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Are you curious about what happens to your tourism dollars long after you leave your destination and return home? In a perfect world, all money we spend while traveling would go toward supporting the local economy. It is easy to fantasize that no matter how or where we spend our money, it helps local businesses and destinations offset tourism’s negative impact. The reality is not as optimistic. A significant chunk of the money we spend while traveling ‘leaks’ out of our destination. It often ends up in the pockets of large international tourism companies or the hands of global food and beverage companies. Leakage is more likely to happen in developing countries that need it the most. At the end of its journey, the money lands in the banks and pockets of the wealthiest nations and corporations. It’s essential to learn about what happens to the money we spend while we travel, the negative impacts of travel leakage, and learn ways we can inject as much money as possible directly into places we visit. Slowing tourism leakage is just one of the meaningful ways we can come together to save travel
We will explore:
What tourism leakage is and why it matters
Some facts and figures about leakage
Discover the differences between import and export leakage
Learn about leakage in the Alaskan tourism industry
Leakage in the tourism industry is an economic concept. Now, if you would have told 20-year-old me as I decided to no longer pursue an economic master’s program to pack my bags and hit the road that I would be knee-deep in economic concepts in the tourism industry 13 years later I would have rolled my eyes and kept driving. But, I promise learning about tourism leakage will be much more interesting than my economic professor’s lectures. Yes, the very professor I convinced to let me take a final early so I could skip class and travel to Brazil, as long as I wrote an essay on the economics of the sugar cane industry in Brazil. Did anyone else convince their college professors to let them skip school to travel as long as they wrote papers about what they learned? No – just me? Ok, moving on.
Tourism leakage happens when tourism dollars leave the local economy and instead benefit international companies and foreign countries. To determine the amount of leakage, we look at how the net income for tourism in a region is less than the gross or total spent on travel. For example, let’s say I spend $100 on an all-inclusive 5* resort in Bali. $95 of that might go toward an international airline, a foreign-owned hotel chain, products and food imported from a foreign country. The remaining $5 that I spent while eating at a local restaurant with local employees and locally sourced food is only money that stayed in Bali. That means 95% of the money I spent during my trip to Bali leaked out to other economies. So, while it might appear that there is a profitable tourism industry in a region, the reality may be vastly different.
Why is this a problem?
Well, for starters, it is the destinations that feel the impact of tourism, and therefore need the income from tourism to manage these negative impacts. The local Balinese and Indonesian governments must spend additional money cleaning up trash on beaches, building better infrastructure to accommodate travelers, mitigating the extra air and water pollution from travel, etc. Without this money, the local beaches could fill with trash while the city struggles to source the funds to maintain the beach. Meanwhile, international all-inclusive hotel chains are profiting at the cost of regional well-being. The more money that stays, the more local governments and people can better manage tourism for sustainable and long-lasting benefits.
Facts and Figures of Tourism Leakage
Developing nations are more likely to be negatively affected by travel, and they are the ones that need the money more than anyone else. Unfortunately, leakage is the highest in developing nations.
The UN estimates:
For every USD 100 spent on tourism in developing countries, only about USD 5 goes back into the local economy.
Most all-inclusive packages result in an 80% leakage.
Leakage in Thailand is around 70%, 50% in the Caribbean, and 40% in India.
Import leakage for developing nations is between 40-50%.
Import leakage for developed nations is between 10-20%.
Non-star rated hotels (likely locally owned) only result in an 8.8% leakage
Types of Tourism Leakage
Import Leakage is when destination countries spend their tourism revenue on imports to ensure the traveler’s specific standards and satisfaction are met. If travelers demand a particular brand, product, or food the host country can not supply locally, they must spend some of their profits to import products from elsewhere. Many companies may also import employees, such as fluent English speakers, to make English-speaking guests more comfortable at all-inclusive resorts. Some companies import cheap labor, further exploiting citizens of developing nations while not providing stable jobs for citizens in which the company operates.
Say if I, as a traveler, demand Coca-Cola products at every hotel I visit, the hotel must spend a chunk of the money I give them importing Coke, rather than offering me a local Spezi. To further exacerbate import leakage, travelers’ specific demands take away viable income and jobs from local beverage companies, farmers, or producers.
In most developing nations, large international corporations may be the only entities with the necessary capital to invest in tourism facilities that meet travelers’ specific criteria. Export leakage might happen when all-inclusive resorts owned by US Apple Leisure Group, for example, set up shop in Mexico. The majority of the income spent by US American tourists visiting one of these resorts in Mexico goes right back to the United States. US tourists visiting Mexico may expect a particular type of accommodation or service. There may not be a Mexican-owned resort with enough capital investment to operate with the same standard US tourists demand. This means that profits are beneficial for the international tourism industry as a whole rather than the local region.
How to Minimize Import and Export Leakage
We’ve learned a lot about tourism leakage problems, so it’s time to explore actional steps you can take to be part of the solution.
Support local. You can book and support local and small tour operators and businesses. For example, in Alaska, there is a small scale Native-owned cruise company. By choosing to support a company like Dream Alaskan Cruises over Carnival Cruises, you decrease the leakage and engage in sustainable ecotourism. Seek out locally-owned restaurants serving seasonal local fare. Hire local tour guides. Stay in locally- owned accommodation. The more local businesses you can support, the less leakage occurs.
