9

Commercial Crises

Learning Objectives
By the end of the chapter, the reader should be able to
䊏 Appreciate how the primary causes of some tourism crises may be inherent within
the tourism industry and business organizations.
䊏 Recognize the different types of commercial crises which can strike tourism
enterprises.
䊏 Acknowledge the complexity of certain tourism industry organizational crises
which result from internal and external factors in combination.
䊏 Identify approaches to the resolution of different forms of tourism commercial crises
and assess their merits.
䊏 Understand some of the differences between large businesses and smaller scale
ventures of relevance to the development and management of tourism crises.

Introduction
Previous chapters have discussed causes of crisis external to tourism businesses;
the focus of this chapter is on commercial crises, defined as those which are rooted
in industry and organizational features and deficiencies. Instances from the various
sectors of the tourism industry are discussed and ways in which selected aspects of
industry operations can be sources of crises are examined. A crisis triggered from
outside may be exacerbated by internal conditions and exogenous pressures reveal
indigenous stresses, thereby compounding commercial crises which can seriously
damage the industry as a whole and individual companies if sufficiently severe. This
coincidence of forces is evident in crises of financial weakness which are initiated
and aggravated by developments in the wider environment. A final section at the
end of the chapter makes reference to the smaller enterprises which have an impor-
tant role in the tourism industry, but are distinctive with regard to exposure to crises

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and their management. The chapter case studies describe the opening of Hong Kong
Disneyland and the experience of low-cost airlines in Singapore which illustrate a
major crisis of finance and a lesser one of public relations, respectively.

Forms of Commercial Crises

Key characteristics of corporate crises were outlined in the opening chapter and can
be summarized as rapidly unfolding events with an apparent momentum of their
own, limited information and control and a need for decisions which sometimes
have to be taken in the spotlight of media and public attention. As previously noted,
there have been numerous studies of organizational crises in general which reveal
an assortment of causes. Mitroff (1988) identified almost 20 possibilities which
include defective products, sabotage and boycotts. Other types are related to finance,
human resources, regulatory regimes and demand (Evans and Elphick, 2005; Meyers,
1986). Such crises can harm operational structures and processes, profitability,
company and brand reputations and staff morale and may even lead to collapse.
Management decision and policy making may be a prime or secondary reason
for commercial crises. Judgments made by senior managers, their choice of organi-
zational systems and styles of corporate cultures fostered by them can predispose
companies to crises in assorted ways. For example, rigidity can inhibit responsive-
ness and strategic errors may be expensive and inspire a loss of confidence among
employees and investors. Corruption and fraudulent practices are also not unknown
in the corporate world, leading to crisis when uncovered. Insufficient attention to
crisis management planning may prove an additional shortcoming. The existence
of plans will not prevent crises, but can ensure a level of preparedness and assist
companies in coping.
Such generic problems and the risk of crises which accompany them are appli-
cable to the tourism industry, although some modifications are necessary to termi-
nology more suited to manufacturing. Tourism’s particular attributes must be taken
into account because they affect the features of the commercial crisis and may add
to the difficulties of its management. The distinctive qualities of tourism demand
and supply were explained in Chapter 1, which described a large and powerful
industry concentrated in the major generating markets of the developed world, with
an influence extending to remote and less-developed regions. It sells multifaceted
products of experiences which rely on a collection of parties and display the char-
acteristics of all services, with the attendant challenges. The scope of operations,
frequently within the international arena, and sensitivity to events in the wider
environment heighten propensity to crisis. Leiper (2004) recounted the cases of a
South Pacific island resort hotel, Ansett Airlines and the Big Banana attraction in
Australia to illustrate tourism industry failures which could be interpreted as the
worst outcome of the crises which tourism is prone to.
The many tourism crises considered throughout the book have all had commercial
impacts, but this chapter concentrates on more industry-specific questions of chang-

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ing markets, internationalization, competition, finance and staffing. These appear to

be common causes of crisis at industry, sector and organization level and there is
some overlap, with a distinction to be made between single cause and more complex
crises. Companies also exhibit their own strengths and weaknesses regarding vulner-
ability to crisis and competence in dealing with any threats and it should be remem-
bered that every crisis is unique and generalizations must be qualified accordingly.

