Tourism, Security and Safety From Theory to Practice

Table 4
Annual Averages of Monthly Revenue Losses from Terror Events and Foreign and
Local Markets, 1987–1999
Foreign Market
Local Market
Total
Year
($000)
%
($000)
%
($000)
1992
−
768.57
−
0.21
−
19.29
0
−
787.86
1993
2,218.51
0.50
10.37
0
2,228.88
1994
−
8,712.07
−
1.87
−
34.88
−
0.01
−
8,746.94
1995
−
8,484.63
−
1.64
−
46.19
−
0.01
−
8,530.82
1996
−
14,276.91
−
2.55
−
113.50
−
0.02
−
14,390.41
1997
−
10,109.81
−
1.75
−
70.47
−
0.01
−
10,180.28
1998
−
6,018.14
−
1.03
−
53.75
−
0.01
−
6,071.89
Total
−
48,567.20
−
342.72
−
48,909.92
Average
−
6,070.90
−
42.84
−
6,113.74
Note:
Negative values refer to losses, positive values to gains.
Table 5
Decomposition of Table 4 Losses by Percent Changes in Price and Quantity
Foreign Market
Local Market
% Change in 
% Change in
% Change in
% Change in
Year
Price
Quantity
Price
Quantity
1992
−
0.15
−
0.04
0.00
0.00
1993
0.15
0.32
0.01
0.00
1994
−
0.46
−
1.50
−
0.03
0.02
1995
−
0.66
−
0.74
−
0.02
0.01
1996
−
0.82
−
1.44
−
0.03
0.02
1997
−
0.52
−
1.16
−
0.02
0.01
1998
−
0.36
−
0.69
−
0.01
0.01
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Declining demand then reduces hotels’ marginal opportunity costs and thus their
minimum or supply prices to foreign guests. In other words, foreign revenue falls
because the foreign demand curve shifts down along the foreign supply function
from equation (4). The respective contributions of quantity and price changes to
foreign revenue shortfalls are shown for each year in Table 5. On average, changes
in bookings (quantity changes) account for about twice as much of the revenue
change as do price adjustments.
In contrast to those in the foreign market, revenue changes in the local market
come about because the local supply function given in equation (3) shifts down along
the local demand curve from equation (1). As the fifth column of Table 4 indicates,
these changes have been rather minor; that is, price discounts to Israeli tourists in the
wake of terror incidents have little effect on Israeli tourist revenues. Table 5, columns
4 and 5, make clear why. Because local market demand is inelastic (i.e., the absolute
values of own-price elasticities in the local demand function are below unity in Tables
2 and 3), price discounts are proportionately no greater than the corresponding
increases in bookings. Thus, hotels have little short-run incentive in the wake of a
terrorist outbreak to reduce prices enough to fill many rooms.