During the past few decades, tourism has grown rapidly and steadily and has become one of the major industries in the world economy. Tourism started in United Kingdom during the industrial revolution with the increase number of middle class families and relatively cheaper transportation. There was a significant growth in international travel since the establishment of commercial airlines industry and the creation of jet airplane in the 1950's. This increase led to the development of a major new sector that is tourism. Thus international tourism became the concern of many governments. Every year over four thousand billion Dollars of economic activities all over the world is contributed by this sector and it provides huge employment opportunities whereby one out of every five employees in the global labour force is employed (Fayissa et al., 2007). Tourism acts as a catalyst for economic growth as progress in this sector still have a positive impact on economic development in many fields. Furthermore, the growth of the tourism industry is enhanced by the economic development of countries.
Tourism is vulnerable to numerous crises and disasters such as the global financial and economic crises, the H1N1 pandemic threat, the 2010 Icelandic volcanic plume and last but not the least the Euro crisis. As the global economy is interconnected and tourism has become increasingly hypermobile, there has been a negative effect in terms of size and frequency on international tourism.
2.1 Financial Crisis
Financial crisis can be defined as financial meltdown, Credit Crunch, financial turmoil, credit bubble, economic downtown, economic slump and recession. Claessense et al. (2009, p52) stated that this phenomenon is not a new one as it has happened on many occasions in past years for example in the mid-70's, early 80's, 90's and early 2000. Even though there is no universal definition of recession, it is affiliated with the period of downturn in economic activity. A quarterly magazine of IMF December 2008 define "recession as two consecutive declines in a country's GDP, however it has been argued that this definition has its limitations, examining GDP alone is narrow thus is advised to consider other wider indicators of economic condition to scrutinize whether or not the country is suffering recession". Another definition of recession given by the National Bureau of Economic Research (NBER) of America as;
"A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough." Consistent with this definition, the committee focuses on a comprehensive set of measures-including not only GDP, but also employment, income, sales, and industrial production-to analyze the trends in economic activity"(NBER, 2008, Pg.1).
2.1.1 The impact of financial crisis on the Tourism sector
The impact of the financial crisis was noticed with a delay in the tourism industry. The United Nations World Tourism Organization (UNWTO) stated that a drop in demand for business and leisure tourists had a negative impact on the tourism sector. The UNWTO predicted a fall of 4% in the international tourist in 2009 and a negative growth was reported in many destinations in the world. According to Arthur D, even though the tourism industry has suffered from time to time, it was likely to recover. However, the global economic downturn is considered to be the most severed crisis the sector has experienced because of its global implications the fact that it directly affects people's financial ability to travel. Raymond (2001) argued that tourism is a demand-led industry, thus the industry faces massive challenges originated from the financial crisis due to declining purchasing power of the tourists from developed and emerging economies. Mladenovic and Zlatkovic (2009) have also identified in the foreign capital gain, tourism in West Balkan countries have affected as there is a downfall in the capital inflow. Furthermore, the exchange rate regime became more vulnerable because of financial crisis. According to a tourism study in Singapore, Meng et al (2010) have employed updated input-output tables and CGE modeling to analyse the impacts of 2008 World Financial Crisis of the change in tourism demand on Singaporean tourism and the economic performance at large. The results have showed that not only the tourism sector has been suffered from this crisis but other sectors related to tourism have been affected. According to a research1, it has shown that in Mauritius, the tourism and textile sectors have suffered a lot. From a survey conducted by Boolaky and Ramlall (2010, p5)2 it can be concluded that almost 55 percent of tourism organisation has affected badly while 40 percent has been slightly affected. The world financial crisis had been the headline in many newspapers around the world for several months. It is comprehensible that the sector of tourism cannot remain unaffected by the crisis since it is volatile and extremely fragile though some experts think otherwise.
1 "Human Resource Implications for Mauritius in the context of the Global Financial Crisis" from the Addendum to the review of the National Resource Development Plan 2007-2010
2 "Impact of the Global Financial Crisis on the Mauritian Financial Services Sector" authors Aleesha Mohamudally Boolaky and Indranarain Ramalall 24-27 August 2010 page 5(ISSN 1694-0938)
2.2 The pandemic H1N1 threat - 2009
Wikipedia define Influenza A (H1N1) virus as "a subtype of influenza A virus that was the most common cause of human influenza (flu) in 2009. Some strains of H1N1 are endemic in humans and cause a small fraction of all influenza-like illness and a small fraction of all seasonal influenza. H1N1 strains caused a small percentage of all human flu infections in 2004-2005. Other strains of H1N1 are endemic in pigs (swine influenza) and in birds (avian influenza)."
