3. Envionmental Overview: The Context for Change

Global Trends: A Changing and Volatile
Environment The major tourism drivers are strong economic conditions and personal disposable income. However, tourism is increasingly affected by a host of global events such as political unrest, security and health-related concerns, natural disasters, increased competition from new and emerging destinations, as well as shifting demographics. The tourism industry has to have the capability to adjust rapidly to both natural and economic shocks.

Until 2000, the tourism industry was experiencing steady growth in international travel. Following the events of 9/11 and subsequent international factors (the war in Iraq, potential terrorist attacks, SARS, BSE and West Nile), international travel declined dramatically, with worldwide arrivals dropping 1 percent to 694 million arrivals in 2003, capping a three-year period of stagnant growth.

In 2005, international tourism continued the tremendous recovery that began in 2004, when arrivals grew by 10.7 percent. Worldwide travel reached 808 million arrivals in 2005, an increase of 5.5 percent—the largest annual increase in more than 25 years. Almost all regions shared in this rebound, with Asia-Pacific experiencing growth of 7.4 percent, the Middle East 6.9 percent, the Americas 5.8 percent and Europe 4.3 percent. In January 2006, the World Tourism Organization (WTO), World Tourism Barometer, reported that events and developments such as natural disasters and acts of terrorism do not appear to be deterring global international tourism; rather they have caused temporary shifts in travel patterns. The WTO estimates that international tourist arrivals worldwide should grow by 4 percent and 5 percent in 2006.

While external threats may not have deterred travel, consumers cannot adjust to an economic slowdown by simply seeking alternative destinations. A sustained decline in disposable income or in discretionary spending would eventually result in reduced international travel.

How Is Canada Performing?
Canada is losing market share. After being shaken by the cumulative effects of terrorism and health concerns, the Canadian tourism industry must now contend with the impact of a stronger Canadian dollar. The monthly average exchange rate bottomed out in January 2002, when the Canadian dollar was worth US$0.62. However, in spring 2006, the Canadian dollar had surpassed the US$0.90 threshold, a difference of 45 percent between its 2002 low and its current value. Diminishing performance in the key U.S. market largely accounts for the erosion in Canada’s market share while the rest of the world experiences a surge in travel.

Table 1: World’s Top 10 Destinations

International Tourist Arrivals
Rank		(million)		Change (%)
		2003	2004	03/02	04/03
1	France	75.0	75.1	-2.6	0.1
2	Spain	51.8	55.6	-0.9	3.1
3	United States	41.2	46.1	-5.4	11.8
4	China	33.0	41.8	-10.4	26.7
5	Italy	39.6	37.1	-0.5	-6.4
6	United Kingdom	24.7	27.8	2.2	12.3
7	Hong Kong (China)	15.5	21.8	-6.2	40.4
8	Mexico	18.7	20.6	-5.1	10.5
9	Germany	18.4	20.1	2.4	9.4
10	Austria	19.1	19.4	2.5	1.5

 

International Tourist Receipts
Rank		(US$ billion)		Change (%)
		2003	2004	03/02	04/03
1	United States	64.3	74.5	-3.6	15.8
2	Spain	39.6	45.2	24.9	14.1
3	France	36.6	40.8	13.2	11.6
4	Italy	31.2	35.7	17.1	14.1
5	United Kingdom	22.7	28.2	11.2	24.6
6	Germany	23.1	27.7	20.1	19.7
7	China	17.4	25.7	-14.6	47.9
8	Turkey	13.2	15.9	10.9	20.3
9	Austria	14.0	15.3	24.2	9.9
10	Australia	10.3	15.6	20.3	21.7

Source: World Tourism Organization, Tourism Highlights 2005

In 2004, Canada dropped out of the top 10 destinations as measured by both international arrivals and receipts. In 2002, it ranked 7th in terms of arrivals, dropping to 11th in 2004; in terms of receipts it ranked 8th in 2001 and 12th in 2004 (see Table 1). Between 2000 and 2004, Canada’s share of world overnight travel fell from 2.9  percent to 2.5 percent. North America as a whole also experienced a decline, with its share dropping from 15.9 percent to 11 percent since the early 1990s, but Europe’s remained steady at roughly 55 percent throughout this period.

