The Hong Kong Polytechnic University Tourist Satisfaction Index and Tourism Service Quality Index 2013

The Hong Kong Polytechnic University Tourist Satisfaction Index and Tourism Service Quality Index 213

Foreword Executive Summary The Hong Kong Polytechnic University s (PolyU) Tourist Satisfaction Index (PolyU ) and Tourism Service Quality Index (PolyU ) aim to address two global challenges that the tourism industry and the world economy are facing. The first challenge features the globalisation of consumption that requires all stakeholders, including the private sector and destinations, to deliver a highquality experience to tourists as well as to local communities. The second challenge relates to the difficulty in quantitatively measuring sustainable tourism development across destinations and source markets. The PolyU and frameworks will contribute to sustainable tourism development by helping tourist destinations to become more competitive and ensure tourists enjoy their travel experience to the full. The PolyU and address the two fundamental challenges of providing high quality tourism experiences in a sustainable manner by providing barometers of tourist satisfaction and tourism service quality for destinations. The frameworks of the indices also aim to build comprehensive measurements for evaluating destination competitiveness over time and between each other. These frameworks can be practiced globally with collaboration at various levels from tourism firms to public sector organisations, from independent associations to civil society participants and from destinations to source markets. This practice corresponds to the United Nations Millennium Development Goals, one of which is to advocate global partnerships in tourism development. The frameworks also underscore the strategic importance of entrepreneurship for sustainable tourism development by encouraging tourism firms to develop environmentally, economically and socially sustainable tourism products from which tourist satisfaction and happiness are derived. School of Hotel and Tourism Management of The Hong Kong Polytechnic University is committed to bringing cutting-edge research to business practice and thereby addressing the global challenges that the tourism industry faces. The PolyU has been adopted by an increasing number of tourist destinations, including Macau in 21 and China s Guangdong province in 212. We are advancing the index in two directions, firstly by the introduction of the PolyU in 212 as another tool to measure tourism service performance, and secondly, by continuing to collaborate worldwide with destination management organisations aiming to establish a widespread framework for measuring destination competitiveness based on tourist satisfaction. This report presents the PolyU Tourist Satisfaction Indices (PolyU ) for Hong Kong from 29 to 213 and the PolyU Tourism Service Quality Indices (PolyU ) for Hong Kong for the years 212 and 213. The PolyU looks at the service performance of Hong Kong s tourism industry. Given the close relationship between customer satisfaction and service quality, measuring service quality is of strategic importance for the industry to boost tourist satisfaction. This is because service quality is an antecedent of customer satisfaction, laying a foundation for evaluating customer satisfaction. In addition to 56 Tourist Satisfaction Indices released annually since 29, we have computed another 56 corresponding Tourism Service Quality Indices since 212. These two sets of indices are comparable as both are grounded in theories of customer satisfaction and service quality and are underpinned by the same methodology and computation approaches. The 213 PolyU for Hong Kong scores 75.96 on the scale of to 1, increasing.89 points from 75.7 in the previous year and is the highest tourist satisfaction index since 29. This indicates that tourists are increasingly becoming more satisfied with Hong Kong over time. The PolyU over the past five years (29 to 213) shows that the market-level index is fairly stable, with the market of Australia, New Zealand and the Pacific and the market normally scoring the highest, followed by Europe, Africa and the Middle East, South and Southeast Asia,, Taiwan and Macau, and Japan and Korea. The PolyU for Hong Kong for 213 scores 77.3, increasing nearly two points from 75.37 recorded in 212. At the market level, the 213 PolyU scores higher than those of 212 while the index ranking of each market remains unchanged. The scores the highest (82.81), followed by Australia, New Zealand and the Pacific (82.28), Europe, Africa and the Middle East (8.57), South and Southeast Asia (76.76), (76.36), Taiwan and Macau (73.82) and Japan and Korea (68.86). As for the six tourism service sectors in Hong Kong, attractions earns the highest (81.37), followed by transportation (8.15), immigration (78.15), hotels (76.1), retail shops (74.83) and restaurants (73.91). Professor Kaye Chon Dean and Chair Professor School of Hotel and Tourism Management The Hong Kong Polytechnic University 1

