Boosting Oman?s Visitor Arrivals ? Getting Some Insights from a Consumer Choice Model

Oman?s national official statistics provides strong evidence that tourism is emerging as one of the major groups of service-related industries that is likely to dominate the economy. The tourism sector holds great potentials to sustain the economy in the long-run given the slump in the world oil prices. In view of Oman?s desire to have diversified economy, the potentials for the tourism sector to support the economy and greater global economic integration, an increased understanding of the determining factors effecting international visitor arrivals in Oman becomes imperative. The purpose of this research will be to identify the main factors that have the largest impact on the international visitor arrivals in Oman using a consumer choice modelling framework. On the basis of a structural consumer choice analytical framework, the analysis focuses on identifying the underlying demand factors, destination country attributes and external shocks on international visitor arrivals. The findings of this study will make a new contribution towards Oman?s tourism policy framework

Oman?s national official statistics provides strong evidence that tourism is emerging as one of the major groups of service-related industries that is likely to dominate the economy. The tourism sector holds great potentials to sustain the economy in the long-run given the slump in the world oil prices. In view of Oman?s desire to have diversified economy, the potentials for the tourism sector to support the economy and greater global economic integration, an increased understanding of the determining factors effecting international visitor arrivals in Oman becomes imperative. The purpose of this research will be to identify the main factors that have the largest impact on the international visitor arrivals in Oman using a consumer choice modelling framework. On the basis of a structural consumer choice analytical framework, the analysis focuses on identifying the underlying demand factors, destination country attributes and external shocks on international visitor arrivals. The findings of this study will make a new contribution towards Oman?s tourism policy framework

Several extant studies have made a valuable contribution to the tourism literature, particularly enhancing the understanding of the factors that determine out and in-bound tourism. The review that follows focuses specifically on the literature from a demand perspective. Stronge and Redman (1982), within the classical economic theory, noted that the major determinants of the demand for travel are income of tourists and price of goods and services relative to the price of substitutes. A comprehensive review of demand models for tourism studies by Sinclair (1998) and Song, Dwyer and ZhengCao (2012) indicate that the income variable is the one most frequently included in consumer choice models of tourism demand as a major determinant. According to the consumer demand theory, the implication is that as per capita income rises, people are likely to travel more, and therefore, a positive relationship is established between tourism spending and peoples? income. Several empirical studies support the income-travel relationship. A seminal study on tourism demand by Grey (1966) found that US and Canadian per capita income elasticities for tourism demand overseas to be 5.13 and 6.6 respectively. Other empirical studies investigating the income effect on tourism demand include: Divisekera (2003), Wang (2009), and Fereidouni et. al. (2014). There are two other aspects of price that we test in our model: the costs of living at destination, and the exchange rate. On the basis of consumer choice, or demand theory, we hypothesize that an individual?s demand for travel is negatively related to relative prices. Loeb (1982) argued that tourists are sensitive to changes in prices in the destination country. Tourists compare prices in their home country to that of a destination country and make a decision to travel if the costs in the destination country are lower than costs in the home country, thus an inverse relationship between destination costs and travel. The international exchange rate has been recognized in previous studies (noted below) as one of the main determinants of outbound tourism. According to international trade theory, a decrease in the domestic price of a foreign currency will make foreign goods cheaper and acts as a stimulus to imports. We apply this principle to international visitor arrivals and hypothesize that depreciation of a country?s currency reduces outbound tourism and an appreciation of a country?s currency reduces travel costs and increases the demand for overseas travel. It can also reflect the cost of living between the origin and destination countries. We discussed the relative living costs previously. Our argument is that international travelers are not always aware of the changes a country?s living costs in advance, and therefore exchange rate movements become a short-run signal of costs as travelers may find movements in exchange rates readily available and easy to access. Previous studies have included this variable to analyze tourism demand. For example, Divisekera (2003); Lim (1997); Seo, Park and Yu (2009) and Wang (2009). We include the real exchange rate to determine whether international visitors to New Zealand are sensitive to exchange rate movements, independent of the relative living costs between countries. The distance between the visitor origin and destination countries can also be an important factor in explaining tourism demand. We utilize the theoretical underpinnings of the gravity model, commonly used to explain trade flows, for example, Anderson (1979), where particularly attention is paid to the crucial role of distance in determining trade across different boundaries. We form our arguments on the basis of the gravity model and argue that the distance between an origin and destination country can be an important factor in explaining tourism demand. The greater the distance between the origin and destination country, the higher the cost of travel. However, accurately measuring transport cost variables is difficult primarily due to the complexities of airfare structures. Thus, we posit that higher travel costs, based on the travel distance, may mean fewer visitors. Alternatively, a shorter travel distance may mean lower transportation costs and this is likely to increase the demand for international travel. Destination country competitiveness has also stimulated several studies on tourism. Crouch and Ritchie (2003) develop a framework that incorporates key attributes as comparative and competitive advantages, micro and macro environments and core and supporting resources. Dwyer, Forsyth and Rao (2000) and Mangion et al. (2005), also highlight specific destination attributes or particular aspects of international tourism competitiveness. The changes to the tourism industry resulting from external shocks have gained significance in tourism economic research over the last few decades (Song, Dwyer and ZhengCao, 2012). Market demand theory also implies that the demand for tourism is affected by other special factors such as economic recessions in origin countries, political instability in the destination country, natural disasters in origin as well as destination countries, and terrorism in the destination countries.