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Article Series 3

Week 9: “Economics 101: Tourism Supply and Demand”

Forces at Play 2022:

Ninth in a 9 Part Series from The Insight Collective

By Dave Belin for the Insights Collective

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In early March, I was planning a summer camping trip in Utah with my two boys. Sitting at my computer, I patiently waited for the exact moment that the online reservation system would open for booking. At the appointed time, I clicked on the reservation button, only to have an error message pop up. The traffic on the website was too great for the system to handle the demand. By the time I was able to get though to the reservations, they were all gone for the dates we wanted.

That was five years ago, in 2017.  And now, 2 years into Covid-19 pandemic protocols and attendant staffing shortages, pressures on outdoor recreation and tourism are even more accelerated. When demand outstrips supply, whether at a ski area, a popular trailhead, or at a restaurant in town, both the customer and employee experience suffer. The need to balance supply and demand is urgent in many mountain communities, as the number of visitors is increasingly outstripping the ability of the destination to service those visitors. Ideas and mechanisms that can help to re-balance this dynamic are available but require effective coordination between individual businesses within a larger community.

Managing supply is often a reaction to an excessively high level of demand, rather than a proactive strategy put in place ahead of time. This delayed response is understandable, because the tipping point between being comfortably busy and totally overwhelmed is typically very small. For a mountain destination, certain specifics can drive high demand, like a powder day, a big concert or event, or a summer holiday weekend. Or the periods of high demand can be less episodic and more continuous, which is where some mountain destinations find themselves at this point.

 

Individual businesses can control their own supply by implementing reservations (think restaurants), or parking (think trailheads), increasing pricing (think Uber surge pricing), or a combination of these tactics. It can be more challenging, though, for an overall destination to manage the number of visitors to a town or region, especially with consumers driving the demand that many destinations are experiencing (as opposed to the destination businesses spurring demand through advertising and promotion).

 

Here are some techniques and tactics that can help to manage crowds during peak times, though none of them is perfect and all have downsides to either the traveler experience or the management/ implementation of the tactics on the part of the business and its staff.

Pricing:The basics of supply and demand suggest that when demand rises, either supply must increase as well, or prices will also increase. At a high level, this relationship is valid, but it doesn’t always work out perfectly well. In other words, price is a blunt instrument to control demand. Destination Marketing Organizations (DMOs) do not directly control prices at lodging properties, local restaurants, attractions, or events, so a coordinated pricing approach for a town to limit the number of visitors isn’t typically practical or realistic and may even contravene federal laws.

Reservations: Reservations have existed at certain businesses for quite a while (like popular restaurants), though downsides exist to the reservation tactic. If there is no penalty for a guest not showing up, visitors might make reservations and then ghost the business, leaving an unoccupied table or parking spot. As well, reservations can be a hassle for the customer and difficult for the business to manage. However, when implemented correctly and fairly, reservation systems can be popular and effective at limiting crowds. Many ski areas implemented reservations systems during the Covid-19 ski season of 2020/21; once the kinks were worked out, the systems were largely well-liked because they ensured skiers wouldn’t be turned away or sit in traffic when arriving at the resort. A ticketed events is similar in concept to a reservation, except that the transaction occurs up front, which disincentivizes no-shows.

Hybrid Approach. Depending on the type of inventory being supplied, a hybrid reservation approach can be effective. One idea would be to make some inventory subject to reservations, while the remainder would be available first come-first serve. Many summer campgrounds operate with this system, which gives last minute travelers a chance to get a camping spot the day of arrival. Variable pricing would also fall into this hybrid category, such as tiers of paid parking, or free parking for high-occupancy carpool vehicles.

Minimum Nights Stayed: Hotels and other lodging properties can implement a minimum number of nights stayed during peak times, which limits the number of short-term visitors and reduces the turnover days when housekeeping is required. However, as lodging properties have become more sophisticated, “property managers are increasingly using dynamic policies around length of stay or add-on promotions to manage demand,” says Tom Foley, Senior Vice President of Business Intelligence at Inntopia and an Insights Collective member. “The risk is that length-of-stay policies [could be] at-odds with the goals of the DMO, potentially confusing the message [to the customer] and leaving rooms unintentionally empty.”

Limiting Promotion or Marketing: Suppressing demand can also come in the form of reduced or eliminated marketing and promotions. Individual businesses that are lucky enough to have demand exceed supply may not have to advertise. Entire destinations can turn off the marketing messages, as Crested Butte did in summer 2021 and Aspen plans to do during the shoulder seasons of spring and fall of 2022. Nevertheless, underlying demand might still be high enough to cause crowding, even if marginal demand is suppressed with the lack of promotion.

Add Capacity: A final mechanism to better balance supply and demand would be to increase capacity. Easier for some types of businesses than others, expanding capacity can take the form of more parking, larger facilities, more bus service, construction of new hotel rooms, and other strategies. Accommodating a higher level of demand with increased capacity has many benefits, but also downsides, particularly the need for more staff that underlies the ability to service more visitors. With the demand for workforce at an all-time high in many mountain communities, expanding capacity might not be feasible without higher degrees of automation.

While the travails of balancing supply and demand are not new, it is becoming a more urgent issue in many communities. No single perfect solution exists, but businesses and DMOs working in concert can help to mitigate the potential overcrowding that high demand can sometimes cause.

About The Insights Collective

The Insights Collective is a not-for-profit collaboration of destination travel industry experts working together with mountain resort community stakeholders to understand, plan, and navigate the pandemic-influenced economy and its many unintended consequences