Changing Demand
Crisis is a consequence of change and it has already been demonstrated how tourism
is sensitive to alteration and upheaval in a series of domains. The industry itself is
also constantly changing and this is reflected in product development and a search
for untapped markets. While having an influence over demand, companies must be
alert to new developments and aim to anticipate and accommodate emerging trends.
Those which fail to do so could face a decline in business; this danger has been
evident among large-scale tour operator and travel agency groups in the UK, one
of the world’s major generators of international tourists, in recent years.
Tour operators have always had to contend with evolving tourist tastes and behav-
ior, but the pace of these movements seems to be accelerating. The burgeoning of
budget airlines and use of the Internet for travel bookings, associated with more
independent and adventurous tourists, have had repercussions across Europe. In the
UK, more people are making their own arrangements online and this has affected
purchases of conventional package tours organized by tour operators and sold
through traditional retail agents. British package holiday tourism has traditionally
centered on the Mediterranean and been led by a small number of very large com-
panies, but this dominance has been undermined by the new trading environment
and type of tourist. Questions have thus emerged about the future form and existence
of some of the leading firms (BBC News, 2004d; The Sunday Times, 2005).
For example, the large and well-known MyTravel faced debts of £800 million in
2004 because of a failed expansion policy, accountancy mistakes and unresponsive-
ness to tourist needs (BBC News, 2004c). This placed it at risk of losing the official
license awarded only to tour operators which conform to certain fi nancial standards.
Although the company reacted with a restructuring program of capacity cuts,
product enhancement, cost controls and recapitalization measures (MyTravel, 2005),
its plight attracted considerable publicity in the general and financial media (BBC
News, 2004c; The Scotsman, 2004), perhaps undermining the confidence of inves-
tors and actual and potential customers.
In an interesting contrast, one of its competitors named First Choice Holidays had
sought to take advantage of new travel demands by directing its business away from
short-haul beach tourism to longer haul destinations and special-interest and activity
vacations. Its objective was to acquire a series of smaller niche operators in these
areas which would generate 60% of profits within three years (The Sunday Times,
2005), approval of the plan reflected in the company’s rising share price.

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Tourism Crises: Causes, Consequences and Management

Despite the innovative approach adopted by First Choice, there was a more
common pattern of cutting costs and trying to improve productivity within existing
organizational frameworks. This was practiced by the sector overall, including
Europe’s biggest travel companies such as TUI and Thomas Cook, whose predica-
ment was made worse by difficult years since 2001 and events such as the SARS
epidemic and Iraq war (BBC News, 2004b and 2004d). Whether these steps
are effective remains to be seen and more radical strategies may be necessary
which could include fundamental structural reforms, the sale of main units and
mergers with rivals if the slowdown in demand for traditional organized holidays
continues.

Internationalization
Another potential cause of crisis among the largest tour operator and travel agency
groups is that of expansion beyond their country of origin, with the giants having
a presence in many states and others aspiring to follow. Enterprises, however, may
grow too large too quickly and pan-continental activity may not be sustainable if a
company has insufficient reserves and expertise. Internationalization, which occurs
when companies enlarge their scope and move into markets outside their home base,
may thus give rise to difficulties which result in a crisis. When companies operate
globally, risks from internal and external forces at home increase. Unfamiliarity
with local practices and circumstances and inappropriate policies and decisions
could be detrimental, ways of doing business needing to be reviewed in the context
of unfamiliar societies.
Even if they are flexible and technically competent, cultural ignorance and an
inability to communicate in the local language could undermine management effec-
tiveness and the respect in which individuals, and indirectly their employers, are
held. Conditions in China afford insights into the pitfalls of entering unknown and
alien markets and some companies have been frustrated in the realization of ambi-
tious plans there. While the Chinese tourism boom has drawn much commercial
interest, especially among hotel chains in search of growth outside saturated markets
of Europe and North America, there are also significant hurdles to overcome. These
hurdles incorporate matters of economics and politics, regulations about hotel own-
ership and operation, relations between Chinese and non-Chinese firms and man-
agement capability and resources (Pine and Qi, 2004). Wide gaps are found not only
between the corporate worlds of East and West, but misunderstandings can occur
among management and staff within both regions.
The troubled history of Euro Disney, the name of the holding company for the
theme park which now trades as Disneyland Paris, and its search for profitability can
be partly attributed to the management assumption that the American formula could
be replicated in Europe with few modifications. There was little appreciation of the
differences among European markets and the vital task of devising a formula to
entice French visitors was neglected (Mills et al., 1994). This injured attendances and

