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Alpin tourism in Europe
Christoph KOELLREUTER - Chairman and Managing Director, BAK, Basel, Switzerland
Alpine tourismus in Europa is facing serious challenges. The globalization process in tourism has effectively devalued some of the fctors that have traditionally contributed to the success of Alpine holiday regions, such as the uniqueness of the landscape. The decline of overnight stay and turnover statistics since the 1980's have awakened awareness of the need for structural changes. Although improvement measures have been developed and instituted, they fall short of what is needed to survive in an envi-ronment of ever-stiffer worldwide competition. Thanks to general economic recovery, however, conditions on the demand side now make it possible to undertake the neces-sary drastic modernization of the tourism offering and achieve value-for-money corrections. The future is expected to bring a loss of market share for the European Alpine region in the global tourism market despite burgeoning touristic demand.
IMPORTANCE AND POSITIONING OF THE ALPINE HOLIDAY REGIONS IN EUROPE
A useful indicator of the importance of an industry or sector in a region is the percentage of gross value added accounted for by the industry in the region's GDP. This depends on (1) the industry's manhour productivity compared with that of the regional economy as a whole, and (2) the industry's percentage of the total regional work volume (manhours worked). For the companies themselves, manhour productivity is most important because it is a major determinant of the industry's ability to compete on international markets. But the productivity figure is also very important from the region's viewpoint. A predominance of industries with above-average labour productivity will tend to boost the regional wage level. Equally important for the region is the work volume accounted for by the industry. It indicates the extent to which the industry draws on the region's available labour pool. Ei-ther the number of employees or the number of manhours worked per employee can be used as basis for determining the extent to which the industry draws upon the labour pool. Certain distribution effects will differ depending on which basis is chosen.
The level of value added generated by the industry depends on two things: labour produc-tivity and work volume. The higher the labour productivity and the higher the work volume, the greater the industry's value added.
These indicators of an industry's importance will now be discussed in greater detail. We shall concentrate on regions that specialize in the hotel/restaurant sector, and which therefore compete with each other.
Three of the regions selected for review have hotel/restaurant sectors that account for about 10 percent or more of the regional gross domestic product. These are the Austrian state of Tyrol and Italy's Valle d'Aosta with shares of about 11.7 percent and Canton Gri-sons in Switzerland with just under 10 percent of GDP. Otherwise the hotel/restaurant sector in most of the regions reviewed generates gross value added that accounts for be-tween about 3.5 and 7 percent of regional GDP. The second indicator of importance, the sector's value added per capita, is depicted in Slide 4. In other words, the graph shows the hotel/restaurant sector's gross value added per capita of the people inhabitant in the re-gion. Here the percentages vary from only about USD 350 (at 1990 PPP and sector-adjusted 1990 exchange rates) in the case of Colorado to about USD 1,800 in the case of Valle d'Aosta.
Even though the two indicators correlate very well, a closer look reveals interesting differ-ences. For example: though the regional importance of the hotel/restaurant sector in Tyrol and Valle d'Aosta is about the same, the gross value added per capita is about 10 percent higher in valle d'Aosta than in Tyrol. And though sector's share of GDP in Grisons is only about 8 percent below that in Valle d'Aosta, the former's gross value added per capita is only 73 percent of the corresponding figure for Valle d'Aosta. Similar relations are found when Salzburg is compared with Voralberg and when Canton Valais is compared with Can-ton Ticino. In the Swiss regions, the gross value added is very low in comparison with the percentage of regional GDP accounted for by the hotel/restaurant sector.
The differences found in the rankings by contribution of the sector to regional GDP and by gross value added per inhabitant can be attributed mainly to two causes. One possibility is that the productivity of the sector in the region in question differs sharply one way or the other from the regional economy as a whole, making the value added per inhabitant either exceptionally high or low. The other possible explanation is that the number of manhours worked in the hotel/restaurant sector is very high or low compared with the region as a whole, thus driving the value added per inhabitant either up or down compared with the other regions.
These facts can be interpreted in either of two ways: The comparatively high figures for gross value added per capita in Valle d'Aosta and in the two Austrian states of Salzburg and Vorarlberg may stem either from high labour productivity or a high level of utilization of the regional labour pool compared with the rest of the economy. The poor value-added levels of the sector in the Swiss regions are attributable mainly to low productivity, which will be discussed in the following. The quite high value-added per capita shown by Valle d'Aosta, on the other hand, results from a combination of high productivity (comparable to that in Salzburg and Vorarlberg, but about 15 percent lower than Salzburg) and very high utilization of the regional labour pool. Valle d'Aosta is second only to Grisons in its per-centage of wage-earners in the population; because the region is also in the middle of the table with regard to the number of manhours worked annually per employee, Valle d'Aosta displays a very high work volume.
