The Monitor’s aim was to stimulate policy-makers,
industry investors, academics, and other interested
• collaborating on information requirements for parties to recognize the crucial role they play in
public sector analysis and policy formation; maximizing the contribution of Travel & Tourism for
• promoting joint efforts to improve security, with the benefit of all stakeholders, and to ensure that the
private sector mechanisms complemented by development of the industry is sustainable.
action from public authorities; and The Competitiveness Monitor offered an analytical
framework that:
• developing confidence among all stakeholders
that efforts are mutually reinforcing. • provided an ongoing record of policy indicators
and developments that have an impact on Travel &
New Tourism offers the prize of economic activity Tourism;
that enhances quality of life as well as new opportunities
for self-sufficiency and local prosperity.This prize can be • compared national performance statistics, policies,
won by all economies that rise to the challenge of inte- and agreements;
grating the needs of the T&T industry with national • indicated, when combined with TSA research, the
policies. effectiveness of national policies to attract foreign
direct investment and tourism expenditure in a
globally competitive market; and
Travel & Tourism policy assessment
In recent years, the assessment of an economy’s • highlighted the importance of long-term planning
performance vis-à-vis the strategic vision of WTTC’s and the need to factor Travel & Tourism into all
Blueprint for New Tourism, or even more specific T&T government policy developments and decisions.
policy objectives, has been limited to a qualitative
assessment conducted by experienced travel industry Like the new Travel & Tourism Competitiveness Index,
analysts. the WTTC Competitiveness Monitor was based on a set
In producing its well-known and highly sought of social and economic data that were available and
after Country Reports,WTTC has complemented the comparable across all countries.The data were compiled
TSA research with a detailed analysis of each country or using a series of indexes that comprise eight subindexes
TT.part1.r2 2/21/07 11:47 AM Page 50
calibrated to allow across-the-board comparisons in the government and industry to assess the potential for
follow groupings: Travel & Tourism throughout the world.The ultimate
purpose of this paper is to open the discussions on how
• Price: This subindex measured the relative cost of the new TTCI can be used both by governments—to
travel to the countries, using room rates, purchasing understand their policy positions and work to improve
power parity, and taxes on goods and services. their positioning in order to develop their T&T activities
and attract investment in the sector; and by industry—
• Human Tourism: This subindex measured the to prioritize their business activities, direct new
achievement of human development in terms of investments, and focus their necessary government
tourism activity. It was a new index in line with affairs’ efforts.
various kinds of human development indexes
constructed by the United Nations Development
Programme (UNDP) to measure human achieve- The Travel & Tourism Competitiveness index
ment in various aspects of human development. The TTCI, by its nature and design, is simple to under-
stand and to use. As a result, it is a beautiful tool that
• Infrastructure: This subindex measured the level
allows economies, and governments in particular, to
of infrastructure development such as road
understand how their tourism performance is perceived.
infrastructure, sanitation facilities, and access to
improved drinking water.
Simple is beautiful
• Environment: This subindex measured population Although it will be extremely tempting for each country
density, CO2 emissions, and the ratification of or economy to review the Index and immediately claim
environmental treaties. success or failure based on where they fall within the
rankings, this would be premature and might, in fact, be
• Technology: This subindex measured telephone and a matter of jumping to an unwarranted conclusion.
Internet access, high-technology exports, and the Instead, the more appropriate measure will be how each
use of mobile phones. economy, regardless of its ranking, moves forward over
50 • Human Resources: This subindex measured life time. Of course, for those economies that are ranked
expectancy, adult literacy, and combined lower on the list, competitive pressures will create
primary/secondary/tertiary enrollment rates. conditions that encourage them to move higher up the
list. But, in reality, it is not the ranking that counts.
• Openness: This subindex measured a country’s What matters is how the actual score improves—or
openness toward international trade and visitors not—over time.
through visa requirements,TSA import/export The most obvious example to illustrate this
results, and taxes on international trade. erroneous notion is the rare situation in which each
country improves its score by exactly the same amount
• Social: This subindex measured the level of a
from one time period to another. In this case, the policy
country’s human development through access to
situation for Travel & Tourism will improve for each
daily newspapers, personal computers, and
country and for the industry worldwide but, at the same
television, as well as overall crime.
time, the ranking for all countries will stay the same.
Thus, any focus on ranking alone would be very unwise.
The WTTC Monitor used a “traffic light” system
to indicate relative positions rather than the absolute
Quantitative vs. qualitative
performance of different countries. Green, amber, and
It will also be tempting for countries to raise their
red lights indicated above-average, average, and below-
scores and/or rankings by specifically targeting those
average performance respectively.
quantitative elements of the Index that can easily be
After three years of development and production,
affected by narrow or specifically focused public policy
the WTTC Competitiveness Monitor, although well
changes, adjustments to regulation, and increased spend-
received and used by the international community, was
ing or investment. Again, although this approach would
thought to be limited by lack of access to specific policy
seem to be natural and appropriate—after all, the Index
implementation/success measures. As a result, following
does include a number of very specific quantifiable
discussions with the World Economic Forum, it was
performance measurement items—such an approach
decided that joining efforts and working with a more
merely scratches the surface of what the Index covers.
established policy monitoring organization, which has
This is because the qualitative aspects as measured by
access to even greater policy metrics and a broader
the Forum’s Executive Opinion Survey are perhaps even
executive network, would be beneficial to the Monitor.
more important, and these do not lend themselves to
Thus,WTTC has now joined forces with the Forum to
direct targeting by a specific activity.
collaborate on, and contribute to, this new TTCI.This
new Index should make great strides toward allowing
TT.part1.r2 2/21/07 11:47 AM Page 51
Therefore, in order realistically to affect the score • based on the existing situation, what the risk/return
and/or ranking of the TTCI, countries will be obliged tradeoff is—both for the specific organization and
to tackle the areas of assessment from a full policy per- industry in general; and
spective. As an example, in order to increase the quality
• whether it is necessary to develop an exit strategy if
of road infrastructure, countries will need not only to
the risk/return tradeoff is insufficient or there are
address roadway hardware, but also the administration of
no plans and efforts by the public sector to address
roadway construction, safety and security, and maintenance.
the challenges/weaknesses, or if these plans and
Without a 360-degree perspective, the qualitative
efforts are unsuccessful.
assessment will not enjoy the full benefits that a limited
policy approach or activity targeting would provide.
In order to understand and clearly define the
Reality vs. perception
risk/return tradeoff,WTTC has created an additional
Some countries may, nevertheless, still believe, in some and innovative analysis by combining the TTCI with
circumstances, that the Index is not reporting the reality the TSA outlook for growth.To undertake this analysis,
of a situation—that is, that it is a matter of perception we have used the concept of the Growth-Share Matrix
rather than reality, and that a publicity campaign—not developed by the Boston Consulting Group (BCG).
a change of policy—is all that is needed. Although this This matrix has been used by businesses around the
situation is indeed conceivable, it is our strong belief world to assess their business units or product lines, and
that countries facing this situation should focus on clear to best allocate their resources. However, instead of
communication of facts rather than waging a publicity using relative market share as the x-axis variable,WTTC
campaign to win hearts and minds. Clearly articulated has used the new TTCI to help construct a growth-policy
facts that discuss and explain the current state of affairs risk matrix, which can be used by businesses to assess
in any one of the Index’s areas of coverage will have the allocation of their resources on an international basis.
much greater impact on, and contribute much more In translating the BCG matrix to a growth-policy
significantly to, changing perceptions than well-crafted risk matrix, it is still possible to classify the results in a
publicity campaigns would have. similar manner (Cash Cows, Dogs, Question Marks,
Stars—see Figure 1).The following language has been
Furthermore, the simple exercise of articulating the 51
facts may even help the country to understand why and taken from www.wikipedia.org and the terminology has
how a false perception has developed, and to establish a been adjusted to suit this new matrix.
mechanism to correct or prevent the false perception Cash Cows are countries with a high TTCI score—
from re-occurring in the future. that is, a low policy risk—and a slow-growing T&T
economy. Companies or enterprises in these countries
Industry and the TTCI typically generate a return in excess of the amount of
Like most government reaction, industry reaction to the risk incurred by operating in this country.The T&T
TTCI is likely to start with a review and an examination economy in these countries is regarded as staid and bor-
of the individual and aggregate rankings for those ing—that is, it is a “mature”T&T economy—and every
countries in which the company or enterprise is company and enterprise would be thrilled to operate in
currently operating. For organizations with businesses in as many Cash Cow countries as possible. Enterprises in
countries with lower scores and ranks, business leaders these countries can be “milked” continuously with as
will clearly want to know: little investment as possible, since such investment would
be wasted in a country with low growth. Countries that
find themselves in this group should be satisfied with
• if the score/ranking is valid, consistent with internal
their policy situation but unsatisfied with their outlook
management understanding and/or perceptions, and
for growth, and should focus their attention on incen-
whether this score/ranking has been taken into
tives that will encourage investment. Cash Cow coun-
consideration by the business in terms of its strategy
tries should aspire to be Stars.
and/or operations;
Dogs are countries with low TTCI scores—that is,
• whether there are plans by the government, now or high policy risk—and a mature, slow-growing T&T
in the near future, to address the weaknesses or economy.T&T enterprises in these countries typically
challenges identified by the score/ranking; break even, although they generate barely enough
return to maintain the risk/return ratio. Although oper-
• what, if anything, the individual business or industry ating in a break-even country provides the social benefit
in aggregate must do to assist or encourage the of providing jobs and possible synergies that assist enter-
public sector to take action to address the weak- prises in other countries, such an enterprise is worthless
ness/challenges; from the point of view of risk, as it does not generate
sufficient return for the company. Operations in these
countries depress a profitable company’s return-on-assets
TT.part1.r2 2/21/07 11:47 AM Page 52
Figure 1: Travel & Tourism growth-policy risk matrix
Fast
Question Marks Stars

WTTC growth forecast
Dogs Cash Cows
Slow
Low score High score
(high policy risk) (low policy risk)
52 ratio, used by many investors to judge how well a com- become the next Cash Cows. Sustaining the country’s
pany is being managed. Enterprises in a Dog country, it policy leadership may require extra attention, but this is
is thought, should be sold off. Countries that find them- worthwhile if that is what it takes for the country to
selves in this group should be worried about both their remain a leader.When growth slows, Stars become Cash
policy situation and their outlook for growth; in most Cows if they have been able to maintain their policy
cases, they will find that it is the poor policy situation leadership, or they move from brief “Stardom” to
that is causing the poor growth situation. Countries in “Dogdom.” For countries in this group, the challenge is
this group should prioritize their work by focusing on to maintain their high level of growth.This requires sig-
those policy issues with the greatest return on invest- nificant attention to the details and to working with the
ment—that is, they should start with those issues for private sector to understand their needs, and then to
which small or quick fixes will result in large or fast translate this information into policy initiatives that will
returns. Dog countries should aspire to be Question keep them ahead of the curve.
Marks or Cash Cows. In attempting to take this analogy to its logical con-
Question Marks, aka problem children, are countries clusion and avoid some of the criticisms that can be
with low TTCI scores (thus a high policy risk) in a fast- applied to the original BCG matrix, it should be noted
growing T&T economy. Such countries require large that the intention in using this matrix is not to suggest
amounts of investment and policy attention to better that enterprises need to have a balance of businesses
their TTCI scores (that is, to decrease their policy risk). across all four quadrants. Rather, as stated in Wikipedia:
The national goal must be to decrease the policy risk to
become a Star. Otherwise, when the country matures The reality is that it is only the Cash Cows that are
and growth slows, the country will fall down into the really important [for the private sector]—all the other
Dog category. Like Dogs, the countries in this group elements are supporting actors. It is a foolish vendor
run the risk of losing T&T enterprises to countries in [or, in our case, enterprise] who diverts funds from a
Cash Cow when these are needed to extend the life
which the policy risk is lower, so efforts should be made
of that “product” [or activity]. Although it is neces-
by the public sector to reduce the risk in a return-on
sary to recognize a Dog [country] when it appears (at
investment approach similar to the one described in the
least before it bites you), it would be foolish in the
Dogs’ category. Question Mark countries should aspire extreme to create one [or operate in one] in order to
to be Stars. balance up the picture. The vendor [or enterprise],
Stars are countries with a high TTCI score (low who has most of his (or her) products in the Cash
policy risk) in a fast-growing T&T economy.The Cow quadrant, should consider himself (or herself)
hope—from an enterprise perspective—is that Stars fortunate indeed, and an excellent marketer [or
TT.part1.r2 2/21/07 11:47 AM Page 53
Figure 2: Travel & Tourism growth-competitiveness matrix
8.66
Travel & Tourism industry 10-year annualized growth
4.33
0.00
0.0 4.24 7.0
Source: World Economic Forum and WTTC.
business operator], although he or she might also matrix will provide an intuitive and interesting method 53
consider creating [operating in] a few Stars as an for putting them into perspective. It will also allow the
insurance policy against unexpected future develop- industry to begin addressing how it wishes to proceed
ments and, perhaps, to add some extra growth. in terms of current operations and possible future
investment, while allowing the countries to begin
From an enterprise perspective, this analysis is all figuring out what they want their futures to look like.
about balancing risk and return. If the return is high Figure 2 and Tables 5, 6, 7, and 8 illustrate the T&T
enough, operating in a risky policy environment is growth-policy risk matrix described above and lists
acceptable. On the other hand, if the return is not high those countries or economies that fall into each of the
enough, the enterprise will at some point seek out other four quadrants. It should be noted that the delineation
opportunities. between low growth/high growth and low score/high
From a country perspective, it is not really about score in the TTCI has been illustrated using median
risk and return because it is not possible to diversify or values for each. Because there is no hard-and-fast rule
move its place of operation the way it is in the private about where to draw the line, caution should be
sector. Instead, countries have only one place of opera- exercised when categorizing these results.The tables
tion in the matrix; their ultimate objective is to achieve show the data of only those economies for which both
the highest return on their investment. Investment in TTCI data and growth data are available. A handful of
this context is not monetary, but rather a matter of poli- economies covered in the TTCI are therefore not
cy. Normally, Dogs aspire to be Questions Marks or shown.
Cash Cows. Cash Cows aspire to be Stars. Question Based on this analysis, the economies covered by
Marks aspire to be Stars, and Stars aspire to stay Stars. research of both the Forum and WTTC can be catego-
For some countries, it is simply not possible to achieve a rized as Stars, Question Marks, Cash Cows, and Dogs
high level of T&T growth because the macroeconomy is (see Tables 5, 6, 7, and 8, respectively).
already mature and developed, so Cash Cow is the best
they can do. However, for developing countries that still
have the possibility of high rates of growth, achieving
Star status is still the ultimate objective.
Although we expect there will be a number of
different ways in which the industry will assess the
results of the TTCI and try to use them for their own
strategy or planning purposes, this growth-policy risk
TT.part1.r2 2/21/07 11:47 AM Page 54
Table 5: Stars in the Travel & Tourism growth-policy Table 7: Cash Cows in the Travel & Tourism
risk matrix growth-policy risk matrix
WTTC T&T projected WTTC T&T projected
economic growth economic growth
Country/economy TTCI score (2007–16, annualized) Country/economy TTCI score (2007–16, annualized)
Bahrain 4.45 4.90 Australia 5.21 3.13

Barbados 4.86 4.65 Austria 5.54 1.93
Costa Rica 4.60 4.83 Belgium 5.07 2.82
Croatia 4.66 8.33 Bulgaria 4.31 3.95
Cyprus 5.07 4.39 Canada 5.31 3.32
Czech Republic 4.75 5.16 Chile 4.58 3.50
Egypt 4.24 5.66 Denmark 5.27 1.35
Estonia 4.90 6.96 Dominican Republic 4.35 4.14
Hong Kong SAR 5.33 6.88 Finland 5.16 2.81
Hungary 4.61 4.94 France 5.23 3.38
Israel 4.80 4.33 Germany 5.48 2.77
Korea, Rep. 4.58 4.97 Greece 4.99 3.68
Lithuania 4.34 6.89 Iceland 5.45 2.09
Luxembourg 5.31 5.03 Ireland 4.93 3.81
Malaysia 4.80 5.92 Italy 4.78 1.70
Malta 4.96 4.38 Jamaica 4.41 3.91
Mauritius 4.63 4.47 Japan 4.99 2.40
Mexico 4.38 5.04 Jordan 4.52 3.89
Morocco 4.27 4.73 Netherlands 5.08 2.09
Singapore 5.31 5.45 New Zealand 5.20 3.04
Slovak Republic 4.68 5.04 Norway 5.04 3.05
Spain 5.18 4.70 Panama 4.28 4.11
Thailand 4.58 5.15 Portugal 5.05 3.83
Tunisia 4.76 4.40 Qatar 4.71 3.41
United Arab Emirates 5.09 5.22 Slovenia 4.58 4.05
Sweden 5.13 3.07
Switzerland 5.66 2.07
Taiwan, China 4.82 4.28
Turkey 4.32 3.82
54 United Kingdom 5.28 2.42
United States 5.43 2.91
Table 6: Question Marks in the Travel & Tourism
Uruguay 4.28 3.95
growth-policy risk matrix
WTTC T&T projected Source: World Economic Forum and WTTC.
economic growth
Country/economy TTCI score (2007–16, annualized)
Albania 3.75 7.40

Algeria 3.67 4.94
Bangladesh 3.21 5.34 Table 8: Dogs in the Travel & Tourism growth-policy
Benin 3.28 5.31
risk matrix
Bosnia and Herzegovina 3.51 6.22 WTTC T&T projected
Botswana 3.99 4.85 economic growth
Country/economy TTCI score (2007–16, annualized)
Burkina Faso 3.41 4.99
Burundi 2.88 4.59 Angola 2.89 2.23
Cambodia 3.64 7.15 Argentina 4.18 3.31
Cameroon 3.25 4.73 Bolivia 3.46 4.21
Chad 2.68 6.43 Brazil 4.20 3.82
China 3.97 8.45 Colombia 3.96 4.27
Ethiopia 3.26 4.83 Ecuador 3.64 3.68
India 4.14 6.58 El Salvador 3.90 2.81
Indonesia 4.20 4.63 Gambia 3.81 3.81
Macedonia, FYR 3.81 5.28 Guatemala 4.00 4.12
Namibia 3.95 7.91 Guyana 3.56 3.09
Nepal 3.49 5.10 Honduras 3.78 3.53
Nicaragua 3.76 4.85 Kenya 3.62 3.77
Pakistan 3.52 4.41 Kuwait 4.08 3.73
Philippines 3.79 5.11 Lesotho 3.12 2.88
Poland 4.18 4.33 Madagascar 3.44 3.44
Romania 3.91 6.68 Malawi 3.31 3.80
Russian Federation 4.03 6.36 Mali 3.50 4.02
Serbia and Montenegro 4.18 5.32 Nigeria 3.30 4.24
South Africa 4.18 4.68 Paraguay 3.44 3.43
Sri Lanka 3.89 5.52 Peru 3.86 4.20
Tanzania 3.86 4.51 Suriname 3.47 3.71
Trinidad and Tobago 3.79 4.85 Venezuela 3.62 3.18
Uganda 3.56 4.70 Zambia 3.66 2.19
Ukraine 3.89 4.51 Zimbabwe 3.48 1.87
Vietnam 3.78 7.05
TT.part1.r2 2/21/07 11:47 AM Page 55
1.4: Tourism Competitiveness and the Development Agenda

CHAPTER 1.4 The World Economic Forum’s Travel & Tourism
Competitiveness Index (TTCI) adds a new dimension
Tourism Competitiveness and

to the increasing awareness of the importance of the
Travel & Tourism (T&T) sector in global and national
the Development Agenda socioeconomic activity.1

As a partner in the project and as the UN agency
responsible for the sustainable development of the sector
GEOFFREY LIPMAN, Assistant Secretary General, UN World and its contribution to the UN Millennium Development
Tourism Organization Goals (MDGs), the United Nations World Tourism
JOHN KESTER, Chief of Market Intelligence & Promotion, Organization (UNWTO) wants to reflect on the outputs
UN World Tourism Organization of the TTCI in the following two key respects:
• fundamentals of tourism competition and

development, and
• enhancing competitiveness for the poorest
countries.
The UNWTO’s key conclusions are as follows.
• Showing the full economic impact of the sector

in the Index will enhance Travel & Tourism’s
relevance for policymakers.
• The Index makes clear that, although industrialized

states currently dominate, poorer countries have
a massive potential to be the leading force in
international tourism.
55
• There should be widespread adoption of the UN
Tourism Satellite Account (UNTSA), the recog-
nized tool for measuring the impact of tourism and
travel–related activity in a national economy.
• Tourism should be mainstreamed for development.
• Tourism services should be reinvigorated in the

World Trade Organization’s Doha Development
Round.
Tourism competition and development

Today, no one disputes the importance of competitive-
ness, of the need for progressive global cohesion of the
conditions of competition, of level playing fields, of
minimum regulation, or of public-private partnerships
for delivery of results. Nor is there much argument over
the fact that competition has well-demonstrated positive
and negative effects. On one hand it opens markets,
keeps prices down, and broadens product offerings. On
the other hand, without ancillary regulatory measures, it
can also breed monopoly, unfair business conditions, and
market exclusion or concentration which in turn can
lead to social inequality and significant potential for
conflict.
It is also increasingly recognized, however, that
competition is a means to an end rather than an end in
itself. As such, it must ultimately contribute to the kind
of socioeconomic goals sought in the Millennium
Declaration.These goals include not only quantifiable
TT.part1.r2 2/21/07 11:47 AM Page 56
Figure 1: International tourist arrivals (1950–2020)
Actual Forecast
1,600
1.6 billion
1,400
Middle East
1,200 Africa
1 billion
Asia/Pacific
Travelers (millions)
1,000
Americas 806 million
800 Europe
600
400
200
0
1950 1960 1970 1980 1990 2000 2010 2020
Source: UNWTO.
56 information such as creation of wealth, jobs, trade, and Against this background we believe the TTCI can
investment; they also include less quantifiable matters be important in a number of ways.
such as sharing benefits, encouraging entrepreneurs,
empowering women, and preservating natural and cul- Showing the full economic impact of the sector in the Index
tural heritage as well as regenerating urban and rural will enhance Travel & Tourism’s relevance for policymakers.
communities.Together these features help to build The Index, in looking for competitiveness in the sector,
peace, understanding and a fairer society. rightly shows Travel & Tourism in terms of both consumer
There is also growing recognition among the devel- demand and matching supply from the diverse cluster of
opment community of the scale, scope, and impact of industries that provide services to travelers.
the demand for tourism—business and leisure travel— Historically, the internationally accepted System of
and of its spread from industrialized to developing mar- National Accounts has not identified tourism consump-
kets, and the impact of its effect on the infrastructure tion separately; its components have been reflected
and environment by the complex of industries who col- individually in areas such as transport, accommodation,
laborate to provide travel services to meet that demand. restaurants, and so on.
From 1950 to 2005, international tourism arrivals As the T&T sector has grown in importance in the
expanded at an annual rate of 6.5 percent, growing from past two decades, and with the realization that it has cat-
25 million to 806 million travelers.The income generated alytic effects in related sectors, the UNWTO has led an
by these arrivals grew at an even stronger rate, reaching initiative to measure its impact in national accountings.
11 percent during the same period, outgrowing the This initiative has resulted in the Tourism Satellite
world economy.Today, the business volume of tourism Account (UNTSA), supported by public sector bodies
surpasses that of many major export categories such as such as the Organisation for Economic Co-operation
food products or textiles.Tourism has become one of and Development (OECD) and private groups such as
the major players in international commerce, and repre- the World Travel & Tourism Council (WTTC); it has
sents at the same time one of the main income sources also been formally accepted by the UN Statistical
for many developing countries (see Figure 1). System in relation to National Accounting. It is gradually
This growth goes hand in hand with an increasing being applied by the International Monetary Fund
diversification and competition among destinations. In (IMF) in relation to the balance of payments and by
1950 the top 15 destinations absorbed 97 percent of the International Labour Organization (ILO) in regard
international arrivals; in 1980 the share was 70 percent, to employment, as well by an increasing number of
and it decreased to 58 percent in 2005 (see Table 1). countries around the world.
TT.part1.r2 2/21/07 11:47 AM Page 57

Table 1: World’s top 10 tourism destinations by international tourist arrivals
World World World
Rank 1950 share (%) 1980 share (%) 2005 share (%)
1 United States 71 France 40 France 33

2 Canada United States Spain
3 Italy Spain United States
4 France Itally China
5 Switzerland Austria Italy
6 Ireland 17 Mexico 20 United Kingdom 14

7 Austria Canada Mexico
8 Spain United Kingdom Germany
9 Germany Germany Turkey
10 United Kingdom Belgium Austria
11 Norway 9 Switzerland 10 Russian Federation 11