Avoid all-inclusive. I understand that all-inclusive can be the only way some families, people with disabilities, or those on a budget can travel, and that is ok. If you can travel independently, I encourage you to do so. Find a locally owned boutique accommodation or resort – or better yet, find those non-star rated hotels in Bali or seek out homestays for authentic experiences that prevent excess leakage. If you do opt for an all-inclusive, look for an option owned locally. Support those who hire and train locals in management positions or source food and products locally. At the very least look for those that give back to their destination targeting economic, social, and environmental goals that will help minimize leakage.
Ask questions. Send an email before you book asking how the tour operator or hotel supports local jobs. Ask if you will be staying in locally-owned bed and breakfasts, if they will take you to local restaurants, etc. A lot of times, especially in developing countries, tour operators think tourists want something specific. “Oh, they are American. They must want certain foods and drinks.” By asking questions and letting them know you are open to experiencing the authentic culture, we can start the conversation to change travel.
Embrace local culture. One of the best parts of traveling is the cultural exchange and experience you get in trying new things. Don’t expect to have the same US American products, food, accommodation type at your destination. Don’t expect everyone in the hospitality to speak fluent English. Embrace the local products, the local food, and be prepared for new experiences. In Kazakhstan, we stayed in some unique accommodation, in rural areas where our hosts didn’t speak any English. But that was just part of the experience, and my money went directly to a working Kazak mom and entrepreneur, and that’s super awesome.
Travel off-season. By traveling off-season, you are likely supporting year-round and stable jobs for locals. Most businesses, hotels, and excursions operating off-season probably employ permanent residents. Your money supports the local economy during a time when the destination may need it the most. Permanent residents spend their paycheck, adding to a diversified and healthy economy year-round.
In-Depth Look at Tourism Leakage in Alaska
Tourism leakage doesn’t always happen in developing nations, and it can happen in vulnerable communities in wealthy countries like the United States. As you might know, I grew up in Alaska, where I also worked in the tourism industry. While I was a local Alaskan working for a local company, my job hinged on the cruise industry. 58% of travelers to Alaska visit via cruise ship, resulting in over a million tourists descending upon small Alaskan towns during a 4-month summer cruise window. The cruise industry’s relationship with small Alaskan communities is incredibly complex, bringing both valuable jobs and a long list of environmental violations. Despite the promise of economic benefit, tourism leakage in the Alaskan cruise industry is quite large, with a significant chunk of the money leaving the state and even the country.
Most major cruise lines incorporate outside of the United States in Panama or Libera, where they avoid paying taxes. So, right off the bat, most all-inclusive cruise revenue leaks out to international cruise companies’ pockets outside of the United States.
In Alaska, most tourism occurs within a 3-4 month window, meaning most tourism jobs do not offer stable year-round employment. Thus, many locals choose not to work in the tourism industry as they seek out year-round employment with benefits. The company I previously worked for employed hundreds of people during the summer and only a handful of office and management staff during the winter. Even then, during the summer months, I was one of a handful of full-time Alaskan residents working in the industry. Many people came from out of state or country to work during the summer. Thankfully my company paid well and didn’t exploit their workers, but employees worked all summer to save every penny so that they could return home with a decent chunk of money. All the money my company was paying its employees immediately leaked out of Alaska by winter.
Why this matters
Small Alaskan towns along the cruise route are left suffering from increased air and water pollution and massive crowds invading their home in the summer. Cruise ships fill city dumps with poker machines and toxic waste. Many locals are denied access to nature in the summer due to crowds. In return, they are left with little money to mitigate pollution, create a better mass tourism infrastructure, manage the increased waste left behind, or manage their parks. To make matters worse, cruise companies often ignore local pleas to follow strict environmental regulations, fail to hire local Alaskans, may not give back to the Indigenous community, and may not utilize local products.
The cruise industry is vital to these smaller communities providing one in five local jobs and adding millions to the economy, but the appearance of a profitable industry is much larger than it seems. For every dollar spent in Skagway, Alaska from cruise passengers, only .10 cents remained in Skagway. Reducing the leakage from the cruise industry in Alaska puts more money in the hands of locals and the state to engage in better mitigation efforts for the environmental impact of cruising and better infrastructure to accommodate the mass tourism in the summer months. Better yet, you can visit Alaska without a cruise, travel Alaska during the winter offseason, or support a local Native-owned cruise company to reduce leakage.
Critical Thinking and Discussion
Can you think of examples of tourism leakage in a place you visited? Perhaps you’ve even engaged in practices that added to the leakage problem, but you’ve learned since then. What are some examples you’ve encountered? What are some ways you can prevent leakage?
Think of an example of tourism leakage in your home region and what problems it presents for your community. Share in the comments about how travelers to your area can be more aware of this leakage so they can be more informed travelers.
Share your thoughts and answers to the questions in the comments to discuss with the curious animal pack!
Spread the Curiosity
Make sure you share this post about the negative impacts of tourism leakage and actionable steps we travelers can take to prevent it from happening. The more informed we are the more we can ensure our money is helping the communities most impacted by tourism.
Susanna grew up in small-town Alaska where the changing climate was always on her mind. Through traveling, she gained an interest in the power of sustainable and regenerative travel. She now attends a Master's program for Ecology and bridges sustainable travel with the science of ecology.