Review Of Tourism Research ERTR Vol 1 No 4 2003

Review Of Tourism Research Ertr Vol 1 No 4 2003 Httpertr

This paper examines how transportation pricing impacts tourist decisions, specifically focusing on the demand elasticity for ferry services to Vancouver Island in Western Canada. The study was prompted by two recent ferry fare hikes and aims to assess how future price adjustments might influence tourist behaviors and the broader implications for the island’s tourism industry. It explores the concept of price elasticity—how sensitive consumers are to price changes—and proposes strategic responses to mitigate adverse effects on tourism demand.

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Transportation is a vital component of island tourism, fundamentally affecting the destination’s attractiveness and accessibility. Islands rely heavily on efficient, affordable transportation links to maintain their tourism competitiveness (Smith, 1987; Conlin & Baum, 1995). When transportation costs rise, tourists often face increased barriers to visitation, which can significantly influence their travel choices. This paper reviews a case study involving ferry fares between the mainland and Vancouver Island, analyzing how price adjustments alter tourist demand and what strategic measures can mitigate negative impacts.

The context of this study centers on British Columbia (BC) Ferries, a public Crown corporation responsible for ferry services in British Columbia, which increased fares twice within a year due to declining government subsidies and rising operational costs. These fare hikes generated immediate concern among stakeholders about potential declines in visitors. To quantify this, local survey data and demand modeling were employed to estimate the price elasticity of demand for ferry travel, providing insights into how sensitive tourists are to price changes (Kotler, Bowen & Makens, 1996).

Understanding Price Elasticity in Tourism

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. An elastic demand indicates that a small price change results in a relatively large change in demand, whereas inelastic demand implies demand is less affected by price fluctuations (Crouch, 1994). This sensitivity is crucial for tourism marketers and policymakers because it influences revenue strategies, pricing policies, and subsidy considerations. The elasticity ratio is calculated as the percentage change in demand divided by the percentage change in price (Yoon & Shafer, 1996).

In this case, a 20% fare increase was projected to lead to a 33.9% decrease in trips, generating an elasticity ratio of approximately -2.24, indicating highly elastic demand. Conversely, a 20% fare reduction was estimated to increase trips by nearly two trips annually, with an elasticity ratio of about +3.01, further demonstrating that demand is very responsive to price changes (Figure 3). These findings suggest that reducing ferry fares could significantly boost demand, potentially leading to higher total revenue if the increased volume compensates for the lower price.

Empirical Evidence from Surveys

A mail survey conducted among mainland residents who visited Vancouver Island revealed that ferry costs were perceived as a significant barrier. The survey found that most tourists made approximately 3.1 trips annually, with the ferry fare being rated as the poorest value component of their trip (Table 1). When respondents were asked how they would react to a 20% price increase, over 60% indicated they would decrease travel, with many expecting to cut multiple trips (Figures 1 and 2). Conversely, a fare reduction prompted most respondents to consider increasing their travel frequency, illustrating the high price sensitivity in this market segment.

The data supported the notion that ferry fares are a critical factor in trip planning decisions. Tourists regarded transportation costs as a primary hurdle, often weighing the expense of ferry travel against overall trip costs (Stevens, 1992). The anticipated demand response underscores the importance of considering elasticity when designing fare policies, especially in competitive island markets.

Strategic Responses to Demand Sensitivity

In response to these insights, the local tourism industry implemented multiple strategies aimed at counteracting the potentially negative effects of fare increases. Short-term measures included lowering accommodation prices to offset higher transportation costs. Longer-term strategies prioritized repositioning the ferry experience itself, emphasizing scenic routes, wildlife viewing (seals, eagles, whales), and leveraging special events such as exhibitions at the Royal BC Museum to attract visitors (Leiper, 1990).

Additionally, the industry explored package deals combining ferry services with lodging and attractions, as well as promoting longer stays on the island to distribute transportation expenses over extended visits (Yoon & Shafer, 1996). Developing high-speed ferry links and regional packages aimed to diversify the market and appeal to different segments, such as high-end or adventure tourists. These efforts aimed to reduce the sensitivity to ferry fares by enhancing perceived value and overall trip attractiveness (Murphy & Pritchard, 1997).

Policy and Economic Implications

The case study raises important policy questions about government support and subsidies for transportation infrastructure. Although fare hikes generate immediate revenues for ferry operators, they can diminish overall tourism revenue if demand drops substantially, illustrating a potential mismatch between short-term financial gains and long-term destination sustainability (Bertrant, 1997). The economic impact of reduced visitor expenditure could outweigh the benefits of increased fares, leading to lost tax revenue and broader economic downturns.

This dynamic suggests that public transportation serving tourism destinations should consider operational subsidies or strategic pricing policies rather than purely profit-driven models. A balanced approach could foster sustainable tourism growth, ensuring transportation costs remain manageable for visitors and support the destination’s economic vitality in the long term.

Conclusion

The examined case illustrates that ferry services to Vancouver Island exhibit high price elasticity, making demand highly sensitive to fare changes. Effective management requires a nuanced understanding of this elasticity and strategic responses that enhance perceived value while maintaining accessibility. Industry stakeholders have demonstrated that combining marketing initiatives, package deals, and policy advocacy can mitigate negative impacts of fare increases, ensuring continued tourism growth. Policymakers should recognize the economic implications of transportation pricing and consider supportive measures that reinforce the destination’s competitiveness and sustainability.

References

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