The Conference Board of Canada’s forecast indicates that international travel to Canada from select markets will grow at the following compound annual growth rate (CAGR) from 2005 to 2010: France 4.0 percent, Germany 3.9 percent, the UK 4.4 percent, Japan 3.7 percent, Korea 6.7 percent, China 8.7 percent and the U.S. –0.6 percent.

The Conference Board’s 2006 outlook on the Canadian tourism industry is moderately optimistic, forecasting an increase of 3.8 percent in total (domestic and international) overnight travel in Canada, with 4.9 percent growth in corresponding tourism expenditures. The domestic market, bolstered by the strong Canadian economy and rising consumer confidence, will continue to drive growth (4.6 percent), while the U.S. market pulls down an otherwise strong international performance. Overseas arrivals are expected to increase by 6.4 percent in 2006, but the U.S. market is expected to decline by 3.1  percent in that period after a 4.6 percent drop in 2005.

Total travel from the U.S. market has been slipping since 1999. From 1999 to 2004, overnight travel remained relatively stable at about 15 million person-trips per year (except in 2002 and 2003 due to 9/11 and SARS). Same-day trips however have been on a steady decline during this period going from 29.4 million to 19.5 million.

In 2005, the U.S. market continued to deteriorate as both U.S. overnight and same-day travel declined 4.6 percent and 11.4 percent respectively, resulting in the lowest volume of U.S. arrivals since 1979. Confusion among Americans regarding WHTI requirements and its implementation may account, in part, for this major drop.

Under provisions of the WHTI, starting January 2007, all air and sea travellers entering the U.S., including Americans, will require a passport and starting no later than June 1, 2009, everyone wanting to enter the U.S. at a land border will require a passport or other accepted documentation to be admitted or re-enter the U.S. The Conference Board of Canada estimates that 34 percent of U.S. residents aged 18 and over currently possess a valid passport; by comparison, 41 percent of the corresponding group of Canadians hold passports.

An August 2006 Conference Board of Canada study on the expected impact of the WHTI on the Canadian tourism industry indicates that from 2005 to 2010, WHTI implementation could reduce the number of U.S. arrivals to Canada by 14 million, or 7.2 percent. Of this number, a decline of 8.8 million is expected from same-day trips. Ontario is expected to experience the brunt of the decline with 8.5 million fewer trips during the period. The biggest impact is expected in the first year of implementation at the land border, with a forecasted reduction of 14.1 percent in U.S. arrivals to Canada, that year.

Canada’s declining performance in the U.S. market has been a concern for some time especially with the record high resurgence of U.S. domestic and overseas travel following 9/11. The impending implementation of the WHTI is elevating the concern to new heights. It is generating considerable media attention that has resulted in confusion among American travellers, many of whom do not hold passports but believe that one is already required to re-enter the U.S. Canadian governments and industry need to collaborate in the development of strategies that mitigate the WHTI’s impact on the Canadian tourism industry.

In addition to the decline of tourists from the U.S., Canada has also been recording reductions in visitors from other countries (see Figure 1). Overseas arrivals remain 9.2 percent below 2000 levels, despite a surge in 2004. The persistent decline is, in part, attributable to the decrease in overseas travellers entering Canada through the U.S. In 2004, the number of visitors from countries other than the U.S. arriving directly into Canada rebounded close to 2000 levels, while overseas arrivals via the U.S remained 13 percent below 2000 levels. Given that approximately one third of international visitors from countries other than the U.S. enter Canada from the U.S. (either by land or by air), this continuing contraction is cause for concern and will need to be examined in greater depth.

Figure 1

Source: International Travel (Statistics Canada)

International Tourism Long-Term Growth— Projections to 2020
Although world tourism has experienced uneven growth in recent years, the WTO forecasts that international arrivals will surpass 1.6 billion per year by 2020. Regionally, arrivals are expected to breakdown as follows: Europe, 717 million; South and East Asia and the Pacific, 416 million; the Americas, 282 million; Africa, 77 million; and the Middle East, 69 million.