As noted, manhour productivity is a significant contributor to both regional competitive-ness and income growth. Productivity measures the real value added at prices and sector-adjusted 1990 PPP per manhour worked. In other words, it measures the performance of labour as factor of production. Generally, high productivity points toward high specializa-tion of a regional industry or sector rather than a low total manhours figure. This is most likely to be true in cases where high productivity is maintained over a long period of time.
Of the regions in which the hotel/restaurant sector is very important, or in which it gener-ates high value-added per inhabitant, the ones that stand out in terms of labour productivity are the Austrian regions of Tyrol, Salzburg and Vorarlberg and the Italian Valle d'Aosta. In the case of the Swiss regions, the real hourly productivity is relatively low. If we take the Rhône-Alpes region as benchmark, the value added per capita generated by the hotel/restaurant sector in all of the other regions reviewed is significantly lower. Colo-rado is not too far behind, namely by 27 percent. But the Austrian states and Valle d'Aosta are between 45 and 55 percent back, cantons Grison and Ticino between 70 and almost 80 percent.
Besides a sector's contribution to its region's general economic performance, its impor-tance can also be gauged in terms of its importance as employer. One approach here is to estimate the sector's importance in the regional labour market, e.g. the percentage of gainfully employed people in the region accounted for by its employees. Of course the at-tractiveness of a region depends partly on the level of participation of the population as a whole in the work process. The higher this participation, the smaller the proportion of non-workers to workers and the lower the "burden quotient". One way to include this con-sideration in the evaluation of a sector's importance is to state the number of its employees in relation to the total population of the region. This sector-specific employ-ment rate as percentage of the population thus provides a yardstick of the sector's importance as employer and also permits conclusions to be drawn (if the same indicator is computed for all of the region's wage-earners) about sector-specific commuter flows.
When we compare this employment rate as percentage of the population for the ho-tel/restaurant sector, we find quite marked differences between the regions reviewed. The sector's rate in Valle d'Aosta snd canton Grisons is about 8.5 or 9 percent. If Grisons is taken as benchmark, we find that the Rhône-Alpes and Colorado regions, which were both leaders in terms of the indicators discussed above, show a much lower employment rate as percentage of the population - namely only about one percent! Much higher percentages are found in the typical Alpine holiday regions of Tyrol, Valais, Salzburg, Ticino and also Vorarlberg. But even these regions are far behind Grisons, e.g. Tyrol with a rate that is lower by 25 percent, Vorarlberg by 55 percent. The high employment rate in Grisons as percentage of the population is due mainly to high commuter flows. The situation is probably similar in Valle d'Aosta, while the rest of the tourism regions seem to draw mainly on local people to staff their restaurants and hotels.
Similarly sharp differences are found when we compare the number of manhours put in per year by the average employee. Here again Grisons is our benchmark with 1,900 manhours. The manhour figures are slightly lower in Ticino (-0.5 %), Valais (-4.8 %) and Salzburg (-5.2 %), but the regions of Colorado (-30 %) and Rhône-Alpes (-33 %) again show much lower figures.
Considering the indicators discussed in the foregoing, the following picture of comparative economic performance of the tourism regions in 1999 emerges. The three regions of Valle d'Aosta, Tyrol and Canton Grisons are the clear performance leaders. It is interesting to note, however, that the three exhibit markedly different characteristics. While Valle d'Aosta and also Grisons owe their solid economic performance largely to strong utilization of the regional labour pool and a high number of hours worked per employee, Tyrol relies primarily on high productivity for its top position. As we see in the cases of Colorado and Rhône-Alpes, it is important for a region to achieve a combination of high productivity and long working hours. Both of them show extremely high productivity, but the low number of hours worked over the year pushes them down in our performance table. In general, we find that larger economic regions do not occupy top places with our evaluation approach. The leaders tend to be regions with a clear focus on the hotel/restaurant sector, which is not too surprising considering the emphasis we place on the sector's importance in the re-spective regional economy.
COMPETITIVENESS OF THE ALPINE TOURISM REGIONS IN EUROPE AT THE BEGINNING OF THE 21ST CENTURY
Introduction
Founded on its long tradition as a holiday region, the European Alpine rim enjoyed steadily growing touristic demand throughout the entire 20th century except for the interruptions imposed by the two world wars. Some crucial factors underlying this persistent success were the unique landscape, well-developed transport and lodging infrastructure, and keen, qualified labour.
Since the 1980's Europe's Alpine holiday regions have found the going increasingly difficult, and this trend developed into a serious slump for the sector in the nineties. Besides gen-eral economic conditions, such as sluggish business growth in Europe, structural factors were behind it. The most important adverse factor is the increasingly intense globalization process in tourism. This is being driven by easier and cheaper transport, progress in com-munication technology and the dismantling of troublesome regulations. All of this has attracted competitors to the tourism market and motivated consumers - who are gaining travel experience fast - to seek ever more "exotic" destinations.
