Tourism Sector: Evidence Of Business Dynamics in Portugal

Tourism plays a significant role in stimulating economic growth in certain geographic areas. Tourism can become a crucial source of revenue in regions with unique and varied tourist attractions, such as beautiful natural landscapes, cultural heritage or distinctive recreational activities. The arrival of visitors generates demand for services such as hotels, food, transport, and entertainment, stimulating various sectors of the local economy. Beyond the economic aspect, tourism also plays a crucial role in regional development. Investment in tourism infrastructure, such as hotels, restaurants, and recreational facilities, is often responsible for job creation and skills development of the local workforce. This can help reduce unemployment and improve the quality of life of communities living in tourist areas (Durbarry, 2004; Filipova, 2015; Liu et al., 2023; Webster & Ivanov, 2014).

The tourism sector has expanded significantly globally over the past decades, establishing itself as one of the fastest-growing economic sectors. Tourist arrivals had been growing globally until 2019, with 1,465.46 million arrivals registered that year. Due to the pandemic crisis, the figures fell by more than 1,000 million in 2020 (406.89 million), followed by a slight increase of 50 million in 2021 (455.77 million). The recovery trend continued with 962.8 million arrivals in 2022, an increase of approximately 500 million. Revenues, in turn, followed the same behaviour as arrivals, with growth until 2019 reaching 1,466.5 billion dollars, followed by a fall in 2020 to 549.8 billion dollars due to the pandemic crisis. Numbers started to recover until 2022, with 1011.5 billion dollars (UN Tourism, 2023).

Europe is the world’s leading tourist destination. The tourism sector is a vital part of the EU economy and accounts for 10% of its Gross Domestic Product (GDP). The European Parliament (2023) states that the impact of the pandemic crisis is becoming evident, with European tourism growth expected to remain below 2019 levels until 2023. During the first four months of the year, Europe recorded a 44% decrease in international tourist arrivals compared to the same period in 2019, a decrease in line with global performance (European Parliament, 2023). EU tourism industry turnover reached and even exceeded prepandemic levels in 2022. Specifically, in April 2022, turnover reached pre-pandemic levels (Eurostat, 2023). The EU tourism sector, in the strict sense of the term (traditional providers of vacations and tourist services), consists of 2.3 million enterprises, mainly small- and medium-sized enterprises (SMEs) (European Parliament, 2023).

In 2019, the tourism sector employed more than 12.5 million people in the European Union. Hotels and restaurants employed almost 9.9 million people, while 2 million worked in transport, and travel agencies and tour operators accounted for almost half a million. The three sectors that depend almost entirely on tourism (hotels, travel agencies/tour operators, air transport) employed almost 3.4 million people in the EU. However, due to the COVID-19 pandemic, employment in selected tourism industries decreased by 16% in 2020 compared with 2019 (Eurostat, 2022). Small and medium-sized enterprises (SMEs) account for more than 99% of all companies in this sector in the EU (European Commission, 2021). Additionally, as in other sectors, micro-enterprises are the most prevalent in the tourism industry. They make up around 94% of all companies operating in this sector, making it a highly competitive market. As for human resources, small tourism businesses in Western Europe typically employ around 6 people, while those in Eastern Europe employ around 7.

In the Portuguese economy, the tourism sector encompasses various segments of economic activity, including transportation and logistics, hotels and restaurants, and recreational and cultural activities (Banco de Portugal, 2014). In 2022, the tourism sector accounted for 15.8% of Portugal’s GDP, which exceeded the figure for 2019 (before the pandemic) of 15.3% (TravelBI, 2023).

This research aims to analyse the tourism sector in Portugal, to characterise tourism companies and their business dynamics. The intent is to identify if there are any statistically significant differences between the Tourism and Hospitality (TH) subsegments of activity of the sector, namely, Hotels and Restaurants (HR), Recreational and Cultural Activities (RCA) and Transports and Logistics (TL), through the period of 2011–2022 in a group of selected competitiveness indicators, namely: Financial Autonomy (FA), Return On Assets (ROA), Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Passive (P), Return on Equity (ROE), Turnover (TO) and Number of Employees (NE). All statistical data were obtained from Séries Estatísticas from Banco de Portugal (Banco de Portugal, 2023).

The paper is divided into five sections: first the introduction, second the presentation of relevant literature, followed by the third section with a brief overview of the empirical methodology approach. The fourth section discusses the investigation results, while the fifth presents the major outcomes, contributions, practical implications, and drawbacks.