In June 2009, The World Health Organization (WHO) declared the new strain of swine-origin H1N1 as a pandemic in June 2009. It is also known as swine flu. The virus was spread around the world which had caused about 17,000 deaths by the start of 2010. On August 10, 2010, the WHO declared that the H1N1 influenza pandemic over and it had returned to typical seasonal patterns. This outbreak started in Veracruz, Mexico where the Mexican government closed many of its public and private facilities so as to stop the spread of this virus. Unfortunately this virus continued to spread worldwide which caused many hospitals and clinics in some areas were overwhelmed by infected people.
In spite of being called "swine flu", the H1N1 flu virus cannot be spread by eating pork or pork products; similar to other influenza viruses, it is typically contracted by person to person transmission through respiratory droplets. Symptoms usually last for four to six days.
2.2.2 The impact of the pandemic H1N1 threat on Tourism sector
Gina and Luminita (2012, p187) stated that the global financial crisis aggravated by the H1NI pandemic caused the tourism industry to suffer the most. Data obtained from UNWTO showed that the movement of tourists slow down across countries during the first four months of 2009 due to the financial turmoil and the influenza A(H1N1) outbreak. According to the July 2009 edition of UNWTO's World Tourism Barometer, destinations worldwide registered a total of 247 million international tourist arrivals from January to April 2009. There was a decrease of 8-percent as 269 million was recorded in the same period for year 2008.
World Tourism faced many challenges due to this environmental crisis. People were afraid to use airports or other centre of mass gathering. This was a warning to travel and tourism industries as people prefer to remain at home for vacation. According to David Beirman (2009, p1), it takes no time to destroy a tourism site reputation or to panic the public. For instance during the SARS outbreak in Toronto, Canada, hotel occupancy fall drastically even though no visitor was stricken with the illness and every single precaution was taken. The same situation happened for Mexico where tourists simply stopped going there because of this virus.
In Middle East, the tourist arrivals, registered an 18-percent drop while in Europe it was affected by 10-percent decline during 2009. Moreover, in the Americas and Asia Pacific there was a drop in arrival of tourists by 5 percent and 6 percent, respectively. However, Africa was the only region to register a growth of 3-percent. (ABS -CBN, 2009)
2.3 The 2010 Icelandic volcanic plume
One of the Iceland's smaller ice caps, Eyjafjallajökull, is located in the far south of the island. On 14th April 2010, the eruption of this volcano has generated volcanic ash where the European air travel was heavily disrupted. The combination of four factors that made this volcanic activity so disruptive to air traffic were:
The volcano was directly under the jet stream.
The direction of the jet stream was unusually stable at the time of the eruption's second phase, continuously south-east.
The second eruptive phase happened under 200 m (660 ft) of glacial ice. The resulting melt water flowed back into the erupting volcano, which created two specific phenomena:
Although the explosion was of low intensity, it produces big cloud of ash that covered large areas of northern Europe for a period of six days. The aviation authorities of the concerned countries declare most of European skies as no-fly zones as the ash was much finer than usual, moving quickly and possibly affecting aircraft engines. The eruption was declared officially over in October 2010, when snow on the glacier did not melt.
2.3.1 The impact of the Icelandic volcanic ash on the Tourism sector
The volcanic ashes blocked the European air space, leading to the cancellation of numerous flights and to serious losses for many airlines. Eyjafjallajökull affected the tourism sector, as well. Though the initial effect was strongly negative, the volcanic eruption benefited tourism in Iceland in the long run.
In April, the volcanic eruption paralyzed Europe. Yet, once the dust settled and Eyjafjallajökull calmed down, tourists started flocking to Iceland. Naturally, Iceland developed the niche. Volcano tour guides became responsible for taking tourist groups around and showing visitors the vicinities of Eyjafjallajökull.
During the summer of 2010, visits to Eyjafjallajökull exceeded visits to Iceland's most popular tourism destination - Blue Lagoon Spa. The signs of the volcanic eruption today are almost entirely unnoticeable. Yet, tourists are still given a chance to buy a bottle of volcanic ashes from Eyjafjallajökull, which are sold as popular souvenirs.
Despite the positive effect on Iceland's tourism Eyjafjallajökull affected the European travel industry in a disastrous way. Over 60 000 flights were canceled in Europe, which led to 800 million euro losses for airlines. The overall losses are even greater, because other sectors were affected, as well, Deutsche Welle radio reported.
International aviation experienced crisis before the eruption of Eyjafjallajökull. Europe saw an overall passenger decrease of 4.6 percent in 2009. According to experts, the decrease and the volcanic eruptions could soon be the reason for airline bankruptcies.
On a global scale, the losses of aviation companies in 2010 totaled 250 million dollars per day.
Apart from the aviation sector, many others depending on aviation cargo were affected by Eyjafjallajökull's eruption. Nearly 35 percent of Germany's export is transported by air. Some of these products need to be delivered immediately because they are relatively short lived.
