Economics

Improved flight connectivity could spur tourism and economic growth in the Pacific region

Improved flight connectivity could spur tourism and economic growth in the Pacific region

Tourism is one of the most promising growth sectors in the Pacific region. The number of tourist arrivals has more than doubled in the past decade, from around 600,000 in 2002 to 1.3 million ten years later. The potential for tourism in the Pacific is substantial as many islands offer unspoiled nature and scenic landscapes. However, travel to the Pacific can be inconvenient. There are only 35 direct flights from countries outside the Pacific to countries in the Pacific and the flight frequency is low. New research by ADBI shows that the number and frequency of direct flights is an important determinant on the number of tourist arrivals in the Pacific. The research also highlights that the potential of receiving large numbers of Asian tourists remains untapped. However, realizing the great potential of tourism will not only depend on better connectivity, but also on the capacity of Pacific region countries to respond to the growing demand.

Tourism in the Pacific on the rise

Tourism, like exports, contribute positively to economic growth and development in three important ways: First, international tourism, by exporting a service and facilitating the inflow of foreign currencies, helps a country pay for its imports and maintain foreign currency reserves. Second, tourism stimulates investments in infrastructure and human capital, which, in turn, creates jobs and increases incomes across a variety of industries.1 Finally, growth of tourism may help to spur agricultural output used in the hospitality industry. These three channels, in turn, appear to be even more important for smaller countries, where tourism generally makes up larger portions of the domestic economy.

According to United Nations World Tourism Organization (UNWTO) statistics, there were 1.5 million tourist arrivals in the Pacific region in 2013. Almost half of all foreign tourists in the Pacific were welcomed by Fiji in 2012. The next largest receiving countries were Papua New Guinea (12%), Samoa (10%), the Cook Islands (9%), and Palau (9%). The main sources of tourists were Australia (44%), New Zealand (22%), the United States (7%), Japan (4%), and Taipei,China (3%). Despite Asia’s proximity, Asian tourists play a minor role in Pacific tourism (Figure 1), with their share dipping from 15% in 2000 to 14% in 2011. Nonetheless, the number of tourists from the People’s Republic of China has surged, from 2,540 in 2000 to 35,426 in 2011.

Figure 1: Share (left vertical axis) and number of international tourist arrivals (right vertical axis) of Asian tourists (2000–2011)

Figure 1: Share (left vertical axis) and number of international tourist arrivals (right vertical axis) of Asian tourists (2000–2011)

Source: Authors’ calculation based on UNWTO database on number of inbound tourists

In the near future, Asia is expected to become a major source of tourist arrivals in the Pacific. The main drivers are a rapidly growing middle class in many Asian countries and their increasing demand for leisure travel. For the Pacific developing member countries (DMCs) who are Asian Development Bank (ADB) members, this development constitutes a great opportunity. Many Pacific DMCs have struggled to generate sustainable growth, mainly due to multiple structural constraints, such as their remoteness and small economic size. Tourism offers the possibility to overcome some of these constraints and transform some constraints, such as their remoteness, into positive assets. Many Pacific DMCs have high hopes of achieving sustained economic growth by tapping into Asia’s dynamic tourism sector.

The untapped tourism potential

Given the remoteness of Pacific DMCs, flight connectivity is an important determinant of their capacity to welcome tourists. Improving flight connectivity can make the Pacific DMCs more accessible and feasible for many more international tourists, whose increased numbers would then spur income and infrastructure improvements in these countries. For example, in Peru—a developing country which international tourists, on average, fly about 5,500 kilometers to reach—it has been estimated that a percentage increase in the frequency of long-haul flights increases tourists arrivals by between 0.3% to 0.5%, with neighboring countries seeing comparable increases in their international tourist arrivals as well.2

New research by ADBI explores the determinants of tourism flows to the Pacific region by combining several data sources.3 The node diagram to the left of Figure 2 depicts all the flight connections available within the Pacific region and with areas outside the region. Interestingly, out of the possible 168 flight connections between areas outside the Pacific region toward Pacific DMCs, only 35 are in place. (Between the Pacific DMCs, 28 out of 116 possible connections exist). The node diagram on the right of Figure 2 illustrates bilateral tourism flows. A comparison of the two diagrams shows that the flight connections only match a fraction of tourist flows to the Pacific DMCs, implying that many tourists to the Pacific region need to board more than one flight to reach their destination.

