This report aims to evaluate the competitiveness of the tourism industry in Spain and how it competes on an international level. According to Eurostats “Top 10 tourism destinations (2014)”, Spain is number one with the most nights spent in tourist accommodation, they hold 21.5% of the market in Europe.
- But with Italy and France close behind them, can they maintain this competitiveness?
- Are there other countries outside Europe who can compete in the European market?
- Will society start moving towards alternatives to tourism? How crucial are buyer groups in the market?
- And finally, how does the huge number of suppliers influence the market?
To answer all of this questions we are going to analyse the tourism sector in Spain
Tourism Industry in Spain Research
According to the FEM, report the principal competitors of Spanish tourism are: the countries of Europe. The European countries are the main competitors due to their proximity with Spain and the fact that they can offer tourists a similar experience to Spain. New emerging markets are having a high impact in the tourism sector According to Business Insider (UK), some of the “up and coming” destinations and thus threats to Spain’s market share in tourism are Asian destinations such as Taiwan and Tokyo in Japan along with Italy and Turkey. The United States is another bustling tourist destination due to its diversity of climates and its cultural variety. But can these emerging destinations really enter the European market and negatively affect Spanish tourism?
Figure 1. Ranking by international tourist arrivals (Research, n.d.)
On the other hand, the trend in tourism business also has significant impact on the labour market, but not all employment is generated directly in the tourism industry per se; a proportion is created indirectly in other sectors. If GDP in tourism increased, it would generate new jobs in the commercial sector and new jobs in the hotel and catering sector and would also create employment in other sectors less directly related to tourism.
Figure 2. Ranking by tourism revenue
The tourism sector is heavily reliant on advertising and developing a campaign is costly. A trip of a lifetime to some of the destinations mentioned above would require a long haul flight which is not only more costly than flights within Europe, but also more time consuming. In order to increase the tourism in these countries the agencies of tourism try to provide trip at competitive prices across the diversification of the low – cost. However, Spain is accessible from most countries in Europe because of the low cost flights provided by airlines such as Ryanair and Vueling thus granting Spain the absolute cost advantage in comparison with Africa and Asia in the European market. Another daunting factor for possible entrants in the European market is the free mobility of people within the European Union.
With that being said, the nature of the tourism sector means that tourists like to consider themselves to be “globetrotters” with the objective of seeing as many new countries as they can in their lifetime, so as a result Spanish tourism can’t always rely on repeat visits.
In the tourism sector, substitute products are almost inexistent, because nothing can substitute the experience of traveling to another place. But, it’s important to know that, with the development of new technologies our sector could be affected. The new technologies are allowing people the opportunity to “visit” different places in the world for a lower price and from their homes. For example, virtual reality gives users a totally immersed experience in the places that they want to visit (virtual tourism). Also, some museums web pages offer the possibility to do a virtual tour. Google maps is not only a tool to find an address, it also allows to virtually “walk” in the streets. Those examples are not very strong substitutes for the tourism sector today because they are still, in the case of virtual reality, in the process of development but we have take into account those technologies for the future.
Another substitute that we have to consider for the professional tourism sector is the sharing economy. This type of economy, in the long-term, could provoke a decrease in the earnings of hotel and services industries. Nowadays, young consumers are looking for a more authentic and affordable travel experience. That’s why examples like Airbnb or couch surfing are having a lot of success.
Therefore, the professional tourism sector should improve, not only its prices, but also its capacity to offer a wonderful travel experience to the tourists.
The bargaining power of Buyer of goods and services in this industry may be powerful if they are more concentrated than the players in the industry.
This industry is composed by different agents like the leisure travelers, business travelers, tour operators, domestic or international airlines and large customers are also included.
In the tourism sector, the differentiation is a significant factor, because, if the services purchased by buyers lack differentiation or switching costs, the buyers can easily find acceptable alternative sources of supply.
But also, in the tourism, the differentiation is subjective in respect to the business travelers and for certain categories of independent leisure travelers, because it declines in importance in the strategic groups catering to budget leisure travelers and tour operators.
Is important to note that, where buyer groups become more concentrated, will tend to raise the price-sensitivity. In this context, a hotel’s choice of buyer group becomes crucial and hotels which target tour groups or other categories of concentrated buyers will be more subject to the bargaining power of buyers.
In addition, we must also mention awareness of customers on current market prices, costs of suppliers etc., which gives them a much greater chance of getting better prices and makes their bargaining power greater.
As we said before, the tourism industry in Spain is very concentrated and there is intensive competition. Due to this fact, we also have to mention the enormous variety of suppliers that exist in the industry. And not only do we have to take into consideration that issue, but also the fact that there is a new tourist environment due to the impact of new technology, such as the disruption of internet and the development of e-commerce.
According to the new trends that are appearing in the tourism sector, we have to highlight the fact that the power of supplier is low. The quantity of suppliers is very high, so their power of negotiation is not significant. One of the main consequences is that the prices must be a very competitive, because the services are differentiated and the competition between suppliers is important.
Another consequence is that the cost of moving from one supplier to another (switching cost) is low.
Another aspect that it is related with the power of supplier is vertical integration. In that sector that tendency is taking importance. Groups like Iberostar, whose main activity was the hotel industry, has integrated vertically into the distribution channel with retail agencies (Iberostar and Viajes Iberia).
For instance, nowadays it is very important that tourism companies understand that consumers are looking for dynamic services and, what is more remarkable, for a unique and exclusive service, in other words, they are looking for a personalised experience.
For example, Palladium Hotel Group offers their clients the possibility of controlling everything using their mobile phone, and also gives them “intelligent bracelets” that are configured according to the preferences of the client.
The international environment encourages the development of tourism as an activity to compete in global market and the opening into new destinations. This fact makes the international competition very intense. “Up and coming” destinations mentioned above are of very little threat to Spain in the European market. The threat to be substituted is low for the tourism industry in Spain (or any other country in the world). The possible substitute products don’t offer the same experience that travel brings, and for the professional tourism sector (hotels) the “substitutes” (Airbnb and the like) are currently considered “competitors. It is necessary to understand and make the changes that are necessary in the Spanish tourism sector. In particular, the Spanish sector must adapt to online marketing.