12 Argentina Yugoslav SFR Canada
13 Mexico Poland Malaysia
14 Netherlands Former Czechoslavakia Ukraine
15 Denmark Greece Poland
Others 3 Others 30 Others 42
TOTAL 25 million 278 million 806 million
Source: UNWTO.
The macroeconomic indicators give an approxima- from global tourism expansion are from the industrialized 57
tion of UNTSA results and hence an indication of the world. Some of the high performance, however, may be
substantial scale of the economic impact of the industry. due to the nature of the survey data currently used.The
Specifics, however, should be treated with some caution, population base of respondents, for example, will have a
particularly with GDP and employment derivations greater business travel focus than the population as a
in the indirect areas of demand. As the UNTSA is whole, and thus may well not accurately reflect percep-
increasingly applied at the country level, this weakness tions of destinations that are more leisure oriented—
can be rectified. such as small island states in the Caribbean and Pacific.
At a microeconomic level, the effect of the T&T This can be rectified easily over time.
industry could be even more significant.This is because In a similar way the TTCI might show general
of the extensive role of tourism demand in stimulating competitiveness criteria—such as the ICT base or infra-
directly related economic sectors such as transport and structure base of the economy—but fail to show some
accommodation, as well as indirectly related sectors such key tourism-related deficiencies, such as border com-
as food, manufacturing, construction, and maintenance. plexity or the position on tourism facility investment or
airline ownership.We expect to see these elements more
The TTCI makes clear the great competitive advantages specifically covered in future iterations and plan to
that industrialized states currently enjoy in this sector. provide input in these areas.
It is clear from the absolute values and rankings that the It is also important to note here the difference
industrialized states overwhelmingly lead in the World between domestic and international impacts of Travel &
Economic Forum’s competitiveness stakes. However, Tourism.The former is currently more significant for
this is foremost the reflection of the comparatively long the industrialized markets—particularly in the European
tradition those economies have in tourism development Union and the United States, where domestic traffic
(that is, the countries that were among the first 15 volumes can be five to ten times greater than interna-
destinations in 1950 top the competitiveness ranking). tional volumes, where competition regimes that create a
Overall, they are losing share in the global market, and level playing field are in place, and where the reduction
recent developments for most have been far from of barriers to travel can be unilaterally determined.
dynamic.
It is equally clear that in many respects these same The TTCI shows that poorer countries have a massive
states have the better ability to compete because of their potential to be competitive in international tourism.
sheer size, capital, tourist volumes, and infrastructure. Some developing countries—such as Brazil, China,
Moreover, most of the private sector companies benefiting India, and South Africa—do have significant domestic
TT.part1.r2 2/21/07 11:47 AM Page 58
Figure 2: International tourism (2005)
International tourist arrivals (ITA) International tourism receipts (ITR)

806 million US$680 billion
Europe
ITA: 442 million (55%)
ITR: US$348 billion (51%)
Asia/Pacific
Americas ITR: US$139 billion (20%)
ITA: 134 million (17%) Middle East
ITR: US$145 billion (21%) ITA: 39 million (5%)
Africa
Source: UNWTO.
58 traffic. If the regional markets of Northeast Asia, South The world’s poorest countries have some real
Asia, Southern African Development and Economic comparative advantages in regard to tourism exports,
Co-operation (SADEC) and Mercosur are taken into which include:
account, there is a broader quasi domestic base. In
general terms, however, the poorer countries have yet • exceptional product potential based on nature,
to develop effectively their domestic tourism activity. culture, and heritage;
At the international level it is a different story. • their presence in the mainstream of evolving market
The starting point here is to consider the international need;
arrivals and revenue index published annually by • relatively unspoiled environments with a major
UNWTO and featured in the country profiles of section ecotourism focus;
2.1 of this Report. It is the case that the industrialized • favorable trade balance because of their low
countries still dominate rankings, but some emerging outbound traffic; and
and developing countries are performing very well in • abundant labor with a low cost base.
this area. In fact, China and India have emerged in
recent years as strong performers, along with Thailand, Their disadvantages, which are well documented,
Turkey, Egypt, South Africa, Kenya, Central American include low skill levels, inadequate capital base, poor
destinations, and lately the Mekong countries Laos, infrastructure—both physical and digital—poor transport
Cambodia, and Vietnam. See Appendix A for an overview services, related import leakages, and so on.
of basic indicators of destinations and their growth rate Despite their weakness in absolute terms, many of
in the past decade. these poorest economies have been advancing significantly
International tourism revenues are a services in relative terms:
export. International tourism represents one third of all
trade in services, and it is the services sector that will • Between 1990 and 2005, developing economies’
provide the economic growth and jobs in the decades market share of international arrivals grew from
ahead. It is here that the real returns and potential can 28.6 percent to 40.3 percent (see Table 2 and
be seen for the poorer countries (see Figure 2). Figure 3).
• For small island economies with largely interna-

tional service, the UNWTO estimates that up to
40 percent of their GDP and jobs can be generated
by Travel & Tourism.
TT.part1.r2 2/21/07 11:47 AM Page 59

Table 2: International tourist arrivals
Million arrivals Market share (%) Average annual growth (%)
1990 2000 2005 1990 2000 2005 1990–2000 2000–05
World 439 689 808 100 100 100 4.6 3.3

Developing economies 126 243 326 28.6 35.2 40.3 6.8 6.1
50 Least Developed Countries (LDCs) 2.9 6.4 9.5 0.7 0.9 1.2 8.4 8.2
Other low- and low-middle-income economies* 46.7 111.4 163.5 10.6 16.2 20.2 9.1 8.0
Upper-middle-income economies* 76.0 124.7 152.7 17.3 18.1 18.9 5.1 4.1
High-income economies 313.4 446.2 482.6 71.4 64.8 59.7 3.6 1.6
Source: UNWTO; data as collected by UNWTO September 2006.

* According to the World Bank classification (July 2006).
Table 3: International tourism receipts (current prices)

US$ billion Market share (%) Average annual growth (%)
1990 2000 2005 1990 2000 2005 1990–2000 2000–05
World 273 483 682 100 100 100 5.9 7.1

Developing economies 50 126 205 18.1 26.1 30.1 9.8 10.2
50 Least Developed Countries (LDCs) 1.1 3.0 5.3 0.4 0.6 0.8 10.5 12.0
Other low- and low-middle-income economies* 22.7 63.0 102.1 8.3 13.0 15.0 10.7 10.2
Upper-middle-income economies* 25.8 60.1 97.5 9.4 12.5 14.3 8.8 10.1
High-income economies 223.8 356.8 476.6 81.9 73.9 69.9 4.8 6.0
Source: UNWTO, data as collected by UNWTO September 2006.

* According to the World Bank classification (July 2006).
• For LDCs—the 50 poorest countries, most of serve as a tool to support the global development agenda. 59
which are in Africa—the rate of growth in arrivals The Index shows:
from 2000 to 2005 was 48 percent, almost three
times the global growth rate. • the overriding T&T competitive dominance of
industrialized states,
• During the same period, LDC international tourism
• the opportunities for developing economies in this
receipts grew by 76 percent, compared with a
area, and
worldwide growth of 41 percent (see Table 3).
• the high value of increased T&T services for
• In 2006 the growth rate for international arrivals to developing economies.
Africa is forecast at 10.6 percent, compared with a
global growth forecast of 4.6 percent. There are three main initiatives we believe should be
pursued in this context.
It is not only the export income that is important for
developing countries, it is also the flow through in terms Widespread adoption of the UN Tourism Satellite Account
of jobs, infrastructure, education and training, and health (UNTSA)
standards as well as the synergistic boost in related sectors The Index gives an indication of the value of T&T
that a vibrant T&T industry can provide. In addition services in terms of macroeconomic indicators, of
Travel & Tourism, if effectively managed, can play an consumption, and of the impacts in the T&T supply
important role in promoting sustainable development— side and across related sectors. However, it is only with
both in providing leadership through ecotourism and as routine provision of T&T data in coherence with
a vehicle for preserving natural and cultural heritage.2 It national accounts that governments will have the infor-
can support local companies, encourage entrepreneurship mation needed to frame pro-development policies with
through stimulation of small and medium enterprises, confidence.
and help rural regeneration. The UNTSA provides both the measurement and
the confidence because of its incorporation into the
1993 System of National Accounts and the rigor of its
Enhancing competitiveness for the poorest economies application. However, the parallel challenge of application
Against this background, the UNWTO contends that is the requirement of capacity inside national statistical
the primary consideration of the TTCI should be to offices and departments of economy and trade to ensure
interface with traditional systems.This is a considerable
undertaking even for industrialized states—and hence
TT.part1.r2 2/21/07 11:47 AM Page 60
Figure 3. Average annual growth in international tourist arrivals, selected country groupings (1990–2005)
10
6
Percent
0
World 50 LDCs Lower-middle- Upper-middle- High-income
income economies income economies economies
Source: UNWTO.
Note: Country groupings are according to the UNWTO. Emerging and LDC markets accounted for over 320 million international arrivals and US$200 billion revenue
in 2005, and grew at almost twice the rates of the industrialized markets. Virtually all LDC states are tourism exporters.
60 much more demanding for poor ones. A number of for economic diversification, a wide spread of benefits
states nevertheless have embarked on the process with to communities, a creation of jobs, and long-term
support from UNWTO.The system is slowly spreading sustainability that no other sector can provide.
around the world.3 Analysis shows the strong linkage of Travel &
What is needed is increased public- and private- Tourism to other sectors such as agriculture, infrastructure,
sector support to accelerate the implementation process education, and construction to competition regulation,
in the world’s poorest countries so that the development environment standards, foreign exchange, and employment
institutions—particularly the World Bank—can have the as well as to education, capacity building, and the like.
relevant information to deal with Travel & Tourism as a The UNWTO has developed a number of programs
strategic priority sector. to help states generally use Travel & Tourism in their
development projects, with a special focus on Africa.
Mainstreaming tourism for development They have created a dedicated program—ST-EP—to
There are two interrelated actions required to make a link Sustainable Tourism and Elimination of Poverty in a
significant difference in enhancing the competitiveness disciplined way and to tap global funding for identified
of the poorest countries: tourism activities, focusing on community-based actions.
In 2007, with the governments of Canada and the
• Developing states must highlight Travel & Tourism province of Quebec, they will add a dedicated Centre of
in their national Poverty Reduction Strategy Excellence to improve the competitiveness and quality
Papers (PRSP). performance of tourism destinations.
• Development financing institutions—the World Re-invigorating tourism services in the Doha Development
Bank Group, the regional development banks, and Round
bilateral aid agencies must recognize the impact of Action that can enhance the competitiveness of
Travel & Tourism in their support strategies. developing states on a comprehensive basis could most
effectively be taken within the framework of the World
The fact that Travel & Tourism is the major services Trade Organization—both in the final stages of the
export for so many developing countries and has the Doha Development Round and in the continuing work
potential to provide a genuine competitive advantage for of the organization in subsequent rounds.
all poor countries is a pivotal issue. Even in those coun- While tourism services are under discussion in the
tries with significant exports such as oil or commodities, Doha Round—and indeed more commitments have
it is clear that Travel & Tourism offers an opportunity been made in this area than in any other sector—the
TT.part1.r2 2/21/07 11:47 AM Page 61

fact is that this is so far a relatively routine process that Notes
fails to grasp the full development potential of the sector. 1 This kind of index presentation is a work in progress—it is a broad-
brush measure defined by its inputs. It is also complementary to
other sectoral indexes, and in some cases encompasses them.
• The process fails so far to cover T&T services Here, the outputs reflect general World Economic Forum busi-
ness information as provided by the Executive Opinion Survey,
cohesively as defined in the UNTSA, because
amplified by sector-specific questions and data sources. These
negotiations are based on historical tourism clusters. sources include UNWTO data on hotel rooms per capita. Further,
It does not incorporate the key air transport sector, the Index acknowledges the UNTSA comprehensive approach for
measurement of tourism economic impacts, as UNWTO datasets
rather dealing with it separately despite the evident for international arrivals and revenue have been used by the
linkages with T&T competitiveness. World Economic Forum for testing the explanatory power of the
Index. This UNWTO data also features prominently in the country
profiles of part 2.1 of this Report.
• It fails so far to provide commitments in a way
that offers good, stable domestic conditions for 2 A free download of the brochure Tourism and Least Developed
Countries: A Sustainable Opportunity to Reduce Poverty is avail-
investment in developing countries, for the expan- able at www.unwto.org/sustainable/doc/tourism-and-ldc.pdf.
sion of related financial services, and for provision 3 For more information on the United Nations Tourism Satellite
of state-of-the-art communications services. Account (UNTSA), see the UNWTO website at
www.unwto.org/statistics. See Appendix B for a comprehensive
• It fails so far to link Travel & Tourism with overview of Tourism Characteristic Products as used in the
UNTSA. More than 20 states have full implementation in process
development and poverty alleviation and thus to and a further 50 are examining application measures. UNWTO is
consider the range of capacity building support working to extend this globally.
measures available for poor countries’ competitive-

ness enhancement.
References
• It fails so far to link Travel & Tourism with sustain- For an overview of UNWTO publications in the field of poverty allevia-
able development, despite the clear interrelationship tion and sustainable tourism, see the UNWTO website at
www.unwto.org/frameset/frame_sustainable.html.
with the sector and despite particularly its impor-
tance for developing countries.
• It fails so far effectively to recognize the links

61
between Travel & Tourism and infrastructure such
as roads, ports, airports, and telecommunications
channels, which are vital for effective T&T
competition in developing states.
• It fails so far to capitalize on the links between

Travel & Tourism and agriculture and the way in
which rural tourism development can help to
support agricultural communities, where poverty
levels are often very high.
It could be argued that with these weaknesses, at this

stage in the negotiations, it would not be practical to
address this kind of an agenda.The fact is, however, that
the World Trade Organization has a capacity for rapid
action as the close of a Round draws near, and a pro-
development and sustainability T&T package could be
a valuable component of any end game. Agriculture,
transport, financial services, and telecommunications are
already part of the World Trade Organization discussions.
It is merely a question of governments instructing their
negotiators to specifically include T&T interests.
Moreover, the WTO process will extend far beyond
the current negotiations, and far beyond the MDG target
date of 2015. Given the development and antipoverty
imperatives recognized in the Doha Development
Agenda, there is a good case for intensifying the
process now.
TT.part1.r2 2/21/07 11:47 AM Page 62
Appendix A: International tourism, average annual growth 1995–2005 (countries and territories with more
than 150,000 arrivals and more than US$150 million in receipts)
International tourist arrivalsa International tourism receipts (current prices)

Population Average annual Arrivals per Average annual Receipts
(millions) (1,000 arrivals) growth (%)b 1,000 pop.b (US$, million) growth (%)b per capitab
2005 1995 2000 2005 1995–2005 1995 2000 2005 1995–2005 US$
World 6,449 541,000 687,000 806,000 4.1 125 411,000 483,000 682,000 5.2 106
Cambodia 13.6 220 466 1,422 20.5 104 53 304 840 31.8 62
Qatar 0.9 309 378 913 11.4 1,058 n/a 128 760 35.7 881
Georgia 4.7 85 387 560 20.7 120 n/a 97 239 22.5 51
Latvia 2.3 539 509 1,116 7.6 487 20 131 341 32.8 149
Kazakhstan 15.2 n/a 1,471 3,073c n/a 203 122 356 701 19.1 46
Croatia (tce) 4.5 1,485 5,831 8,467 19.0 1,883 1,349 2,782 7,463 18.7 1,660
El Salvador 6.7 235 795 1,154 17.3 172 85 217 543 20.4 81
Mongolia 2.8 108 137 338 12.1 121 21 36 177 23.7 63
Ethiopia 73.1 103 136 227 8.2 3 16 57 168 26.5 2
Ukraine 47.0 3,716 6,431 15,629c 10.9 330 191 394 3,125 22.0 67
Yemen (ths) 20.7 61 73 336 18.6 16 50 73 181 13.7 9
Algeria (vf) 32.5 520 866 1,443 10.7 44 33 96 178c 20.7 6
Iran 64.7 489 1,342 1,659c 14.5 26 67 467 1,074c 14.0 17
Zambia 11.1 163 457 515c 13.6 47 47 111 161c 14.7 15
Oman (ths/tf) 3.0 279 571 1,195c 17.5 412 n/a 221 481 10.7 160
Uganda 28.2 160 193 468 11.3 17 78 165 355 16.4 13
Botswana 1.6 521 1,104 1,523c 12.7 929 162 222 562 13.2 343
United Arab Emirates (ths) 2.6 2,315 3,907 5,871d 12.3 2,363 632 1,063 2,200 13.3 858
Honduras 7.2 271 471 673 9.5 94 107 260 472 16.0 66
Trinidad and Tobago 1.08 260 399 463 5.9 431 77 213 453 19.4 421
Brazil 186 1,991 5,313 5,358 10.4 29 972 1,810 3,861 14.8 21
Nicaragua 5.5 281 486 712 9.7 130 50 129 207 15.3 38
Turkey 69.7 7,083 9,586 20,273 11.1 291 4,957 7,636 18,152 13.9 261
62
Bahrain 0.7 1,396 2,420 3,914 10.9 5,686 247 573 920 14.1 1,337
Lithuania 3.6 650 1,083 2,000 11.9 556 77 391 921 12.6 256
Estonia 1.3 530 1,220 1,917 13.7 1,438 357 508 951 10.3 714
Guatemala 12.2 563 826 1,316 8.9 108 213 482 869 15.1 71
Peru 27.9 479 828 1,486 12.0 53 428 837 1,308 11.8 47
Morocco 32.7 2,602 4,278 5,843 8.4 179 1,296 2,039 4,621 13.6 141
China 1,306 20,034 31,229 46,809 8.9 36 8,730 16,231 29,296 12.9 22
Saudi Arabia 26.4 3,325 6,585 9,100 10.6 344 n/a n/a 6,111 n/a 231
Bulgaria 7.5 3,466 2,785 4,837 3.4 649 473 1,076 2,429 17.8 326
Egypt 77.5 2,871 5,116 8,244 11.1 106 2,684 4,345 6,851 9.8 88
Syrian Arab Republic (tce/tf) 18.4 815 1,416 3,368 15.2 183 1,258 1,082 2,175 5.6 118
Bosnia and Herzegovina (tce) 4.4 n/a 171 213 8.0 48 n/a 233 567 12.6 128
Ghana 22.0 286 399 429 4.1 19 11 335 796 15.9 36
Bolivia 8.9 284 319 504 5.9 57 55 68 205 14.0 23
Vietnam (vf) 83.5 1,351 2,140 3,468 9.9 42 n/a n/a 1,880 n/a 23
Lebanon 3.8 450 742 1,140 9.7 298 n/a n/a 5,432 n/a 1,420
Turks and Caicos 0.02 79 152 200 9.7 9,730 53 285 n/a n/a 15,583
Cuba 11.35 742 1,741 2,261 11.8 199 963 1,737 1,920 7.1 169
Jordan 5.8 1,075 1,580 2,987 10.8 519 660 723 1,441 8.1 250
South Africa (vf) 44.3 4,684 6,001 7,518 4.8 170 2,125 2,675 7,327 13.2 165
Macao (China) 0.4 4,202 5,197 9,014 7.9 20,067 3,102 3,208 7,980 9.9 17,765
India 1,094 2,124 2,649 3,919 6.3 4 2,581 3,460 7,478 11.2 7
Panama 3.1 345 484 702 7.4 224 309 458 780 9.7 248
Costa Rica 4.0 785 1,088 1,679 7.9 418 681 1,302 1,570 8.7 391
Greece 10.7 10,130 13,096 14,276 3.5 1,338 4,135 9,219 13,731 12.8 1,287
Belize 0.3 131 196 236 6.1 841 78 111 204 10.1 726
Malaysia 24.0 7,469 10,222 16,431 8.2 686 3,969 5,011 8,543 8.0 357
Dominican Rep. 9.09 1,776 2,978 3,691 7.6 406 1,571 2,860 3,508 8.4 386
Iceland (tce) 0.3 190 634 871 6.9 2,935 186 229 409 8.2 1,378
Namibia 2.0 272 656 695d 12.4 349 278 160 348 2.3 171
Hong Kong (China) 6.9 n/a 8,814 14,773 11.0 2,141 7,760 5,907 10,286 2.9 1,491
Ecuador (vf) 13.4 440 627 860 6.9 64 255 402 486 6.7 36
Mauritius 1.2 422 656 761 6.1 618 430 542 871 7.3 708
Senegal (ths/tf) 11.9 280 389 769 10.6 65 168 144 212c 2.8 18
Slovenia (tc) 2.0 732 1,090 1,555 7.8 773 1,082 965 1,801 5.2 895
New Zealand (vf) 4.0 1,409 1,787 2,365 5.3 586 2,318 2,267 4,865 7.7 1,206
(cont’d.)
TT.part1.r2 2/21/07 11:47 AM Page 63

than 150,000 arrivals and more than US$150 million in receipts) (cont’d.)

2005 1995 2000 2005 1995–2005 1995 2000 2005 1995–2005 US$
Pakistan 162 378 557 798 7.8 5 110 81 180 5.0 1

Tanzania 36.8 285 459 566c 7.9 16 502 377 796 4.7 22
Romania (tce) 22.3 766 867 1,430 6.4 64 590 359 1,051 5.9 47
Ireland 4.0 4,818 6,646 7,333 4.3 1,826 2,208 2,633 4,744 7.9 1,181
Slovakia (tce) 5.4 903 1,053 1,515 5.3 279 623 433 1,210 6.9 223
Denmark (tce) 5.4 n/a 3,535 4,562 8.9 840 3,673 3,694 4,954 3.0 912
Br.Virgin Islands 0.02 219 272 337 4.4 14,883 211 345 391c 7.1 17,623
Spain 40.3 34,920 47,898 55,882 4.8 1,385 25,252 29,968 47,891 6.6 1,187
Czech Republic (tce) 10.2 3,381 4,773 6,336 6.5 619 2,880 2,973 4,631 4.9 452
Sweden (tce) 9.0 2,309 2,746 3,133 3.1 348 3,471 4,064 7,427 7.9 825
Colombia 43.0 1,399 557 933 4.4 22 657 1,030 1,218 6.4 28
Australia (vf/tf) 20.1 3,726 4,530 5,020 3.0 250 8,125 9,274 16,866 7.6 840
Philippines 87.9 1,760 1,992 2,623 4.1 30 1,136 2,156 2,130 6.5 24
Belgium (tce) 10.4 5,560 6,457 6,747 2.0 651 4,548 6,592 9,861 8.0 951
Fiji 0.9 318 294 550 5.6 616 291 182 439 4.2 491
Sri Lanka 20.5 403 400 549 3.1 27 226 248 429 6.6 21
Luxembourg (tce) 0.5 768 852 913 1.7 1,948 1,721 1,806 3,616 7.7 7,716
Aruba 0.07 619 721 733 1.7 10,236 521 814 1,095 7.7 15,304
Netherlands (tce) 16.4 6,574 10,003 10,012 4.3 610 6,578 7,217 10,475 4.8 638
Finland 5.2 1,779 2,714 3,140 5.8 601 1,641 1,406 2,186 2.9 419
Germany (tce) 82.4 14,838 18,992 21,500 3.8 261 18,001 18,693 29,204 5.0 354
US Virgin Islands 0.1 454 546 575 2.4 5,001 822 1,206 1,493 6.1 12,466
Japan 127 3,345 4,757 6,728 7.2 53 3,224 3,373 12,439 1.2 98
Taiwan (China) (vf) 22.9 2,332 2,624 3,378 3.8 148 3,286 3,738 5,040 4.4 220
63
Argentina 39.5 2,289 2,909 3,895 5.5 99 2,222 2,904 2,753 2.2 70
Puerto Rico 3.91 3,131 3,341 3,686 1.6 942 1,828 2,388 3,239 5.9 828
Norway 4.6 2,880 3,104 3,859 3.0 840 2,238 2,050 3,495 4.6 761
Hungary 10.0 n/a n/a 10,048 n/a 1,004 2,953 3,757 4,271 3.8 427
Tunisia 10.1 4,120 5,058 6,378 4.5 633 1,530 1,683 2,063 3.0 205
Mexico 106 20,241 20,641 21,915 0.8 206 6,179 8,294 11,803 6.7 111
Saint Lucia 0.17 231 270 318 3.2 1,912 230 281 345 4.1 2,074
Portugal 10.6 9,511 12,097 11,617c 2.2 1,104 4,831 5,243 7,931 5.1 751
Thailand 64.2 6,952 9,579 11,567 5.2 180 8,039 7,468 9,591 1.8 149
France 60.7 60,033 77,190 76,001 2.4 1,253 27,587 30,757 42,276 4.4 697
French Polynesia 0.3 172 252 208 1.9 769 326 n/a 522 4.8 1,928
United Kingdom (vf) 60.7 23,537 25,209 29,970 2.4 494 20,500 21,857 30,675 4.1 506
Canada 32.8 16,932 19,555 18,612 1.0 567 7,917 10,778 13,584 5.5 414
Jamaica 2.74 1,147 1,323 1,479 2.6 541 1,069 1,333 1,545 3.8 565
Kenya 34.9 896 899 1,399 4.6 40 486 283 579 1.8 17
St. Maarten n/a 449 432 462 0.3 n/a 349 511 619 5.9 n/a
Reunion 0.8 304 430 409 3.0 526 283 296 384 3.1 494
Chile 16.0 1,540 1,742 2,027 2.8 127 911 819 1,256 3.3 79
Korea, Rep. (vf) 48.6 3,753 5,322 6,022 4.8 124 5,150 6,834 5,660 0.9 116
Maldives 0.3 315 467 395 2.3 1,132 211 321 287 3.1 821
Russian Federation 143 n/a n/a 19,940 n/a 140 4,312 3,429 5,564 2.6 39
Bahamas 0.30 1,598 1,544 1,608 0.1 5,328 1,346 1,734 2,069 4.4 6,856
Barbados 0.28 442 545 548 2.2 1,963 622 723 776 2.2 2,784
Cyprus 0.8 2,100 2,686 2,470 1.6 3,166 1,798 1,941 2,318 2.6 2,971
Antigua, Barbados 0.07 220 207 245 1.1 3,571 247 291 327 2.8 4,758
United States 296 43,490 51,219 49,206 1.2 166 63,395 82,400 81,680 2.6 276
Italy 58.1 31,052 41,181 36,513 1.6 628 28,731 27,493 35,398 2.1 609
Austria (tce) 8.2 17,173 17,982 19,952 1.5 2,438 12,927 9,931 15,467 1.8 1,890
Curaçao n/a 224 191 222 –0.1 n/a 175 189 239 3.2 n/a
Malta 0.4 1,116 1,216 1,171 0.5 2,937 656 587 775 1.7 1,945
Switzerland (ths) 7.5 6,946 7,821 7,229 0.4 965 9,459 7,777 11,040 1.6 1,474
Indonesia 229 4,324 5,064 5,002 1.5 22 5,229 4,975 4,521 –1.4 20
Singapore 4.4 6,070 6,062 7,080 1.6 1,600 7,611 5,142 5,740 –2.8 1,297
Uruguay 3.4 2,022 1,968 1,808 –1.1 529 611 713 594 –0.3 174
Israel 6.3 2,215 2,417 1,903 –1.5 303 2,993 4,088 2,853 –0.5 455
Martinique 0.43 457 526 484 0.6 1,118 384 302 280 –3.1 647
(cont’d.)
TT.part1.r2 2/21/07 11:47 AM Page 64
than 150,000 arrivals and more than US$150 million in receipts) (cont’d.)