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revenue from the beginning, although there were subsequent attempts to rectify the
problem (The Manager, 1996), and the long-standing heavy debt burden is attribut-
able to a variety of considerations. Hong Kong Disneyland, which opened in 2005,
was perhaps an opportunity to apply some of the lessons learned in France, yet efforts
at cultural sensitivity seemed to backfire. Indeed, the new park saw a succession of
public relations embarrassments which collectively represented a minor crisis and
detracted from positive news about its launch, with company representatives placed
on the defensive and having to justify their actions (see Case One).
As well as confirming the importance of media relations and a good communica-
tions strategy, the experience of Disney overseas suggests that leisure products
cannot always be transplanted from one country to another in their entirety and may
require reassessment and revision. Consumers in an era of globalization share some
attributes, but are also divided by their respective socio-cultural, economic and
political backgrounds. It is therefore imperative for management to undertake thor-
ough research, demonstrate a sympathetic understanding of national distinctions
and be willing to adapt to them. Such observations apply to the tourism industry as
a whole and are not restricted to theme parks.

Competition
Internationalization can be regarded as a manifestation of competition as companies
search for routes to grow and win market share from rivals at home and abroad.
Competitive pressures are strong across the tourism industry and they can be inter-
preted as a sign of its good health, from which customers and other stakeholders
benefit. However, they may prove damaging and destructive, acting independently
or in combination with other agents, and become a catalyst of crisis.
Competition as a source of commercial crisis is illustrated by the historic example
of Laker Airways which was set up in 1966 with the intention of providing low-cost
air travel for British holidaymakers within Europe. The company then sought a
license which would allow it to offer transatlantic services, proposing to undercut
existing prices by as much as two-thirds as a result of cost savings. Its submission
met opposition from the few airlines already flying across the Atlantic, but a license
was awarded in 1977 and flights commenced to New York and Los Angeles. The
founder had plans to extend the route network which were turned down by the British
authorities, leading to the possibility of an anti-competitive practices legal case
coming before European courts.
However, Laker Airways was declared bankrupt in 1982 when over 6,000 of its
customers stranded abroad had to be brought home by other airlines. Debts exceeded
£250 million and were explained by the unfavorable economy and over-hasty expan-
sion, but fierce competition from established airlines which engaged in heavy
discounting was a crucial issue. It was subsequently reported that there had been
illegal attempts to try to ruin the company and a number of lawsuits followed.
British Airways and 11 other airlines were accused of conspiring against Laker and

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the matter was settled privately in 1985 (BBC News, 2002; Chronicle of Aviation
1966–1985; Wikipedia, 2005).
Despite the company’s failure, the concept of the budget or low-cost airline which
it pioneered in the UK later flourished to become a powerful force in Europe and
North America (Donne, 2000; Lawton, 2002). These airlines are a serious competi-
tive threat for previously dominant full-service carriers and have heightened the
financial difficulties of the latter which are outlined in the next section. They are
being compelled to revise modes of operation in response and some are adopting
certain of the techniques of their low-cost rivals. There is a degree of convergence
as all airlines vigorously pursue greater efficiencies (Franke, 2004) and the civil
aviation industry is being transformed, creating some uncertainty and instability.
Although the low-cost segment has prospered, many individual carriers have
struggled. Principal difficulties are the volume and strength of competitors as well
as regulatory barriers (Francis et al., 2006), with a tendency for customers to seek
out the cheapest price and abandon any brand loyalty (Gillen and Morrison, 2003).
The constant danger of losing business to airlines which match or beat prices, coupled
with the demands of maintaining low costs, appear to be ingredients for a fi nancial
crisis and failure is common, including of subsidiaries formed by so-called legacy
carriers (Strategic Direction, 2003). The success of the model is now being tested in
Asia, where an estimated 16 low-cost airlines have started flying since mid-2003
(Fullbrook, 2005). There is, however, a feeling that the number is too high and a
degree of consolidation will ensue (Dow Jones, 2005), as happened in Singapore (see
Case Two). There are also wider concerns about the consequences of a preoccupation
with costs for safety (The Independent, 2005) which were mentioned in Chapter 8.