About 17 million workplaces in the sphere of tourism are directly connected to air transportation. It is also responsible for six million work places in cargo companies and five million workplaces in aviation companies and airports.
The effects of Eyjafjallajökull's eruption are still to be estimated in their entirety. Though the tourism industry of Iceland benefited from the eruption, the European travel and transportation sector experienced serious losses, which are still to influence companies and employees alike.
The Eurozone Crisis
Eurozone crisis, also known as the European sovereign debt crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties. This crisis started in late 2009, where the new government declared that there misreporting of budget by the previous government. Thus there was huge budget deficit in the country and Euro started depreciating against US Dollar.
The impact of the Eurozone crisis on the Tourism sector
Financial Statement Analysis
The Accounting standard board states that:
"Financial statements are structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions." (Frank Wood, p166)
2.6 Techniques of analysing the financial statements
Cosserat G et al., (1995) identified three common tools used to analyse the financial statement which are Ratio Analysis, Horizontal Analysis and Vertical Analysis
Ratio Analysis
It is the most common tool used to evaluate financial statements. It is simple to calculate ratios or percentage but the crucial part is the interpretation of these data. Harrington and Wilson (1989, p26-30) identified that analysts must compare performance to be able to interpret data that is
Using various time periods,
Compare data with companies in the same industry
With the average performance of the industry
There are five main groups of ratios: profitability, liquidity, investment, efficiency and gearing
Profitability Ratio
It indicates how successful managers of a company have been in generating profit.
Return on Capital Employed
ROCE relates the overall profitability of a company to amount of funds employed to generate profits. It is considered to be an important measure of profitability.
Net Profit Margin
This ratio indicates the efficiency with which costs have been controlled in generating profit for sales. Randall H (1996, p464) stated that it is vital to ensure that the firms are in the same line of business when comparing the net profit percentage.
2.6.1.1.3 Asset Turnover
This ratio gives a guide to productive efficiency. It is an indicator of how effectively a company is using its assets to generate sales.
2.6.1.2 Liquidity Ratio
It is used to measure the ability of a company whether it can meet its obligations over the short run. Higher liquidity means that the firm can meet their current obligations.
Current Ratio
It measures a company's ability to meet its financial obligations as they become due. It is often said that the current ratio should be around two, but what is normal will vary from industry to industry: sector averages are a better guide than a rule of thumb.
Quick Ratio
It is also known as the acid test ratio. It is argued that the current ratio overstate the ability to meet financial obligations because it includes inventory in the numerator. Quick ratio compares liquid current assets with short term liabilities.
Efficiency Ratio
It is also known as activity ratio. It shows how efficiently a company has managed current assets and current liabilities.
2.6.1.3.1 Account Payable Payment Period
"It often helps to assess a company's liquidity: an increase in accounts payable is often a sign of lack of long-term finance or poor management of current assets, resulting in the use of extended credit from suppliers, increased bank overdraft." (BPP text book p71)
2.6.1.3.2 Account Receivable Payment Period
This is a rough measure of the average length of time it takes for a firm's accounts receivable to pay what they owe. Wood F. et al stated that "the ratio shows how a company uses short-term financing to fund its activities and further investigation will reveal whether or not the outcome is due to efficiency". (1999, p 413)
Gearing Ratio
Interest Cover
Interest cover shows how many times a company can cover its current interest payments out of current profits. It indicates whether servicing debt is becoming a problem. It is a clearer indication of financial distress than either capital gearing since inability to meet interest payments will lead to corporate failure no matter what level of gearing may be.
Investment Ratio
According to Wood F et al., (1999, p415) these ratios show the company's level of performance regarding the price of its shares and other items such as dividends.
Earnings per share
It is regarded as a key ratio by stock market investors. Lewis R and Pendrill D (1996, p407) stated that this ratio indicate the amount of earning available to holder of one share.
Price Earnings Ratio
The price/earnings ratio is seen as a key ratio by stock market investors. It shows how much an investor is prepared to pay for a company's shares, given its current earnings per share. The ratio indicates the confidence of investor in the expected future performance of a company. The higher the P/E ratio relative to other companies, the more confident the market is that future earnings will increase.
Dividend Cover
Randall H (1996, p471) stated that dividend cover indicate how many times the total dividend is covered by current earnings. The higher the dividend cover, the more likely it is that a company can maintain or increase future dividends.
Dividend Yield
Lewis R et al, (1996, p 406) stated that dividend yield gives a measure of how much an investor expects to receive in exchange for purchasing a given share, although it does not take into account any capital gains that may arise.
Horizontal Analysis
It is also known as the comparative analysis
2.6.3 Vertical Analysis