2005 1995 2000 2005 1995–2005 1995 2000 2005 1995–2005 US$
Nepal 27.7 363 464 376 0.3 14 177 158 132 –2.9 5
Venezuela 25.4 700 469 706 0.1 28 849 423 641 –2.8 25
Zimbabwe (vf) 12.2 1,416 1,967 1,559 1.0 128 145 125 99 –3.7 8
Poland 38.6 19,215 17,400 15,200 –2.3 394 6,614 5,677 6,284 –0.5 163
Bermuda 0.07 387 332 270 –3.6 4,124 488 431 430 –1.3 6,578
Cayman Islands 0.04 361 354 168 –7.4 3,790 394 559 353 –1.1 7,974
Note: Country order is from fastest- to slowest-growing destination according to weighted average of annual growth rate for international arrivals and for
international tourism receipts.
a Last year or years with consistent series available
b Tourist arrivals are designated with a code in parentheses after the country name. Arrivals are measured as international tourist arrivals at frontiers
(excluding same-day visitors) (tf) unless otherwise indicated; international visitor arrivals at frontiers (tourists and same-day visitors) (vf); international
tourist arrivals at hotels and similar establishments (ths); and international tourist arrivals at collective tourism establishments (tce).
c Data are from 2004.
d Data are from 2003.
Source: UNWTO; data as collected in UNWTO database November 2006.
64
TT.part1.r2 2/21/07 11:47 AM Page 65

Appendix B: Tourism characteristic products from UNTSA
CPC/code Title CPC/code Title
63110.0 Hotel and motel lodging services 72211.1 Support services to time shares activities
63191.0 Holiday center and holiday home services
73111.0 Leasing or rental services concerning cars and light vans
63192.0 Letting services of furnished accommodation
without operator
63193.0 Youth hostel services
73114.1 Leasing or rental services concerning campers/motor homes
63194.0 Children’s training and holiday camp services
without operator
63195.0 Camping and caravanning site services
73115.1 Leasing or rental services concerning passenger vessels
63199.1 Sleeping-car and similar services in other transport media;
without operator
hall residence of students
73116.1 Leasing or rental services concerning passenger aircraft
63210.0 Meal serving services with full restaurant services
without operator
63220.0 Meal serving services in self-service facilities
63290.0 Other food serving services 73240.1 Non-motorized land transport equipment leasing or rental services
63300.0 Beverage serving services for consumption on the premises 73240.2 Winter sports equipment leasing or rental services
73240.3 Non-motorized air transport equipment leasing or rental services
64111.1 Scheduled rail services
73240.4 Water sports and beach equipment leasing or rental services
64111.2 Non-scheduled rail services
73240.5 Camping equipment leasing or rental services
64213.0 Interurban scheduled road transport services of passengers
73240.6 Saddle horse leasing or rental services
64214.0 Interurban special purpose scheduled road transport services of
73290.1 Photographic camera rental services
passengers
64219.1 Scheduled ski-hills services 85970.0 Trade fair and exhibition organization services
64221.0 Taxi services 87143.0 Maintenance and repair services of trailers, semi-trailers and
64222.0 Rental services of passenger cars with operator other motor vehicles n.e.c.
64223.0 Rental services of buses and coaches with operator 87149.1 Maintenance and repair services of leisure vessels of own use
65111.0 Coastal and transoceanic water transport services of 87149.2 Maintenance and repair services of leisure aircraft of own use
passengers by ferries 91131.1 Fishing license services
65119.1 Other coastal and transoceanic scheduled water transport 91131.2 Hunting license services
services of passengers
91210.1 Passport issuing services
65119.2 Other coastal and transoceanic non-scheduled water transport
91210.2 Visa issuing services
services of passengers
65119.3 Cruise ship services 96230.0 Performing arts facility operation services
65119.4 Passenger services on freight vessels 96310.0 Services of performing artists 65
65130.1 Rental services of passenger vessels for coastal and 96411.0 Museum services except for historical sites and buildings
transoceanic water transport with operator 96412.0 Preservation services of historical sites and buildings
65211.0 Inland water transport services of passengers by ferries 96421.0 Botanical and zoological garden services
65219.1 Scheduled passenger services 96422.0 Nature reserve services including wildlife preservation services
65219.2 Sightseeing excursion services 96510.0 Sports and recreational sports event promotion and organization
65219.3 Cruise services services
65230.0 Rental services of inland water passenger vessels with operator 96520.1 Golf course services
96520.2 Ski fields operation services
66110.0 Scheduled air transport services of passengers
96520.3 Race circuit
66120.1 Non-scheduled air transport services of passengers
96520.5 Recreation park and beach services
66120.2 Sightseeing services, aircraft or helicopter
96590.1 Risk sport and adventure
66400.0 Rental services of aircraft with operator
96620.2 Guide services (mountain, hunting and fishing)
67300.0 Navigational aid services 96910.1 Theme park services
67400.0 Supporting services for railway transport 96910.2 Amusement park services
67510.0 Bus station services 96910.3 Fair and carnival services
67530.1 Parking of passenger terminal transport 96920.1 Casino services
67610.0 Port and waterway services (excl. cargo handling) 96920.2 Slot machine services
67690.1 Vessel fuelling services
97230.4 Spa services
67690.2 Maintenance and upkeep services to private recreation passen-
97910.0 Escort services
ger services
67710.0 Airport operation services (excl. cargo handling)
67790.0 Other supporting services for air or space transport
67811.0 Travel agency services

67812.0 Tour operator services
67813.0 Tourist information services
67820.0 Tourist guide services
71100.1 Travel card services

71100.2 Travel loan services
71311.1 Travel life insurance services
71320.1 Travel accident insurance services
71320.2 Travel health insurance services
71334.1 Passenger’s aircraft of own use insurance services
71334.2 Passenger’s vessel t of own use insurance services
71339.1 Travel insurance services
71552.0 Foreign exchange services
TT.part1.r2 2/21/07 11:47 AM Page 66
TT.part1.r2 2/21/07 11:47 AM Page 67
1.5: Fulfilling the Promise

CHAPTER 1.5 We are at a critical juncture in history, where what we
need most at this time is a generally accepted under-
Fulfilling the Promise:

standing of how different people, different countries,
different regions are to deal with each other; how the
Positives and Potentials of

management of global interdependence works, particularly
at a time when we have to confront new issues on the
Travel & Tourism global agenda. We need to remind ourselves of our com-
mon destiny as true citizens of this world, and to facilitate
a dialogue in which we can re-emphasize the values we
MARILYN CARLSON NELSON, Chairman and CEO, Carlson
share and create a common vision of the future.
—Professor Klaus Schwab,

Founder and Executive Chairman,
World Economic Forum1
It is clear that Travel & Tourism (T&T) is an industry

like no other. It is an exciting industry whose product is
the very fabric of our world; an industry of truly fabulous
places; and most importantly, of fabulous faces.
It is an industry of richness, of texture, and of
connections that brings together people, transcends
borders, and can—if we do it right—knit the world
together both in good times and bad.
It is an industry with deep connections to all the
others: vehicle manufacture, construction, agriculture,
energy. Choose an industry, and Travel & Tourism is a 67
major consumer of other industries’ goods.
It is a “hyper-industry” arching over all the others.
In fact, it is so large and influential that it is usually
unrecognizable and incomprehensible to many leaders.
It is akin to staring at the base of a mountain without
looking up, and asking “what mountain?”
This chapter seeks to examine the promise that
Travel & Tourism has offered to the world’s economies
and societies, and in doing so to let the reader decide
whether it has lived up to that promise.What further
promise does it hold? How do we achieve its full
potential?
Promises and potential

There is clear evidence in and around the industry that
Travel & Tourism is a positive force for the economic
and social development of an economy.This evidence
includes statistics that demonstrate growth, indications of
communities springing up where they were not thriving
before, and new freedoms and improvements being
afforded in developing economies.The industry has also
shown its commitment to leading on sustainable Travel
& Tourism.The environmental responsibilities of the
industry are being recognized through green programs
that encompass hotel construction and design, cruise
ship operations, and local environmental programs.
For thousands of years,Travel & Tourism has
brought economic, social, and cultural benefits to
economies and communities around the globe. From
TT.part1.r2 2/21/07 11:47 AM Page 68
the earliest days of hand-hewn boats traversing new economies: fully one in 8.5 jobs (11.8 percent) in the
riverways to the touchdown of the largest jumbo jet, region is dependent on Travel & Tourism, and 3.9 percent
trade and curiosity have always been the catalysts, with of the GDP is dependent on the industry. Of the total
the goal of improving individual lives. capital investment in the European Union, 8.6 percent is
Until only recently,Travel & Tourism was limited related to Travel & Tourism. Governments would have
by technology and economics. Ocean-going vessels 3.2 percent less to spend were it not for the taxes and
provided the earliest form of intercontinental travel, related fees collected by T&T entities.3
which was usually reserved for the world’s wealthiest Europe’s growth in tourists in 2006 is expected to
citizens. be 3.1 percent and the region will remain a top-tier
With the advent of the airplane and jet travel, the destination. If the current rate of growth is maintained it
predictions of our world becoming a global village have would mean some 14 million additional arrivals to the
come true, bringing all the benefits—and conflicts—that continent in 2006.
occur when people of different cultures, economic The European T&T engine is demonstrably con-
systems, and religious beliefs interact. However, in the nected to the overall health of government and related
case of Travel & Tourism, the malady is also the medicine. industries—even seemingly unrelated industries that fall
Any social problems brought by the interaction of peoples within its long shadow.
have the potential to be solved by increased interaction
and an expanding economic prosperity that follows. The US experience
The dependence of even the world’s largest economy
on Travel & Tourism was evidenced following the 9/11
The economic promise terrorist attacks on the United States.The resulting drop
Travel & Tourism continues to be one of the world’s in Travel & Tourism cut a broad swath through the US
fastest growing and most critical economic sectors, economy, negatively affecting everything from auto sales
creating quality jobs and careers as well as improved to restaurant receipts.
economic standing for people around the globe.The While the country saw a precipitous fall in the
World Travel & Tourism Council (WTTC) estimates post-attack years of 2001–03, today Travel & Tourism
68 that the industry generates 234 million jobs and has returned to pre-9/11 levels and regained its place as
contributes more than 10 percent of the global gross one of the United States’ largest exports and largest
domestic product (GDP).2 In both industrialized and employers.
developing economies the industry is critical to the The Travel Industry Association of America (TIA)
social and economic fabric; in some cases,Travel & reports international travelers brought US$93 billion
Tourism is an economy’s single largest employer. into the United States in 2004 (an export).This contin-
ued to fuel an industry that is linked to 7.3 million jobs
The promised fulfilled in developed nations generated directly by travel, or one in eight non-farm
In developed economies the overall T&T industry is jobs in America.
mature, strong, and resilient. Despite an unprecedented Government tax coffers also benefited: local, state,
march of natural and artificial disasters and negative and federal governments collected US$100 billion in
economic factors (increasing fuel costs and so on) in the direct tax revenue from T&T-related industries.Without
first years of the 21st century, the industry continues to the collections generated by the T&T industry, every
grow in developed nations and regions. US household would pay US$924.00 more in taxes.4 In
Direct impacts are found with transportation services, 2006 TIA forecasts that the United States will increase
retail services, food services, hotel expansions, and natural its international visitors by 6.1 percent.
resource development and renovation. Indirect benefits
include improved personal economic conditions, The promise for developing economies
improved health care, and expanded infrastructure for Regions and governments throughout the tourism-
use by citizens. developing world are eagerly maximizing their unique
Following are examples of the economic experience offerings on a wider scale than ever before. Along with
of two of the world’s most developed T&T economies. the movement of goods and services, globalization has
meant a greater movement of people—many of them
The European experience tourists.
Economic research by the WTTC indicates that in the Whereas only a few years ago competition for
European Union Travel & Tourism is an overwhelming tourists was an arena in which only four or five nations
economic force.This is quite understandable, considering played, today the ease of communication and connect-
that the region currently holds 33.2 percent of world edness of cultures have encouraged dozens of new
market share of Travel & Tourism. entrants into the market, making it more competitive
The influx of international tourists to the European and raising the bar in the competition.
Union has measurable positive effects on member nations’
TT.part1.r2 2/21/07 11:47 AM Page 69

Today economies are committing major funding to visitors to other areas in the region. Past experience
their marketing budgets abroad: the top 20 destinations suggests that traveler confidence can recover quickly, and
spend a minimum of US$9.5 million all the way up to industry experts point to the many other times that the
US$151 million to attract visitors. Middle East has proven its capacity for recovery.
At Carlson we have this increased competition for
the T&T dollar and have even built a business on it. Central and South America
Carlson Destination Marketing Services (CDMS) is a In the developing Americas, some regions exceeded
Carlson division that assists governments and regional growth averages: Central America (+8.7 percent), South
groups to present their unique offerings more effectively, America (+8.1 percent), and the Caribbean (+5.1 percent).
especially to new and targeted markets.The Kenya Others declined—such as Mexico (–3.8 percent).
Tourist Board has been a client of CDMS for six years, South and Central America benefited both from
during which time travel has increased from the United higher expenditures by US travelers and more arrivals of
States to Kenya by more than 70 percent, bringing more European tourists. At the same time, intraregional travel
than 100,000 new visitors to Kenya from the United performed on a high level.
States and Canada. CDMS is currently engaged by more
than a dozen tourism destinations, each attempting to Rising giants
accomplish a similar goal and take a larger share of an The BRIC countries (Brazil, Russia, India, and China)
increasing pie. are each emerging giants in the T&T industry and
An overview of the developing regions that represent tremendous opportunities for impact across
currently hold the greatest potential for T&T economic the globe.
growth follows. China is the pacesetter—for inbound, outbound,
and intracountry travel.Travel & Tourism and related
Africa businesses will generate 13.2 percent of China’s GDP,
United Nations World Tourism Organization (UNWTO) and will be responsible for 10.2 percent of jobs.Through
Secretary-General Francesco Frangialli underscored the the next decade, the industry will experience 8.7 percent
importance of Africa’s development of Travel & Tourism, annual growth in jobs, and will represent 8.3 percent of
saying, “This African tourism success story is particularly capital investment in the country per year. 69
important for the fight against poverty and the progress The full impact of Travel & Tourism has yet to be
towards the Millennium Development Goals, where felt in Russia, where the industry accounts for only 6.6
this sector can play a pivotal role for every State on the percent of jobs and 7.8 percent of GDP. Over the next
continent.”5 decade the industry is expected to grow 6.5 percent per
With an expected overall growth rate in people year in Russia, and to represent 9.3 percent of capital
visiting Africa of 10.6 percent for 2006, Africa is this investment in the country each year.
year again the world’s regional leader in terms of per- In Brazil,Travel & Tourism is anticipated to generate
centage growth. Between January and August of 2006, US$70.4 million of economic activity, have a direct and
international tourist arrivals increased by 9.8 percent. indirect impact on 6.4 percent of all jobs, and account
for 6.7 percent of GDP.The industry is expected to grow
Asia and the Pacific by 4.3 percent per annum, in real terms, through 2016.
Asia and the Pacific has been the world’s second fastest India is experiencing the volcanic eruption of a
growing region in the first eight months of 2006 middle class with the means, opportunity, and desire to
(+8.3 percent). Despite some sharp differences, the travel. Looking forward to a 20 percent per year increase
region’s overall performance is notable, especially in international aviation as a result of the recent opening
considering that the T&T sector has suffered from of India’s skies, that country’s airline industry has ordered
natural disasters, health scares, and political unrest. 300 planes in the last 18 months; including the largest
airplane order in history: Air India’s order of Boeing
Middle East aircraft worth US$11 billion.
The Middle East’s positive results (+6 percent growth
in visitors to the Middle East) have to be interpreted
within its geopolitical context and its impact on tourism The social promise
flows. Data available so far show that the conflict between The American author Mark Twain wrote “Travel is fatal
Israel and Lebanon had only very limited impact on the to prejudice, bigotry and narrow mindedness” (1869).
pace of the growth of the region as a whole. Travel & Tourism creates new contexts for understanding
Although conflict has taken its toll on tourism global issues, constructing unique connections to
demand for some destinations, others—such as Dubai lubricate understanding between peoples and nations.
and Abu Dhabi—are viewed as safe destinations and The promise of Travel & Tourism is about improving
have experienced high demand, offsetting the lost the lives of all persons involved, both visitor and host.
TT.part1.r2 2/21/07 11:47 AM Page 70
For host economies and communities, the business • Travel & Tourism can be a direct force for social
of Travel & Tourism is unique in the social promise it good.The International Tourism Partnership offers
holds forth, which come in both short-term and long- an example of such good works through its Youth
term forms. Career Initiative, in which Carlson is a participant.6
This program currently helps open new doors in
Short-term benefits the industry for at-risk youth. Programs range from
• Travel & Tourism tends to be a “clean industry” life skills preparation to highly skilled management
(differing from other “processing” industries such as training.
manufacturing).
• The training provided to T&T employees
• Travel & Tourism tends not to deplete natural constitutes transferable knowledge that can be
resources. It is not dependent on raw resources. used in most other employment situations.
• Travel & Tourism creates a natural agenda of • Intercultural awareness and personal friendships
sustainability. Since it is an industry that depends fostered through Travel & Tourism are a powerful
greatly on a destination’s special attractions and mediating force against conflict, and can contribute
cultures, it must drive a natural agenda for the to international understanding.
preservation and honoring of those attractions and
cultures. The building of compassionate connections
The in-house resources of global tourism companies
• Travel & Tourism spurs (and pays for) infrastructure
have been invaluable to the survival and reconstruction
development most often needed in developing
of communities and lives after recent natural disasters.
nations (such as roads, housing, and communications).
Beyond their moral engagement,T&T companies will
• Travel & Tourism generates revenue for governments always have a economic self-interest in assisting disaster-
from those who do not have long-term dependence struck areas to which they have an economic link. For
on that government’s resources.Visitor tax revenues example, Hurricane Katrina in the United States, along
can be used to support the education, health, and with the December 2005 South Asia Tsunami, resulted
70 in many T&T associations and companies coming
safety of a society long after visitors have returned
to their own nations and communities. together to provide shelter, transportation, food, and aid.
It is likely to remain the will and intent of the T&T
Long-term benefits industry to continue such aid in times of desperate need
• By its very nature,Travel & Tourism transports around the world.
not just the body but also the subconscious into
different cultures, landscapes, social mores, skin
Challenges
colors, and languages. It reaches across borders to
The preceding section proves that Travel & Tourism has
build bonds previously unimagined and unrealized.
made great strides in fulfilling its promise. It stands to
• Upon the conscientious tourist,Travel & Tourism offer more in the immediate future to developing
confers both a privilege and a responsibility toward economies; nonetheless, challenges to continued success
the society being visited.To the host it brings an do present themselves.
obligation to present the best of a people and a
society.The long-term effect on the interplay Security
of people and cultures is, in fact, the essence of The increased screening of travelers arising from the
civilized behavior. threat of violence has the potential to push some “casual
travelers” out of the market; or at least to alter their
• Areas where war and poverty are the norm stand
traveling habits.
the most to benefit from the powerful economic
In business travel, this need has meant new services
effects of tourism outlined earlier.Violence driven
demanded by clients. Carlson Wagonlit Travel today
by poverty falls victim to the real result of
successfully offers security information and services to
employment offered by Travel & Tourism. Since
its global client companies, who are seeking travel risk
most new tourism jobs and businesses are created
management programs and emergency readiness offerings
in developing economies, the industry helps to
for their employee-travelers.
equalize economic opportunities across all
New requirements by the United States regarding
population sectors.
passports and entry identification, coupled with the new
• Travel & Tourism, which is often built on the difficulties obtaining visas to travel to the United States,
natural beauty or unique offerings of a culture, can has certainly had a dampening effect on travel to that
have a long-term social effect on the psychological country. As a result, other destinations stand to benefit
health of a community and the pride of its people.
TT.part1.r2 2/21/07 11:47 AM Page 71

from the redirection of travelers who might otherwise Finding, training, and keeping quality employees
visit the United States. Economies must continue to make the most of public
campaigns, and strategic media relationships will
Public policy continue to benefit an industry dependent upon quality
Policy issues involving local government regulations, products provided by quality employees.Through such
business regulations, and/or local custom can and do campaigns and relationships the employee base can be
often impede growth of Travel & Tourism in both made aware of the benefits of industry employment.
developed and developing nations. Slow movement on Once employees are chosen and trained, the use of
infrastructure issues—such as development of bridges rewards and recognition programs to provide an incen-
and roads to allow development of tourism products— tive for continued high performance is important.
can be a major obstacle to development and progress.
Likewise, lack of effective educational systems and sani- Achieving gender parity
tation facilities and processes can have a similar negative The decade between 1988 and 1997 saw a significant
effect.Two examples out of many follow: increase in the participation of women in the global
T&T industry.This has always been a particularly
• Greece has enjoyed a growing awareness and important sector for women (46 percent of the
benefits from a healthy T&T industry, but policy workforce in Travel & Tourism are women) as their
challenges remain. Excessive bureaucracy around percentages of employment in most economies are
permitting issues, foreign investment, and develop- higher than in the workforce in general.10
ment issues prevent this Mediterranean oasis from The numbers of women and their percentage of
fulfilling its potential in the industry.These artificial the T&T workforce vary greatly among economies—
roadblocks are proving to be stronger than the from 2 percent up to over 80 percent. Although there
country’s natural appeal.7 are few obvious regional trends, it would appear that
in those economies where tourism is a more mature
• Trinindad and Tobago is lagging behind the growth
industry, women generally account for approximately
of its Caribbean neighbors because roadblocks
50 percent of the workforce.11 However, it is clear across
remain. Among them are improved air access,
the industry that at the executive level there continues 71
simplification of the investment process, a strategic
to be a dearth of women in top roles. A 1999 report by
plan for development, and communication to its
the United Nations Environment and Development UK
citizens about the benefits of T&T employment.8
Committee (UNED-UK) spotlights the work remaining
to be done, particularly in economies where the T&T
Besides impediments created by lawmakers, the indiffer-
economy is in its early stages.12
ence of lawmakers to the industry is an equal challenge
to the long-term health of Travel & Tourism.These
Overcoming perception of low wages
challenges can be found in every region.
Wage and tipping issues remain a point of contention.
In the United States, one measure that has been
Critics suggest that the wage structure of the hourly
taken to raise the visibility of the industry (and in so
employee, coupled with the tipping practice, leads to
doing, its power) is a new joint partnership between the
encouragement of nonreported income and reduced tax
Travel Business Roundtable (TBR) and the TIA.TBR’s
benefits for the government, as well as lower economic
membership consists of a high-level list of travel industry
status for those workers.T&T jobs are often incorrectly
chairmen and CEOs;TIA is the largest T&T industry
viewed as “hamburger-flipper” employment, but it is a
association in the United States. In many respects the
fact that the T&T industry provides a better path for
two organizations competed with each other for domi-
upward mobility than many other industries, and has
nance with policymakers. But in June of 2005,TIA and
resulted in executive positions and full careers for many
TBR realized the greater power the groups would have
who have begun at the lowest rungs of its ladder.
working together, and they partnered to wield even
greater influence among lawmakers.9
Immigration issues
Corruption can also be an enormous barrier to
In addition, immigration remains a top issue.T&T
successful T&T development, prohibiting many global
industries (especially hotel and hospitality businesses)
companies from entering or further investing in a
have long been a traditional entry point for immigrants
market. Excessive national and local taxation can pose
seeking work.The industry provides steady employment,
another public policy challenge.Taxes assessed to visitors
taxes, and socialization to newcomers. Immigrant labor
must be appropriate and not be seen as gouging visitors
is a mainstay of the industry, and yet pending immigrant
to allow a nation’s T&T industry to flourish and expand.
legislation in some economies could decrease or eliminate
this labor pool.
TT.part1.r2 2/21/07 11:47 AM Page 72
Opportunities citizen does not mean exchanging good business for