Table of Contents List of Figures... 4 Highlight... 6 2.2 Service Quality: Models...34 2.3 Tourism Service Quality Index: Computations...36 3...37...8 1 Introduction...8 2 Methodology...9 2.1 Sectoral-Level Tourist Satisfaction Index...9 2.2 Overall Tourist Satisfaction Index...1 2.3 Computation of Tourist Satisfaction Index...12 3 for Hong Kong...13 4 Tourist Satisfaction Indices by Source Market...15 4.1 Overall Tourist Satisfaction Indices by Source Market...15 4.2...17 4.3 Australia, New Zealand and the Pacific...18 4.4 Europe, Africa and the Middle East... 19 4.5 Japan and Korea...2 4.6...21 4.7 South and Southeast Asia...22 4.8 Taiwan and Macau...23 5 Tourist Satisfaction Indices by Service Sector...24 5.1 Overall Tourist Satisfaction Indices by Service Sector...24 5.2...26 5.3...27 5.4...28 5.5...29 4 Tourism Service Quality Indices by Source Market...38 4.1 Overall Tourism Service Quality Indices by Source Market...38 4.2...39 4.3 Australia, New Zealand and the Pacific...4 4.4 Europe, Africa and the Middle East... 41 4.5 Japan and Korea...42 4.6...43 4.7 South and Southeast Asia...44 4.8 Taiwan and Macau...45 5 Tourism Service Quality Indices by Service Sector...46 5.1 Overall Tourism Service Quality Indices by Service Sector...46 5.2...47 5.3...48 5.4...49 5.5...5 5.6 Retail Shops...51 5.7...52 6 Comparison of Tourism Service Quality Index and Tourist Satisfaction Index...53 6.1 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Source Market...53 6.2 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Service Sector...54 5.6 Retail Shops...3 5.7... 31...32 1 Introduction...32 2 Methodology...33 2.1 Service Quality: Theories...33 Conclusion... 55 References...56 Glossary... 58 Acknowledgements... 6 Research Team...61 2 3

List of Figures Figure 1 Sectoral-Level Model of Tourist Satisfaction Index... 1 Figure 2 Aggregation Model of Tourist Satisfaction Index... 11 Figure 3 (29 213)... 13 Figure 4 Weights of 213... 14 Figure 5 Weights (29 213)... 14 Figure 6 Overall Tourist Satisfaction Index by Source Market... 15 Figure 7 Variation from Average Tourist Satisfaction Index by Source Market...16 Figure 8 Tourist Satisfaction Index...17 Figure 9 Tourist Satisfaction Index Weights...17 Figure 1 Tourist Satisfaction Index Australia, New Zealand and the Pacific...18 Figure 11 Tourist Satisfaction Index Weights Australia, New Zealand and the Pacific...18 Figure 12 Tourist Satisfaction Index Europe, Africa and the Middle East...19 Figure 13 Tourist Satisfaction Index Weights Europe, Africa and the Middle East...19 Figure 14 Tourist Satisfaction Index Japan and Korea...2 Figure 15 Tourist Satisfaction Index Weights Japan and Korea...2 Figure 16 Tourist Satisfaction Index...21 Figure 17 Tourist Satisfaction Index Weights...21 Figure 18 Tourist Satisfaction Index South and Southeast Asia...22 Figure 19 Tourist Satisfaction Index Weights South and Southeast Asia...22 Figure 2 Tourist Satisfaction Index Taiwan and Macau...23 Figure 21 Tourist Satisfaction Index Weights Taiwan and Macau...23 Figure 22 Overall Tourist Satisfaction Index by Service Sector...24 Figure 23 Variation from Average Tourist Satisfaction Index by Service Sector...25 Figure 24 Tourist Satisfaction Index...26 Figure 25 Tourist Satisfaction Index Sample Distribution...26 Figure 26 Tourist Satisfaction Index...27 Figure 27 Tourist Satisfaction Index Sample Distribution...27 Figure 28 Tourist Satisfaction Index...28 Figure 29 Tourist Satisfaction Index Sample Distribution...28 Figure 3 Tourist Satisfaction Index...29 Figure 31 Tourist Satisfaction Index Sample Distribution...29 Figure 32 Tourist Satisfaction Index Retail Shops...3 Figure 33 Tourist Satisfaction Index Sample Distribution Retail Shops...3 Figure 34 Tourist Satisfaction Index...31 Figure 35 Tourist Satisfaction Index Sample Distribution...31 Figure 36 Sectoral-Level Model of Tourism Service Quality Index...34 Figure 37 Aggregation Model of Tourism Service Quality Index...35 Figure 38 (212 213)...37 Figure 39 Weights of 213...37 Figure 4 Overall Tourism Service Quality Index by Source Market... 38 Figure 41 Tourism Service Quality Index...39 Figure 42 Tourism Service Quality Index Weights...39 Figure 43 Tourism Service Quality Index Australia, New Zealand and the Pacific... 4 Figure 44 Tourism Service Quality Index Weights Australia, New Zealand and the Pacific... 4 Figure 45 Tourism Service Quality Index Europe, Africa and the Middle East...41 Figure 46 Tourism Service Quality Index Weights Europe, Africa and the Middle East...41 Figure 47 Tourism Service Quality Index Japan and Korea...42 Figure 48 Tourism Service Quality Index Weights Japan and Korea...42 Figure 49 Tourism Service Quality Index...43 Figure 5 Tourism Service Quality Index Weights... 43 Figure 51 Tourism Service Quality Index South and Southeast Asia...44 Figure 52 Tourism Service Quality Index Weights South and Southeast Asia...44 Figure 53 Tourism Service Quality Index Taiwan and Macau...45 Figure 54 Tourism Service Quality Index Weights Taiwan and Macau...45 Figure 55 Overall Tourism Service Quality Index by Service Sector...46 Figure 56 Tourism Service Quality Index...47 Figure 57 Tourism Service Quality Index Sample Distribution...47 Figure 58 Tourism Service Quality Index...48 Figure 59 Tourism Service Quality Index Sample Distribution...48 Figure 6 Tourism Service Quality Index...49 Figure 61 Tourism Service Quality Index Sample Distribution... 49 Figure 62 Tourism Service Quality Index... 5 Figure 63 Tourism Service Quality Index Sample Distribution...5 Figure 64 Tourism Service Quality Index Retail Shops...51 Figure 65 Tourism Service Quality Index Sample Distribution Retail Shops...51 Figure 66 Tourism Service Quality Index...52 Figure 67 Tourism Service Quality Index Sample Distribution...52 Figure 68 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Source Market...53 Figure 69 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Service Sector...54 4 5