One result of the globalization process in tourism is a devaluation of the factors that have traditionally contributed to the success of the Alpine holiday regions in Europe. For one thing the Alpine landscape has tended to lose its uniqueness as more and more travellers have gained the ability and desire to find comparably impressive landscapes in other parts of the world. The loss of uniqueness and charm has been accelerated by some excessive construction activity and development throughout the European Alpine region. On top of this, a steady stream of new tourism operators has appeared in both traditional winter sport segments and alternative sightseeing fields, all of which has intensified competition in this market.
To make matters worse for the Alpine tourism regions, the sector's underlying conditions in western Europe's highly developed economies are deteriorating. One aspect is the sharply declining attractiveness of careers in tourism, which is making it difficult to recruit quali-fied people and maintain the necessary level of quality assurance. Another negative factor is the serious over-indebtedness of many tourism enterprises, which leads to insufficient capital expenditure and a lack of renewal projects.
Development of tourism in the Alps: regional differences
Although all of the Alpine holiday regions have been affected by deteriorating underlying conditions, especially in the nineties, there were notable differences from region to re-gion. A review of the statistics on overnight stays in hotels from 1990 to 1999 shows that, of the regions investigated, only Sondrio, Lombardy as a whole, and the French region of Provence-Alpes-Côte-d'Azur (PACA) achieved modest increases. Of these, interestingly enough, only Sondrio is a "typical" Alpine region. Lombardy with the Milan metropolitan area is much more dependent on business and professional travel, the PACA area on sum-mer tourism (bathing holidays by the sea and culture tours).
The two Austrian holiday regions of Tyrol and Voralberg succeed in keeping the downslide within bounds, but the rest of the regions reviewed suffered annual average declines rang-ing from 0.6 percent (Valais) and 2.6 percent (eastern Switzerland). Of the two "core Alpine countries" of Switzerland and Austria, the latter was obviously much more success-ful in combating the increasingly adverse conditions faced by the tourism sector.
The patterns of real value-added growth confirm the regional differences in tourism per-formance in recent years. It is noteworthy that the hotel/restaurant sector in the US state of Colorado was at the top of the value-added table during both the entire decade and from 1995 to 1999. The Swiss regions performed poorly in this regard, just as they did in terms of the overnight stay statistics.
Sizeable differences are also found when we compare the domestic and foreign compo-nents of tourism demand. All of the French and Italian regions reviewed report rising numbers of overnight stays by foreign guests between 1990 and 1999 (or 1998), as against declines - some of them quite sharp - among domestic guests. The pattern in the Austrian regions was just the reverse, with growth among domestic guests making up for declining foreign demand. Most, but not all, of the Alpine regions in Switzerland and Germany also tended to enjoy more lively domestic demand.
A comparison of the summer and winter seasons shows that performance was clearly better in the wintertime in the Alpine region as a whole between 1990 and 1999. With the single exception of the Swiss tourism region of Ticino, all of the benchmark regions reviewed showed either a less severe decline in overnight stays in winter than in summer or else a modest increase in the winter season. Two main causes probably underly the much poorer performance in the summer season. For one thing summer tourism demand is much more sensitive to recessive business trends than winter demand, and economic growth was very slow in western Europe in the nineties. Even more important is the fact that the Alpine holiday regions in Europe have been much more successful in resisting rising global com-petitive pressure during the winter season than the summer season. This is due largely to the natural competitive advantages offered by the Alpine climate and topography for win-ter sports. For the same reason, winter tourism can be regarded as the most important core competence of Europe's Alpine holiday resorts.
Factors underlying the regional differences in touristic performance
Analyzing the reasons for the below-average touristic performance of the Alpine holiday regions is a complex task, because many different aspects are at play. Both demand and supply factors have to be considered, and an in-depth review of the price competitiveness of the different regions is required.
Most of the factors that drive tourism demand are clearly outside the control of those who provide the services: first and foremost the widely varying economic ups and downs in France, Italy, Germany, Austria and Switzerland, which strongly affect domestic tourism demand in the Alpine regions of these countries. Nor do they have any control over ex-change rate fluctuations, which mainly affect the foreign component of tourism demand.
Because the Alpine holiday regions have much more latitude for action on the supply side of the equation, let us take a closer took at the way it affects performance. It is important to keep in mind that, despite structural differences between the individual Alpine holiday regions, all of them face similar supply-side challenges in connection with the aforemen-tioned globalization process.