Figure 2: Node diagrams of direct flight connections and tourism flows between Asia and the Pacific and within the Pacific (2013)

Figure 2: Node diagrams of direct flight connections and tourism flows between Asia and the Pacific and within the Pacific (2013)

Source: Flight routes from openflights.org; tourist flows from UNWTO
Note: Included in the diagram are areas that had at least one flight connection to one of the Pacific developing member countries.

ADBI’s research highlights the potential for increased flight connectivity of the Pacific DMCs. Based on the information on direct flight connections, bilateral tourism flows and CEPII data, we developed a gravity model that can explain around 75% of all tourism flows to the Pacific. Our initial results show that geographical distance between the origin of tourists and their final destination is a major determinant for the number of tourist arrivals in the destination country. Furthermore, we find that colonial links play an important role in predicting the number of tourist arrivals. Interestingly, the estimation results show that countries with a direct flight link have more than twice as many visitors compared to countries without a direct flight link. Increasing the frequency of flights can also increase the number of tourist arrivals significantly. Because our focus is on the Pacific DMCs as a group and not on specific routes, our estimates represent the average effect of improved flight connectivity. Not every new flight connection will have the same effect on tourist arrivals. Some countries will gain more tourists than others because of closer ties with tourist-sending countries or better existing infrastructure. However, our results indicate that there is indeed massive potential for more tourists to the region.

One possible step to increase flight connectivity is to introduce and ensure competition in the transportation sector. Furthermore, in our estimates we have not taken explicitly into account the supply constraints of Pacific DMCs in welcoming more tourists. Realizing the promising economic opportunities that come with more tourists will certainly depend not only on better connectivity, but on creating economic conditions that facilitate more tourism. Apart from improving flight connectivity, governments in the Pacific DMCs can boost tourist arrivals by measures like simplified visa procedures (Arita et al. 2014).4

Most importantly, it is the capacity of Pacific DMCs to accommodate the increased demand for hotels, amenities, and other facilities that come with additional tourists that will determine how much they would benefit from the presence of more visitors from new flights to and within the region. While increasing flights to the Pacific DMCs would attract more tourists, substantial investments in infrastructure would be needed to ensure that any growth in tourism—and the economic benefits associated with it—would be sustained.
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1 Brida, J. G., Cortes-Jimenez, I., and Pulina, M. 2013. Has the tourism-led growth hypothesis been validated? A literature review. Current Issues in Tourism. 1-37.

2 Tveteras, S. & Roll, K.H. (2014). Non-stop flights and tourist arrivals. Tourism Economics. Vol. 20. No.1. pp. 5-20(16).

3 Data on the number of tourists comes from bilateral tourism statistics provided by the UNWTO for the years 1995 to 2012. For geographical and cultural variables that link countries we rely on data from CEPII. Finally, we made use of a database containing information on all flight routes worldwide as of January 2012 (http://openflights.org/data.html).

4 Arita, S., la Croix, S., and Edmonds, C. 2014. The Effect of Approved Destination Status on Mainland Chinese Travel Abroad. Asian Economic Journal. Forthcoming.

References:

Helble M. 2014. The Pacific’s Connectivity and Its Trade Implications. ADBI Working Paper Series. No. 499. Tokyo: Asian Development Bank Institute.

Matthias Helble

About the Author

Matthias Helble is a senior economist and co-chair, Research, Asian Development Bank Institute.
Paulo Mutuc

About the Author

Paulo Mutuc is a research associate at the Asian Development Bank Institute (ADBI) and a PhD candidate at the Waseda University Graduate School of Asia-Pacific Studies. His research interests are in trade, applied economics, and behavioral economics.
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