Highlight () and Tourism Service Quality Index () Where We Approached Tourists in Hong Kong A : Hong Kong International Airport B : China Ferry Terminal C : Victoria Peak D : Avenue of Stars Hong Kong : 75.96 : 77.3 79.27 8.57 81.27 82.81 Europe, Africa & the Middle East 73.97 76.36 Mainland China 76.48 76.76 South & Southeast Asia 71.66 67.59 68.86 Japan & Korea 73.82 Taiwan & Macau 81.29 82.28 A B D C Tourism-Related Services We Evaluated Retail Shops Australia, New Zealand & the Pacific Sample Size by Source Market Source Market N % 253 15 Australia, New Zealand & the Pacific 191 12 Europe, Africa & the Middle East 31 18 255 15 245 14 South & Southeast Asia 245 14 Taiwan & Macau 23 12 Total 1,693 1 Visitor Profile 52.% female visitors 54.5% of the visitors between 16 35 years old 63.% of the visitors obtaining college/university degrees 44.4% first-time visitors 86.3% of the visitors taking independent tours 6 7

1 Introduction The 213 (PolyU ) for Hong Kong is the fifth release since the Index was launched in 29. As before six tourism-related service sectors in Hong Kong were evaluated, and they are attractions, hotels, immigration, restaurants, retail shops and transportation. Tourists from the seven broad source market regions were surveyed, and these markets are: (1) the, (2) Australia, New Zealand and the Pacific, (3) Europe, Africa and the Middle East, (4) Japan and Korea, (5), (6) South and Southeast Asia, and (7) Taiwan and Macau. The 213 PolyU Tourist Satisfaction Survey was conducted from September 1 to December 15, 213, with 1,693 valid responses collected. 2 Methodology The PolyU framework consists of two stages of satisfaction evaluation: the sectoral level and the destination level. The sectoral-level satisfaction evaluation is based on a sound theoretical framework of tourist behaviour, and the destination-level satisfaction evaluation derives from an innovative aggregation scheme. Such a two-stage framework is comprehensive as it establishes the linkage between sectoral tourist satisfaction and overall tourist satisfaction. Robustness is introduced by leveraging on the estimation procedure of the structural equation models and the weighting scheme derived from these estimated models. 2.1 Sectoral-Level Tourist Satisfaction Index A total of 56 tourist satisfaction indices were calculated for evaluating Hong Kong as a tourist destination. The 56 indices consist of seven overall indices at the market level, six at the sector level and one at the destination level as well as 42 sub-indices measuring tourist satisfaction scored by tourists from each of the seven source markets on each of the six service sectors. In addition, five years of tourist satisfaction indices from 29 to 213 allow tracking of the dynamics of tourist satisfaction at various levels over time. The theoretical model of the PolyU builds upon the expectancy-disconfirmation framework which has been widely applied in consumer and tourist satisfaction research (Chan et al., 23). The expectancy-disconfirmation framework was developed by Oliver (198) consisting of four interactive elements: expectation, perceived performance, disconfirmation and satisfaction. Underlying this framework is a proposition that consumers develop expectations of a product or service before purchasing it, and then compare the actual performance of the product or service with their expectations about the product or service. As such, satisfaction is the consumer s evaluation of the perceived discrepancy between his or her prior expectations about and perceived performance of a product or service after consumption (Churchill & Surprenant, 1982; Halstead, Hartman, & Schmidt, 1994). In addition, the literature has concluded that customer satisfaction depends on the value of the product or service, which in turn relies on the price paid for the product or service (De Ruyter, Bloemer, & Peeters, 1997; Rust & Oliver, 1994). According to Hirschman s (197) exit-voice theory, when consumers are dissatisfied, they usually choose either to exit (switch to a competitor) or to express their complaints and ask for compensation. As customer satisfaction increases, consumers intention to complain decreases, while their loyalty towards the product or service increases. The model for sectoral-level tourist satisfaction evaluation is a structural equation model in which tourists satisfaction is evaluated with relevant antecedents and consequences that explain tourist behaviour from purchasing a product or service to consuming it (Figure 1). 8 9

