The Tourism Time Bomb

International travel is no longer the exclusive province of the rich. Over the next several decades, hundreds of millions of new entrants to the middle class will want not only the things—but also the experiences—that money can buy. Indian call-center employees, Russian petrochemical engineers, Chinese middle managers, and Brazilian salespeople are already scouring the web for deals on trips. They want to see Paris from the Eiffel Tower, relax in the Maldives, and play blackjack in Las Vegas. According to the United Nations World Tourism Organization, international tourist visits are expected to double soon, from roughly 800 million in 2008 to 1.6 billion by 2020 (see the exhibit “Travel Explosion”). However, only so many people can visit a particular building or beach in a given year. Where will all the other tourists go? This skyrocketing demand for travel will lead to a “scarcity of place” and to three probable market responses: First, most tourism-related prices, such as hotel room rates in popular cities, will continue to escalate as demand outstrips supply. Gray markets may develop, as they have for scarce tickets to sporting and entertainment events. A new type of scalper may emerge, offering hotel rooms, air travel, and even museum passes—at whatever price the market will bear. In addition, governments and institutions may seek to control demand by imposing heavy surcharges on travel to the most popular places or by requiring costly visas for access to them. That’s already starting to happen. For example, the government of Ecuador, concerned about the impact of increasing tourism on the fragile Galápagos Islands ecosystem, is discussing doubling the park’s entrance fee and further restricting the number of visitors. Travel Explosion The United Nations predicts that the annual number of international tourist visits will roughly double to 1.6 billion by 2020. Second, rationing—and the resulting waiting lists—will become commonplace. Some groups, for example, are already calling for limits on traffic to ecologically sensitive destinations, such as the Incan ruins at Peru’s Machu Picchu. As rationing becomes more prevalent, the very existence of waiting lists will, paradoxically, spur demand. Many will get in line just to secure the option of visiting rationed destinations, even if they don’t exercise it. The value of a place in line—any line—will give rise to a variety of business opportunities, legitimate and otherwise. Finally, jaw-dropping prices and decades-long waiting lists will prompt the creation and the expansion of destinations in both developed and developing economies. The Chinese, for example, are developing Hawaii-like Hainan island and Macao, a gaming paradise on China’s southern coast. And thanks in part to the opening of the Qinghai-Tibet rail line, the number of visitors to Tibet increased 64% last year to top 4 million, according to the BBC. Meanwhile, would-be high rollers are now heading to casinos in places like Biloxi, Mississippi, and Detroit to avoid the crowded Las Vegas strip. Companies and governments are also creating facsimiles of popular destinations. The Eiffel Tower, for example, can be seen in Las Vegas and at Disney’s Epcot Center, not just in Paris. Venice’s canals can be enjoyed in Macao, where the Venetian resort and casino has three canals in its $2.4 billion, 10.5 million-square-foot complex. And the prehistoric cave paintings in Lascaux, France, are available for inspection in a meticulously reproduced duplicate 200 meters away from the real thing. Just as sites and structures can be successfully replicated in new locations, so can institutions. If the swelling ranks of global travelers can’t all come to you, you can go to them. The Guggenheim, for example, was once exclusively a New York City museum but is now a foundation with museums in Bilbao, Venice, Berlin, and Las Vegas—and there are plans to expand to Asia, Latin America, and the Middle East. Business schools have been following a similar strategy. Northwestern University’s Kellogg School of Management, for example, has established joint executive MBA programs with schools in Israel, Germany, China, and Canada. As the scarcity of places grows, many companies will find opportunities to profit by meeting new levels of demand for authentic—and inauthentic—experiences. However, they will also have to jockey for space in this increasingly crowded, mobile world. Two strategies will help. Get in while you can. As costly as it is to operate in hot spots like London, New York, and Tokyo, some companies will always need access to talent and clients in key locations and will have little choice but to compete with tourists for the cities’ limited resources. Businesses should secure their places now. With new centers of economic power emerging, companies should also establish themselves in rising metropolises such as Beijing, Rio de Janeiro, Moscow, and Abu Dhabi, where prices on prime real estate will surely climb as demand outpaces availability. Stay away if you must. In some cases, it will become too expensive and logistically difficult for businesses to coexist with swarms of tourists in the hearts of cities with major cultural sites or other attractions. The hotels, taxis, and restaurants will simply be full. One response, worth considering now, is to move to city outskirts that have the necessary infrastructure—or even to work closely with local governments to develop new communities. Business districts like La Défense in Paris and planned communities like Reston, Virginia, outside Washington, DC, are cases in point. The time is ripe for similar developments to spring up around other congested cities. A billion or two additional international travelers represent both a massive potential headache and an opportunity for business. Which it will be depends on what companies do now, before someone starts selling tickets to New York City.

The Tourism Time Bomb

Summary.

Partner Center