In industries of exploding growth, opportunities typically good deeds. Addressing the common good must also
abound for the ingenious.The advantage for economies reflect business competitiveness.The two are not mutu-
currently developing their T&T business is that many of ally exclusive—rather, they are mutually beneficial.
the opportunities have already been developed and By way of example, Rezidor hotel group (a partner
piloted in developed regions. Following are some of Carlson) has put in place a Responsible Business program
opportunities that could prove eminently successful with policies, objectives and benchmarking indicators.13
wherever they are practiced. The company has equipped its hotels and general
managers with tools to better manage their local cultural
Sharing best practices heritage, to become involved in their communities, to
The development of T&T destinations benefits as much provide for employee well-being, to look out for children’s
from industry best practices as it does from the unique rights, health and safety, and to monitor and enhance
offerings of the destination itself. Continuing communi- environmental performance.
cation across borders and industries can help ensure a More focused forms of involvement are also critical
growing industry that will benefit from previous when immediacy is needed. For example, Carlson has
experience and processes. partnered with the World Heritage Foundation to
Examples of this cross-industry benefit range from preserve cultural sites in China now in danger of
subregional groups (such as the Black Hills, Badlands & destruction by ever-increasing numbers of visitors.
Lakes Association served by Carlson) to the Fiji Tourism These types of public-private partnerships will be
Forum (a multi-country tourism organization).The key to the continuing good health of the resources and
sharing of best practices helps all ensure the best-quality communities upon which T&T companies depend.
products for the demanding 21st-century customer, and
such sharing can enhance the image and offerings of an Fighting child sex trafficking
entire nation or region, proving to be beneficial to Child sex trafficking is a problem that plagues virtually
everyone. every corner of the globe in some form or another.
Unfortunately, it has become an unwelcome “niche
72 Building public-private partnerships market” for a small segment of travelers. It has also
In the face of resource reductions and increased become an opportunity for Travel & Tourism to have a
demands on government, many private-sector industry great impact on a horrific problem.
leaders are finding opportunities to expand business by It is estimated that 2 million children around the
forming working partnerships with governmental agen- world are subject to sexual exploitation each and every
cies and even nongovernmental organizations (NGOs). year.14 The issues involved can range from prostitution
In doing so, the private sector benefits while working involving kidnapping and trafficking of young girls
with historically adversarial entities to overcome and boys, to developed child sex tourism businesses.
perceived barriers. Child trafficking is the third largest organized criminal
Private investment in local communities can take activity in the world, behind illegal arms trading and
the form of financial or in-kind investment, ranging from drug trafficking.
learning programs and employee volunteer programs to To that end, Carlson has developed a public-private
the creation of local businesses to support the needs of approach to finding a solution to the problem. In March
the investor. Public-private partnerships can be formed 2004 the company signed the ECPAT Code of
to address social issues that will have an effect on the Conduct for the Protection of Children from Sexual
area’s success (gender parity, corporate social responsibil- Exploitation in Travel and Tourism,15 and made firm its
ity, and trafficking, both mentioned below, are three such commitment to conduct its operations according to the
issues). Code and to require partners and suppliers also to do
so.The company has created a training program for its
Practicing corporate social responsibility hotel employees to support the effort and has helped
Today’s business leaders understand that improving the heighten public awareness of the issue.
common good is a core responsibility of global business To attack the problem on a different front, Carlson
today. Far more than merely providing lip service to also became a founding sponsor of the World Childhood
this concept, companies that understand and embrace Foundation (WCF), whose mission is to help children
corporate social responsibility (CSR) have made it an and young women who are at risk of exploitation.16 By
integral part of the culture and core business principles. helping vulnerable youth to gain employable skills and
T&T leaders have a unique opportunity to impact build healthy relationships, the WCF sets them on the
the customer and the host community and its people, as road to a new life.
well as their own employees. And being a good corporate
TT.part1.r2 2/21/07 11:47 AM Page 73

Industry outlook We believe it is our responsibility to use our power,
The future looks bright for the T&T industry. our leadership skills, and our human network to accom-
The UNWTO projects that 2007 will be fourth plish these goals through the industry we love.
year of sustained growth for the global industry.17
Growth is expected to continue in 2007 at a pace of
around 4 percent worldwide. Most importantly, world Notes
1 Taken from a speech to The Royal Institute for Public Affairs,
tourism demand is showing resilience against external
Chatham House, United Kingdom, October 24, 2006.
factors. Even in the wake of terrorist attacks, wars, and
2 See WTTC (2006).
political unrest around the world, the UNWTO reports
3 See WTTC (2006).
that international tourist arrivals totaled 578 million
worldwide, up 4.5 percent, up from the same period in 4 See the Travel Industry Association of America (TIA) website at
www.tia.org (accessed 11/01/06). This website includes informa-
2005—a year that saw an all-time record number of tion from the US Department of Commerce Office of Travel and
international travelers. Tourism Industries, World Tourism Organization. 2004 preliminary
data, updated April 2005.
In addition, the short-term outlook remains very
positive, especially against the background of a strong 5 See UNWTO (2006a).
world economy. Favorable exchange rates continue to 6 International Tourism Partnership. Available at www.tourismpartner-
ship.org (accessed 12/06/06).
encourage European and Asian travelers. International
tourism is likely to remain buoyant unless major incidents 7 See WTTC (2006).
occur. 8 See WTTC (2006).

The UNWTO projects a slow but steady growth 9 See WTTC (2006).
for the industry through the year 2020. Experts estimate 10 United Nations, UN Millenium Development Goals project. Available
that the industry will see an average growth of approxi- at www.un.org/millenniumgoals/ (accessed 11/01/06).
mately 4 percent per year through the year 2020. And 11 United Nations, UN Millenium Development Goals project. Available
although untouched T&T destinations will continue to at www.un.org/millenniumgoals/ (accessed 11/01/06).
emerge, the industry can likely avoid potentially danger- 12 United Nations, www.un.org (accessed 10/15/06).
ous fluctuations and should enjoy steady, sustainable 13 The Rezidor Hotel Group, www.rezidor.com (accessed 11/28/06).
growth. 14 UNICEF, www.unicef.org (accessed 06/01/06).
73
15 Code of Conduct for the Protection of Children from Sexual
Exploitation in Travel and Tourism (The Code). Available at
Coda www.thecode.org (accessed 06/01/06).
Travel & Tourism has accomplished much, and it still 16 World Childhood Foundation, www.childhood.org (accessed
holds much promise for the world. But, as always, it is 06/01/06).
up to individual people to seize and derive benefit from 17 See UNWTO (2006b).
that promise and fulfill their individual responsibility.
The governments and destinations that will win
tomorrow will have an identifiable strategy; they will References
seek out the barriers to tourism and address them.They Twain, M. 1869 (2002). Innocents Abroad, with an Introduction by T.
Quirk and Notes by G. Cardwell. New York: Penguin Classics.
will form partnerships with industry leaders to prepare
the citizenry and infrastructure as required.They will UNWTO (World Tourism Organization). 2006a. “UNWTO Executive
Council: Tourism Fosters Trade and Development.” UNWTO
quickly counteract inaccurate media images that dis- Press and Communications Department, Algiers/ Madrid,
courage visitors. November 21. Available at www.unwto.org (accessed 11/28/06).
Our industry is a gathering of people bound by ———. 2006b. “2007 to be fourth year of sustained growth.” UNWTO
causes both economic and societal.We who commit our World Tourism Barometer Madrid, November 6. Available at
http://www.world-tourism.org/newsroom/Releases/
lives to this industry do so in order to make a profit for 2006/november/barometer06.htm
our companies and their owners, and for ourselves. But WTTC (World Travel & Tourism Council). 2006. Progress and Priorities,
we make this commitment also because we desire to 2006/2007. London: WTTC.
contribute positively to bring the world closer together
—so that jobs can be created in communities around
the world, so that those communities can have clean
water and good schools, so that disaster victims can get
food and clothing, so that grandparents live to become
old and see their children and their children’s children
thrive.We do it so that families in developing nations
can afford not to sell their children into slavery, and so
that restless teenagers can find work that takes them off
the street and gives them pride and hope.
TT.part1.r2 2/21/07 11:47 AM Page 74
TT.part1.r2 2/21/07 11:47 AM Page 75
1.6: Electronic Payments

CHAPTER 1.6 Not only is tourism one of the world’s most robust
industries, it is also one of the most democratic. It offers
Electronic Payments:
the potential for wealth creation not just for the most
advanced economies, but also for emerging and even
A Catalyst for Tourism and struggling economies.

According to the UN World Tourism Organization,
Economic Growth tourism is one of the world’s largest industries and the
largest service sector. Moreover, in the past decade
tourism grew in the world’s poorest 49 countries at a
JOHN ELKINS, Executive Vice President of Global Brand and
rate six times that of Europe.
Marketing, Visa International Over the past half-century, the growth in tourism
has been nothing less than spectacular. In 1950, about 25
million people traveled every year.Today, more than 800
million do.1 That is 32 times as many people spreading
wealth and generating economic growth—much of it in
countries that need it the most.
The pace of growth is only expected to pick up.
World airline carriers transported 1.9 billion passengers
in 2004, up 11.6 percent.The United States alone is on
track for more than a billion passengers flying its skies
by 2015—up from 700 million in 2005. Looking even
further down the road, the U.S. Department of
Transportation is anticipating a doubling or even tripling
of demand over the next 20 years.2
There are a number of reasons for the surge in
tourism: the growth of a prosperous and mobile middle-
class in the developed world, improved and inexpensive 75
transportation and technologies, improved communica-
tions technologies that heighten awareness of the wider
world among peoples of developed countries, improved
infrastructure, and the emergence of a large educated
population seeking to learn more about other people
and places.
But, undoubtedly, one of the most important cata-
lysts to global tourism has been the development and
growth of electronic payments.3 No longer is the need
to carry large amounts of cash a disincentive to travel.
This factor is only beginning to show its true potential
impact. In fact, the future opportunities for electronic
payments are enormous, especially in less-developed
economies that have not yet seen the type of growth
that such payment systems have experienced in
advanced economies.
The World Bank succinctly summed up the
importance of modern payment systems to emerging
economies when it said:
Effective and efficient payment systems are vital for

the economic development of emerging countries…
to promote the development of commerce, enhance
economic policy oversight, reduce the financial, capi-
tal, and human resources devoted to the transfer of
payments and control the risk inherent in moving
large values.4
The World Bank’s position provides a macro level view

of the value of electronic payments to emerging
TT.part1.r2 2/21/07 11:47 AM Page 76
economies. But it is important to isolate some of the need for public and private organizations to act in
trees from the forest. Consider one less-developed econ- partnership, the importance of the development of
omy, Ethiopia. According to the general manager of mobile commerce for all economies, and—perhaps most
Ethiopian Quadrants PLC, “[i]f credit card acceptance importantly—the need to shape a new mindset (in both
was more widespread [in Ethiopia] and each visitor government and the private sector), one that recognizes
spent an additional US$100, it would mean an extra the true value of tourism as a spur to development, as
US$22 million a year income for the country.”5 In an well as the need to ensure that all people have the
economy the size of Ethiopia’s (US$8.8 billion GDP, opportunity to benefit from it.
US$900 GDP per capita), US$22 million a year would In this paper,Visa also brings its own expertise to
have significant impact. In fact, on a comparative GDP bear as the world’s leading electronic payments company,
basis, it would be the equivalent of over US$3 billion in describing the enormous potential of electronic payments
the United States.6 as a driver of economic development and an enabler of
This paper puts forward the importance of tourism tourism growth, particularly in developing and less-
as a key driver of economic growth, particularly for developed economies. In that regard, we have only
developing and less-developed economies. It also describes begun to see the economic opportunities that electronic
the value of electronic payments as a way of driving payments can spawn—opportunities that will grow
economic growth, particularly through increased tourism. dramatically with the introduction and application of
And it recognizes that economic growth is not the only new technologies, such as mobile commerce.This is a
benefit conferred by Travel & Tourism. As the UN major asset in particular for economies lacking the
World Tourism Organization points out, tourism advanced telecommunications and physical infrastructure
enriches the world in many ways. It promotes growth, that have been important building blocks for growth in
increases trade, and advances development. It also advanced economies.
strengthens communities, improves people’s lives and, Underlying this analysis and recommendation is
by bringing together people from diverse lands and recognition that changes in our world, especially
backgrounds, advances the goals of peace and global advancements in technology, are creating opportunities
understanding.7 for developing and less-developed countries. In the
76 Travel & Tourism links people together, by helping words of C.K. Prahalad, expert in developing markets
them to share their culture, language, history and land- and author of The Fortune at the Bottom of the Pyramid,
marks. In the words of US Secretary of State “If we stop thinking of the poor as victims or as a bur-
Condoleeza Rice: den and start recognizing them as resilient and creative
entrepreneurs and value-conscious consumers, a whole
When you can look a person in the eye as you have a new world of opportunity will open up.”9
conversation, when you can see the people and the One of the purposes of this paper is to show how
places of foreign countries first-hand, you gain a governments, the private sector, and the people of
sense of intimacy and knowledge that does not come developing and less-developed countries can indeed take
from a phone call or in an email… Traveling to another
advantage of these opportunities.
country breaks down stereotypes, and makes people
quicker to listen and slower to judge. The knowledge
and experience that citizens gain through their private
Tourism and economic growth in the developing world
travels are vital for the cause of diplomacy and inter-
It was during the summer between his first and second
national understanding in the 21st century.8
years at Harvard Business School that Ashwin Damera
got the idea of starting up a business in the travel indus-
Unfortunately, like most important objectives, increasing
try in his native India.Working at JetBlue, the successful
tourism also has significant challenges. For that reason,
US low-cost airline, it is only natural that Damera’s first
this paper offers an overview of some of the critical
impulse was to start a no-frills airline to facilitate travel
challenges facing the growth of the T&T industry, espe-
for India’s burgeoning middle-class. But he realized that
cially in developing and less-developed economies
the budget airline space was quickly filling up in that
—challenges that include poor communications and
country. And red tape made it a hard field for a young
transportation infrastructure, legal uncertainties over
entrepreneur to enter. So where did he turn? The
ownership, high taxes, and bureaucratic obstacles to
Internet—where economic democracy is at work. No
business.
government approvals were required.
But it is not enough to state the opportunity and
In January 2006, Damera established Travelguru, a
describe the problem.This paper will also put forward
budget travel service that offers consumers the opportu-
some broad approaches that can be taken to increase
nity to compare prices among different air carriers and
global T&T spending, as well as improve the access of
choose from among a range of hotels.Today about
developing and less-developed economies to this impor-
20,000 people visit the site every day, buying about 500
tant source of wealth creation and growth.These
airline tickets or hotels worth about US$25,000.
approaches include potential government actions, the
TT.part1.r2 2/21/07 11:47 AM Page 77

Damera was not the first to recognize the potential United States in 7th place and Spain in 9th). Five are
in India for an Internet-based travel firm. By the time developing economies (1st place is China, 2nd is
Travelguru opened up, Deep Kalra had already founded Indonesia, 3rd is Mexico, 4th is India, and 6th is Brazil).
MakeMyTrip.com, which sells 2,500 airline tickets a One is an economy in transition (the countries of the
day—about 80 percent of which are for domestic former Soviet Union, in 5th place), and two are less-
travel.10 developed economies (8th place is Bangladesh and 10th
The lesson? The combination of increased demand is Pakistan.)15
in Travel & Tourism, combined with new communications The unique value of tourism to emerging markets
technologies, helps facilitate significant economic growth is easy to see. Over the past decade, tourism grew in the
in developing countries. And electronic payments— world’s 49 poorest countries at a rate six times faster than
which can be made over the Internet—are critical to Europe. In fact, tourism grew at a rate of 6–8 percent a
making the formula work. year collectively in China, India, Africa, and the Middle
These factors can also help stimulate economic East, compared with 3–5 percent in Europe and the
activity in less-developed economies. In Ethiopia, tourist United States.Tourism transfers wealth, technology and
arrivals since the end of the 1998–2000 war with skills to emerging economies.16
Eritrea have grown by an annual average of 15 percent. Tourism expenditures and the export and import of
According to the World Bank report, the percentage of related goods and services generate income in the host
vacation tourists has increased by over 180 percent.11 country and can stimulate the investment necessary to
More than ever, tourism represents a gateway to finance growth in other economic sectors. In fact, inter-
economic progress and prospects for increased personal national tourism is one of the top five export categories
dignity and a better life for people around the world. for as many as 83 percent of countries, and is a leading
Tourism is now well recognized as a key to bringing source of foreign exchange for at least 38 percent of
wealth and experience from the richest countries to the countries.17
poorest ones—especially as it increasingly interacts with The statistics paint a promising picture—a picture
advanced information technologies. In fact, the UN of opportunity. But filling that picture out requires
World Tourism Organization has cited tourism as an encouraging people to travel and help stimulate wealth
important factor in achieving the UN’s Millennium creation. In doing so, one of the greatest boons to Travel 77
Development Goals. & Tourism in recent years has been the development of
It is easy to see why.Tourism is bigger than the electronic payments.
automotive, agriculture, and electronics sectors—repre-
senting 6 percent of total world trade and 40 percent of
trade in services. It generates trillions of dollars in global Economic benefits of electronic payments
GDP, hundreds of millions of jobs, massive exports and The widespread adoption of electronic payments has
investment—and a significant degree of resilience to significantly expanded the sales volume of goods and
economic crises and natural disasters.12 services, reduced barriers to immediate credit and liq-
After three years of stagnant growth, no doubt uidity, and eased geographic restrictions to trade and
largely attributable to concerns about terrorism and exchange. And, pertinent to the subject of this paper,
SARS, international tourism experienced a rebound in electronic payments promote travel & Tourism by
2004, with the large majority of destinations reporting providing travelers with a form of exchange that is
positive results. In particular, the Asia Pacific region ubiquitous, secure, reliable, and convenient.
experienced a strong rebound after the SARS-induced When considering the value of these qualities as a
setbacks suffered in 2003, with the recovery of the driver of tourism, it is worth taking into consideration
world economy (especially the economic generators, the the assessment of Deep Kalra, founder of makemytrip.com,
United States and Europe, as well as Asia itself). Direct who attributes part of the success of his budget travel
international tourist spending now stands at US$800 website in India to the wide use of credit cards in that
billion a year—more than US$2 billion a day; it is country. “E-commerce in India has better infrastructure
expected to double by 2020.13 because of wider use of credit cards,” he says.18
Tourism also helps create jobs directly (in such Tony Hickey, general manager of Ethiopian
industries as transport, hospitality, and travel firms); Quadrants PLC, in a summer 2006 speech, described
indirectly (agriculture and manufacturing); and induced the growing strengths of Ethiopia’s tourism industry. But
(roads, services, and utilities).World T&T employment is he did not ignore its weaknesses. In particular, he cited
currently estimated at 234 million jobs, 8.7 percent of the “limited acceptance of credit cards.” In his words,
total employment.14 Most encouragingly, the benefits of “Ethiopia loses money each year because visitors are
job creation fall disproportionately to developing and unable to spend money. I am talking about the limited
less-developed economies. Consider the top 10 countries acceptance of credit cards, in an age where travelers do
benefiting from job creation through tourism. Only two not carry wads of cash with them… I believe that
of the 10 can be classified as developed economies (the
TT.part1.r2 2/21/07 11:47 AM Page 78
tourist class hotels should be obliged to accept credit Among the many forms of electronic payment
cards.”19 choices Visa offers, it is worth considering some examples
During the same speech, Hickey referenced how, of products that can help stimulate T&T spending.
on one occasion, he was awakened by a friend with a One of the challenges facing small businesses in
pressing problem.The hotel his friend was staying at tourist destinations has been the traditional lack of credit
would not allow him to settle his bill with a payment payment options for small-ticket purchases.Visa has
card. As a result, Hickey had to provide a guarantee of been addressing this problem through the introduction
payment for his friend’s account. of a small-ticket option for businesses that depend on
Indeed, Hickey estimates that more extensive fast turnover—such as quick-service restaurants, coffee
acceptance of electronic payment cards in Ethiopia shops, and newsstands.The service applies equally well
would be worth an additional US$22 million a year to to low-cost souvenir shops, poolside snack bars, and
Ethiopia.This estimate is not surprising. History outdoor food stands.
demonstrates a compelling need to standardize payment Small-ticket outlets will be further assisted by
forms to enhance their utility. Examples are as ancient as contactless cards, which are valuable in outlets where
the Qin Dynasty in China (221–207 BC) when the swiping prohibitively slows down speed at the point of
Emperor unified three or four forms of currency into sale. Perhaps more importantly, contactless payments
one coin, and as contemporary as the creation of the have applications beyond cards.The technology can be
euro in the 21st century. customized to key fobs and mobile phones, and can
The development of money does not depend solely improve the transmission of enhanced data. (This paper
on objective characteristics. Subjective evaluations play a discusses mobile technologies in more detail in a later
critical role. Ultimately, consumers determine what form section).
of money is most desirable. People simply substitute At a macro level, the effect of electronic credit
cheaper and more convenient forms of money for payment systems is to increase the money supply and
expensive and inconvenient forms. It is through this reduce constraints on spending. Economies depend
substitution that new money forms embed themselves in upon efficient payments. In Canada, economic analysis
the marketplace. revealed that electronic payments contributed $107
78 Over the past 5,000 years of human history, we’ve billion (Canadian) toward a total $437 billion of
seen the currency of commerce evolve: from barter to economic growth in the Canadian economy between
coins, to payment by paper, to check.This development 1980 and 2000.20
has been driven by an overwhelming marketplace pref- In many ways, the economic impact of introducing
erence for increased convenience and efficiency, and for electronic payments is akin to using the gears on a
decreased risk and cost.The modern payment card is an bicycle. Add an efficient electronic payments system to
example of this organic, socially driven growth—the an economy, and you kick it into higher gear. Add
creation of new forms of exchange that continue to well-managed consumer and business credit, and you
make life easier and more efficient. So long as the human notch up economic velocity even further.
condition continues to change, payment systems will
continue to evolve, driven by powerful market forces.
The advantages of electronic payment as a boon to Tourism: Challenges facing developing economies
Travel & Tourism are easy to see. For consumers, electronic The opportunities for promoting the growth of tourism
payment cards—compared with cash and checks—offer are clear; as are the advantages to local economies.The
the convenience of global acceptance, enhanced security high propensity to create wealth in diverse economic
and reduced liability in the event of loss or theft, imme- sectors—and to distribute it among all strata of the
diate access to funds, as well as access to credit. For population—has been one of tourism’s most compelling
merchants, electronic payments offer the advantages of attractions. It has led governments and economists of
speed and security in transaction processing; freedom developing countries to adopt it as a focal sector for
from the costly labor, materials, and accounting services diversifying their economies, which have often histori-
required in paper-based processing; better management cally depended on producing primary raw materials. It
of cash flow, inventory, and financial planning; cost and generates high-paying jobs across the spectrum. And
risk savings due to the elimination of the need to run an intensive central investment in tourism facilities has the
in-house credit facility; and, perhaps most importantly, indirect effect of creating opportunities for the sustainable
the incremental increase in purchasing power on the development of hundreds of small- and medium-sized
part of the consumer. Moreover, electronic systems are ancillary businesses, which are not capital-intensive, in a
able to provide a higher level of choice and customization variety of fields.
because the underlying system is capable of producing For developing economies, tourism can truly be a
multiple offerings utilizing the same operational capital. rising tide, lifting all boats. But too often, such economies
fail to catch the tide.Too often, local conditions inhibit
growth—including the growth of tourism. For instance,
TT.part1.r2 2/21/07 11:47 AM Page 79

