Scarcity and Luxury Pricing in Antarctic Tourism
Scarcity is one of the basic tenets of economics, that is, limited resources with unlimited wants will cause a market to allocate resources via prices. One of the clearest examples of this concept can be found in Antarctic tourism. The southern continent has some of the most expensive trips anywhere in the world. On average, Antarctica cruises will cost between $8,000–$50,000 per person — depending on the vessel, itinerary, and quality of the cruise. These prices are not arbitrary; rather, they reflect a combination of natural scarcity, high regulation, and the economics of luxury.
The primary economic force driving the high prices of Antarctic tourism is the constrained supply of tourism capacity, which is one of the most remote and environmentally protected locations in the world. The tourism “season” for Antarctica is extremely limited — typically from November to March (Southern Hemisphere Summer) — although there are a few months in the winter (June to September) that are sometimes used for expedition-type travel (e.g., kayak or camping trips). After this short, limited period of time, the severe Antarctic weather, sea ice (the southern ocean is covered by heavy sea ice for the majority of the year), and darkness (daylight hours) make travel to Antarctica too dangerous or impossible for visitors. The result of this limitation on supply will create a significant capacity constraint for producers. Producers will have approximately four to five months each year to generate revenue.
Geographical factors play an important role in determining the costs associated with taking a trip to Antarctica. The majority of companies that offer trips to Antarctica will depart from Ushuaia, Argentina. For many passengers, this means they must cross the Drake Passage (i.e., one of the world's roughest pieces of water). To operate in polar environments, ships must adhere to strict safety regulations. In addition, ships require specially trained crews, reinforced hulls/structures, advanced marine navigation systems, and extremely high insurance. Therefore, there are many fixed costs associated with operating a ship in Antarctica.
Supply is also controlled by limiting the number of trips permitted by the International Association of Antarctica Tour Operators (IAATO). IAATO has developed guidelines and regulations to mitigate environmental impacts; they have created a limitation on how many passengers can disembark at one time from any given site. For example, IAATO prevents vessels carrying more than 500 passengers from making landings on shore. IAATO’s regulations limiting landings at sites ensure that there is no overcrowding on land visits, while at the same time increasing the scarcity of tourists that can be serviced by operators.
However, scarcity does not account for the total pricing structure for tourism in Antarctica. Prices for tourism to Antarctica are also reflective of a high proportion of luxury pricing strategies and price discrimination. When travelling to Antarctica, many individuals are not only buying a transportation experience but also an exclusive and prestigious once-in-a-lifetime experience. Economists will refer to these types of products as having extremely high income elasticities of demand. Consequently, when consumer income rises, there is a corresponding increase in the demand for these products.
An excellent example of the segmentation of cruise offerings is the variety of expedition type cruise operators available. Some are basic expeditions providing passengers with shared cabins and little in the way of amenities, while some are ultra-luxury with features such as private suites, gourmet dining, helicopter and submarine excursions, as well as scientific expeditions led by experts. The experience provided to passengers may feel almost the same; however, the price paid generally varies greatly according to the experience sought by the target consumer group (i.e., price discrimination) and creates increased revenues for the business by offering the cruise experience to different segments of the market.
Demand for these types of experiences has continued to increase in recent years regardless of price. According to IAATO data, Antarctic tourism has experienced substantial growth over the past 20 years with over 100,000 visitors in recent seasons. This increase in visitors coincides with cruise operators increasing cruise fares, which indicates that wealthier tourist groups are willing to pay extra for these very limited experiences.
Another economic impact is the existence of a market created by scarcity itself. This factor adds to the overall allure of the Antarctic region; thus, many tourists will likely never travel to this destination. Consequently, scarcity influences the product. If Antarctica were to become affordable and accessible to the general public, the distinctiveness of the destination would also diminish; therefore, some of the luxury appeal would likely evaporate.
Yet, there are larger economic and ecological issues created by this population increase to the areas people are departing from. Generally speaking, the development of tourism has resulted in increased economic activity in supporting the specialized maritime industry and generating local economic development. Conversely, the increase in tourism to Antarctica will create additional environmental stress upon fragile ecological systems. Thus, there is a constant balancing act that must occur between increasing economic activity and limiting the supply of resources through regulation for both policymakers and operators alike.
The elevated expense of Antarctic tourism is a reflection of corporate pricing decisions, among all other factors, but it also reflects the larger economic condition created by natural limits, complicated operations, and other ecological regulations, as well as customers' willingness to spend for rare experiential opportunities. Scarcity will thus be one of the most valuable commodities being sold in this marketplace.