Questions of Finance
All businesses are expected to generate revenue and profits and those in the tourism
industry are no exception. Inability to do so, for whatever reason, raises doubts about
the caliber of management and the organization’s future and could provoke a fun-
damental crisis if not reversed.
The commercial crises discussed so far have all had a financial component and
a financial crisis may evolve from one of different origin and become the dominant
theme, although resolution will depend on addressing and overcoming the root
causes. Financial repercussions are also a measure of the gravity of the crisis and
their relationship with other influences confirms how crises exhibit a scale of com-
plexity, from compound crises of multiple causes to more straightforward, single
issue, crises.
While every tourism industry sector has recorded financial casualties, the situa-
tion of full-service airlines has received particular attention as many have been seen
to be battling to secure profitability. The opening years of the current century were
a period of falling demand and revenues and rising costs due to a sluggish economy,
terrorism, the Iraq war, SARS, unprecedented oil prices and the incursions of low-

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cost operators (IATA, 2004). Analysts argued that the crisis conditions were inevi-
table and that events had accelerated existing trends which were pushing several
weaker companies close to bankruptcy. Nevertheless, the urgency of the situation
had not been anticipated and airlines fought to contain damage and, in certain cases,
prevent collapse.
In one example of cost cutting, British Airways introduced a program titled “Future
Size and Shape.” As many as 13,000 jobs were axed in stages and under-performing
routes were withdrawn. Some of these steps were resisted by the unions and anxieties
were expressed about staff morale and deteriorating relations between management
and staff (BBC News, 2004a; BBC News, 2005d). Drastic measures were also
adopted by Aer Lingus, the national carrier of Ireland, whose Survival Plan aimed to
restore the company’s viability (Department of Transport, 2004). Key elements were
job cuts of over 30% and 16% cost savings. Cheaper fares were offered and capacity
realigned with demand, new services being added to promising locations in expecta-
tion of immediate returns. The company concentrated on Internet sales, lowered
agency commissions and maximized plane usage (Unisys, 2003). Essentially, it
remade itself into a low-cost airline with a superior quality of service.
Progress in implementing the strategy was indicated by reports of an expected
profit of 1100 million in 2004, compared to a loss of 1140 million in 2001. Much of
the credit for this achievement was given to the chief executive who was appointed
in 2001, but the importance of the partnership between the government, unions and
management was also recognized. The company then agreed on another three-year
plan designed to complete the process, but there were still hurdles to overcome
regarding fuel prices, greater competition from low-cost carrier Ryanair and union
support. The chief executive also left unexpectedly in a decision which was believed
to be connected to a takeover bid by senior managers which had been rejected by
the government and opposed by staff (The Wall Street Journal Europe, 2004). He
later joined British Airways and in an interesting development, the merits of which
divided analysts due to its severity, announced plans in late 2005 to cut the number
of executives by half and middle managers by one-third in a phased initiative
designed to save £150 million (The International Herald Tribune, 2005).
The accommodation business too was not immune from the slowdown in inter-
national tourism following 11 September 2001, although the effects again often
served to reinforce longer standing adverse tendencies. The hotel chain of Le
Meridien saw debts climb to over US$2 billion, leading to complicated negotiations
about rescue packages (Caterer-Online, 2005; Hotel Online, 2004). Such discussions
give rise to insecurity and may tarnish corporate brands which are assets of great
potential value (Balmer and Gray, 2003).

Staffing Issues
Commercial crises can derive from aspects of human resources issues such as the
size and skills of the workforce. Tourism is a service industry and depends on the

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ability of employees to deliver an appropriate quality of service and good relation-