Figure 1 Sectoral-Level Model of Tourist Satisfaction Index Overall performance Customisations Reliability Assessed Value Perceived Performance Price given quality Quality given price Tourist Satisfaction Intentions to complain to employees Intentions to complain to others Complaint Intentions Overall satisfaction Comparison with expectations Comparison with ideal an aggregation model that synthesises the service performance metrics across source markets and tourism-related sectors to visualise their contributions to the performance of the destination as a whole (Figure 2). The regression weights derived from the estimated aggregation model indicate the contributions of the sectoral-level tourist satisfaction to the overall tourist satisfaction and the factor loadings are adopted as the weights for computing the overall tourist satisfaction index. Figure 2 Aggregation Model of Tourist Satisfaction Index Overall Satisfaction Overall expectations Customisations Reliability Expectations Revisit intentions Recommendation to others Loyalty Aggregate Service Satisfaction Overall Destination Satisfaction Comparison with Expectations The tourist satisfaction index, which incorporates multiple dimensions of the satisfaction determinants, tends to be more effective in tourist satisfaction assessment (Yoon & Uysal, 25). Furthermore, recent customer satisfaction studies conclude that satisfaction is a latent construct that cannot be directly measured (Fornell, 1992). This corresponds with other studies, showing that multi-item scales are significantly more reliable than single-item scales (Conner & Sparks, 1996). As such, tourist satisfaction is measured as a latent variable associated with three indicators, namely overall satisfaction, comparison with expectations and comparison with the ideal. The construct of tourist satisfaction, combined with the other five constructs (perceived performance, expectations, assessed value, overall satisfaction, complaints and loyalty), forms a theoretical framework for assessing tourist satisfaction. 2.2 Overall Tourist Satisfaction Index Retails Shops Comparison with Ideal Given the weights obtained from the estimated aggregation model in Figure 2, the aggregation has a strong scientific basis, which in turn guarantees the robustness of the overall tourist satisfaction estimation. Furthermore, the overall tourist satisfaction index is computed based on the sectoral-level indices using an innovative weighting scheme that is determined through tourists own evaluation. As a result, the public service sector, such as immigration, can be included in the computation of the overall tourist satisfaction index. The inclusion of this sector would not be possible if the expenditure allocations among different products and services were used as weights, which is a common practice in aggregating customer satisfaction indices. The tourist satisfaction index model is applied to six tourism-related service sectors in Hong Kong attractions, hotels, immigration, restaurants, retail shops and transportation for each of Hong Kong s seven source markets. The tourist satisfaction index at the sectoral level is directly comparable because each sector is measured by the same set of dimensions and indicators. The tourist satisfaction indices for the six service sectors are derived first from the sectoral-level model. What follows is a calculation of the overall tourist satisfaction index based on the sectoral-level indices. A weighting scheme for estimating the overall tourist satisfaction index is determined by 1 11

