The sensitivity of winter tourism to exchange rate changes: Evidence for the Swiss Alps

Abstract

This paper investigates the impact of the appreciation of the Swiss franc on international tourism in Swiss Alpine resorts, city and lake destinations using annual data for winter seasons 2007/2008 to 2010/2011. Using median regression models, we find that the nominal and real appreciation of the Swiss franc has a large and significantly negative impact on international tourism demand in Alpine destinations during winter months. The elasticities of the relative price (to those of competing countries) range between À3.0 for foreign hotel nights and À2.1 for foreign hotel arrivals. In contrast, the real exchange rate effect is much lower in absolute terms for city and lake destinations. The results are not sensitive with respect to different measures of international tourism demand (arrivals, hotel nights and the length of stay). Income elasticities are also significant and large with values of two and higher. In general, these findings are robust to alternative estimation methods (i.e., median regression, robust regression method and ordinary least squares in first differences).

How do Overnight Stays React to Exchange Rate Changes?

“…The aggregation over communities and countries of origin further makes it impossible to control for unobserved heterogeneity, which is likely to result in omitted variable bias. Falk (2014) investigates the effect of price differences between Switzerland and its main competitors on Swiss alpine tourism. The author uses aggregated annual data on overnight stays and tourist arrivals of 30 Swiss alpine destinations for the winter months (December to April) between 2007.…”

“…Falk (2014) investigates the effect of price differences between Switzerland and its main competitors on Swiss alpine tourism. The author uses aggregated annual data on overnight stays and tourist arrivals of 30 Swiss alpine destinations for the winter months (December to April) between 2007. Falk (2014 defines the main competitors of Swiss alpine tourism as Austria and France.…”

“…The paper's estimates differ largely between the two types of destination with values of 3.02 for alpine and 1.49 for city and lake communities. Falk (2014) uses substitute destinations, rather than the countries of origin, to measure relative prices differences. In other words, the paper only considers the exchange rate between the Swiss franc and the euro.…”

“…First, the time dimension, including only 4 time periods, is very small. Second, the control group of Falk (2014), the city and lake destinations, is a highly heterogeneous group itself. While it is true that the exchange rate affects the number of overnight stays in cities much less than in alpine destinations, our analysis will show that this is not true for touristic lake destinations.…”

“…Abrahamsen and Simmons-Süer (2011) analyse the impact of exchange rate movements on the number of overnight stays in Swiss hotels with data up to 2010. Falk (2014) estimates the effect of a change in the CHF/EUR exchange rate on Swiss alpine tourism. Ferro Luzzi and Flückiger (2003) and Jaeger, Minsch, and Abrahamsen (1996) provide evidence on the exchange rate effects using aggregate overnight stays data.…”