ships between front-line staff and customers. However, tourism employment is fre-
quently perceived to possess limitations referred to in Chapter 2 of unsatisfactory
working conditions, below-average wages and a lack of prospects. These factors can
discourage suitable individuals from entering the industry or remaining in it. Prob-
lems of recruitment and retention, high turnover and inexperienced and inadequately
trained personnel may lead to a crisis due to the disruption of operations, inefficien-
cies and dissatisfied customers. The ageing of the world’s population also means
fewer young people entering the labor market, intensifying existing shortages. For
example, the UK hospitality business already has insufficient staff and estimates
that an additional 100,000 will be necessary by 2012 (RSA Migration Commission,
2005).
Tourism businesses may look overseas to fill vacancies, but this is potentially
contentious. There are claims that it harms local employment opportunities and
subjects expatriate workers to abuse and exploitation. Certain states have imposed
quotas whereby economic migrants take second place to nationals (OECD, 1998),
although the European Commission promulgates the unimpeded circulation of labor
within its borders (EUROPA, 2004). Irrespective of any barriers, employers may
still find it easier to recruit or choose to hire foreigners who are satisfied with lower
earnings and accept jobs dismissed as demeaning and taxing by locals. Some hos-
pitality firms in the USA are heavily dependent on foreign workers and this engen-
dered a crisis in 2004 in a selection of popular centers because of restrictions on
particular classes of visas which had been increased due to security fears. There
were calls for relaxation of strict rules, but debate too about the importance
of making a career in hospitality more attractive and remunerative (Sadi and
Henderson, 2005).
Some developing countries also seek to limit expatriate management employment
in an effort to ensure that their citizens occupy a proportion of more senior positions.
However, most multinational corporations, like hotel chains, display an ethnocentric
orientation regarding such posts and conflicts can occur between local and expatri-
ate managers (Go and Pine, 1995). Companies need to be aware of government
employment policies and stances on job localization and align their own positions
accordingly. In addition, resources should be invested in management training and
education to promote local capabilities and establish an acceptable local and non-
local manager mix.

Industrial Action
Irrespective of the criticisms of tourism as an employer, industrial action is com-
paratively rare and the industry is not highly unionized. There are exceptions, one
of these being documented in Chapter 2 with regard to dissatisfaction amongst hotel
workers, and airlines occasionally have to deal with formal and informal strikes. It
has already been seen how British Airways’ efficiency drive met with hostility from

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staff which had been displayed in an earlier incident in 2003 when about 500
employees at London’s Heathrow Airport walked out in protest over an automated
clocking on system. This resulted in over 500 flights being canceled and almost
100,000 passengers stranded at the airport before its settlement after discussions
with the unions (BBC, 2003; ST Interactive, 2003).
The airline was expected to lose between £30 and £40 million because of the
events which also impacted on advanced reservations and earnings forecasts for the
third quarter of the year. Compensation was arranged, but the chaos and media
coverage harmed British Airways’ reputation, which it recognized would need to
be repaired. One other outcome was unexpected gains for its rivals with budget
carriers Easyjet and Ryanair carrying 6,000 and 7,000 more passengers, respectively
(ST Interactive, 2003), indicative of how one company’s crisis can be another’s
opportunity.
In an example from the USA, the strike over pay by Northwest Airline pilots in
1998 grounded all its flights for over two weeks. However, the company had actively
prepared for the eventuality and possessed a crisis management plan which estab-
lished a crisis command center headed by the chief financial officer. It gave priority
to the dissemination of information to the media and public in advance and emphasis
was placed on customer service and the protection of corporate image following the
onset of the strike. Nevertheless, costs were high at an estimated US$630 million
and the money and loss of customer goodwill were not easily or quickly recovered
(PATA, 1999).
Discontent may prevail for much longer periods and Hong Kong’s Cathay Pacific
was consistently troubled by disagreements with its pilots throughout the latter years
of the 1990s. Lengthy talks between management and unions did not make headway
and relations worsened in 2001 before 11 September. A campaign of industrial action
was launched, leading to flight cancellations and the chartering of planes from other
airlines. Similar to the case of Northwest, importance was attached to establishing
and maintaining contact with different stakeholders during the crisis, informing
them of developments. The media were also used to communicate the management’s
position and express its regret for the inconvenience to customers. The points of
contention were still not fully resolved by 2002 and monetary and less tangible costs
were again considerable and hard to recoup (Henderson, 2002).
Unhappy staff and incidents of withdrawal of labor inevitably affect service
delivery and company earnings. An airline seen to have poor industrial relations,
with the possibility of disruption to the traveling public, risks permanent damage
to its reputation and turnover. It also has to meet the immediate financial burden of
practical arrangements covering delays and cancellations. It is difficult to maintain
customer loyalty and attract new passengers if these uncertainties are prolonged,
representing additional lost revenue. The new realities of the twenty-first century
have perhaps made civil aviation union leaders and staff more amenable to measures
dedicated to corporate survival, but there has been a reluctance to implement certain
radical plans. The cases cited suggest the potential for havoc and heavy expenses
regarding economics and corporate image of comparatively minor disputes. Airlines

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and other tourism businesses can ill afford such losses and the maintenance of har-
monious labor relations is central to the avoidance of certain types of crises and the
management of others.