As demonstrated in Table 2, the projections suggest the European market share will decrease from a peak of 60 percent in 1995 to 46 percent by 2020. The Americas are also expected to experience a decline of approximately 1 percent, with increases likely in Africa, East Asia and the Pacific, the Middle East, and South Asia. It is noteworthy that travellers’ tastes are expected to shift away from the traditional European and American destinations to other areas in the world, an indication of many tourists’ inclination to seek out new experiences.

Table 2

WTO Tourism 2020 Vision: Forecast of Tourist Arrivals by Region of Arrival (million)
	Base Year	Forecasts		Average Annual Groth Rate (%)	Market Share
	1995	2010	2020	1995-2000	1995	2020
World	565.4	1 006.47	1 561.1	4.1	100	100
Africa	20.2	47.0	77.3	5.5	3.6	5.0
Americas	108.9	190.4	282.3	3.9	19.3	18.1
East Asia and the Pacific	81.4	195.2	397.2	6.5	14.4	25.4
Europe	338.4	527.3	717.0	3.0	59.8	45.9
Middle East	12.4	35.9	68.5	7.1	2.2	4.4
South Asia	4.2	10.6	18.8	6.2	0.7	1.2

Source: World Tourism Organization (WTO) ©
(Actual Data as in WTO database July 2000)

The WTO predicts that by 2020 China will have 100 million outbound tourists per year, the fourth largest source of outbound tourists in the world. Leisure tours are the fastest-growing element of China’s outbound travel market. Current Chinese law requires that countries obtain Approved Destination Status (ADS) before Chinese tour operators are allowed to travel there. At present, there are in excess of 80 countries that have obtained ADS. Australia was granted ADS in 1999 and has since seen substantial growth in the number of Chinese tour operators. Between 1999 and 2005, Australia recorded 200,000 people arriving in (ADS) tour groups from China. From 2003 to 2004, total arrivals from China to Australia jumped almost 43 percent to 251,300. However, from 2004 to 2005, growth slowed to 13.4 percent reaching 284,942 arrivals.

On January 21, 2005, Canada was recognized as an approved travel destination by China. An ADS implementation agreement is being negotiated with the China National Tourism Administration (CNTA), however these negotiations are unlikely to be concluded before 2007. The Canadian Tourism Commission (CTC), Canada’s national tourism marketing agency, estimates that the implementation of ADS will increase Canada’s revenues from the Chinese market by 18 percent to 20 percent in the first year of the agreement.

China is Canada’s fastest growing source of international tourists, with a total of 113,300 arrivals in 2005, a growth of 18.8 percent since 2004. This is more than twice the 8.2 percent average increase from all key overseas markets. In 2005, a bilateral air accord was signed that provides for a three-fold increase in passenger and cargo flights between China and Canada.

Canada’s Tourism Industry: A Strong Contributor to the Canadian Economy
The WTO and the United Nations Statistical Commission defines tourism as ”the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes.“

Table 3

Canadian 2005 Tourism Highlights

Tourism directly employs 625,700 (3.9 percent of total employment). Tourism in Canada is comprised of approximately 160,000 businesses. Value-added for the industry was $25.6 billion (2.01 percent of GDP). Total tourism revenues were $61.4B.n Canadians spend roughly 13 percent of their total consumption on travel and tourism. Domestic travellers account for two-thirds (71 percent) of tourism expenditures, however international travellers spend more per person. U.S. travellers make up 87.5 percent of total international arrivals

Several industry sectors supply tourism commodities; these include transportation, accommodation, food and beverage services, and other tourism commodities consisting of recreation and entertainment, travel agency services, convention fees and pre-trip expenditures. Most tourism commodities are those that are purchased while travelling, however, durable goods bought solely for the purpose of travel are also included among tourism commodities. They are described as pre-trip expenses and are treated as part of "other tourism commodities". *

Canadian Trends: Domestic and International Travellers’ Spending Patterns
Total tourism spending in Canada (constant 1997 dollars) has been increasing since 1992 (except for 2002, with the 9/11 aftermath and 2003, because of SARS). In 2005, spending reached $61.4 billion with domestic travel accounting for 71 percent ($43.5 billion) and international travel, non-residents travelling in Canada, accounting for 29 percent ($17.9 billion) of spending. Between 2000 and 2005, total tourism spending grew at a CAGR of 1.4 percent, driven by domestic market growth of 2.9 percent per year. The international market, on the other hand, has been a drag on Canada’s tourism performance as it has declined at the rate of 2 percent per year since 2000. While neither the U.S. nor overseas markets have been performing well, declines in the U.S. market dominate the trend since the U.S. accounts for approximately 61 percent of Canada’s international expenditures.

