Briefing: The Impact of Visa Increases
1 December 2005
Introduction
This paper provides a brief on the impact of the increased visa charges on tourism to the UK. It uses IPS figures and UKvisas’ data to test the assumption that the increased cost of visas is not having a detrimental impact on demand.
Visa Demand in 2005
UKvisas has recently released the report, Analysis of Visa Demand: July to September 2005, which attempts todetermine whether the increased visa charges, introduced on 1 July 2005 have been responsible for the fall in demand experience since this date. Their analysis shows that prior to the introduction of the increased fees (Jan-Jun 2005), the demand for visas was up 9.8% over the previous year. However, once the fees were increased in July, demand for visas fell to 10.8% below the same month in 2004 and averaged 8.3% below the comparable period last year in the three months from July to Sept 2005.
However, despite the 18.1% drop in visa demand since the introduction of the increased charges, UKvisas’ analysis states that there is “no evidence that any fee increase has been a dominant factor in any reduction in visa remand”. Rather, they conclude that the decrease in demand is primarily due to the London bombings and to airlines introducing fuel surcharges as a result of rising oil prices.
This analysis is therefore to determine whether the decrease in demand for visas is attributable to the London Bombings and the rise in fuel costs as UKvisas claim, or whether the increased costs have, indeed, reduced demand.
Inbound Visitor Numbers
The first step is to look at International Passenger Survey figures for the period between Jan and Sept 2005 (see Graph 1). These figures show that total visitor numbers between Jan and Sept are up by 10.0% over the same period last year.
They also show that prior to the London Bombings, total visitor numbers were up an average of 13.1% over 2004 and that they declined to an average increase of 5.4% in the three months after the London bombings. Therefore, although the London Bombings slowed the growth in the number of tourists coming to the UK from 13.1%
to 5.4% (a decrease of 7.7%), the market is still growing and total visitor numbers for 2005 will exceed the number of visitors for 2004. The 7.7% decrease in the rate of growth of visitor numbers due to the London bombings does not, therefore, fully account for the 18.1% decrease in the growth of visa applications.
Long Haul Visitor Numbers
UKvisas’ analysis of visa demand also claims that the increase in fuel costs has been an important factor in reducing the number of visas applications from long-haul destinations.
To test this we need to examine the IPS figures from long-haul markets over the year to date (see Graph 2) as long-haul travellers are more susceptible to rising fuel costs than short-haul travellers. This graph shows that, although long-haul visitor numbers
were down on 2004 during Feb and Mar 2005, this market was slowly recovering until Sept 2005.
For the period from January to June, long-haul visitor numbers were up only 0.4% over the previous year. This indicates that this market has been suppressed compared to total inbound visitors over this period. However, the three months after the London bombings show that visitor numbers from long-haul markets have grown by an average of 1.6%, suggesting that the London bombings have had very little impact on this market. The graph also shows that, while fuel costs may have suppressed the market throughout 2005, they do not account for the sudden decrease in visa applications that occurred from July 2005.
Inbound Visitor Numbers vs Visa Demand
To gain a better understanding of whether the reduced demand for visas is related to factors other than the increase in visa charges is to compare visa demand to inbound tourism numbers using a three month rolling average. Using a three month rolling average tends to “smooth-out” the results of individual months and highlights underlying trends.
Graph 3 plots the three-month rolling averages for the growth inbound visitor number growth against the growth in visa demand.
This graph shows that the demand for visas was increasing at approximately the same rate as inbound visitor numbers for the first half of the year. At the same time, the growth in inbound visitor numbers from long-haul markets was starting to recover from a poor start to the year.
In July, the London bombings certainly reduced the growth in total inbound visitors and, after a lag period, have a small impact on growth from the long-haul markets. However, it is important to note that both total inbound visitors and long-haul visitor numbers have continued to grow since the London bombings, albeit at reduced rate.
By contrast, the above graph shows that the growth in visa demand has not just slowed, but has actually reversed. The decrease in the rate of visa growth is 135% greater than the decrease in growth of total inbound tourism numbers. This strongly suggests that there is another factor, other than the London bombings or fuel cost increases, that has caused this decrease. It also shows that this other factor must have occurred in July 2005. As the only other significant factor to occur that month was the increase in the cost of visas, this analysis strongly indicates that the increase in the cost of visas has reduced the growth in demand for visas to the UK by approximately 10%.
This analysis is supported by the following statements from the inbound tourism industry.
Industry Evidence
Pearl Travels
We have experienced a downturn in UK bookings from India. One of the main reasons is the visa fees. Last year the fees were approx Rs 2500 (£31) which has been increased to Rs7000 (£88). This has definitely had an impact. The bulk of the leisure travel from India is family oriented. A family of 4 would end up paying £350+ for UK visas and additional for Europe as well.
Travco Ltd (Russia)
The visa increases are a factor in Russia. As well as hiking up fees they have altered and complicated application protocols. This will not be a problem for high end clients but it affects the budget travellers.
Travco Ltd (China)
I was at the Chinese International Travel Market last week and lots of agents moaned about the cost and delay for getting visas for Chinese mainland passengers. It is definitely affecting sales.
Home Office Evidence
Further evidence that increasing visa charges can have a detrimental impact on visitor numbers comes from the recently published Home Office Report “The Impact of Changing National Visa Regulations on the Choice of Destination Country by International Students” In this report, Dr Neil Kemp concludes that the
“change in student flows to a country is not necessarily proportional to the magnitude of any policy change. As international students make their decisions based on their perception of the country of study the impact is frequently greater than might rationally be anticipated ie., a stricter regime or higher fees results in the country being perceived as a less welcoming and/or accessible destination”.
For the Indian market, Malaysia and Hong Kong are now issuing visas on arrival and Australia has improved accessibility by introducing online visa applications and reducing the cost of applications. When Dr Kemp’s analysis is viewed alongside these factors, it is easy to understand how the increase in visa costs to the UK would have been perceived as being unwelcoming and could well have resulted in a significant drop in demand. This impact is exacerbated by some of the UK’s competitors for Indian outbound tourism either reducing the cost of their visas and/or increasing their accessibility.
Summary
On 1 July 2005, UKvisas increased the cost of visas to the UK. A standard six month multiple entry visa increased by almost 40% from £36 to £50, while a student visa increased by over 130% from £36 to £85. At this time of the increase, the Tourism Alliance used an econometric model developed by Caledonian Economics to calculate that the increased visa costs would reduce the UK’s tourism revenue by over £100m per annum.
It is now three months since the new visa charges were introduced and the first hard data is now available. This shows that the demand for visas has decreased by 18% since the fees were increased. Although UKvisas view is that this decrease is unrelated to the increased costs, International Passenger Survey data strongly suggests that approximately 10% of the decrease cannot be explained by other factors such as the bombings in London and rising fuel costs.
This finding supports evidence from outbound operators in the affected markets and the findings of a Home Office study which indicate that increasing the cost of obtaining visas also increases overseas visitors’ perceptions of the UK as being an unwelcoming country. As a result of this perception, visitors will switch to visiting those countries that are deemed to be more welcoming and accessible.
These findings strongly suggest that the Tourism Alliance’s initial econometric modelling of the impact was correct and that the UK will forgo at least £100m per annum as a result of UKvisas increasing the cost of visas in July 2005.
President: Sir Digby Jones
Chairman: Brigid Simmonds
Policy Director: Kurt Janson
Email:
Telephone: 020 7395 8246 Fax: 020 7395 8178 Mobile: 07964428123
Website:
Tourism Alliance: Centre Point, 103 New Oxford Street, London, WC1A 1DU