Smaller Enterprises and Commercial Crises

The book has concentrated on major crises affecting large companies and destina-
tions, but medium and small enterprises and the additional crises of lesser magni-
tude which threaten them should not be forgotten. Such enterprises are usually
defined in terms of the workforce with commentators proposing a range of upper
limits from 10 to 50, units of no more than four described as “micro businesses”
(Getz and Carlsen, 2005). Revenue is another criterion, although again amounts
vary. It is frequently stated that a majority of the world’s tourism is conducted by
these ventures, often family owned and operated (Morrison and Teixeira, 2004;
Page et al., 1999), but comprehensive data to verify this do not yet exist. However,
national statistics support the conclusion and 95% of UK hotels, for instance, are in
the hands of smaller businesses (RSA Migration Commission, 2005). The segment
is also acknowledged to make a significant contribution to rural economies and
communities and destination development (Tinsley and Lynch, 2001).
Small tourism businesses are characterized by limited resources of manpower
and finance and the studies quoted above which deal mainly with Europe, North
America and Australia and New Zealand have discovered strengths and weaknesses.
The latter include management (in)capability, irregular cash flow, uncertain profit-
ability, an absence of influence and vulnerability to external forces. Seasonality is
a basic problem in many locations and small businesses often turn to official agen-
cies for advice and possibly financial assistance, especially in rural areas where such
schemes are frequently available. There are low barriers to entry, encouraging new
start-ups, but failure rates are also high.
Unlike big business, income and profit generation may not be the primary goal
or measure of success. Shaw and Williams (1998) wrote about different degrees of
entrepreneurship. One group is attracted by the lifestyle attached to running certain
types of tourism enterprises in attractive environments with possibilities of pursuing
personal interests (Getz and Petersen, 2005). Family needs may also take prece-
dence in any business decisions and premises may be the family home. At the same
time, not all owner operators are casually indulging in a hobby and some may be
financially dependent on a business in which they have invested their savings (Page
et al., 1999).
There are obvious contrasts with corporations which have a sizeable labor force,
a complex structure, substantial resources, generous marketing budgets, a manage-
ment team directed by a strategic plan, global reach and power in the marketplace.
The smallest of businesses are less formal with a simplified organization, are more
personal in their dealings with customers and suppliers, may have difficulty access-
ing financial and other resources and may be at the mercy of events (Page et al.,

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1999). They therefore possess some advantages regarding flexibility and an ability
to move rapidly in response to an impending crisis without any worries about inter-
nal communications, but cannot engage in expensive and sophisticated risk assess-
ment and damage limitation exercises. Restricted reserves of cash undermine the
capacity to react to and survive prolonged loss of business and failure could be a
personal tragedy.
The human cost of small business crises and collapse is especially pertinent in
places which are heavily reliant on tourism whether in developed or developing
countries (Cushnahan, 2003; Dahles and Bras, 1999). There are also one-man busi-
nesses of individual vendors and street and beach hawkers, who comprise a sub-
stantial informal economy in many such Third World destinations, to take into
account (Timothy and Wall, 1997). They too are exposed to numerous crises which
can result in lost livelihoods, with social and economic repercussions, and may be
ill prepared to handle resolution. Asia-Pacific Economic Cooperation (APEC) rec-
ognizes the particular needs of smaller businesses in member states and highlights
the importance of “human resource development, access to finance, market access
and development, technology and technology sharing and access to information”
(Gammack et al., 2003, p. x). Difficulties in these areas impede the functioning of
this tier of the industry and may contribute to the emergence of crises.
In addition to internal deficiencies, smaller businesses may have little protection
against harmful outside occurrences. The 2004 Indian Ocean tsunami caused eco-
nomic and human devastation and the PATA and WTO have been concerned about
small business recovery in its aftermath. A report observes that establishments like
food and beverage outlets, boat hirers and craft workers cannot obtain recovery
funding as readily as large companies and many traders lost relatives who were also
workers (WTO, 2005). The tsunami was a commercial crisis for all levels of the
industry, but the most modest ventures and individuals are in danger from changing
circumstances which would not register on the corporate scale of risk. Crisis man-
agement and planning therefore have to be re-conceptualized to suit this particular
type of business and the overall subject of crises and tourism small enterprises is
perhaps one for another book.

