What is Tourism Leakage? How to Make Your Tourism Dollars Matter

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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 the money we spend while traveling would support 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. Tourism leakage diminishes the economic benefits that stay in the places we travel, so let’s unpack what tourism leakage is and everything we need to know to be more responsible travelers. 

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 economies that need it the most to develop better tourism infrastructure and facilities to improve their communities. 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 traveling, the negative impacts of travel leakage, and how we can inject as much money as possible directly into places we visit. Slowing tourism leakage is one meaningful way to come together to save travel.

Quick Look

• Tourism leakage happens when the money you spend leaves your destination
• It might go with multi-national hotel chains rather than locals
• There are two types of tourism leakage: import and export
• Leakage happens everywhere, but developing nations are most affected
• How you spend your money matters – continue reading to learn more!

What is Tourism Leakage?

Tourism leakage happens when tourism dollars leave the local economy and instead benefit multinational corporations, foreign companies, or countries.

Leakage in the tourism industry is an economic concept. I should quickly note that tourism leakage is a somewhat imprecise term. Simplifying things can be helpful when discussing complicated topics, but essentially, tourism leakage examines tourism’s value chains and focuses on improving the domestic value added from tourism.

Now, if you had told 20-year-old me, as I decided to quit my economic master’s program, choosing instead 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.

However, learning about tourism leakage will be much more interesting than my economics 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? Just me? Ok, moving on.

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, if you spend $100 traveling to and staying in an all-inclusive 5* resort owned by Hilton in a foreign country. A total of $50 might go to United Airlines, the Hilton, hotel amenities imported from overseas, and food imported from a foreign country. The remaining $50 I spent while eating at one restaurant owned and managed by locals that sources food locally is the only money that stayed locally.

That means I spent 50% of the money during my trip to Bali, which leaked to other economies.

So, while it might appear Bali has a profitable tourism industry, the numbers that stay in the local economy tell a different story.

Why is Tourism Leakage Bad?

Well, for starters, the destinations 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 be filled with trash, and the city would struggle to source the funds to maintain the beaches.

Meanwhile, foreign-owned hotel chains are profiting at the cost of regional well-being.

The more money stays, the more local governments and people can better manage tourism, improve the residential quality of life, and create meaningful jobs for sustainable and long-lasting benefits. 

Communities should decide what to do with tourism funds

Now, you might be thinking that the Hilton Hotel you booked for your stay in Bali has a strong sustainability commitment, and they help fund beach clean-ups and make donations to restore mangrove forests. This allows Hitlon to look good and hit its sustainability targets, but its choices are rooted in what is best for it as a corporation.

Impacted communities should be the ones that maintain most tourism funds so they can manage things like increased waste and protect their beach while employing locals and in ways that align with their culture and values.

Is all tourism leakage bad?

Like most complex problems, the issue of tourism leakage is not black and white. Some might argue that people who live in a country with a developing economy and work seasonally in a developed economy benefit from the opportunity to work in a hotel and return that money home at the end of the season.

This is very common in Alaska, where many of the employees in Denali National Park come from Eastern Europe. Now, I agree these seasonal employees have an excellent opportunity to make some money and provide a better life for themselves, and that alone isn’t always a problem.

It is a problem if they are taken advantage of. For example, many cruise companies exploit and pay workers from developed countries little—that isn’t okay.

Furthermore, as I explained later, many locals may not be able to take jobs in tourism as companies can exploit foreigners for less pay. These low-quality seasonal jobs are unappealing to locals, and companies often turn to exploiting foreign workers rather than offering high-quality and appealing jobs. Everyone loses in these situations.

The Bottom line is that exploitation is never ok. Nor is it ok to justify exploitation by saying you’re helping someone from a developed country make an income. We can all do better. I encourage you to think critically as you read this article and how to apply this to your travels to make them more ethical.