transportation infrastructure and utilities are often Leapfrogging ahead with mobile technology
inadequate, unable to effectively facilitate tourist travel One of the biggest historic challenges has been the lack
or encourage spending. Likewise, robust financial systems of adequate telecommunications infrastructure—the
are also often markedly absent or lacking, with constricted highways of information—a lack that has undermined
access to financing for both merchants and consumers, efforts to introduce electronic payments and the advan-
as well as a dearth of access points for tourists to tages they bring.This infrastructure deficit has posed a
withdraw cash, and limited telecommunications infra- significant challenge to the tourism industry in develop-
structure to support electronic payments. ing economies.With a shortage of these information
In addition there are often legal uncertainties over avenues that break down communication and commer-
ownership, discouraging the level of investment necessary cial barriers, tourists traveling to the developing world
to draw tourists, ensure a pleasant stay, or encourage might have a difficult time accessing pay-phones, finding
maximum tourist spending. High taxes and bureaucratic ATM portals, or making automated electronic payments
obstacles to business also deter investment and discourage to local retail vendors.
potential entrepreneurs from starting businesses aimed at Recently we have seen reason for optimism.
attracting tourists, meeting their needs, and encouraging Merchants and consumers are both able to use mobile
them to spend. A lack of training support makes it diffi- technology to facilitate payments, turning a simple
cult for many tourist businesses to ensure the supply of mobile phone into a point-of-sale device.This is a
workers necessary, and diminishes the service capacity of major breakthrough for developing countries, which are
the industry in various countries—in turn making it leapfrogging beyond landlines and heading straight
difficult to attract tourists, provide for their service, and toward wireless communications. In Asia there were
encourage return trips. about as many mobile phones as landline telephones in
Moreover the T&T industries of developing 2003. In 2006, there were 1.5 times as many mobile
economies often suffer from disasters—such as tsunamis, phones. In 2008, mobile phones in Asia will actually
health crises such as SARS, and terrorism—as well as exceed the population of the continent.The number of
economic turbulence. In the wake of triple bomb mobile phones in Africa will be just short of the total
attacks that wrecked the Red Sea resort city of Sharm population.26
El-Sheikh, for example, the director-general of the By 2008, the Asia-Pacific Region will likely experi- 79
Egyptian Federation of Chambers of Commerce estimated ence a 30 percent regional mobile penetration rate.27
a 90 percent cancellation rate among booked arrivals.21 Africa is also expected to benefit from a significant
In the aftermath of the 2005 Bali bombings, arrivals of explosion of mobile technology. It is expected that by
foreign and domestic tourists dropped in half. 2008, Africa will experience a mobile penetration rate
Consider also the impact of the 2004 Boxing Day of nearly 20 percent.28 The fact that there are two billion
Tsunami on the economic health of Thailand’s tourist mobile phone users worldwide—equal to one-third of
industry.Thailand had some significant advantages in the global population—is indicative of the emergence of
dealing with the tsunami shock.The country had a wireless technology in developing countries.29 Mobile
highly developed infrastructure, most of which remained phone users make up twice the population of Internet
in place in the face of the tsunami. Phuket airport, for and personal computer users combined.30 The increas-
example, was closed for only about half an hour.22 ingly ubiquitous availability of mobile telephone tech-
Medical facilities appeared sound, public health impacts nology is opening new opportunities for tourism-related
were relatively minor, and adequate shelter remained in commerce.
place.23 The rapid development of new technologies,
Nonetheless,Thailand had a difficult time dealing especially those relating to mobile networks and mobile
with the tourist concerns spawned by the tsunami. devices, is creating opportunities to advance efficiencies
Going into the 2004 Christmas holiday season, the in electronic payments and better serve new markets
country had been enjoying years of tourism growth. and merchant segments.Where a street vendor in
The number of visitors each January had been steadily Bangalore may have previously been limited to cash
increasing, almost doubling since 1998—from 650,000 payments, new innovations—such as turning a mobile
to more than 1.2 million.24 But, in the wake of the phone into a payment terminal—are making it possible
tsunami, the visitor total dropped dramatically in January for him to be part of the connected, real-time, electronic
2005, by about one-third—to 800,000. Moreover, the payments world.
decline was seen not just in regions where significant For example, a mobile phone designed for merchants
damage was experienced (such as Phang Nga) but also with a secure integrated adaptor that accepts both
in locales like Phuket, which suffered relatively minor magnetic stripe and chip cards merges low-cost and
damage.25 widespread GSM/GPRS mobile phone technology
with the capabilities of a point-of-sale terminal, bringing
electronic payments to nontraditional locations and
merchant categories. One of the target markets is China,
TT.part1.r2 2/21/07 11:47 AM Page 80
where the government and banks are planning to unfamiliar currency to purchase goods and services from
increase merchant terminal locations from 3 percent to the smallest street vendors.This will allow the tourist to
30 percent in time for the 2008 Beijing Olympics. gain a better appreciation for the country of destination
Mobile message-based payments are also expanding because it allows increased interaction with local mer-
the choice of payment available to consumers and chants. At the same time, developing economies will get
merchants alike. In India,Visa has joined with the State a boost from the ground up, as tourists will be empow-
Bank of India to trial a mobile payments system using ered to explore the shops and stalls of countless small
text messaging technology.The platform is called mChq, businesses and vendors in some of the most remote
and it enables both merchants and consumers to use markets throughout the globe.
their mobile devices to conduct payment transactions. This technology will enable even the most adven-
Instead of presenting a card, a customer provides a turous tourists to utilize more efficient means of com-
mobile phone number or secure identity code, which mercial transactions.Tourists hiking the Himalayas or
the merchant uses to send a text message requesting embarking on a safari in the Sahara will be able to use
payment with the transaction amount and other pur- mobile phones to pay their tour guides electronically.
chase details. Once the customer confirms the transaction
by keying in a personal identification number (PIN), the
merchant is sent an authorization message that is Support for Travel & Tourism: Roles for government
recorded and stored on the cards of both merchant and and the private sector
customer as receipts.The mChq platform does not Due to the type of economic, social, and cultural bene-
require the merchant to have a conventional acceptance fits that can be derived from Travel & Tourism, the
terminal, which means that this technology offers elec- responsibility of growing individual T&T markets no
tronic payment access to new merchant sectors, such as longer falls to government initiatives alone. Instead there
healthcare providers, taxis, couriers, street vendors, and is a distinct role for both the public and private sector.
electricians. Of course, it is important to recognize that there
Similarly, around the globe and in areas where email are some things that only governments can provide—
is inaccessible, individuals are using the Short Message like the type of reasonable taxation and ownership laws
80 Service (SMS) to enable the exchange of text messages and regulations needed to inspire a healthy competitive
between mobile phones.This technology presents a environment. Likewise, policies specifically designed to
significant opportunity for global tourism, particularly assist small businesses and encourage start-ups are equally
in developing economies where the cost of a single valuable. And it is also important that governments
SMS message amounts to merely 1–3 cents (USD).31 remove some of the more physical roadblocks, such as
SMS technology can transform the mobile phone overburdened airports and inadequate road systems. At
into a digital wallet, capable of bridging the physical the end of the day, governments must recognize that
point of sale with the electronic point of sale. For they need to invest to get a return.
example, a partnership established between software There are also a number of steps that the industry
engineers, telecom companies, and banks has resulted itself can take. For instance, it is important to continually
in cost-effective electronic transfers of currency. In keep abreast of changing consumer preferences and
the Philippines, GlobeTelecom provides 13 million increase consumer choice.The industry needs to consider
subscribers with access to a mobile-wallet platform ways to improve the quality of tourism products and
designed by Utiba, an Australian software company.33 services by addressing the consumer’s desire for more
Subscribers use their mobile phones to transfer money products and services to be customized to their needs,
person-to-person, receive domestic transfer funds, and tastes, and preferences.
obtain remittances from international sources. Moreover, At the same time, industry standardization and best
these subscribers do not require bank accounts. practices can provide a benchmark with which to
Such mobile-wallet technology will expand tourism improve customer satisfaction, while also improving the
in developing countries by improving the ability to quality of services, industry skills, and staff.
facilitate electronic transactions in locations that were As stated, the benefits of expanded Travel & Tourism
once remote.Tourists ranging from high-school back- flow to both the private sector and government.This
packers to high-flying business executives will find this means that, in some areas, the responsibility of ensuring
technology affordable and accessible.The technology the health of the industry also rests with both parties. In
will reduce the difficulty of handling and exchanging some cases this can mean the two sectors working
unfamiliar currency for travelers who are on trips directly together for the betterment of the cause.
involving a single or multiple destinations. Moreover, it Take, for instance, one of the biggest roadblocks to
will ease the difficulty of engaging local merchants who growing Travel & Tourism. In the developing and less-
were previously unable to process electronic transactions. developed world, merchants often find it virtually
With the simple use of a mobile phone keypad, tourists impossible to obtain credit. Aspiring entrepreneurs
will find it easier to transcend language barriers and seeking to access capital run up against the fact that, in
TT.part1.r2 2/21/07 11:47 AM Page 81

many countries, information about a business or indi- enormous potential as a vehicle of economic growth
vidual’s credit track record is simply unavailable.This and advancement.Travel can encourage investment, create
makes it difficult, if not impossible, to borrow money. jobs, raise living standards, and generate government
And it can result in higher interest rates to offset the revenue. But what one gets out of any investment
higher risk. depends to a great extent on what one puts into it.
In order to help bridge this gap,Visa has been Transportation infrastructure, telecommunications infra-
working with the International Finance Corporation (the structure, marketing initiatives, and access to electronic
private sector arm of the World Bank)—in cooperation payments are among the factors critical to tourism
with governments—to set up and improve credit bureaus growth.
in more than 10 countries. By reducing risk, the initiative Tourism can also bring people closer together, and
can increase access to financial services; something that help shape shared perspectives across borders and oceans.
is good for the merchant’s business and good for the In the words of the enlightenment thinker Montesquieu:
economy.
Of course one of the most important activities that The natural effect of commerce is to lead to peace.
governments and the private sector can each undertake Two nations that trade with each other become recip-
is promotion and marketing, because it can benefit rocally dependent; if one has an interest in buying,
countries and regions as a whole, as well as the bottom the other has an interest in selling, and all unions are
founded on mutual needs33... The history of com-
lines of individual organizations. However, as the very
merce is that of communication among peoples.34
medium of promotional marketing evolves, so too must
the tactical programs that the public and private sector
But in order for this concept to work within the con-
initiate. It is no longer effective to operate marketing
text of Travel & Tourism, it is important to recognize
programs in a silo. Instead, today’s collaborative environ-
that the trade between the hotelier and the tourist, or
ment offers endless possibilities to extend reach in a
the street vendor and the tourist, needs a standardized
highly targeted way. For instance, nationally hosted
form of payment that is mutually acceptable and provides
events such as the Olympic Games and the Rugby
a rewarding experience to both parties.This is where
World Cup offer tremendous opportunity to leverage
electronic payments come into play. Payment cards and
private sector sponsorships, investment, and marketing 81
other electronic payment enablers are ubiquitous, secure,
initiatives that drive tourists to the host country long
reliable, and convenient.They make it easier for people
past the actual event.
to conduct businesses.They make it easier to travel.
Likewise a cross-regional approach to marketing
key destinations through tactical marketing activities
aimed at tourists from just one source market can yield
Notes
significant results because the firepower is directed 1 All-Africa Media, The Reporter, July 29, 2006.
toward where it will generate the most results.This type
2 Remarks by former US Secretary of Transportation, April 8–10, 2005,
of work can easily be done on the industry-side, with Global Travel and Tourism Summit, 2005, New Delhi, India.
government endorsement, when the organization 3 For the purposes of this paper, the term electronic payment refers to
involved is in one or more markets.Visa has initiated its all card-based transactions (credit, debit, prepaid, and commer-
cial).
own cross-regional marketing program in support of its
own T&T efforts. 4 Listfield and Monte-Nigret, August 31, 1994, Modernizing Payment
Systems in Emerging Economies, World Bank.
Of course, one of the most effective forms of
5 All-Africa Media, The Reporter, July 29, 2006.
marketing is probably word of mouth. And in today’s
world of technology-enabled peer-to-peer communica- 6 Calculated on the basis of a US GDP of US$13 trillion, a figure pro-
vided by the Bureau of Economic Analysis, US Department of
tion, this fact should never be underestimated. As new Commerce.
media such as community chat boards and blogs dethrone
7 UNWTO, Tourism Enriches, September 27, 2006.
traditional travel information sources such as paid adver-
8 Remarks by US Secretary of State Condoleeza Rice, April 10–12,
tisements and journalist commentary, the travel industry 2006, Global Travel and Tourism Summit, 2006, Washington, DC.
needs to be able to respond to consumer demand for
9 Prahalad, 2005, The Fortune at the Bottom of the Pyramid, Wharton
“real” recommendations.This means not only revising School Publishing.
current marketing strategies to accommodate new com- 10 Financial Times, London Edition, May 2, 2006, p. 23.
munication mediums and styles, but also ensuring that
11 Listfield and Monte-Nigret, August 31, 1994, Modernizing Payment
industry employees—especially those dealing directly Systems in Emerging Economies, World Bank.
with the traveling public—are well-trained and motivated. 12 Financial Times, London Edition, May 2, 2006, p. 23.
13 Financial Times, London Edition, May 2, 2006, p. 23.
Conclusion 14 WTTC 2006, Climbing to New Heights.
In a world characterized by dramatic improvements in 15 WTTC 2003, Blueprint for New Tourism.
transportation and communications, tourism offers 16 UNWTO, September 27, 2006, Tourism Enriches.
TT.part1.r2 2/21/07 11:47 AM Page 82
17 UNWTO, September 27, 2006, Tourism Enriches.
18 Financial Times, London Edition, May 2, 2006, p. 23.
19 All-Africa Media, The Reporter, July 29, 2006.
20 Visa Canada, 2003, The Benefit of Electronic Payments in the

Canadian Economy.
21 Inter Press Service, July 27, 2005.
22 Birkland, Impact of the Boxing Day Tsunami on Tourism in Thailand,

SUNY Albany, www.rpi.edu/dept/cits.



26 Celent, Mobile Commerce: Dealing with the Devil in the Details,

February 2006,

February 2006, p. 8.

29 Celent, Mobile Commerce: Dealing with the Devil in the Details




82
33 Spirit of the Laws, Book 20, Chapter 2, Montesquieu
34 Spirit of the Laws, Book 21, Chapter 5, Montesquieu
References
All-Africa Media. 2006. The Reporter. July 29.
Birkland, T. A. 2005. Impact of the Boxing Day Tsunami on Tourism in

Thailand. Slide presentation, SUNY Albany. Available at
www.rpi.edu/dept/cits.
Celent. 2006. Mobile Commerce: Dealing with the Devil in the Details.
February. San Francisco: Celent.
Financial Times. 2006. London Edition, May 2: 23.
Listfiled, R. and F. Monte-Nigret. 1994. Modernizing Payment Systems

in Emerging Economies. Washington, DC: World Bank.
Prahalad, C. K. 2005. The Fortune at the Bottom of the Pyramid. Upper

Saddle River, NJ: Wharton School Publishing.
UNWTO (United Nations World Travel Organization). 2006. Tourism

Enriches. E–booklet, September 27, Madrid, World Tourism
Organization. Available at www.unwto.org/newsroom/campaign/
tourism_enriches_eng.pdf
Visa Canada. 2003. The Benefits of Electronic Payments in the

Canadian Economy. Available at www.visa.ca/en/about/
resources/pdf/electr_payment_wp.pdf.
WTTC (World Travel & Tourism Council). 2006. Climbing to New

Heights: The 2006 Travel and Tourism Economic Research.
London: WTTC.
———. 2003. Blueprint for New Tourism. London: WTTC.

TT.part1.r2 2/21/07 11:47 AM Page 83
1.7: Investing in Air Transport Connectivity

CHAPTER 1.7 Economic growth is determined by the resources avail-
able to a nation in the form of labor, energy, materials,
Investing in Air Transport

and past savings accumulated in its stock of capital, and
in the productivity of those resources. Productivity can
Connectivity to Boost National vary according to a number of factors, the most impor-
tant of which are generally considered to be education,
Productivity and Economic research and development (R&D), and the capital assets
available to each worker.This paper looks at new evi-
Growth dence that the air transport network is one of those key
capital assets that enhances productivity and, hence,
“supply-side” economic growth.
BRIAN PEARCE, Chief Economist, International Air Transport
Association, Geneva
What is competitiveness?
Competitiveness is a widely used, and sometimes abused,
term. In the context of a nation’s economic performance
it is often used to mean the ability to succeed in trade
“battles” on the international market place.Yet the
evidence has been that trade is not a zero sum game,
confirming the predictions of the theory of comparative,
rather than competitive, advantage. Competition among
nations will lead to specialization in those traded goods
and services for which the country is relatively, but not
absolutely, better.The United States still exports goods
to China despite having labor costs many times the level
of its trading partner. Both countries benefit from this
trade. It is not like competition between companies on a 83
specific market. If a business has higher costs or poorer
quality than its competitor, it will go out of business,
eventually. If a country finds higher costs leading to a
persistent deficit in its trade in goods and services, its
exchange rate will fall, eventually.
So in a world of relatively flexible exchange rates,
the trade “competitiveness” described above of a nation’s
businesses does little to drive economic growth and
welfare in the sense of winning battles in the arena of
international trade. If it is highly “competitive,” its
exchange rate will rise, eliminating its advantage. If
“uncompetitive,” its exchange rate will fall, pricing its
traded goods and services back into international markets.
However, economic growth and living standards are
driven very powerfully by a nation’s productivity.
Knowledge, institutions, and assets that enable a nation
to produce more from its own supply of labor, energy,
materials, and past savings will directly raise living stan-
dards and economic growth. As the Conference Board
of Canada put it, “productivity growth is the key to
maintaining and improving living standards—it gives us
the biggest bang for the buck.”1
The World Economic Forum’s Global
Competitiveness Index provides an important perspective
on a range of institutions and circumstances that drive a
country’s productivity growth, particularly regarding the
“friendliness” of the business environment.2 The new
Travel & Tourism Competitiveness Index (TTCI)
featured in this Report uses that perspective to measure
how “friendly” a country’s business, regulatory, and
TT.part1.r2 2/21/07 11:47 AM Page 84
natural environment is for the development of its Travel The connectivity indicator is therefore calculated as:
& Tourism (T&T) industry.
This is a key perspective, since tourism is an impor- (number of destinations ⫻ frequency ⫻ seats per
flight) weighted by the size of the destination airport
tant generator of jobs and incomes in many countries.
scalar factor of 1,000
However, a country’s air transport network, which is
included in the TTCI, is also important to the produc-
A higher figure for the connectivity indicator denotes a
tivity of its wider business sector. It is an infrastructure
greater degree of access to the global air transport net-
asset connecting a country’s businesses to global markets
work. Using this indicator,Table 1 shows the importance
and sources of inputs and ideas. Air transport does not
of not just serving a large number of destinations, but
just bring tourists into a country. It also takes business
serving those destinations that have a large economic
travelers to meet existing and new customers, expands
importance and the ability to access a large number of
markets, and generates economies of scale and scope. It
onward connections for the business passenger. For
enables businesses to access the best sources of supply
example, in 2004 London Heathrow served only 55
around the world for high value-added materials, com-
percent more destinations than Copenhagen airport and
ponents, skills, and ideas. It is this feature of a country’s
just under four times as many destinations as Nairobi
air transport network that offers the potential for boosting
airport. But the larger number of major destinations
national productivity, economic growth, and living
served by Heathrow, the higher frequencies of the
standards.
flights, and the greater connections it provides to the
global network means that its measure of connectivity is
Measuring connectivity nearly four times that of Copenhagen and twenty times
We measure the quality of a country’s air transport net- that of Nairobi.
work by its “connectivity” from the point of view of its Of course the impact of this air transport infrastruc-
businesses.This connectivity is defined as the scope of ture on a nation’s economy will also depend upon the
access between an individual airport or country and the number and size of the businesses it is serving. Large
global air transport network. It is a measure of the economies will naturally have more destinations and
available seats, but quantity is not a measure of quality. A
84 number and economic importance of the destinations
served, the frequency of service to each destination, and given level of available seats and connectivity will pro-
the number of onward connections available from each vide a larger opportunity and stimulus to productivity if
destination. Connectivity increases as the range of it is supporting a smaller rather than larger number of
destinations and/or frequency of service increases. businesses.Ten new destinations to economically signifi-
The International Air Transport Association (IATA) cant countries are likely to bring more benefit to the
has used data from the SRS Analyser airline schedule businesses served by Nairobi airport than those already
database to construct a time-series indicator of the well served by London Heathrow airport. It is the level
connectivity of a country’s key airports to the global air of connectivity relative to the gross domestic product
transport network.The connectivity indicator measures (GDP) of a country that will matter for productivity
the number of available seats to a particular destination and economic growth.
in a certain period (the first week of July for each year
from 1995 to 2005). It then weights the number of
available seats by the size of the destination airport (in
terms of number of passengers handled in each year). Table 1: A measure of connectivity to the global air
transport network (2004)
This provides a proxy estimate of both the range and
economic importance of the destinations, the frequency Number of Number of
destinations available seats Connectivity
of service, and the number of onward connections Airport served per week indicator
available. Chicago (ORD) 202 1,056,286 286.6
For example, Atlanta airport, as the world’s largest London Heathrow 199 944,024 244.2
airport, is given a weighting of 1. Paris CDG airport, Beijing 122 551,801 92.5
Copenhagen 128 284,479 63.0
which handles 61 percent of the number of passengers Johannesburg 85 230,890 34.7
handled by Atlanta, is given a weighting of 0.61. Budapest 75 101,546 24.6
Therefore, if an airport has 1,000 seats available to Nairobi 54 78,850 12.3
Atlanta it is given a weighted total of 1,000. But if it also Source: IATA; SRS Analyser.
has 1,000 seats available to Paris CDG, these are only
given a weighted total of 610.The weighted totals are
then summed for all destinations (and divided by a scalar
factor of 1,000) to determine the connectivity indicator.
TT.part1.r2 2/21/07 11:47 AM Page 85

Measuring productivity increased for the firm; but if the dollar savings in labor is
For economists, one of the key measures of economic more than offset by higher annual capital costs, then the
performance is productivity. Productivity is a general term firm may be worse off. Economists have developed an
referring to the amount of economic output (that is, overall measure of productivity that considers not only
goods and services) generated by a given quantity of the productivity of labor but also the use of capital,
inputs.These inputs, or factors of production, can energy, and materials.This measure is referred to as total
include labor, capital, energy, and materials. Productivity factor productivity (TFP) and is the ratio of output to a
growth refers to the ability to produce the same amount measure of the total inputs used in producing the output:
of output using fewer inputs, or, equally, more output
output
produced with the same amount of inputs. TFP =
aggregate input quantity index
It is productivity growth that sustains increasing
standards of living. Paul Krugman writes: There is, however, a very real practical problem with
TFP: it has much greater data requirements than meas-
Productivity isn’t everything, but in the long run it is
uring the productivity of a single factor of production
almost everything. A country’s ability to improve its
such as labor—including the fact that it uses economic
standard of living over time depends almost entirely
rather than accounting measures and that the measure-
on its ability to raise its output per worker. World War
II veterans came home to an economy that doubled
ment of capital services is not an easy task.The result
its productivity over the next 25 years; as a result, has been that governments often compute labor and
they found themselves achieving living standards other single-factor productivity measures, but not meas-
their parents had never imagined. Vietnam veterans ures for TFP. In practice this may not be too much of a
came home to an economy that raised its productivity problem for our analysis since, based on countries where
less than 10 percent in 15 years; as a result, they both TFP and labor productivity were available, the two
found themselves living no better—and in many measures are highly correlated: the correlation coeffi-
cases worse—than their parents.3 cient is 0.80, as shown in Figure 1.This suggests that the
difference in productivity over time and between coun-
Productivity growth is key to economic growth. As tries, portrayed by the labor productivity measure, is
Alan Blinder and William Baumol describe, it is the very similar to that shown by TFP. 85
means by which countries can be lifted out of poverty
and generate wealth and economic security:
Does connectivity drive labor productivity?
Over long periods of time, small differences in rates The contribution to a nation’s economy of the air
of productivity growth compound, like interest in a transport sector is sometimes measured by its direct
bank account, and can make an enormous difference contribution to GDP through its profits, its payments of
to a society’s prosperity. Nothing contributes more to
wages, and its cost of using land and capital inputs.
reduction of poverty, to increases in leisure, and to
Sometimes the jobs and output that are supported along
the country’s ability to finance education, public
the industry’s supply chain and that are supported indi-
health, environment and the arts.4
rectly from its spending (tourism for example) are also
counted. However, in a developed economy with close
There are a number of different measures of pro-
to full employment, it could be argued that this indirect
ductivity. Perhaps the most widely cited is labor produc-
contribution does not represent added value to the
tivity, which is the ratio of output produced to the
economy since, in the absence of the air transport
amount of labor input used in producing the output:
industry, another sector would employ its resources and
output consumers would buy other goods and services.This is
labor productivity =
labor hours not so relevant a criticism in developing economies.
Moreover, what clearly cannot be replicated by other
At the national level, output can be measured by the industries in the absence of air transport is the network
GDP of a country.The denominator is sometimes meas- of connections to global markets.
ured by the number of workers if labor hours data are In particular, the air transport network:
not available. Labor productivity has its strengths and
weaknesses as a performance measure. At the macroeco- • Facilitates world trade: Air transport connects
nomic level, labor productivity is a key driver of growth businesses to a wide range of global markets,
in average income per head and is generally seen as the providing a significantly larger customer base for
critical measure of economic performance. their products than would be accessible otherwise.
At the level of decisions made by individual firms, This is particularly important for high-tech and
maximizing labor productivity may not always be opti- knowledge-based sectors, and for suppliers of
mal. For example, by making enormous and expensive time-sensitive goods.
investments in automation, labor productivity can be
TT.part1.r2 2/21/07 11:47 AM Page 86
Figure 1: Labor and total factor productivity measures are highly correlated
130
120
TFP (index, 100 = United States in 2002)
110
100
90
80
70
60
5 10 15 20 25 30 35 40
Labor productivity: GDP/hour
Source: InterVISTAS.
86 • Boosts productivity across the economy: By These supply-side mechanisms will positively affect
expanding the customer base, air transport allows labor productivity. If they are sufficiently significant in
companies to exploit economies of scale and reduce size it should be possible to observe a positive relation-
unit costs. By exposing domestic companies to ship between rising economic connectivity and rising
increased foreign competition, it also helps to drive labor productivity.
efficiency improvements among domestic firms in Indeed, such a relationship can be seen in Figure 2.
order to remain competitive. There are a number of important influences on produc-
tivity, such as varying levels of investment, education,
• Improves the efficiency of the supply chain: Several and R&D, which are not controlled for in the figure.
industries rely on air transport to operate their Nonetheless, even given these sources of variation there
“just-in-time” production operations, providing appears to be a clear pattern from just plotting connec-
greater flexibility within the supply chain and tivity against productivity. Developing Asia, Africa, and
reducing costs by minimizing the need to hold emerging or transition economies are at the bottom left
stocks of supplies. of the figure.They have low connectivity relative to
• Enables inward and outward investment: Access to their GDP and also relatively low productivity. At the
extensive air transport links allows domestic firms top right of the figure are the developed Asian, North
to identify and manage investments in foreign-based American, and European economies with high levels of
assets and encourages foreign firms to invest in the connectivity and labor productivity.
domestic country. Above a certain level of productivity (US$20 of
GDP/hour) there is a wide spread of connectivity levels.
• Acts as a spur to innovation: Extensive air transport This may well be due to a wider variation of other fac-
links facilitate effective networking and collaborators determining the level of labor productivity in these
tion among companies located in different parts of nations. It may also be that there is a threshold effect
the globe. Access to a greater number of markets above which increasing the connectivity of already well
also encourages greater spending on research and connected developed economies does little to improve
development by companies, given the increased size productivity.
of the potential market for future sales. However, up to that point there appears to be a
clear positive relationship between higher levels of
connectivity and higher levels of labor productivity,
hence higher GDP and living standards.
TT.part1.r2 2/21/07 11:47 AM Page 87

Figure 2: The link between connectivity and productivity
60 Developed Asia
North America and Western Europe
Developing Asia and Africa
50
Emerging Europe
Labor productivity: GDP/hour
Transitioning Asia and South America

40
30
20
10
0
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Connectivity per US$ billion of GDP
Source: InterVISTAS; IATA.