The Conference Board of Canada forecasts that tourism spending from the domestic tourism market will increase by 5.2 percent in 2006. A strong economy and solid consumer confidence are overriding high energy prices as Canadian travel continues to climb. Canadians made 116 million overnight trips in 2005, an increase of 2.6 percent over the previous year. For each overnight trip taken, Canadians stayed on average three nights away from home and spent $265 per person. The main purpose for domestic travel is pleasure, followed by visiting friends and relatives.

Figure 2

Source: Statistics Canada, National Tourism Indicators

The strong economy and the high value of the Canadian dollar (see Figure 2) are also fuelling Canadian travel abroad. Outbound travel grew by 6.7 percent and 5.3 percent respectively in 2004 and 2005. The Conference Board of Canada predicts that the trend will continue as outbound travel is forecast to grow by 4.5 percent in 2006. Increased spending by Canadians travelling abroad is sustaining a travel deficit that reached an 11-year high of $4.1 billion in 2004 (see Figure 3).

Figure 3

Source: Statistics Canada and Bank of Canada

Despite recent declines, the U.S. remains by far Canada’s largest international market accounting for approximately 61 percent of total international expenditures (see Figure 4). On average, overnight visitors (all modes of travel) stay four days and spend $541 per trip or $134 per day. Americans, who travel here by air and stay overnight, are Canada’s most lucrative tourists spending $902 per trip or $191 per day.

Figure 4

Source: Statistics Canada, International Travel Survey

Overseas tourists usually stay longer (16 days) and consequently spend more per trip ($1,379). On a ”spending per day“ basis, however, U.S. visitors outspend overseas tourists by a margin of 57 percent, spending $134 per day versus $85 (see Table 4).

Table 4

In Canada Spending by Markets
2004	Spending in Canada '000,000	Person trips '000,000	Person nights '000,000	Average spending per trip	Average spending per night
Same day
U.S.	$1,258.0	19.50	-	$64	-
Europe	$3.4	0.12	-	$25	-
Asia	$4.6	0.12	-	$38	-
Domestic	$5,909.0	86.4	-	$68	-
One or more nights
U.S.	$8,168.0	15.1	60.7	$541	$134
Europe	$2,822.0	2.1	30.8	$1 349	$92
Asia	$1,594.0	1.2	20.4	$1 379	$78
Domestic	$23,799.0	88.7	-	$268	-

Source: Statistics Canada, International Travel Survey, Canadian Travel Survey

Reasons for Visiting Canada
What motivates people to travel to Canada? Understanding the behaviour and reasoning behind this decision is key for the tourism industry. Most visitors come to Canada for leisure travel (including outdoor activities and sports), followed by visiting friends and relatives, with business (including convention and employment) in third place (see Figure 5a). All three categories grew over the 2000 to 2002 period but then declined in 2003, with a moderate recovery in 2004.

According to the ”Anholt-GMI Nation Brand Index“ (quarter 2, 2005) international survey, Canada’s global ranking as a tourism destination is significantly impacted by a low perception of its culture and heritage. SARS and the 9/11 aftermath appear to be persuading some firms to opt for greater use of improved telecommunications and web applications instead of travel. U.S. visitors spend more on business trips and much more on leisure trips than non-U.S. visitors, once again highlighting the importance of the U.S market to Canada (see Figure 5b).

Figure 5a

Source: International Travel 2003 and 2004, Statistics Canada

Figure 5b

Source: International Travel 2004, Statistics Canada

*********footnote***********
* Study of the Canadian Tourism Satellite Account (CTSA)