A central aspect is the need to focus on value-added-intensive types of tourism, because the natural endowments of Europe's Alpine holiday regions hardly suit them for mass tour-ism. Consequently, they need to pay more attention to quality assurance and promotion in their touristic offerings and aim at making the tourism sector's structures more profes-sional. The application of modern marketing principles has also gained hugely in importance, because the market in most of the holiday regions has been transformed from a seller's to a buyer's market. A further challenge for these regions is the need to create multi-optional "experience" environments to satisfy today's increasingly complex and exacting touristic demand.
When we turn to indicators to investigate how the individual Alpine regions are reacting to these supply-side challenges, we find it useful to divide what they offer tourists into hard-ware factors and software factors. The touristic "hardware" includes transport and accommodation infrastructure, the software side things like quality of services and the ability to innovate. In addition to these two dimensions, we have to pay special attention to the price competitiveness aspect.
Under the heading of touristic hardware, the available infrastructure with regard to hotels and other forms of accommodation is extremely important. In view of the relatively high price level in western Europe, present-day tourists have come to take high-quality accom-modation infrastructure for granted. A comparison of the hotel furnishings throughout the European Alps shows that many of the regions are plagued with more or less serious defi-cits in meeting these high expectations.
As already noted, winter sports represent a real core competence of the holiday regions in the European Alpine rim. A review of the skiing areas shows that most of the Alpine holiday regions possess one or more attractive skiing areas in terms of infrastructure. This applies especially to the French, Italian, Austrian and Swiss Alpine regions. It has to be said, though, that many of the smaller and particularly the lower-lying skiing areas clearly face a difficult future and that accelerated structural transformation seems likely in the coming years.
The European ski resorts exhibit weaknesses with regard to organizational structures. The small and medium-size companies that predominate are not well equipped to keep pace in a globally competitive environment, for example in competition with North American ski resorts. Many lack the necessary finances, and there is a general lack of the sort of owner-ship and management structures needed to develop and implement the necessary optimization ideas.
But the structural weaknesses of Europe's Alpine tourism regions are not limited just to the winter sports segment. Even more important is the fact that the historically grown SME (small and medium-size enterprise) structure is proving a real handicap in the globalized environment. What is needed are fundamental reforms that can be referred to collectively as destination formation. It is important to avoid engaging in such destination formation for marketing purposes only. Instead, the aim should be to increase the amount of coop-eration and networking among providers of touristic services in the holiday regions.
Increased cooperation and networking among providers of touristic services and the forma-tion of destinations underscore the growing importance of the software dimension of what tourists are offered. As the European Alpine regions watch the uniqueness of their touristic hardware dwindling, the software aspect of their offering takes on entirely new signifi-cance. One consequence of this is that much greater attention has to be paid to the training and further education of those employed in the tourism sector.
The growing importance of tourism software is driven largely by technological progress. New technologies are facilitating communication and booking possibilities, raising the transparency of tourisitic packages and prices and, as a result, stepping up the intensity of competition. At the same time, though, they are opening up entirely new possibilities for efficient marketing and are likely to strengthen the trend toward coordinated package offers. A review of the Internet appearances of Europe's Alpine holiday regions shows that, though substantial resources have been invested in modernization, serious quality differ-ences still exist between the individual websites.
Prices play a crucial role in the interplay of tourism supply and demand. International com-parisons show that the ability to compete on price is made up of two elements: exchange rate fluctuations on the one hand, and price trends in tourism against the background of general price movements in the individual countries. Over the past two decades, it is clear that the ability of the Alpine holiday regions in Europe to compete on price has declined as a result of cheaper international transportation and the emergence of new competition from countries with generally lower cost levels. An analysis of hotel and ski ticket prices across Europe reveals that this applies to Swiss ski resorts even more than elsewhere.
CONCLUSIONS
Having just gone through a difficult period, the Alpine holiday regions in Europe find themselves facing daunting challenges. It appears that the effects of globalization trends in tourism really began to sink in during the nineties slump. Thanks to worldwide economic recovery, strong tourism demand now makes it easier to tackle the necessary structural changes. The Alpine holiday regions in Europe have the chance to take advantage of above-average growth of world tourism over the medium term.
Drastic changes are needed on the supply side (see section 2.3) if these regions are to compete successfully in the globalized tourism market, however. Our investigation of the touristic offering in the selected Alpine regions shows that this sort of action is already being taken in many places. But serious differences exist between regions with regard to the direction and degree of implementation of these measures. Price competitiveness will be a decisive factor in the arena of intensified global competition. For the Apine tourism regions in Europe, the most important objectives will be to improve the value-for-money offering and become more flexible in adapting to changing demand.
Everything considered, tourism in the European Alps can be expected to grow substantially over the medium term. But not all of the regions will profit from this growth to the same extent, and the entire European Alpine region will continue to lose market share within the context of the global tourism market.