Note: Cyprus, Hong Kong SAR, Malta, and Singapore have been excluded from the figure because their geographic circumstances have led to them having
exceptional connectivity relative to the size of their populations.
Surveying business opinions in five very different across the different types of air services, ranging from 78 87
economies percent of firms reporting that air freight services were
The obvious way to understand better how the quality important for sales to 85 percent who said that passenger
of a country’s air transport network affects business services were important for sales (see Figure 4a). Freight
productivity is to ask the businesses effected.We did services provide a direct link to sales by moving goods
this with the help of a survey of over 600 businesses in to new markets, but passenger services are even more
countries in different regions and at different stages of important in terms of people-based services and because
economic development (China, Chile, the Czech they allow management and sales to gain a greater
Republic, France, and the United States) by Oxford understanding of the different market conditions across
Economics. several countries. Indeed, over two-thirds of firms report
The companies surveyed report that, on average, that passenger services are vital or very important for
25 percent of sales depend on good air transport links. establishing and maintaining customer relationships.
The importance of air transport for sales is especially The air transport network allows firms to improve
high in the high-tech sector, where nearly 40 percent of their efficiency of production and to reduce costs in
sales depend on air services (see Figure 3a).This reflects four main ways:
the time-sensitive, high-value nature of products in this
sector. Air transport is also more important for sales in • It provides reliable and timely deliveries from
the United States, where it supports 36 percent of sales suppliers, allowing firms to operate an efficient
(see Figure 3b). However, the proportion of sales just-in-time production process and reducing the
dependent on air services is lowest in China and the need to hold expensive inventories.
Czech Republic, reflecting the developing nature of the
air transport network in these countries. And less than • It allows firms to exploit economies of scale by
20 percent of sales depends on air transport in France, serving a bigger potential market.
reflecting the strong competition from road and rail • It allows companies to rationalize their own
networks in Western Europe. production among different sites and to source
Over 80 percent of businesses report that air services raw materials and other inputs from the most cost
are important for their sales, with nearly 60 percent effective suppliers.
describing it as vital or very important.The United
States was once again the highest, with nearly 95 percent • It facilitates the spread of new production techniques,
of firms saying that air transport is important for their making it easier for firms to attract higher-quality
sales.The importance of air transport is fairly consistent employees from a broader pool of talent.
TT.part1.r2 2/21/07 11:47 AM Page 88
Figure 3: Proportion of sales dependent on good-quality air transport links
a: By sector b: By country
40 40
35 35
30 30
Percent of sales
Percent of sales
25 25
20 20
15 15
10 10
5 5
0 0
Manu- High tech Financial Other Total Chile China Czech France United Total
facturing and Republic States
business
services
Source: IATA.
88
Figure 4: Importance of good-quality air transport services
a: For sales b: For efficient organization of production
100 100
80 80
60 60
Percent
Percent
40 40
20 20
0 0
Passenger Freight Express Total Passenger Freight Express Total
Services Services Delivery Services Services Delivery
Vital Very important Sometimes important
Source: IATA.
TT.part1.r2 2/21/07 11:47 AM Page 89

Figure 5: Implications of serving a bigger potential market
a: For exploiting economies of scale b: For reducing costs through new suppliers
100 80
80
60
60
Percent
Percent
40
40
20
20
0 0
Chile China Czech France United Total Chile China Czech France United Total
Republic States Republic States
Substantially To some extent
Source: IATA.
89
On average, 80 percent of firms report that air services companies in the high-tech sector report an ability to
are important for the efficiency of their production, exploit these advantages, compared with only a fifth in
with over 50 percent of firms saying it is vital or very the financial and business services sector.This reflects
important (see Figure 4b).The reported importance is the greater need for individual service tailored to the
also fairly consistent across the different types of air client in the financial and business services (FBS) sector,
services, with passenger services considered to be the making the bigger economies of scale harder to achieve.
most important. Companies in China and the United The trend toward globalization of production
States gain the most efficiency from air services, with makes good air transport links essential for the manage-
two-thirds of companies in these countries stating that it ment of subsidiaries. Over 80 percent of firms state that
is vital or very important for an efficient production passenger air services are important for their ability to
process. manage their organization and subsidiaries effectively.
The impact of air services in exploiting economies On average, nearly 30 percent of the employees of the
of scale and sourcing more cost-effective suppliers is companies surveyed travel for business purposes by air.
recognized by firms. Nearly 70 percent of firms report Therefore the companies place a high value on air travel
that, by allowing them to serve a bigger market, air for the contact it facilitates with clients and with col-
services allow them to exploit economies of scale leagues in overseas locations.
substantially or to some extent (see Figure 5a), while The accessibility to global markets provided by air
56 percent state that these services also help to reduce transport provides a boost to investment decisions—
costs from suppliers (see Figure 5b).The ability to both outward by domestic firms and inward by foreign
exploit economies of scale is lowest in China and the firms. By allowing firms to serve a bigger market, air
Czech Republic, reflecting the focus of firms on the transport increases the number of potential customers
domestic market (in China’s case) or exports to near for new product investment. By facilitating efficiency
neighbors (in the Czech Republic’s case) at their current gains, air transport boosts the potential returns from
stage of economic development.The Czech Republic investment in global production assets.The increased
also had the lowest proportion of firms using air services competition that arises from serving larger markets also
to source cheaper supplies, reflecting perhaps a prevalence benefits the wider economy through a more efficient
of nearby low-cost component producers.There are also allocation of resources. Competition encourages firms
significant differences between sectors in the ability to to specialize in the activities in which they are most
exploit economies of scale. Around three-quarters of
TT.part1.r2 2/21/07 11:47 AM Page 90
Figure 6: Has the absence of good air transport links ever affected investment decisions?
a: Percentage responding “yes” b: What happened subsequently
30
Invested anyway,
25 but costs were
higher
No investment
20
18% 23%
Percent
15
10
59%
Investment made
0 elsewhere
Chile China Czech France United Total
Republic States
Source: IATA.
90
efficient, while allowing other products that may be transport services, with a further 27 percent saying they
produced more efficiently elsewhere to be bought in. would be slightly affected. Nearly three-quarters of
The air transport network is an important factor in firms in Chile believe their competitiveness would be
determining where a company makes an investment, very badly or moderately affected, a reflection of the
with 63 percent of firms stating it is vital or very large distances between the country and some of its
important to their investment decision and a further major export markets.
24 percent saying it is somewhat important. Even so, Over 30 percent of companies state that they would
air transport is one of many factors in the investment be very badly or fairly badly affected by constraints on
decision and is slightly less important than the cost and the availability of air transport services, while a further
availability of labor, taxes and regulations, and, perhaps, 40 percent would be inconvenienced. In particular, firms
the local road network. However, the absence of good state they would be affected mostly through an increase
air transport links can be the major determining factor in costs, a loss of customer contact, and a loss of orders.
in not making an investment. On average, 18 percent of These are all factors that would restrict the productive
firms reported that the lack of good air transport links potential of a country and its economic development.
had affected their past investment decisions, with the On average, 30 percent of firms report they would be
less-developed nature of the Chinese air network highly likely to invest less in the region if air services
accounting for the higher proportion of almost 30 were constrained, with 24 percent of firms highly likely
percent who had altered past investment decisions (see to cut back on R&D investment in the region.The
Figure 6a). Of the investments that were affected, 59 high-tech sector would be the most affected, reflecting
percent were made in other locations with better air the higher importance of air services to sales in the sector.
services, 18 percent went ahead anyway but with signifi- This survey evidence suggests strongly that connec-
cantly higher costs, while in 23 percent of cases no tivity with the global air transport network is an impor-
investment was made (see Figure 6b). tant potential source of business productivity gains, for
Over half of the businesses surveyed believe that both developing and developed nations.
their ability to compete internationally would be very
badly or moderately affected by any constraints on air
TT.part1.r2 2/21/07 11:47 AM Page 91

Quantifying the relationship between connectivity and The model (Ln refers to a log e functional form in
productivity which parameters ai can be read as elasticities) estimated
To be more certain of this relationship, the economic from the data covering the period 1995–2005 was:
consultants InterVISTAS undertook an econometric
analysis of the data using the same type of model used Ln (GDP/labor hours) = constant
+ a1 ⫻ Ln (connectivity/GDP)
by earlier studies investigating the impact of investments
+ a2 ⫻ % R&D
in the information and communication technology + a3 ⫻ % education
(ICT) industry on national productivity and economic + a4 ⫻ Ln (GFCF/worker)
growth (see Table 2). + a5 country dummy variables
Impact of factors other than connectivity on productivity

The estimates shown in Table 2 of the impact on produc-
Table 2: Model coefficients
tivity of factors other than connectivity are consistent with
Term Coefficient (ai ) Standard error t -statistic the findings of other research studies on productivity.
Constant –0.37 0.23 –1.62 The largest impact on productivity comes from
Connectivity/GDP (a1 ) 0.0068 0.0029 2.31 capital spending per worker (“GFCF/worker” is gross
% R&D (a2 ) 0.0997 0.0192 5.19
% education (a3 ) 0.0191 0.0218 0.87
fixed capital formation per worker), or what is known as
GFCF/worker (a4 ) 0.3733 0.0216 17.29 capital deepening. A 1 percent rise in capital spending per
Country dummies (a5 ) worker will increase labor productivity by 0.37 percent.
Argentina –0.01 0.06 –0.09
If an additional 1 percent of GDP was spent on
Australia –0.17 0.04 –4.43
Austria 0.08 0.03 2.45 R&D, productivity would rise by 0.1 percent. An
Belgium 0.13 0.03 4.04 equivalent amount spent on education would raise
Brazil –0.34 0.06 –5.57 productivity by 0.02 percent.
Bulgaria –0.38 0.07 –5.61
Canada –0.03 0.03 –0.83
The constant term and the country dummy variables
Chile –0.37 0.06 –6.61 capture any remaining reasons for productivity differences
China –1.08 0.09 –12.66 between countries.The dummy variables are relative
Cyprus –0.07 0.06 –1.05
91
Czech Republic –0.12 0.05 –2.26
to the United States so, for example, the insignificant
Denmark –0.07 0.04 –1.75 coefficient on the United Kingdom dummy variable
Egypt –0.92 0.08 –11.65 suggests that all differences in productivity between the
Estonia –0.43 0.06 –7.71
two countries are captured by differences in capital
Finland –0.22 0.03 –6.71
France 0.13 0.03 4.09 spending, education, R&D, and connectivity.The highly
Germany 0.11 0.03 3.57 significant coefficient of –1.23 on India’s dummy variable
Greece –0.03 0.05 –0.59
suggests there are some other factors (perhaps institutional
Hong Kong SAR –0.24 0.06 –4.19
Hungary 0.02 0.05 0.42 or social) that keep productivity lower than can be
India –1.23 0.09 –13.33 explained by differences in capital spending, education,
Ireland 0.02 0.04 0.35 R&D, and connectivity.
Israel –0.42 0.04 –9.91
Italy 0.16 0.04 3.67
Japan –0.40 0.04 –10.30
Korea –0.80 0.03 –23.10 Impact of connectivity on productivity
Latvia –0.36 0.07 –5.09 The estimated impact of connectivity on productivity is
Lithuania –0.23 0.07 –3.25
Luxembourg 0.26 0.04 6.16
statistically significant and shows that a 10 percent rise
Malta –0.11 0.06 –1.67 in connectivity, relative to a country’s GDP, will boost
Mexico –0.41 0.06 –6.48 productivity by 0.07 percent.
Netherlands 0.15 0.03 4.36
This implies that investing in air transport capacity
New Zealand –0.13 0.05 –2.78
Norway 0.25 0.04 6.26 in developing or transition countries, where connectivity
Poland –0.09 0.07 –1.38 is currently relatively low, will have a much larger impact
Portugal –0.16 0.05 –3.25 on their productivity and economic success than that
Romania –0.59 0.07 –7.90
Russian Federation –0.10 0.08 –1.16
same scale of investment in a relatively developed country.
Singapore –0.28 0.05 –5.75 For example, the recent accession of Poland to the
Slovakia –0.05 0.09 –0.62 European Union resulted in a rise in the number of
Slovenia –0.36 0.04 –8.94
South Africa –0.39 0.06 –6.26
flights between Poland and the United Kingdom in
Spain 0.00 0.04 0.00 both directions during the period June 2003 to June
Sweden –0.32 0.04 –8.05 2006, from 58 a week to 250, raising the number of
Switzerland –0.37 0.04 –9.85
seats available each week from 7,000 to 40,000. For
Turkey –0.44 0.06 –7.38
United Kingdom 0.01 0.03 0.25 Poland that meant a rise in connectivity of 27 percent;
the increase in the already well served United
Source: IATA; InterVISTAS.
TT.part1.r2 2/21/07 11:47 AM Page 92
Kingdom’s connectivity was a much smaller 0.5 percent. In total there was an investment of C$1,805 million
The estimated long-term boost to Poland’s productivity associated with a 25 percent rise in the connectivity of
and GDP was 0.19 percent or US$634 million, compared YVR (this was less than the 34 percent rise in passengers
with 0.004 percent or US$45 million for the United because destinations are weighted according to their
Kingdom. economic importance).
These estimates are consistent with what might be The impact on Canada’s connectivity was to
expected a priori from similar research on the productivity increase it by 5.4 percent over the period 1995–2000.
impact of the ICT sector. For example, a study by On the basis of the model set out above this would have
Statistics Canada suggests that between 1981 and 2000 raised Canada’s productivity by 0.04 percent. Since
each 10 percent increase in ICT investment led to a Canada’s GDP in 1995 (in 2005 dollars) was C$969
0.5–1.2 percent increase in productivity. 5 billion, this implies an additional C$348 million in
national output.
For an investment of C$1,805 million to produce
An example from Canada’s Vancouver International an annual increase to GDP of C$348 million implies an
Airport annual rate of return of 19.3 percent.This rate of return
To give a practical example, and to estimate the economic does not include the direct benefits to passengers of the
rate of return from investing in air transport infrastruc- added services or any increase in profits for the airport
ture, InterVISTAS looked at the recent expansion of or airlines.The total economic rate of return would be
Vancouver International Airport (YVR) in Canada. considerably higher. Even so, 19.3 percent is a very good
Between 1995 and 2000 the airport authority at YVR rate of return.
made substantial investments in terminals, runways, and
other infrastructure in order to increase the capacity of
the airport. Over this time period the airport experienced Some examples from less well developed nations
a substantial increase in traffic. For example, air passenger Using a methodology similar to the one used in the
volumes increased by 34 percent.This is not to say that Vancouver example, the rate of return on capital
the investment in airport capacity was the only reason, investment in air transport was estimated for Kenya,
92 or even the main reason, for this increase of traffic at Cambodia, El Salvador, and Jamaica, all countries at
Vancouver. One major factor was the liberalization of air much earlier stages of economic development than
services between Canada and the United States in 1995. Canada (see Table 3).
However, the investment in capacity was necessary to As with the Vancouver example, these estimates are
facilitate and support the growth in traffic to and from based on capital investment programs at the major inter-
Vancouver. national airport (sourced from the Airports Council
Allowing for a certain amount of replacement International) of each country between 2000 and 2005.
spending, the investment in YVR’s airport infrastructure Estimates have been made of the new aircraft required,
during 1995–2000 totaled C$506 million (in 2005 based on the increase in seat capacity at the airport
prices).To handle the additional 4 million passengers between 2000 and 2005, using 200-seat aircraft with a
there was also investment in additional aircraft. It is list price of US$150 million.
difficult to disentangle investment for other markets from Between 2000 and 2005, connectivity increased
airline capital spending programs. However, assuming a 5 by between 34 percent and 85 percent in these four
percent rise in aircraft load factors, the rise in passengers countries.The percentage impact on national GDP
would have required an extra 8 aircraft with 200 seats ranged from 0.2 percent to 0.4 percent. On a percentage
flying an average of 4 flights a day.The estimated cost of basis, the impact in these countries is substantially larger
this is C$1,280 million in 2005 dollars. In addition, the than that of Vancouver’s (0.04 percent), as expected. In
Canadian federal government spent C$19 million on a the case of Kenya, with its relatively large economy,
new air traffic control tower in 1996.
Table 3: Developing-country rates of return from investment in air transport

Airport Aircraft Increase in
investment investment connectivity Increase in GDP in 2000 GDP increase Annual rate
Country (US$ million) (US$ million) 2000–05 (%) GDP (%) (US$ million) (US$ million) of return (%)
Kenya 61 348 85 0.417 50,007 209 59

Cambodia 248 538 61 0.323 31,085 100 19
El Salvador 256 546 43 0.245 34,592 85 16
Jamaica 23 168 34 0.199 13,123 26 16
Source: InterVISTAS; ACI; IATA.

TT.part1.r2 2/21/07 11:47 AM Page 93

Figure 7: The relationship of the overall Travel & Tourism Competitiveness Index to a nation’s connectivity
6.0
Travel & Tourism Competitiveness Index score
5.5
5.0
4.5
4.0
3.5
3.0
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
Connectivity per US$ billion of GDP
Source: World Economic Forum; IATA.
the rate of return on investment—59 percent—is also Competitiveness Index (TTCI) presented in this Report. 93
considerably higher than it is for Canada. The index provides nations with a measure of how they
For the other three much smaller developing rank on each factor and how far away they are from the
economies the rates of return, at 16–19 percent, are nations they may seek to benchmark themselves against.
comparable with the rate for Canada.These are still high The TTCI and connectivity relative to GDP are
rates of return for investment projects. Remember also not perfectly correlated because they are not designed
that these returns do not include the direct benefits to to measure exactly the same thing, but there is a clear
passengers or any improvement in the profits of the air- relationship between the two measures, as Figure 7
port and airlines.The reason why these rates of return shows.The TTCI emphasizes those factors that will
are not higher than Canada’s is that many capital costs, help to develop the tourism industry rather than the
particularly for new aircraft, are as high for developing connectivity that boosts the productivity of an economy’s
as for developed nations, yet the developing countries’ business sector and its long-term economic growth.
level of GDP is lower. Above a certain size of economy Clearly, investment in any nation’s air transport
the larger boost to productivity will more than offset sector is important for its economic development to the
high capital costs and generate very substantial rates of extent that connectivity is improved to better serve the
returns. However, for small economies, high capital costs nation’s business sector.That in turn may require institu-
may restrict rates of return to developed-country levels. tional changes such as market liberalization.The TTCI
should be instrumental in helping governments to iden-
tify where such change is necessary. As ever, indexes
Conclusions need to be used with care to obtain the lessons sought;
Bringing about an increase in connectivity is shown to nonetheless, this is an important addition to the toolkit
bring substantial long-term economic benefits, even for of policymakers seeking to improve the economic
a highly developed economy such as Canada.The bene- contribution of the T&T sector worldwide.
fits are even larger for developing countries, such as those
in Africa. Realizing these benefits will require investment
in infrastructure but may also require the liberalization Notes
of markets and other institutional changes to bring 1 See Conference Board of Canada (1997).
about the rise in connectivity. 2 For more information on the Global Competitiveness Index , see
Many of the factors necessary to develop connectivity Chapter 1.1. in The Global Competitiveness Report 2006–2007
(World Economic Forum 2006).
and gain the benefits to productivity and economic
3 See Krugman (1992, p. 9).
growth are set out within the Travel & Tourism
TT.part1.r2 2/21/07 11:47 AM Page 94
4 See Blinder and Baumol (1993, p. 778).
5 See Harchaoui and Tarkhani (2004).
References
Blinder, A. and W. Baumol. 1993. Economics: Principles and Policy. San
Diego: Harcourt Brace Jovanovich.
Conference Board of Canada. 1997. “Performance and Potential.”

Annual Report, Conference Board of Canada, Ottawa.
Harchaoui, T. M. and F. Tarkhani. 2004. “Whatever Happened to U.S.-

Canada Economic Growth and Productivity Performance in the
Information Age?” Statistics Canada Research Paper no.
11F0027MIE-25, November.
Krugman, P. 1992. The Age of Diminished Expectations: US Economic

Policy in the 1980s. Cambridge, MA: MIT Press.
World Economic Forum. 2006. The Global Competitiveness Report

2006–2007. Basingstoke, UK and New York: Palgrave MacMillan.
94
TT.part1.r2 2/21/07 11:47 AM Page 95
1.8: Long-Haul Hubs and the Future of Air Transport

CHAPTER 1.8 There has been a steady shift in global air traffic flows
over the past two decades, coupled with an expanding
Long-Haul Hubs and the Future

and strong appetite for air travel worldwide.This paper
discusses the shifts in global air traffic flows from the
of Air Transport dawn of modern commercial aviation to the present day,

and considers how the future of air transport might take
shape. It looks at the development of Dubai in the
MAURICE FLANAGAN, Executive Vice Chairman, Emirates Group United Arab Emirates as an example of how new
long-haul hubs will enact their role in that future.
Changing patterns in air travel

In the early days of civil aviation, most international air
routes evolved from the old colonial empires originally
served by flying boats (see Figure 1).This originated
from traditional European centers such as London and
to some extent Amsterdam and Paris—establishing
east–west routes to colonies in India, the Far East, and
Australia, and north–south routes through the African
continent with multiple refueling stops in between. In
the early 1930s, Pan Am’s “clippers” also paved the way
for international flights initially with air mail contracts
to South America and later across the Pacific to Hawaii,
the Philippines, and Hong Kong. However, Europe still
dominated the bulk of international air traffic with
east–west routes.
Trans-Atlantic commercial air travel began in the 95
late 1930s, but it started to take off only after World War
II when US and European carriers such as Pan Am,
TWA,Trans Canada Airlines, BOAC, and Air France
used larger piston aircraft, which allowed services over
the North Atlantic with intermediate stops. Jet service
began in the late 1950s, and European airports devel-
oped into pivotal hubs for global air transport, consoli-
dating and facilitating the bulk of east–west and
north–south traffic flows.
The 1970s and 1980s saw the rise of Asian carriers,
led by Singapore Airlines.The gradual loosening of air
industry regulations had made it possible for multiple
airlines to compete in the same markets and on more
routes, fueling the development of the global air travel
market. During this time, traditional east–west global
traffic flows remained relatively unchanged, but new air
transport hubs in Asia such as Singapore, Hong Kong,
and Tokyo began to grow in prominence as booming
Asian economies spurred global traffic growth and the
development of intra-region traffic within Asia, as well
as trans-Pacific routes. African routes remained relatively
underserved, while the Arabian Gulf countries such as
Bahrain and the United Arab Emirates found a role as
refueling stops for intercontinental jets on east–west
routes between Europe and the Asia Pacific region.
World travel patterns are now undergoing another
major change, driven by the increasing globalization of
business and communities, growing populations, and
rising incomes. Air travel is today more accessible to
more people than ever before, as technology and efficient
TT.part1.r2 2/21/07 11:47 AM Page 96
Figure 1: Colonial air traffic flows
Source: www.imperial-airways.com.
96 aircraft lower the real cost of airfares and bring air travel China and other emerging economies such as Brazil,
within the reach of mass populations—airfares have never India, and Russia. Historical growth rates for the airline
been cheaper in real terms (see Figure 2). Air travel, industry indicates that demand for air travel grows at a
once the domain of the wealthy and privileged, is today multiple of GDP growth and disposable income.2 Many
a form of mass transport, with over 4 billion passengers fast-developing markets such as those of Brazil, China,
flying annually. India, and Russia are generating some of the highest
GDP per capita growth rates in the world, far outstrip-
Surging demand for travel ping the average global GDP per capita growth of 2.9
The instant global sharing of information via the Internet percent in 2004.3
and satellite broadcasts, coupled with the liberalization
of world economies, has stimulated travel demand by Effect of high demand on air transport hubs
opening new possibilities for a mobile workforce, For air carriers, these emerging markets could open new
international trade, and the leisure traveler. and massive catchment areas for passenger traffic, not to
Global demand for air transport services has been mention new markets for air freight transport to move
growing steadily.This demand has proved resilient consumer goods and raw material for industries.This
despite several shocks in the past five years to the air paper posits that air transport hubs in Asia and the Middle
travel industry from terrorism, health scares, and high East, in particular, will be well placed to take advantage
fuel prices.The International Air Transport Association of the changing world travel patterns.While US and
(IATA) forecasts that international air travel will continue European hubs will remain important, the relative influ-
to expand at an average annual rate of 4.8 percent ence of traditional European hubs for international air
between 2006 and 2010, while air freight traffic is transport will diminish (Figure 3).
expected to continue growing at 5.3 percent annually
on average.1 Demand for air transport will be driven by
global economic growth, as more people share the need Long-haul hubs in the Middle East
to meet each other, or to buy and sell goods made else- As a region, the Middle East enjoys a geocentric location
where—and rising incomes means they can now better that is a key advantage in facilitating and optimizing
afford to travel. For business or for pleasure, people global air traffic flows east–west or north–south. Operating
today want to travel more often and further, in greater from a relatively lower cost base than airports and airlines
comfort and a shorter time. in other parts of the world, traffic at airports in this
Over the next 20 years, demand for air travel is region is surging.
likely to see a new surge brought about by the rise of
TT.part1.r2 2/21/07 11:47 AM Page 97

