Former Manager, BSR
Perhaps no other industry is more dependent on climate than travel and tourism. From warm, sunny, beachfront resorts, to majestic, snowy mountains, and turbulence-free flights, nearly every aspect of the industry is better off and more profitable when the weather is stable and predictable, and travelers can move about safely and without disruption.
According to a 2008 study by the UN World Travel Organisation, tourism will likely move toward higher latitudes and altitudes, where negative climate change impacts will not be as drastic. If that happens, the competitive position of vacation spots will change, leaving some areas to decline as others become more popular.
Climate change is also predicted to result in greater weather volatility and related risks to infrastructure. Increased costs, primarily for fuel, will lead to corresponding erosion of consumer demand for travel, and longer-term shifts in weather and climate will affect the value of different destinations. Apart from these direct impacts, climate change will indirectly affect biodiversity, water resources, and changes to the landscape.
These changes, coupled with the ripple effects on communities (including the possibility of destabilization in developing countries), will impact many aspects of popular travel destinations. High-volume hotel and resort destinations will experience increasingly erratic weather, water scarcity, and changes in seasonality. The stakes are particularly high for coastal and island destinations, which are more vulnerable to rising sea level, hurricanes, severe storms, flooding, water shortages, and beach erosion. And many of these regions—especially in developing countries—have a low capacity to adapt to the changing climate.
Likewise, in areas that depend on wintry conditions and activities for tourism, reduced snow cover and shorter cold seasons directly impact business performance. As noted in the journal Nature Geoscience, white and reflective snow cover is crucial to keeping the Earth cool, but as snow melts with warmer temperatures, the planet’s reflective capacity is reduced, and the warming is further increased by the less-reflective surface of the planet. This spells trouble for the winter sports tourism industry.
In spite of these changes, there are opportunities for beachside and mountain-based regions alike to adapt to the changing climate. Coastal destinations can construct resorts at a given height above sea level, store food for emergencies, implement disaster training and preparedness for staff, and modify existing infrastructure to standards that can withstand major weather events. And mountain-based businesses can take a “four-seasons” approach by offering diverse activities like indoor sports, trekking and biking in warmer months, and increasing retail and spa offerings for visitors. There are also opportunities for airlines and online travel companies.
Hotels and Resorts
Hotels and resorts are vulnerable to rising sea levels in coastal areas and changing weather patterns for properties ranging from waterfront to high elevations. With so many assets located in places that are exposed to the elements, hotels and resorts stand to experience major costs when a massive storm comes ashore, or when snow cover recedes—which is already happening in the western United States. It will be difficult for such companies to secure property and casualty insurance for high-risk geographies, and for locations where damage does occur, premiums will skyrocket.
But some forward-thinking hotel companies are working on strategies to address climate risks and reap opportunities. Companies such as Starwood Hotels not only report their carbon emissions and risks, they also use their disclosure as a chance to talk with business partners about growth opportunities. Gina Edner, Starwood’s associate director of environmental sustainability, said her company receives a lot of requests for environmental information from business partners. “In talking to corporate clients that have experience with climate reporting, a company [in the tourism industry] might discover new areas to grow its business,” she noted.
However, even the best-planned strategies face challenges, as hotels have assets that cannot easily be relocated in the face of climate change. To account for this, future-thinking hotel companies with coastal properties might look for other business opportunities, such as investments in water-desalination technologies, or they may create policies to site new hotels well above the highest high tide line. They could also consider programs to protect the biodiversity of nearby climate-sensitive ecosystems like coral reefs, and seek alternative offerings for visitors that reduce dependency on sun, sand, and surf activities.
In its study, the UN World Tourism Organisation also reported that fuel comprises 20 to 25 percent of direct operational costs for airlines. In the entirely possible scenario that companies are required to pay a carbon tax, fuel costs could skyrocket—further damaging the already battered airline industry. Companies will have to adapt as business and vacation passengers alike begin to change their habits due to higher ticket prices and changing weather patterns affecting their choice destinations. Airlines are also getting hit with losses from grounded, cancelled flights that must be rerouted from tricky weather—a problem that is likely to grow.
Fortunately, airlines can pursue new opportunities such as piloting jets that are more efficient and investing in biofuels and other alternatives to petroleum-based fuels. By paying close attention to the latest climate science, carriers might be able to anticipate weather-pattern changes, improve their routing for efficiency, and increase services to emerging travel destinations, while scaling back services to locations that are seeing reduced demand.
Online Travel Booking Companies
The online travel booking business is also sensitive to the rising airline ticket prices that could result from increased fuel costs. If airfare climbs too high, companies like Orbitz, Travelocity, Expedia, and others could experience reduced demand for travel-related goods and services. Likewise, reduced snowpack or less availability of freshwater could drastically impact high-volume destinations, which would change how vacationers book hotels and resorts. Another change in consumer behavior—the trend toward video conferencing—could also reduce the amount of business these companies receive from corporate travelers.
Some companies, such as Travelocity’s parent company Sabre Holdings, are thinking ahead and investing in advanced video-conferencing technology that could be booked online through their platforms. This technology allows business travelers to host a meeting by booking a room in a hotel where the technology exists, thus enabling face time with global colleagues without the flight. These companies also have access to immense amounts of data on travel patterns and behaviors of corporate travel customers that could be used in business-to-business relationships to reduce corporate customers’ energy-related costs and also help business partners with climate change reporting, measurement, and management of emissions resulting from travel.
The Way Forward
For many companies, it is understandably difficult to address an issue that seems to be unfolding over decades when the day-to-day demands of profitability are at hand. Working with multiple stakeholders, including NGOs, investors, and local communities, can accelerate learning, reduce the cost of understanding and mitigating risks, and help identify opportunities for innovation.
In particular, travel and tourism companies can start to work on understanding:
- The impacts of climate change on operating costs: This will help companies address the financial component of climate change that is central to business’ rationale for acting.
- How to “future-proof”: By closely following the science and predicted societal, economic, and policy trends related to climate change, companies can plan new strategies to lessen the impacts to their operations by adapting to the new realities.
- The role of business continuity: This will help companies prepare for the long-term issues, even as they use disaster-response management to address more immediate issues.
- Changes in consumer sentiment/demand: Understanding consumer travel patterns will help companies create offerings to satisfy changing consumer demands driven by a changing climate.
- Risk transfer: Extrapolating the implications of climate change for their business will help companies develop better adaptation mechanisms that will keep insurance premiums in check by minimizing risks.
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