It is also impossible for any community or institution to secure 100% of its value chain, which isn’t what we are trying to achieve when we reduce leakage. Still, we can address many unnecessary and avoidable leaks.

Facts and Figures of Tourism Leakage

Developing economies and tourism-reliant communities are more likely to be negatively affected by travel and need more money than anyone else. Unfortunately, leakage is the highest in developing countries, but it is present at any destination. 

According to a UNEP study:

• Tourism leakage, on average, is about 50%
• This number is generally higher in developing economies and can reach 70-80%
• Leakage is typically much lower in developed economies, at 10-20%

According to a Ph.D. thesis by I Gusti Ayu Oka Suryawardani

• 4* and 5* resorts (likely foreign-owned) in Bali result in a 51% leakage.
• Non-star-rated hotels (likely locally owned) only result in an 8.8% leakage.

These numbers show a strong divide between the global north, with more developed economies, and the global south, with less developed economies.

However, every country with tourism has some level of tourism leakage.

We can also see outlying examples in these situations. For example, cruise tourism in the cruise port of Haines, Alaska, means that the community only retains $0.05 for every $1.00 spent. Alaska is in the global north and has a developed economy.

This shows that the type of tourism and how it is managed also matters significantly. Poorly managed tourism allows cruise lines to be the primary beneficiaries of tourism’s lucrative benefits, rather than the community. Other times, we see strong support for local tourism operators in developing economies, resulting in low leakage.

Import and Export Leakage

Import Leakage

Import Leakage occurs when a tourism company, operator, or destination spends its revenue on imports to meet the traveler’s specific standards or fill gaps in supply chains.

If travelers demand a particular brand, product, or food that the host country can not supply locally, they must spend some of their profits to import products from elsewhere.

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 beverage.

Companies may also import employees, such as fluent English speakers, to make English-speaking guests more comfortable. Some companies import cheap labor, further exploiting citizens of developing nations while not providing stable jobs for citizens in the countries where the company operates. 

To further exacerbate import leakage, travelers’ specific demands take away viable income and jobs from local beverage companies, farmers, or producers. 

Not all imports are bad, though…

Imports are necessary to get tourism development off the ground. It is also essential as countries engage in trade. Imports can help communities fill the resource gaps to host and support tourism.

However, imports that replace what the local community can supply are problematic. As tourism grows and develops, we should look for ways to bolster and support the growth of local producers, services, suppliers, human resources, and supply chains.

Export Leakage

Export leakage happens when tourism dollars are exported out of the country and funneled through a large multi-national group like the US Apple Leisure Group (which owns Hyatt, among others).

In most developing economies, large international corporations may be the only entities with the necessary capital to invest in tourism facilities that meet travelers’ specific criteria.

There may not be a Mexican-owned resort with enough capital investment to operate with the same standard US tourists demand.

Most of the income at these resorts is then exported back to the United States, meaning profits benefit the international tourism industry rather than the local region. Although these destinations make a lot of money from tourism on paper, much is being exported.

In such situations, it is important to bolster and support the development of local tourism operators and stakeholders that can step in to meet the demands of increasing tourism. We must find ways to support local Mexican entrepreneurs who want to develop the necessary capital to enter the tourism market.

How to Reduce Tourism Leakage

We’ve learned a lot about tourism leakage problems, so it’s time to explore the steps you can take to contribute to the solution. 

Support Local

You can book and support local and small tour operators and businesses. For example, there is a small-scale, Native-owned cruise company in Alaska. By supporting a company like Dream Alaskan Cruises over Carnival Cruises, you decrease 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. Skip the cruise and hire local water taxis to take you from island to island.

Avoid Foreign-Owned, All-Inclusive.

I understand that some people can only travel all-inclusive, and I also understand that sometimes large, all-inclusive resorts are the only option in a region. But you owe it to yourself and your destination to do what is within your means to reduce tourism leakage.