Summary and Conclusions

The defining characteristics of the tourism industry create a dynamic of continuous
change among tourists and suppliers which may favor the evolution of crises. Fea-
tures of a company such as its management composition and style, policies, structure
and financing can also be a generator of crisis. An inappropriate style, unfavorable
corporate culture, mistaken strategies, inflexibility and financial insecurity may
themselves create internal stresses which evolve into crises. Pressures imposed on
companies by external agents are also a test of management and organizational
capability and responsiveness. If these are lacking, the crisis will be more severe
and indigenous and exogenous forces in combination could cause permanent damage

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and perhaps destroy the company. Good corporate governance and sound manage-
ment are thus as important in tourism as any other economic sector, although the
industry also includes smaller enterprises which have distinct challenges arising
from their particular operating environment.

Case One: Disney in Hong Kong

Hong Kong Disneyland is a joint venture between the government of Hong Kong
and Walt Disney Company, the former investing heavily in the US$1.8 billion
project in anticipation of economic returns from the projected rise in tourism due
to the new attraction. The park opened in September 2005, but the event was partly
eclipsed by a series of media stories in the preceding weeks which were largely
negative in tone and content.
These stories began with a controversy about shark’s fin soup, a traditional
Chinese delicacy regarded as fitting for special occasions. The fact that some of the
park’s hotel restaurants would be offering the soup on their banquet menus outraged
animal welfare groups opposed to the way in which fins are removed by fishermen
before throwing the sharks back into the sea to die a painful death. The topic drew
worldwide publicity and led to various protest campaigns. The company’s initial
reaction was to stand by its decision because of the soup’s cultural significance, but
it then promised that it would ensure that the shark fins were purchased from respon-
sible fisheries. Customers choosing the dish would be given leaflets informing them
about the objections of environmentalists. It was subsequently announced that the
dish would not be available because of the problem of guaranteeing the environ-
mental credentials of suppliers.
This controversy was followed by reports of the culling of about 40 stray dogs
on the park site which were described as threatening staff safety, an assertion dis-
puted by some locals and comparisons were made between these actions and the
portrayal of cartoon characters like Pluto. One week before opening, the media
featured articles about disgruntled staff who had been complaining of regulations
at work which were stricter than those in force in the USA. These regulations related
to questions of breaks, drinking water on duty and personal appearance. Trade union
representatives said that they would distribute information to staff at the park,
urging them to form their own union, a move which did take place after the park
opened. The company stated that it valued all its “cast members,” respected their
rights and did not see the need for a union.
Again close to the official opening, there were complaints that health inspectors
investigating three suspected food poisoning cases had been asked to conceal their
badges of identity to avoid alarming guests at one of the open days. This resulted
in more publicity, locally and internationally, and comments by politicians that
Disney was not “above the law.” There was an apology from the company which
pledged that it was committed to abide by the law and such a situation would not
recur. Other incidents included Hong Kong pop stars upset by officials when filming

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in the park, a sacked worker who threatened to commit suicide by jumping from
the Space Mountain ride and overcrowding and long queues during pre-opening
rehearsal days. At the same time, and sometimes indirectly linked to the park by
reporters, there were accusations that Walt Disney was using mainland Chinese
factories to manufacture some of its goods where the staff were working very long
hours for extremely low wages. The company said that it would be investigating the
allegations.

Sources: AFP, 2005; BBC News 2005a, 2005b, 2005c and 2005e; The Daily Telegraph,
2005; USA Today, 2005.