Figure 2: The number of average weeks’ earnings required to fly from London to Sydney
140
120
2 years
100
80
Weeks
60
1 year
40
20
0
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source: Data from Thomas and Forbes Smith 2003, p. 181.
Figure 3: Major international travel patterns today 97
• Diminishing relative influence of the European hub

• Rise of Asian and Middle Eastern hubs
Source: Author.
TT.part1.r2 2/21/07 11:47 AM Page 98
According to Airports Council International (ACI), aircraft deliveries over the next decade.7 Dubai-based
traffic growth at airports worldwide increased by 6.5 Emirates Airline, for instance, is the largest buyer, with
percent in 2005 over 2004, with airports handling some approximately 70 percent of all new long-haul aircraft
4.4 billion passengers and 82 million metric tons of orders in the Middle East, and it is planning to more
cargo.The organization estimates that passenger traffic at than double its all-wide-body fleet capacity by 2012. Its
airports in the Middle East have increased 10.9 percent, current order book of over 100 wide-bodied aircraft is
outstripping all other regions, and cargo traffic growth estimated to be worth some US$30 billion. Other airline
stands at 5.4 percent, second only to growth in the Asia players in the region with sizable wide-bodied aircraft
Pacific region.4 orders include Qatar Airways with an estimated order
A tourism boom in the Middle East is also con- book of some 40 aircraft and Etihad Airways with over
tributing to the region’s air traffic growth, powering the 20 aircraft pending delivery.
rapid expansion of airports and airlines. Figures from the
World Tourism Organization (UNWTO) indicate that Challenges to growth
the Middle East region’s share of the world’s tourism Despite bullish projections for global air travel demand,
market has increased from 2.5 percent to 4.8 percent it is not an entirely a blue skies outlook for commercial
within the past decade, with international tourism aviation. In the short to medium term, the key challenges
arrivals reaching 38.4 million in 2005.5 For 2006, the that the industry faces are high fuel prices, infrastructural
UNWTO predicts that the region will notch up over and aero-political constraints, the stability of the global
8 percent growth, attributing the strong performance economy, and environmental issues.
to a growing interregional middle-class market and Airports and airlines, including those of the Middle
continuing investment in infrastructure development and East, will need to tackle the huge supply-side industry
marketing, along with improved tourism development. pressures wrought by the combination of increased
IATA forecasts that international passenger air traffic traffic, high demand, and high oil prices. Efficiencies
in the Middle East will expand by 7 percent in 2006, and innovative ways to reduce costs have never been
with an average annual growth of 6.9 percent until more vital.
2010—ahead of all other geographic regions including Industry-wide initiatives to increase efficiency
98 the economically robust Asia Pacific, where it is predicted and lower costs include the introduction of e-ticketing,
that passenger air traffic will grow 5.7 percent annually the establishment of more efficient flight paths, radio
from 2006 until 2010. frequency identification (RFID) tagging, the use of the
The Middle East region is actively tapping into this Internet for flight bookings and air cargo tracking, and
potential, and Arabian Gulf countries in particular are self-service check-in kiosks among many new technolo-
investing heavily to develop their tourism infrastructure. gies. Aircraft manufacturers are also developing jets that
This in turn is driving investment in airports and the air are more cost efficient to fly and maintain, but still
transport industry. afford greater onboard comforts while flying longer
distances in less time.
Infrastructure investment in the Middle East All throughout the value chain—from airlines,
Middle Eastern markets are undergoing a phase of strong airports, and aircraft manufacturers to reservations systems
economic growth and massive infrastructural develop- providers and IT service developers—the industry has to
ment. In the six-nation Gulf Corporation Council continue finding dramatic and creative ways to cut costs
(GCC) region alone, it is estimated that there are some and respond to new customer demand.
1,400 planned infrastructure projects worth US$1 trillion
in April 2006,6 of which airport development and The A380 and other new long-haul aircraft
expansions worth over US$40 billion are currently Against the backdrop of growing demand and supply-
taking place. side pressures, new-generation aircraft that offer expanded
It is an interdependent relationship. Economic range, enhanced passenger comforts, and vastly improved
growth drives demand for air transport, and air transport operating economics will play an integral role.The
can in turn contribute to that growth by generating jobs massive Airbus A380 double decker, expected to enter
and secondary industries, as well as facilitate tourism and commercial service for the first time in 2007, will
trade through the movement of cargo and people across provide long-haul hub carriers such as Emirates and
global markets. However, to take advantage of the Singapore Airlines with much-needed capacity to tap
expanding demand for Travel & Tourism, airlines and the booming global demand for air travel, while at the
airports must have the infrastructure and facilities.The same time seeking to mitigate the likely ongoing slot
Gulf region in particular has been a hot-spot of rapid shortages and congestion problems experienced at some
development in air transport. airports.
Middle Eastern carriers currently account for just Wide-bodied aircraft capable of efficient and
9 percent of long-haul capacity worldwide, but they are economical ultra long–range flights, such as Boeing’s
responsible for nearly a quarter of all global long-haul 777 long-range aircraft and Airbus’ A340-500, also open
TT.part1.r2 2/21/07 11:47 AM Page 99

new routing possibilities for connecting high-demand airports in fast-developing markets such as China, India,
city pairs nonstop, or any two points on the globe with and the Middle East are finding it increasingly difficult
a single stop in a centrally located long-haul hub such as and costly to attract such talent from the international
Dubai. Possible routes, for instance, could link San market.
Francisco and Dubai nonstop; Buenos Aires to Moscow Keeping a watch on costs while developing opera-
via one stop in Dubai; or Sydney to Houston via Dubai. tions and managing rapid growth will be high on the
Combine this long-range capability with that of the agenda for Middle Eastern airlines and airports as they
A380, the world’s biggest passenger aircraft, and long- strive to expand and create new markets.They must also
haul carriers such as Dubai-based Emirates will be able maintain a competitive edge over other well-established
to target any type of market it chooses.The airline will international airports in Europe and Asia, which are
also have ultra long-range Boeing 777-200LRs in its already enjoying hub efficiencies and economies of scale.
fleet, which would provide further flexibility to put
exactly the right aircraft on a specific route.
Long-haul hub carriers such as Emirates differ from Dubai: The ideal long-haul hub
the legacy carriers operating a traditional hub-and-spoke The air transport industry in the Gulf has attracted
model. In the latter case, the airline’s network consolidates increasing international interest in recent years, ignited
short-haul traffic into long-haul operations, but a carrier by a series of multibillion dollar aircraft orders from
such as Emirates mainly has long-haul traffic flows. Gulf-based carriers such as Emirates Airline, Qatar
New-generation aircraft such as the A380 and Airways, and Etihad, and stoked by accompanying mas-
Boeing 777-300ERs and 777-200LRs are fundamental sive airport expansion and development projects.There
to the development of long-haul hubs in the Middle is also excitement in the aviation industry about the
East.They are also vital to the future of airlines such as potential of India, which possesses some growth pillars
Emirates, allowing the carrier to remain competitive in common with the Middle East.These include a geo-
while keeping unit costs low in a scenario where it is graphically central location, a strong economic climate,
forecast that fuel could hit sustained levels of over and air traffic expansion.
US$60 per barrel. However, unlike the Arabian Gulf nations, India has
At present, Middle Eastern carriers generally enjoy a huge domestic source market that has yet to develop 99
a favorable operating environment where their home to its full potential, and the country has neither the same
cities are investing heavily in infrastructure to develop level of political commitment nor the capital investments
the air transport industry as a means to economic to drive the development of air transport infrastructure.
growth. Access to a non-unionized and relatively cheap Thus this paper suggests that, in the near to medium
labor force at their home bases and the pro-business tax term, it is unlikely that Indian airports will develop into
regimes within which they are working are also factors long-haul hubs of the same caliber as is already being
that provide Middle Eastern carriers with a relatively seen in such cities as Singapore and Dubai.
low unit cost base compared with their European and Dubai, one of the seven emirates that make up the
US counterparts, and with some Asian airlines. United Arab Emirates (UAE) in the Arabian Gulf, is
In addition, many of the region’s long-haul carriers developing into a long-haul air transport hub unlike
—such as Emirates, Qatar, and Etihad—are operating anything seen before. Its success and rapid growth is
young and efficient aircraft fleets that are more cost exerting an increasing influence on global air traffic
effective to fly and maintain than older fleets, again flows and shaping the way the industry views long-haul
contributing to these airlines’ unit cost advantage as hubs and long-haul carriers.
well as to their ability to win and retain customers by In the three decades since the UAE was formed in
providing a better flight experience. For example, 1971, the rulers of Dubai have deliberately and aggres-
Emirates’ all wide-bodied fleet of over 90 aircraft average sively pursued a master plan to develop the city into a
only 61 months in age compared with the industry global center—for commerce, tourism, and global air
average of 187 months. transport—to wean its economy away from dependency
A Boston Consulting Group report estimates that, on the emirate’s small and declining oil reserves. It
on a like-for-like basis on long-haul routes, Middle would be difficult to find a better location for a global
Eastern carriers have a long-term total unit cost air transport hub than Dubai, which is perfectly situated
advantage over US and European carriers of between between the major population centers of east and west
18 and 32 percent.8 and north and south.
However, rapid economic growth in the Middle Africa, China, Europe, and India are all within
East—in particular the Gulf nations—may erode this easy reach of nonstop flights from Dubai using current
unit cost advantage as inflationary pressures build up. In commercial aircraft. Dubai is also perfectly positioned
addition, the strong growth in air transport worldwide to carry the east–west, ultra long–haul traffic from the
means skilled labor such as pilots, aviation engineers, Americas, the Far East, and Australasia with future new-
and flight controllers are in high demand. Airline and generation aircraft.Within 8 hours’ flying time of Dubai,
TT.part1.r2 2/21/07 11:47 AM Page 100
Figure 4: Dubai: The ideal long-haul hub
6.3 billion people within 16 hours of Dubai (2005)
East Asia
Europe
Middle East 1,527 1,586
653 644
North America 667
577 434
433
2005 2050
2005 2050 2,220
2005 2050
1,431
Dubai 799
2005 2050 1,398
579
642 888
443 2005 2050
South Asia
2005 2050 2005 2050
2005 2050 Asia Pacific
Africa
South America
...growing to 8.5 billion in 2050!
Source: Based on data from UN 2004.
100 the city’s catchment area encompasses approximately 5.5 tallest tower), Dubailand (the world’s largest tourism
billion people—a figure projected to grow to 7.8 billion attraction, planned to be 100 times the size of Monaco
by 2050.9 If that area were expanded to a 16-hour when complete), and the new Dubai Waterfront (the
radius, within reach of new ultra long–range aircraft, world’s largest waterfront development, to be larger than
Dubai’s air hub could potentially serve a population of Manhattan)—just to name a few.
6.3 billion—or a projected 8.5 billion people by 2050 Without a doubt, Dubai’s “Open Skies” policy has
(see Figure 4). played a major role in the city’s success as a commercial
center and air transport hub. As a result of this open
Dubai International Airport: Potential for growth skies model, any airline has the ability to fly to the emi-
The potential is enormous. If only 10 percent of the rate and compete without restriction.This is the reason
population in the expanded catchment area traveled by that Dubai International Airport today is served by over
air, and only 20 percent of those chose to travel via Gulf 110 scheduled airlines that link the city to some 190
hubs, there will be a potential customer base of some destinations. It allows the emirate to offer the extensive
170 million people in 2050 for Gulf operators. air services critical to attracting conventions and trade
As a long-haul hub, Dubai also has an added bonus: shows, and critical also to influencing the location of
it is a destination and attraction in its own right. Driven corporate and regional headquarters, service companies,
by a sustainable long-term vision to transform the research and development facilities, and manufacturing
emirate into a global powerhouse for commerce and sites.
tourism, the Dubai government has successfully attracted Consumers, business travelers in particular, also
multibillion dollar investments and scores of foreign benefit when they choose to travel through Dubai hub
companies to set up operations in the city. Dubai is airport, because they have a greater choice of flights and
arguably the fastest growing city in the world, with an destinations, greater frequency of service, flexibility in
annual average GDP growth rate of 10 percent over the rescheduling, and a general efficiency in their travel,
past decade. Planned developments announced in Dubai such as avoiding the time and cost of an overnight stay
are estimated to be worth some US $200 billion.10 because of good flight connections.
Investments in the real estate sector alone are estimated As a global destination, Dubai currently attracts
to come to US$50 billion by 2010; these include infra- over 6.5 million visitors annually, and it is putting in
structure projects in the free-zones and mega projects place the infrastructure to attract 15 million visitors by
such as the Palm Islands and The World (land reclamation 2010. Its flagship carrier Emirates, with its more than
projects visible from space), Burj Dubai (the world’s 100 new aircraft on order and its ambitions to connect
TT.part1.r2 2/21/07 11:47 AM Page 101

Dubai directly to more than 100 cities around the world Gazing into the crystal ball
by 2012, is well positioned to support and build on this It is still too early to tell if a dual-airport system in
growth. In fact, the success of Dubai and its home Dubai will take off, or even be necessary. It is clear,
carrier Emirates Airline has been such that neighboring however, that the city is intent on establishing a strong
countries and airlines—notably Qatar—have begun to position to tap into the future growth of global air
emulate this model of symbiotic growth. transport demand.
As a center for air transport, Dubai is already the Bolstered by strong GDP growth, expanding
region’s busiest airport and transshipment hub.The city populations, and rising affluence, other cities in the
whose aviation industry started off in 1937 as a stop-over Gulf are also experiencing an increasing demand for air
point for Imperial Airways’ flying boats enroute to travel. Having observed Dubai’s model for success, these
Karachi is today the world’s 12th busiest airport for cities too are keen to tap on the region’s aviation and
international passenger traffic and 11th ranked for cargo tourism boom to diversify their traditionally oil- and
traffic.11 More than 20 million travelers and some 1.2 gas-dependent economies.
million tonnes of cargo passed through Dubai’s airport Planned projects in the Gulf region will see more
in 2005, and both passenger and cargo traffic are on than US$40 billion invested in new airport infrastructure
track for 15 percent growth in 2006. over the next five years. Announced projects include:
The city’s confidence in its ability to play an even
bigger role in the future of air transport is reflected in • a US$6.8 billion Abu Dhabi airport expansion,
its massive plans to put in place new infrastructure, and
in the inauguration of Dubai Aerospace Enterprises in • a US$5.5 billion new airport in Qatar,
early 2006.This joint-venture consortium is intent on • US$2.1 billion for airport expansion in Kuwait,
becoming a world player in aircraft leasing, airport
design and management, aviation training, maintenance • a US$1.5 billion airport expansion plan in the
repair and overhaul, manufacturing, and consultancy— Kingdom of Saudi Arabia, and
with particular focus on emerging markets in the
• over US$33 billion for the new Dubai World
Middle East, Asia, India and China.
Central airport and integrated logistics city in
101
Dubai’s Jebel Ali.
Dubai airport infrastructure investments 2005–10
Dubai International Airport, which only recently com-
Some industry watchers have expressed skepticism about
pleted its first major expansion with the opening of its
the viability of multiple airports competing for long-
second terminal (the Sheikh Rashid Terminal) in 1999,
haul traffic in the Gulf region, predicting a potential
is now investing in further expansion to tap into the
fall-out or rationalization.This need not be the case.
growth in air travel demand globally and in the region.
Southeast Asia can be viewed as an example.This is a
A new airport terminal, tailor-made to accommodate
region with a head start of about a decade on the
the Airbus A380 aircraft, will be ready by the end of
Middle East in terms of experiencing strong and steady
2007, as will a new Cargo Mega Terminal.The airport is
economic and air transport growth.
also building two additional concourses and upgrading
Singapore,Thailand, and to a lesser extent Malaysia,
its airfield facilities with new aprons, taxiways, tunnels,
today operate successful long-haul hubs in a region that
and runway extensions.When fully completed, this
is highly competitive but buoyed by a strong economic
US$4.1 billion expansion phase will boost the airport’s
environment and expanding travel demand. All three
capacity to 70 million passengers and 3.6 million tonnes
countries have invested heavily in air transport infra-
of cargo annually.
structure, and have flagship carriers that focus on inter-
But passenger traffic at Dubai airport is projected to
national long-haul traffic.Thailand has just inaugurated
hit 60 million in 2010, so these new facilities would
its new Suvarnabhumi Airport in Bangkok with a
reach full operational capacity within just two years of
capacity for 45 million passengers annually; Singapore’s
completion.That is why construction has already com-
Changi Airport, having just completed a US$153 million
menced at the new Dubai World Central in Jebel Ali,
upgrade of its second terminal, is currently building a
some 60 kilometers from the current airport. Dubai
third terminal to boost its annual capacity to 64 million.
World Central is a brand new, integrated airport city in
Being situated close to competitive long-haul hubs
a free-zone environment. It comprises a multitransport
does not appear to have had a negative impact on these
mode logistics hub, an international airport with six
Southeast Asian airlines or airports, nor has the recent
runways and the capacity for 120 million passengers
mushrooming of low-cost point-to-point carriers
annually, a residential development for 750,000 people, a
operating in that region. In fact, according to analysts
golf resort, and commercial centers.The first phase of
in Asia, the concern is the need to expand existing
Dubai World Central is due for completion in 2009.
infrastructure to cope with air transport demand rather
than competition between hubs.
TT.part1.r2 2/21/07 11:47 AM Page 102
According to Peter Harbison, executive chairman of 10 See the Middle East Economic Digest (MEED) Projects Database,
April 2006.
the Sydney-based independent aviation consultancy
11 See ACI (2005, p. 14).
CAPA, “Asia’s major hubs will continue to have to
invest in new airport capacity, to meet expected trade 12 See Han (2006).
and tourism growth.The capacity shortages run the risk

of undermining hub competitiveness, not to mention
inconvenience to passengers, while airport congestion References
can also lead to financial loss for airlines.”12 ACI (Airports Council International). 2005. World Airport Ranking. Report
published by ACI.
Having the necessary infrastructure to support air
——— . 2006. World Report July (2).
transport growth appears to be a theme not only in Asia
and in the Gulf, but also worldwide. At the Global Air ———. Updated monthly data. Available at www.airports.org/cda/aci/
display/main/aci_content.jsp?zn=aci&cp=1-5-212-1377-1383_9_2
Transport Outlook Conference in Montreal in July 2006, and www.airports.org/cda/aci/display/main/aci_content.jsp?zn=
Airports Council International Director Robert Aaronson aci&cp=1-5-212-1376-1380_9_2.
said, “Time is running out on the building of airport Budde, F., J. Goth, R. Love, D. Schilling, and B. Woffenden. 2006a.
capacity to meet anticipated demand.The strain on many “The Rise of Middle Eastern Carriers.” Boston Consulting Group
report, September.
airports is already apparent. And the growth continues
———. 2006b. “Understanding the Demand for Air Travel: How to
unabated this year according to our monthly data.” Compete More Effectively.” Boston Consulting Group report,
He added that global airport capacity is not matching June.
projected global passenger growth, and the implications Han, B. 2006. “Asian Airport Investment Vital for Regional Growth:
of capacity shortfall and its resulting congestion are Analysts.” Agence France-Presse, October 8.
bleak in terms of the quality of the travel experience. IATA (International Air Transport Association). 2006. “Passenger and
Freight Forecast 2006–2010.” IATA report, September. Available
at www.iata.org/economics.
Conclusion Sutherland, J. and F. Wuebbeler. 2006. “Key Findings.” In Bridging the

Gulf. Llyod’s Worldwide Market, June 2006. Available at
The global market for air transport is getting bigger. www.lloyds.com/NR/rdonlyres/4D748C8D-3D7D-47A3-84FA-
There will always be room for a carrier such as F4D180648788/0/ReportMiddleEastKeyFindingsSept06.pdf.
102 Emirates, served by a hub such as Dubai. In the future Thomas, G. and C. Forbes Smith. 2003. Flightpaths: Exposing the
Myths about Airlines and Airfares. Aerospace Technical
of air transport, geo-centrally located long-haul hubs, Publications International Pty Ltd
particularly in the Middle East, are set to play an
UN (United Nations). 2004. World Population Prospects: The 2002
increasingly important role if the resources are invested Revision. New York: United Nations Department of Economic and
to tap into the potential for growth the way that Dubai Social Affairs.
and other Gulf nations have done. UNWTO (World Tourism Organization). 2006. World Tourism Barometer
4 (1).
European hubs will continue to play an important
role in global air traffic flows, but the rise of new long- World Bank. 2006. World Development Indicators 2006 Online.
Washington, DC: World Bank.
haul hubs in the Middle East, combined with the advent
of new ultra long-haul aircraft, will influence these flows
and affect the way travelers experience long-haul travel.
For global businesses and international travelers, the
development and strengthening of long-haul hubs in the
Middle East ultimately delivers more air transport
options and potentially more efficient ways to travel or
to ship products to international markets.
Notes
1 See IATA (2006).
2 See Budde et al. (2006b).
3 See World Bank (2006). In 2004, GDP per capita growth for China
was 9.4 percent, India 5.4 percent, Brazil 3.5 percent, and Russia
7.7 percent.
4 See ACI (2006).
5 See UNWTO (2006).
6 See Sutherland and Wuebbeler (2006).
7 See BCG (2006a).
8 See BCG (2006a).
9 See UN (2004).
TT.part1.r2 2/21/07 11:47 AM Page 103
1.9: The Challenge of Open Skies in the Middle East

CHAPTER 1.9 The Middle Eastern air transport sector is maturing rap-
idly. Recent significant capacity increases from relatively
The Challenge of Open Skies

new carriers are equalled in ambition by internal change
within incumbent airlines. A formerly sleepy backwater
in the Middle East: How to in the aviation landscape is generating increasing interest.
From 1999 to 2005, international flying within the
Manage Competition in the Middle East increased from 3 million to 12 million
passengers: a fourfold increase compared with an inter-
High-Growth Air Transport national average rise over the six-year period of 30
percent.1 Some of the most substantial aircraft orders in
Sector the world are taking place in the Middle East. Adoption
of cutting-edge reservation and commercial technologies
SAMER MAJALI, President and CEO, Royal Jordanian Airlines is commonplace, and a few airlines are joining the global
airline alliances. Investment in both primary and sec-
GEOFFREY WESTON, Vice President Cargo, Royal Jordanian Airlines
ondary airports is booming, and the auxiliary industries
(such as maintenance, catering, flight training, and airport
handling) are rapidly undergoing consolidation and
privatization.
The diversity of business models is also maturing as
airlines evolve from the traditional flag carrier model to
a more sophisticated set of strategies.These differences
are driven by diverging wealth levels and national
economic policies, and are reflected in different fleet
strategies. A few new airlines are single-type carriers,
mimicking the classic low-cost model. Other airlines
focus on wide-body fleets, leveraging the lower seat
mile costs and substantial airfreight capacity as part of a 103
hub strategy.The wide-body airlines based in relatively
small home markets will necessarily rely substantially on
transit traffic. Recent orders for regional jets by other
carriers reflect a growing interest in developing thinner
routes and matching capacity to demand.
The drivers of change