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 opt for an all-inclusive, can you find a local all-inclusive? Below is a photo of our local all-inclusive stay in the Australian outback. Everything was locally sourced, locally owned, and managed, and we had a fantastic time!

If you can’t, look to support companies that hire and train locals for management positions or that source food and products locally.

At the very least, look for those who give back to their destination, targeting economic, social, and environmental goals that will help minimize leakage.

Who owns it? Find out who owns the hotel you’re staying at, and look for ones locally owned and not sneakily owned by a US mega-company. 

Small-Group Tours

If you don’t want to travel alone, try booking a small group tour as an alternative to international mega travel corporations. Small groups are a great way to travel and meet others without the large, invasive cruise ships or tour buses.

By finding someone specializing in small group travel while ensuring they support local businesses and accommodation, you’ll decrease the amount of import and export leakage while making like-minded friends along the way.

Another great option is to travel with an ethical small group tour company, Intrepid Travel. Intrepid works to prevent tourism leakage on their tours.

 

 

 

 

 

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Ask Questions

Before you book, send an email asking how the tour operator or hotel supports local jobs. Ask your tour operator if you will stay in locally owned bed and breakfasts, if they will take you to local restaurants, etc.

Many times, especially in developing economies, 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 of trying new things.

Don’t expect to have the same US-American, Australian, or British products, food, and accommodation type at your destination. Don’t expect everyone in the hospitality to speak English. Embrace the local products and food, and be prepared for new experiences.

To be honest, we stayed in some inconvenient accommodations in Kazakhstan. Our host didn’t speak English, the food was not what I would typically eat, the rooming situation was interesting, and all sorts of things were outside my comfort zone. 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 likely support 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.

Few tourism-associated businesses in Alaska are open year-round, making them undesirable places for residents to work. Travelers who visit Alaska in winter help keep these businesses open year-round!

Research, Research, Research

If you plan your itinerary, research every hotel and excursion company to see how they give back to the local economy. If you’re struggling to find these types of local services in a foreign country, perhaps you can find a local travel agent or planner to help you plan a customized tour supporting local businesses.

Stay Longer

We stay longer every day, and we have more opportunities to support the local community. If we visit places for only a few hours on a cruise stopover and book all our excursions through the cruise, we aren’t spending money locally.

The simple act of overnighting means we can spend more locally, staying at a local hotel, eating at a local restaurant, visiting local shops, hiring a local taxi, taking public transportation, or any other number of opportunities.

In-Depth Look at Tourism Leakage in Alaska

Tourism leakage doesn’t always occur in developing nations and can affect vulnerable communities in wealthy countries like the United States.

As you might know, I grew up in Alaska and 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 1 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. It brings valuable jobs and many 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 the United States in Panama or Liberia, where they avoid paying taxes. So, right off the bat, most all-inclusive cruise revenue leaks out to international cruise companies’ pockets outside the United States.

Most cruise excursions you can book are booked with seasonal companies, many of which are owned by snowbirds, meaning they leave Alaska every winter, taking their profits with them. Additionally, cruise companies keep 50% of most on-shore experiences.

In Alaska, most tourism occurs within a 4-month window, meaning most jobs do not offer stable year-round employment. Thus, many locals choose not to work in the tourism industry as they seek 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 worked in the industry as one of only a dozen full-time Alaskan residents. Many people work out of state or out of the country during the summer.

Thankfully, my company paid well and didn’t exploit its workers, but employees worked all summer to save every penny to 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. Due to crowds, many locals are denied access to nature in the summer.

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 support Indigenous communities, 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. Still, the appearance of a profitable industry is much larger than it seems.

In 2000, the Juneau Empire reported that 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 mass tourism in the summer months.

You can visit Alaska without a cruise, travel Alaska during the winter offseason, or support a local Native-owned cruise company to reduce leakage.

Comment and Share

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.

• 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? 
• Consider an example of tourism leakage in your home region and what problems it presents for your community. Please 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!