The growth and internationalisation of tourism and travel have increased the demand for tourism services. In this sense, the business environment in the tourism industry is characterised by strong competition and constantly changing circumstances (Cheng & Zhang, 2020; Mitrović et al., 2016). The tourism industry has unique characteristics, including complex service businesses, intangibility, the need for large capital investment, sensitive production processes, customers who are part of the service and production processes, the importance of location or work factors, and high vulnerability to the external environment, such as politics and the social and economic environment (Altin et al., 2018; Oliveira & Brandão, 2023; Sainaghi et al., 2017). Given the specific nature of the sector, because of both the special characteristics of the performance and its complexity, there are multiple approaches to evaluation techniques and the measurement of specific indicators in the context of the sector (He & Li, 2024; Pnevmatikoudi & Stavrinoudis, 2016; Sainaghi et al., 2017). According to the authors, performance and its measurement are the main success factors for every tourism enterprise. In an overview of the literature on performance measurement in the tourism industry, a growing number of studies investigating the literature related to performance measurement were identified (Altin et al., 2018; He & Li, 2024, Handoyo et al., 2023; Pnevmatikoudi & Stavrinoudis, 2016; Sainaghi et al., 2020; Sainaghi et al., 2017; Sainaghi et al., 2013; Sainaghi, 2010a, 2010b).

According to the literature, business performance in the tourism sector depends on various tangible and intangible factors, such as financial variables, structure, size, location, management typology, segmentation, innovation, human resources, and service quality. In addition to the different approaches and perspectives of analysis, the literature presents different conclusions regarding competitiveness and the business fabric of the tourism sector. However, all the authors argue that measuring performance in the tourism sector is an essential management tool and a key to effective decision-making.

Basole et al. (2015) affirm that the visualisation of data provides insights into the dynamics of business ecosystems. Businesses in these ecosystems are all interconnected, and the proper orchestration of these ecosystems allows for value creation. For instance, analysing the business dynamics of a certain sector such as tourism and hospitality allows us to determine and effectively identify the impact and effects of a global crisis such as the one caused by the COVID-19 pandemic (2020-2021) as seen in the Guedes et al. (2023) study.

The relevance of analysing the business dynamics of the sector is also highlighted in the bibliometric review of Alshater et al. (2022), where multiple articles used the impact of COVID-19 to define business strategies and an adequate response for future challenges.

A satisfactory performance of a sector can create more jobs and increase the income within the sector, and the gross national product consequently has a positive impact on the economy (Handoyo et al., 2023). However, to determine that the sector is evolving, it is necessary to analyse its behaviour by confronting data from different periods in time. The relevance of this work lies not only in the possibility of making a comprehensive diagnosis of the sector but also in the possibility of providing tourism businesses with strategies for improvement.

This study aims to provide an overview of the business performance of the Portuguese tourism sector, and to give due consideration to the importance of the topic, The methodology used in this research follows a descriptive and inferential approach. Data from companies in the tourism sector in Portugal is collected from the Simplified Business Information (IES) of the Central Balance Sheet of the Bank of Portugal, and data processing is carried out, followed by appropriate and precise analysis and interpretation of the data and indicators, to characterise the dynamics of companies in the tourism sector in Portugal. We will study several variables, such as the age of the company, the segment of economic activity in the tourism sector, and the size of the company. Data were obtained from the Séries Estatísticas from Banco de Portugal (Banco de Portugal, 2023). In the context of this study, the sample is composed of a selection of aggregated sectoral data relating to the tourism and hospitality sector, limiting the research to companies whose main activity falls within this area, as defined by Banco de Portugal (Banco de Portugal, 2014) in the Portuguese Classifications of Economic Activities (CAE) in the tourism and hospitality sector. The selected indicators are part of the studies mentioned in the literature review presented in the second section. These indicators are commonly used by those authors and are considered to be relevant when evaluating the competitiveness of companies. The indicators are presented in Table 1.

Based on the importance of studying this topic, and considering the literature review, in this study the following hypotheses were proposed:

H₁: There is a statistically significant difference between the selected competitiveness indicators (FA, ROA, EBITDA, P, ROE, TO, NE) per segment of economic activity in the tourism sector (HR, RCA, TL):

H_1A: FA; H_1B: ROA; H_1C: EBITDA; H_1D: P; H_1E: ROE; H_1F: TO; H_1G: NE.

Considering the objectives of this paper and the research hypothesis, a Related-Samples Friedman’s Two-Way Analysis of Variance by Ranks was conducted. The preference for this test results from the analysis of the normality of the distribution and the homogeneity of the variances of the selected indicators. According to the literature, the Kolmogorov-Smirnov and Shapiro Wilk tests were conducted to analyse the normality of the distribution. The null hypothesis (p-value ≤ α) is rejected by some of the variables under study as it violates the parameters for normal distribution. As the presuppositions to conduct a parametric were violated, an equivalent non-parametric test (mentioned previously) was performed. This test will help identify if there are differences between the different subsegment results through the years per competitiveness indicator. The Friedman’s test is a robust and very versatile method used to analyse repeated measures. It will show for each segment if the values obtained in the period 2011–2022 for each indicator are statistically significantly different (Marôco, 2021; Pestana & Gageiro, 2014). The hypothesis will be considered validated if all of the sub-hypotheses are validated during testing. The sub-hypothesis will be considered validated if three of the three pairwise comparisons have a p-value <0.05. If over 50% of the pairwise comparisons have a p-value <0.05 the sub-hypothesis will be considered partially validated.