Seven forces are both driving these changes and feeding
upon each other. It is more useful to consider them
separately rather than group them as a generic result of
“globalization.” Indeed, these forces are in some cases
very particular to the Middle East.
The first is the increased demand for air travel stim-
ulated by the rapid growth in Middle Eastern economies.
Two principal causes of this increased demand stand
out: a steep rise in population and rising fossil fuel
prices.These factors have led not only to an increase in
disposable income but also to a substantial increase in
capital available for businesses, which in turn leads to
more employment and increased demand for travel.
These results have shifted the demand curve to the
right, creating opportunity for the supply of air transport
to expand profitably in its wake. Furthermore, recent
geopolitical events have made it more difficult for
Middle Eastern capital to be invested abroad.These
restrictions on flows of capital from the Middle East lead
to even more local investment than would otherwise be
the case.
TT.part1.r2 2/21/07 11:47 AM Page 104
The second force is an increasing relaxation of than the traditional one, with higher service levels, and
bilateral agreements between Middle Eastern states, with substantial corollary infrastructure.
which opens up international traffic.This is especially The seventh and final driving force, strongly linked
true for secondary destinations. Civil aviation authorities to the sixth, is the infrastructure developments that
are implementing the increased political willingness of accompany the strategic use of airlines as a wider
their governments to push for more capacity in the economic policy.These investments are most visible
skies. In some cases, this is a positive by-product of at seaports and airports. Investment in airports will be
increased cross-border investments.These investments distributed not only in physical buildings but also in
create an environment in which economic ties are often handling services.There is, it should be noted, a risk of
reinforced with other examples of openness, such as air market distortion here if as a result the home carrier has
transport liberalization. access to handling charges and services that are not in
Third, several Middle Eastern governments are line with the costs. Leaving these issues to one side, it is
granting new operating licenses that directly increase the clear that substantial investments in this infrastructure
number of carriers, thus stimulating competition and support the development of airlines as they remove a
expanding capacity. Even the most economically and series of obstacles to growth.
politically conservative governments are doing this.
Other states are setting firm timetables for the end of
the incumbent carrier’s monopoly, or are using the des- The good news
ignation of secondary points as “Open Skies” to attract The developments described above are generally welcome.
new carriers. Furthermore, other airlines operating as The virtuous circle of increased capacity, falling fares and
charter or airfreight carriers are increasingly encouraged stimulated demand for air transport supports regional
to base themselves in secondary airports. markets and strengthens their relevance to the wider
The fourth force is the increasing reluctance of global economy. Middle Eastern airlines are stimulating
some states to subsidize the incumbent airline directly. investment in aircraft technology, creating employment,
There is increasing pressure on many airlines, well and supporting closer economic integration in a region
before their privatizations are timetabled, to create previously characterized by isolationist tendencies.Their
104 economic value. Sometimes this leads to the spin-off of growth sends a clear message from many Middle Eastern
profitable auxiliary services. states that they are keen to play their part in the world
Fifth, and as a result of the above forces, there has community and to strengthen trade and transport links
developed a brisk increase in the flows of labor (both with the rest of the world.
white and blue collar) from other regions to the Middle The impressive increase in tourism flows to the
East.The biggest flow is from the Indian subcontinent. Middle East creates positive political fallout. Stopover
As the growth of the demand for human resources out- programs are creating the opportunity for business
strips local talent and capacity, a new market has been travelers to take a break in a country that they would
created as millions of foreign workers relocate to the not otherwise visit.The acceleration of non-oil-related
Middle East. foreign investment is a testament to the diversification
Sixth, several states in the Middle East are pursuing of many Middle Eastern economies. It is cheaper and
an economic policy that requires a strong airline at its easier than ever to do business in the Middle East.
core.This strategy of creating economic hubs combines Furthermore, as airlines grow and become more profes-
industrial and touristic objectives.This is often a combi- sional, they increasingly focus on both modernizing their
nation of a sea/air intermodal freight strategy and fleets and increasing adherence to international standards
a tourism strategy.These policies require the rapid such as the International Air Transport Association
establishment of economic entities that will support a (IATA) Operational Safety Audit.
vertiginous increase in the flow of goods and people
through the hub. A strong, multidestination and high-
capacity airline sits at the heart of this strategy. It is Problems ahead
imperative to ensure both that the deep seaport has a It is not clear, however, that these expansionary and
reliable “air” outlet for the mostly East-West flows, and generally positive trends are leading to a genuinely fair
that the hub has passenger air traffic links with a wide competitive environment that would result in sustainable
spectrum of tourist source markets. growth of the regional air transport sector. Indeed, in
It could also be argued that this sixth force is many ways these very high levels of growth in the
sometimes combined with the intent to use air travel as Middle Eastern air transport sector mask the absence of
an instrument of foreign policy. A fast-growing and a regional agreement on the boundaries of fair competi-
aggressively marketed airline is a relatively cheap way of tion.The director general of IATA, Giovanni Bisignani,
gaining visibility abroad. In many ways, this policy is an recently asked a gathering of Middle Eastern airline
updated version of the traditional flag carrier model— CEOs “how do we make sure your emerging success
however, it is a policy with considerably more funding
TT.part1.r2 2/21/07 11:47 AM Page 105

story has a happy ending?” He called for the “imple- consider the full context of the air transport sector’s
mentation of real policy measures to support growth.” 2 requirements.
As the skies open, it is increasingly important that
a basic set of competitive criteria be established.
Strengthening intraregional competition regulations Issues with the European Union
will allow economically viable airlines to flourish in an It is in the interests of the European Union to engage
environment that rewards genuine commercial success. constructively with the Middle East on the issue of air
Further down the line, a correctly regulated Middle transport. In fact, the European Union is well positioned
Eastern aviation sector will allow a structured rationali- to do this and is already targeting increased cooperation
zation of capacity to take place, with productive mergers between the two regions with initiatives such as Euromed.
and acquisitions creating a number of strong regional Furthermore, the painful journey of European airline
airlines. Scale is important in a consolidating market, and privatization is almost over (with only one major airline
solid regulation will support this.The current risk is the still not significantly restructured); thus Europe’s com-
inefficient allocation of resources, leading to a very high petitive relationship with the airlines of neighboring
increase in capacity that is not able to channel itself in regions will soon become a key issue.
an economically viable manner through market forces. Indeed, the major European carriers are some of
Unfortunately, some of the faster-growing Middle the most vocal critics of the fast-growing airlines based
Eastern carriers are currently pushing for a superficial in the Middle East.The complaints primarily concern
version of Open Skies that limits itself to expanding issues of competitiveness. However, Middle Eastern
Air Service Agreements (ASAs).These carriers call for airlines also have reasons to be unhappy with certain
unlimited frequency/capacity between states.This anticompetitive traits of the EU skies. An excellent
unfortunate state of events is a by-product of certain example of this is access to major airports.This access is
states putting their national short-term interests ahead restricted by an archaic grandfather rights slots system,
of the development of a mature regional air transport which prevents Middle Eastern carriers from expanding
industry. capacity to major European hubs; there are no similar
The sixth and seventh forces outlined above are impediments for EU carriers in the Middle East. Instead
usually present in the home markets of the airlines that of an efficient market in airport slots—which would 105
are less willing to sign up for fair competition regulation. mirror increasingly mature markets in handling, catering,
The losers in unregulated Open Skies would be the and other auxiliary services—Middle Eastern airlines are
airlines that are genuinely free-market, with neither excluded from competing with incumbents.
state support (direct or indirect through infrastructure) Moreover, the EU Horizontal Agreement initiative
nor access to cheap capital.These airlines, ironically, have vis-à-vis ASAs is counterproductive. It makes the rene-
to restrain the political pressures to liberalize ASAs. gotiation of any ASA with a member state difficult by
It took decades for the European Union to develop forcing the other state to accept a clause that allows
and implement a framework for regulating air transport. any EU-based carrier to use these rights. For example,
The Treaty of Rome in the late 1950s put the structure if a Middle Eastern state wishes to increase the flight
in place, but it was not until the 1980s and 1990s that frequency in its ASA with France, it would have to
European countries started to address the direct economic accept that, from that time forward, any EU member
support of airlines by their governments.There are many state carrier could use the “French” flight frequency
pressures, both from within the Middle East and from from France to that Middle Eastern state. Although this
without, for a shallow liberalization of the skies that is might address internal EU legal issues, it severely cramps
far from the necessary comprehensive approach. Such an the possibility of liberalizing ASAs between Middle
approach would consider, among other elements, key Eastern countries and any EU member state.The
issues such as taxation, security, access, infrastructure, and desired path would be a gradual relaxation based on
competition law.These issues have been left to one side mutual convenience—the current situation is imbalanced.
in the Middle East because air transport has traditionally The EU should consider providing more leeway when
been considered a luxury and policies have not yet negotiating with Middle Eastern states that manage their
adapted to the enormous growth of the last decade. home carrier with economic policies similar to those of
Currently some airlines in this region are “stuck” EU member states.
between two conflicting realities. On the one hand they
are pressured to be economically viable and financially
independent from their parent governments. At the same Two areas of necessary progress
time they are pushed toward a competitive environment The first step forward needs to be taken within the
that allows less financially independent airlines unlimited Middle East.The evolution of a group of states that is
access to their home market.This is a result of a one- committed internally to fair competition is crucial.
dimensional approach to liberalization that fails to Competitive fairness is a necessary step for genuinely
unsubsidized airlines in the region to feel comfortable
TT.part1.r2 2/21/07 11:47 AM Page 106
with the opening of skies.Therefore the countries that

are willing to agree to a fair competition environment
should come together and campaign for comprehensive
liberalization in the region.These airlines should push
both the International Civil Aviation Organization
(ICAO) and regional bodies such as the Arab Air Carriers
Organization (AACO) and the Arab Civil Aviation
Commission (ACAC).Within their states these airlines
should lobby their respective ministries of transport to
insist on a stronger emphasis on establishing competition
law that would protect the unsupported airlines.
In parallel to this, the European Union needs to
reconsider its current negotiating stance with regard to
the further liberalization of ASAs. It should depart from
its current policy and deal differently with those states
willing to engage in truly comprehensive negotiations
within a framework of fair competition. A phased
approach to the designation issue would allow Middle
Eastern countries to renegotiate and open their skies
with the European Union at a measured pace. Immediate
acceptance of this designation clause could be replaced
with a commitment to accept in three or four years.
Furthermore, the European Union should strive to
create incentives for countries that are clearly showing
an intention to move toward EU-style air transport
policies: no subsidies, privatizations, encouragement of
106 startups, and privately financed infrastructure.These
policies are creating partners that the European Union
should be keener to integrate into their skies and with
whom the all-important issue of slots should be
addressed.
Creating a fair and sustainable air transport sector in
the region is something that all Middle Eastern airlines
should aspire to in the medium to long term. Every air-
line has a stake in a balanced and correctly structured
market. It is also in the interests of nearby countries and
regional blocs, such as the European Union, to support
initiatives that lead to economically rational and stable
outcomes.With such impressive growth and evolving
maturity in the industry, ensuring sustainability and
developing deeper integration into the international air
transport market is highly desirable.
Notes
1 See IATA (2000, 2006).
2 Remarks by Giovanni Bisignani at the AACO Annual General

Meeting, Kuwait City, November 22, 2006.
References
IATA (International Air Transport Association). 2000. World Air Transport
Statistics. 44th edition. Montreal: IATA.
———. 2006. World Air Transport Statistics Special 50th Edition

Montreal: IATA.
TT.part1.r2 2/21/07 11:47 AM Page 107
1.10: Driving Tourism Growth through Consumer-Centric Marketing

CHAPTER 1.10 Numerous studies have established the powerful eco-
nomic and social benefits of a strong Travel & Tourism
Driving Tourism Growth

(T&T) sector, for developing economies as well as
maturing ones. Realizing the significant potential from
through Consumer-Centric sustained growth has often proven more challenging.

There have been relatively few analyses performed on
Marketing how T&T sectors develop or what specific actions can
be taken by governments and industry to accelerate the
pace of development while achieving the desired sector
BRAD CORRODI, Managing Partner, Rosetta Marketing Group
composition. Further, there are both structural and prac-
tical barriers that must be addressed in order to build
and sustain momentum for growth. Recently, however,
the massive changes that have occurred in the structure
of travel distribution have opened up new opportunities
for collaboration between the public and private sectors
to achieve tourism development objectives. By taking a
rigorous, market-based consumer-centric approach to
collaborative marketing, travel suppliers, tourist boards,
and commercial intermediaries can radically improve
the productivity of their marketing spending while
accelerating sustainable, profitable growth.
The core of the tourism growth challenge lies in
the circular interdependence of supply and demand (see
Figure 1). Governments and travel suppliers must invest
in a broad range of infrastructure and capacity in order
to create a credible proposition for business investors
and leisure travelers (as highlighted in the Travel & 107
Tourism Competitiveness Index, or TTCI).The proposi-
tion must be communicated to these constituents and
delivered as expected in order for the flow of visitors to
continue. Similarly, governments and suppliers need to
see growth in demand in order to see returns on their
initial investments (in the form of tax receipts, GDP
growth, and capacity utilization) before committing to
additional infrastructure and capacity.The result is a
“chicken-and-egg” feedback loop, which can lead to
either an upward or a downward spiral.
In the case of the positive, upward spiral, demand
markets gain momentum from early visitors and
investors who have had positive experiences and talk
about the merits of a destination to others—effectively
multiplying the impact of ongoing destination marketing
and development spending.The strong growth in
demand encourages other suppliers to invest in the des-
tination, and reinforces the credibility and funding for
continuing tourism development initiatives—including
deregulation and structural reforms as well as continued
infrastructure and marketing funding. Singapore (ranked
8th in the TTCI) and Dubai (in aggregate, the UAE
ranked 18th) are perhaps the best-known cases of such
positive feedback. Both governments made a clear, sub-
stantial, and public commitment to the development of
the tourism sector, directed according to a clear tourism
strategy developed collaboratively among public and
private stakeholders. As a result, these destinations suc-
ceeded in gaining broad public awareness in key source
markets, with consistent messaging and brand positioning.
TT.part1.r2 2/21/07 11:47 AM Page 108
Figure 1: The interdependence of supply and demand
Investment
Operators / suppliers
Capacity
Socialization of Prominence of
destination interest market positioning
Traveler Traveler
Consumer Consumer
experience expectations
Infrastructure
Destination stakeholders
Investment
108
Source: Rosetta, 2006.
Most importantly, visitors to these destinations found a message that is far too generic to motivate any
the experience consistent with the brand promise, and particular consumer type. Effective campaigns
private sector suppliers were relatively free to increase generate response with a product promise, messaging,
their services to and within these markets. and a call to action that is relevant to the specific
Unfortunately, there are many more cases where attributes that a target consumer group feels are
investments in tourism development have not ignited a important.
positive feedback growth engine. Each case is unique,
and there are often many factors that contribute to the 3. Inability to convert. Even campaigns that succeed
failure. Five of the most common are highlighted below: in generating response are unsuccessful from a
financial perspective when inquiries are not cultivated
1. Insufficient “critical mass.” Building consumer effectively.Tourist board promotions that direct
awareness of a brand or product requires multiple consumers to a telephone service bureau that is
impressions over time, and it is increasingly difficult equipped only to take brochure requests will dissipate
and costly to attract consumers’ attention amongst a the consumer’s initial enthusiasm and fail to convert
flood of advertising messages. Most destinations and interest into sales.
suppliers simply are not large enough to justify the
cost of campaigns that are big enough to “cut 4. Misalignment with the “promise.” Campaigns
through the clutter.” that promise a destination experience that is at odds
with reality quickly find the results to be counter-
2. Lack of “resonance.” Campaigns that succeed in productive. Numerous studies have shown that
generating impressions may not generate consumer negative travel experiences are shared many times
response.Too often marketers try to maximize more often than positive ones, and have a far
response by designing campaigns that will appeal to greater impact on others’ travel-decision process.
as broad an audience as possible—and end up with
TT.part1.r2 2/21/07 11:47 AM Page 109

5. Choking the golden goose. Some of the most beneficial, as they address the first three hurdles in
successful destination campaigns have failed to destination marketing:
deliver sustained growth when government stake-
holders have failed to understand that a transparent, • By combining products from several suppliers and
open market for tourism investment is a critical destinations into a single brochure (and other
precondition for positive-feedback multiplier effects marketing media), the communications can achieve
to take hold. Early success can be stifled if well- a critical mass in crowded source markets.
connected players are allowed to unduly influence
subsequent market access, or if the tourism industry • The tour operators’ experience in developing
becomes unduly burdened with tax or cross-subsidy marketing materials for a given source market helps
obligations. to ensure that the specific marketing treatments
resonate with the consumers in that market, in terms
All of these sources of failure tend to have a common of their rational and emotive needs and motivators
root cause—a failure to establish the basis and structure for purchase.
for collaboration among the diverse private and public
stakeholders that constitute the T&T ecosystem. Although • The tour operators have well-established business
the broad objectives of generating growth are clear and systems to convert consumer inquiries into a sale,
agreed, in very few cases have the various stakeholders finding the specific destination and product bundle
established specifically where their interests are aligned that is best suited to the consumer’s requirements.
and where they diverge, nor have they defined the spe-
cific rules of engagement that are required to make However, these arrangements between government
ongoing “co-opetition” work in practice. Initial agree- tourism authorities and tour operators also break down
ment on a television campaign to promote a destination as a consequence of the final two hurdles. It can be
often breaks down when the discussion turns to the size difficult to control how a tour operator positions a
and relative contributions to the media buy. Even simple destination to its customers; under economic pressure,
collaboration on the conversion of interest to sales such an operator may cut back on the marketing it invests in
as destination-based hotel booking service centers—face some destinations or resort to discounts and promotions 109
difficulties in maintaining participation from tourist that do not deliver the types of travelers sought by the
board members when they become concerned about destination government and suppliers. Conversely, once
which properties are actually being recommended to a destination has become popular, local suppliers may
callers and why. seek to boost rates (and governments to raise fees) to
In the cases of both Dubai and Singapore, strong levels where the operator has a strong incentive to move
top-down leadership ensured that all participants under- passengers to other products.This ongoing tension
stood and accepted the rules of engagement: who would between the operator and suppliers, combined with the
establish the overall marketing and communications “export” of a significant proportion of tourism spending
strategy; how marketing and infrastructure development (and profits) to the operators, has led many destinations
would be funded; the standards that each supplier would to view outsourcing marketing to large tour operators as
be expected to meet; and, specifically, how each partici- a less than optimal strategy for driving tourism growth.
pant could expect to benefit from the successful growth Over just the last three years, however, the structure
of the destination as a whole. However, asserting such of the travel distribution value chain has changed radically,
top-down leadership and control of a destination propo- opening new opportunities for collaborative destination
sition is simply not feasible in many other situations, marketing among diverse public and private stakeholders.
particularly in economies with established tourism sectors A series of three disruptive changes have triggered and
where existing players are unlikely to delegate their reinforced one another, a domino effect that has
interests to a central authority. Further, centralized plans changed the environment to such a degree that T&T
may not respond effectively to market demand signals, marketers need to reexamine long-held assumptions
just as planned economies have generally underper- about what constitutes best practices in travel marketing.
formed market economies. Briefly, these changes are the following:
Faced with these challenges, governments of some
smaller economies have essentially outsourced responsi- • Rapid growth in consumers’ online travel
bility for their positioning as a destination to foreign research activity. More than in any other sector of
tour operators. In these arrangements, the government the economy, the Internet has radically changed the
and local suppliers effectively subsidize the source- way that consumers shop for travel. Leisure travel
market activities of the operator through deeply in particular has always been a high-involvement
discounted “net” rates and direct payments for presence purchase, with consumers seeking a broad range of
in their brochures. Such arrangements can be mutually information as part of an extended shopping
TT.part1.r2 2/21/07 11:47 AM Page 110
process. However, few anticipated the magnitude of Both online and traditional advertising can be designed
latent desire to spend time learning more about a to drive inquiries to tailored websites, providing the
broader range of alternatives and find the best fit measurability that is critical to surmounting the five
(or deals). Consumers’ direct, proactive involvement most common failures in tourism marketing. Online
in the research process opens a whole new set of media and search keywords can be purchased at smaller
opportunities for travel marketers to reach specific scale than traditional media, focusing on targeted
target groups. audiences, largely addressing the issue of critical mass.
Response and click-through behaviors can be rigorously
• Increased transparency into the travel-buying tracked and measured, allowing campaigns to be tailored
process. When consumers conducted the majority for resonance with target audiences.Well-designed
of their research off line, using newspapers, magazines, destination websites can qualify visitors and forward
brochures, and guide books, it was practically leads in a form that enables suppliers to convert from
impossible for travel marketers to discern what interest to sales effectively. Further, the direct consumer
communications played a role in a consumer’s contact initiated through such an approach can be
purchase process, or to identify which consumers developed into an ongoing relationship that can be
had reached a point in their research process where queried to ensure that consumers’ travel experiences
proactive direct marketing would be cost effective. have been positive.
With most consumers conducting at least a portion Putting such an approach into action requires a
of their research online (research suggests that combination of established best practices and investment
80–85 percent do) it is now possible for travel in commercial analytical marketing capabilities:
marketers to capture much greater insight into who
is interested in what types of travel and for what • A public-private partnership on the primary
purpose, and where they are in their decision- tourism board. As vividly demonstrated at the
making process. World Economic Forum’s Travel & Tourism simula-
tion in Jordan in June 2004, tourism boards that
• Innovative new intermediary business models. operate solely as a government services or as a trade
110 Traceability of consumer buying behavior has group are far less effective than blended partnership
effectively broken what had been one of the most boards that have a clear charter stipulating their
fundamental premises of travel distribution—that constituents’ roles, objectives, and criteria for
intermediaries could get paid by suppliers only for success.
“owning” and processing a booking transaction. In
the past, a travel agent could bear significant cost to • A clear and realistic tourism strategy. Specific
have a storefront in a good location and could goals and objectives for tourism development must
spend valuable time educating a consumer about a be grounded in an understanding of the dynamics
destination and product—and still not receive any of the travel industry, including how (and when)
compensation were the consumer to book directly suppliers make investment and capacity decisions,
with the supplier.Today, the traceability of con- and—most importantly—a realistic appraisal of the
sumer’s research activity has made it commonplace choices consumers have among destinations, and
for suppliers to pay for leads and referrals from a how well a proposed offering is likely to compare.
wide range of online intermediaries, including
Google,Yahoo, meta-search sites, and user- • Actionable consumer segmentation. In order for
contributed content sites. Most of these intermediary destinations to succeed in achieving critical mass
players do not hold travel product inventory or and resonance, they must be able to define, under-
even have the capacity to process a transaction— stand, and address a very specific set of target market
simply directing visitors to a supplier site that has a segments. Broad socio-demographic definitions do
high conversion rate is enough to claim a significant not have enough resolution to allow media buying
portion of the travel distribution value chain.This that is sufficiently precise, nor do they provide
type of transparent referral business model can be enough insight into target consumer groups to
directly applied to a wide range of collaborative develop product and message and offer treatments
marketing efforts, including destination-centric col- that will resonate. Best-in-class direct marketers
laboration among public and private stakeholders. have far outpaced most travel marketers in their
ability to use a combination of primary consumer
These recent changes in the structure of travel research, database analytics, and empirical testing to
distribution have thus made it far more practical for a design systematic processes for generating target
group of local suppliers and government tourism min- consumer inquiries cost-effectively.
istries to collaborate on consumer marketing campaigns.
TT.part1.r2 2/21/07 11:47 AM Page 111

• Consumer-centric website design. In order for
conversion objectives to be met, direct-response
“landing pages” must pick up from where the
campaign leaves off, enticing consumers to explore
further and engage with destination content as part
of their research. Just as importantly, the site must
be effective in qualifying visitors—in helping refine
an understanding of what they are looking for so
that referrals to partners are both relevant to the
consumer and worthwhile for the supplier to pursue.
• Rigorous analytical planning, tracking, and

measurement. Experience with world-class direct
marketers has established that effective targeting and
tailoring of direct marketing programs can deliver
an initial 30–50 percent improvement in marketing
return on investment (ROI) over typical database
marketing approaches. More surprising is that an
additional improvement of the same order of mag-
nitude is usually possible by continuously fine-tuning
inquiry generation, marketing treatment design, and
conversion tactics. It is only by setting up a highly
robust, analytical foundation for planning, testing,
and measuring specific marketing programs against
each target consumer population that returns are
maximized. Further, such an analytical foundation
provides the basis for ensuring that all stakeholders 111
understand the performance of the collaborative
efforts and the benefit realized over other alternatives.
In many ways, the stakes in tourism marketing have

never been greater.These new opportunities to drive
tourism growth through consumer-centric marketing
will only increase the market price for sources of con-
sumer inquiries, such as tourism-related search words.
Those destinations that find a way to work together
toward a common set of target consumer objectives
and build the analytical capabilities needed to take an
ROI-based approach to their marketing will likely be
the only groups to ignite and sustain positive-feedback
growth and ensure that their tourism sector delivers its
social and economic development potential.

Travel and Tourism Competitiveness Report Part 2/3

Uploaded by

Copyright:

Available Formats

Travel and Tourism Competitiveness Report Part 2/3

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Travel and Tourism Competitiveness Report Part 2/3

Uploaded by

Copyright:

Available Formats

TT.part1.

r2 2/21/07 11:47 AM Page 1

1.1: The Travel & Tourism Competitiveness Index

The Travel & Tourism

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

Travel & Tourism Competitiveness Index

Subindex A: Subindex B: Subindex C:

Policy rules and regulations Air transport infrastructure Human resources

Environmental regulation Ground transport infrastructure National tourism perception

Safety and security Tourism infrastructure Natural and cultural

Health and hygiene ICT infrastructure

Prioritization of Price competitiveness in

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

Figure 2: T&T competitiveness and tourist arrivals

Travel & Tourism Competitiveness Index (score)

Source: United Nations World Tourism Organization; World Economic Forum.

8 Figure 3: T&T competitiveness and tourism receipts

Travel & Tourism Competitiveness Index (score)

Source: United Nations World Tourism Organization; World Economic Forum.

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

Table 1: The Travel & Tourism Competitiveness Index

Switzerland 1 5.66 2 5.80 2 5.36 2 5.81

1.1: The Travel & Tourism Competitiveness Index

Kuwait 67 4.08 71 4.07 50 3.71 86 4.46

1.1: The Travel & Tourism Competitiveness Index

Table 2: The Travel & Tourism Competitiveness Index: Regulatory framework

Albania 94 3.70 84 4.14 124 2.50 80 4.09 58 4.81 107 2.94

1.1: The Travel & Tourism Competitiveness Index

Luxembourg 17 5.28 5 5.67 11 5.65 13 5.70 19 5.97 85 3.41

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

Luxembourg 9 5.04 38 3.68 21 5.10 6 6.05 6 5.69 56 4.67

1.1: The Travel & Tourism Competitiveness Index

Albania 43 5.07 35 5.37 10 6.17 93 3.68

1.1: The Travel & Tourism Competitiveness Index

Luxembourg 8 5.60 14 5.69 22 5.84 24 5.29

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

placing it 121st). Better governance will be imperative 12 See UNCED (1992).

1.1: The Travel & Tourism Competitiveness Index

Appendix A: Composition of the Travel & Tourism Competitiveness Index

1.1: The Travel & Tourism Competitiveness Index

Pillar 10: Price competitiveness in the T&T industry

Subindex C: T&T human, cultural, and natural

Pillar 11: Human resources

Availability of qualified labor

Pillar 13: Natural and cultural resources

1.2: Taking Travel & Tourism to the Next Level

Taking Travel & Tourism

Factors that impact the competitiveness of the T&T

1.2: Taking Travel & Tourism to the Next Level

Figure 1: Overview of correlations between the TTCI and its subindexes