Case Two: Singapore’s Low-cost Airlines

Singapore authorities granted approval for three low-cost airlines which com-
menced operations in 2004, but were to have a somewhat turbulent first year
ending in the merger of two. Valuair was the first low-cost airline to start
flying in May and was headed by a CEO with senior management experience at
Singapore Airlines (SIA), the national carrier. It was fi nanced mainly by local
businessmen and initially raised US$19.4 million, undergoing a second round of
financing in late 2004 in order to double its capital. It positioned itself as distinct,
claiming on its website that “there are full service airlines, budget airlines and
then there is Valuair. We challenge the norm.”
One means of differentiation was to highlight the service and selling points were
a 32-inch seat pitch (compared to the usual 29 inch on low-cost carriers), 20-kg
cabin baggage allowance, allocated seats and free refreshments. The airline had a
new fleet of four Airbus A320s and was serving the six destinations of Bangkok,
Chengdu and Xiamen in China, Hong Kong, Jakarta and Perth in Australia by
mid-2005. The Chinese and Australian routes meant that the company was working
beyond a five-hour radius of Singapore and it had designs to continue flying such
distances to locations in Eastern Australia and North East Asia, aiming to acquire
wide-bodied aircraft.
However, Valuair lost heavily in its first seven months of flying and there
were reports that it was seeking fresh cash injections and “close to running
out of funds.” A newspaper article in May wrote about difficulties of constantly
escalating fuel costs, high ticket prices in relation to both low-cost and full-
service competitors, fare cutting by the latter and 60% load factors. The CEO
had resigned in April and the company was unable to predict when it would break
even.
Jetstar Asia was Singapore’s third low-cost airline and began operations in late
2004 with a CEO from Qantas. Qantas had a share of 49%, Temasek Holdings (a
government investment group) held 19% and the remaining 32% was in the hands
of two local businessmen. The airline originally concentrated on routes of up to five
hours flight time and announced it would be traveling to the seven destinations of

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Hong Kong, Jakarta and Surabaya in Indonesia, Manila, Pattaya in Thailand,

Shanghai, and Taipei. It had four new Airbus A320s and ambitions to expand its
fleet to 20 aircraft after three years. Passengers were allocated seats and allowed
20 kg of cabin baggage, but refreshments had to be purchased and in-flight entertain-
ment equipment hired on longer flights.
In March 2005, the company announced that it had given up its plan of flying
eight aircraft by the end of the year due to a failure to secure landing rights at pre-
ferred cities, particularly in China and Indonesia. Flights to Pattaya ceased after
two months and it was flying to Bangkok, Hong Kong, Manila and Taipei in July
2005. It too was making heavy losses in its first seven months.
The difficulties experienced by Jetstar Asia and Valuair led to their merger in
July 2005 under a holding company titled “Orange Star.” The two airlines were to
continue to function separately, with few immediate major changes, but there would
be some rationalization and management spoke of a “single model” in the future.

Sources: The Edge, 2004; The Financial Times, 2005; Jetstar Asia, 2005; The Straits
Times, 2005a, 2005b and 2005c; Valuair, 2005.

Concept Definitions
䊏 Commercial crisis: A crisis with its roots in the industry or a business organization
or which is exacerbated by the prevailing culture, conditions and management.
䊏 Corporate brand: The name of the company which carries associations about the
perceived quality of its products and services and which can be enhanced or
damaged by the handling of a crisis.
䊏 Internationalization: The extension of a company’s business beyond its country of
origin, closely linked to the concept of globalization.
䊏 Small business tourism: Tourism services sold by enterprises which employ only a
few staff and have a comparatively low turnover. Many are family owned and
operated.

Review Questions
1. Why are some tourism businesses more prone to commercial crises than others?
2. What are some of the principal reasons for internal tourism commercial crises?
3. How can external events trigger commercial crises within the tourism industry?
4. What role does investor confidence play in the evolution of tourism commercial
crises of a financial nature?
5. To what extent do the media influence the progress and outcome of a labor-related
tourism commercial crisis?
6. How might socio-cultural misunderstandings precipitate a crisis for a tourism
company expanding overseas and can such situations be averted?

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7. Why were some sections of the media apparently hostile to the opening of Hong
Kong Disneyland and how could this have been countered?
8. What type of crisis did Singapore’s low-cost airlines face and why did it occur so
soon after they entered the market?

Additional Readings
News about topical events and issues in the tourism industry, including both positive
developments and actual or potential crises, is available from an assortment of spe-
cialized print media. A selection is listed below:
Travel Business Analyst. Asia Pacific and Europe monthly newsletters
Travel Daily News. Available online at http://www.traveldailynews.com
Travel Trade Gazette. Available online at http://www.ttglive.com

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