The results obtained from Banco de Portugal (2023) show that between 2011–2022 the number of companies in Portugal had a growth rate of 2.26% and in 2022 accounted for 521,587 companies. In the same period, the number of TH companies had an even higher growth rate of 4.09%, with 80,012 companies in 2022, representing 15.34% of the total in Portugal. Both the total number of Portuguese companies and the TH companies were not affected by the pandemic and registered a constant growth. Portugal’s business structure and the TH sector are mainly composed of micro and small companies.

The Portuguese TH sector is highly composed of companies from the HR subsegment. However, in the most recent years, RCA and TL started to gain more expression as they gained more companies. None of these subsegments were negatively affected by the pandemic. In fact, the pandemic allowed creation of even more companies for each of the subsegments.

The FA companies showed that up to 2019 companies in the TH sector were increasing their ability to finance their assets through their resources. The pandemic decreased this ability as the percentage of FA showed lower values in all subsegments. The TL subsegment was the most impacted; however, it registered a fast recovery, regaining its FA with values superior to years before the pandemic. Companies registered a fluctuation in their ROA values and had a negative effect on managing the profit from their total assets on their balance sheet. Once more, TL was the most affected by the pandemic. The profitability of the companies’ operations was deeply affected by the pandemic, showing negative EBITDA’s. TL was the most affected, even though prior to the pandemic it had the highest figures. HR had an important impact on the recovery of the sector, as their EBITDA results positively affected the overall results. Interestingly, the obligations of this subsegment – current and long-term liabilities in the Passive – have always been the highest. The ROE values through the years showed that companies in the TH sector struggled with using their shareholders’ equity in an effective way to gain profit, having negative values in some of the years in analysis. HR was a key subsegment during the pandemic even though it showed a negative ROE in 2020, as it was able to recover in the subsequent years and achieve positive values. The TO for the sector registered a growth rate of 5.85%, with HR significantly impacting this growth. Even though 2020 registered decreases in TO, the sector was able to recover fast, obtaining TO levels superior to 2019 levels. The TO originates mostly from large companies. Micro and small companies employ the biggest number of people in the sector and even had increases during the pandemic. Most of the companies in the sector are up to 5 years old, accentuating the level of attractiveness of the sector to investors and entrepreneurs. Older companies significantly decreased through the years but showed their resistance in the pandemic as they registered higher proportions of companies in the sector. Older companies also employ the greatest number of people and have held higher levels of TO. These competitiveness indicators show how impactful the TH sector can be in Portugal’s economy. The indicators show how resilient the sector can be and how easily it can recover from difficult challenges such as the pandemic. This highlights how important the HR subsegment is for the TH sector’s overall results. The TH sector is highly dependent on human resources and the results help us understand how the success of the sector depends on their existence.

The empirical results indicate that the competitiveness indicators have different results depending on the different subsegments and can be statistically significantly different. Even though the null hypothesis was retained in FA, the ROA and ROE showed statistically significant differences between HR vs. TL and RCA vs. TL. The EBITDA showed statistically significant differences between HR vs RCA and RCA vs TL. The Passive and the NE results showed statistically significant differences between all subsegments. The TO had statistically significant differences between HR vs. RCA and HR vs. TL.

The European tourism sector has experienced exponential growth, both in terms of the number of businesses and revenue as well as in the number of people employed (Eurostat, 2023; Eurostat, 2022). Portugal followed this growth, but as happened worldwide, in 2020 there was a drop due to the pandemic (Banco de Portugal, 2023; Wickramasinghe & Naranpanawa, 2023). The COVID-19 pandemic had a severe impact on the tourism sector in 2020 and 2021, leading to a dramatic drop in turnover and value added, with figures decreasing by 41.0% and 40.1% respectively, compared to 2019. The number of persons employed and enterprises also decreased, though to a lesser extent, by 2.8% and 13.5%, respectively. The negative impact was much higher than that in the overall economy of nonfinancial companies and the service sector (Eurostat, 2022).

While the tourism industries contribute significantly to employment, their share of total turnover and value added is relatively lower. They account for 2.5% of the turnover and 3.6% of the value added of the nonfinancial business economy, possibly due to the prevalence of micro, small, and medium-sized enterprises, and part-time employment in the sector (Eurostat, 2023). At the European level, hotels and restaurants make up 75% of the enterprises in the tourism industry. However, in terms of turnover, their share is lower, at 53% in 2020 (Eurostat, 2023).

This paper presents a comprehensive analysis of the TH sector in Portugal. The collection of this data allows for several future investigations. On the one hand, future research could investigate the sustainability strategies used by the different sub-segments of the tourism sector, as well as how different companies balance growth and sustainable practices. Specific factors that contribute to the different percentages of turnover among large, medium and small enterprises could be further investigated. This could involve examining the unique challenges and advantages that each size category faces and investigating the underlying causes of regional disparities in turnover and employment, particularly in the Lisbon Metropolitan Area. Understanding the reasons for these trends could inform targeted policies for regional development. Another important perspective could be to look in more detail at employment patterns, considering factors such as job security, wages, and working conditions in firms in the sector. This could shed light on the implications of company size for the workforce. Given the potential impact of unexpected events such as pandemics, future research should focus on resilience, adaptability, and industry strategies to mitigate disruptions.