3 for Hong Kong 2.3 Computation of Tourist Satisfaction Index By including formative measures, a component-based approach known as partial least square was used to estimate the sectoral-level models using the SmartPLS programme (Ringle, Wende, & Will, 25). The tourist satisfaction index at the sectoral level is first computed using the modelimplied factor loadings, and indicators: overall satisfaction ( (, representing the weights of the three tourist satisfaction ), comparison with expectations ( ) and comparison with ideal The for Hong Kong for 213 is 75.96 on the scale of to 1, an increase of.89 points from 75.7 in the previous year. It remains so far the highest tourist satisfaction index since the Index was launched in 29, scoring 1.91 points above the five-year (29 213) average of 74.5. ), respectively (Song, van der Veen, Li, & Chen, 212). The formula for calculating the sectoral- level tourist satisfaction indices is as follows: Figure 3 (29 213) Sectoral =. 78 75.96 76 75.7 73.94 The tourist satisfaction index of a particular service sector equals the weighted average of its three 74 tourist satisfaction indicators means multiplied by a scaling constant of 1. Thus, each tourist satisfaction index is scaled on a comparable range of 1. Essentially, the higher the tourists 72 72.65 72.61 average scoring on the satisfaction indicators, the higher the sectoral-level tourist satisfaction index. Subsequently the overall tourist satisfaction index is aggregated based on the six sectoral- 62 level indices, )56and the 1 1 2tourist 2 3 3 3 4 4 5 5( 6 6 111 222 33satisfaction 44 114 1 55 1 1225 12, 6 2336, 3 23 344 34, 4 455and 45 5 566 6 6 6six factor loadings ( 1111, 22122, 32333, 43444, 54555 and 65666 6 7 29 21 211 212 213 ) 1which are derived from the aggregation model. The overall tourist 1 1 221 2 1332 13 2443 24 3554 35 4665 46 5 6 5 6 6 satisfaction index is calculated by using the formula as follows: The PolyU is a weighted average of the six service sector indices, indicating their respective contribution to the overall index. In 213, the attractions sector is the largest contributor to the Overall = 12 1 + 2 2 + 33 + 4 4 + 55 + 66.! 1+ 2 + 3 + 4 + 5 + 6 1 overall index, making up 27%, followed by immigration (19%), restaurants (16%), transportation (16%), hotels (16%) and retail shops (6%). 13

Figure 4 Weights of 213 16% 27% 6% 16% Retail Shops 4 Tourist Satisfaction Indices by Source Market 4.1 Overall Tourist Satisfaction Indices by Source Market Among the seven source market regions, five show increases in scores and two present decreases. The market of Australia, New Zealand and the Pacific scores the highest tourist satisfaction index of 81.29, increasing 3.1 points from 78.19 in the previous year. It is followed by the with 81.27, increasing just 1.37 points from 79.9 in the previous year. The third is Europe, Africa and the Middle East, scoring 79.27 with an increase of 1.32 points from 77.95 in the previous year. South and Southeast Asia is the fourth source market scoring 76.48, and dropping 1.69 points from 78.17 in the previous year. ranks fifth with a score of 73.97, increasing 16% 1.89 points from 72.8 in the previous year. Taiwan and Macau together are ranked sixth with a score of 71.66, increasing 1.54 points from 7.12 in the previous year. Japan and Korea together 19% rank seventh, dropping 2.52 points from 7.11 in the previous year. Over the period of 29 213, the contributions of the six sectors to the overall index have changed to some extent. The highest contribution is recorded from the attractions sector making up 27% in 213, while the lowest is from retail shops only accounting for 6%. The contributions of the other Figure 6 Overall Tourist Satisfaction Index by Source Market four sectors (hotels, immigration, restaurants, transportation) accounted for between and 2%. 1 8 6 Figure 5 Weights (29 213) 4 2 35% 3% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 29 76.22 78.43 75.4 71.28 74.32 66.33 66.27 21 79.36 8.38 76.74 72.97 71.54 72.41 64.53 25% 211 77.93 78.4 74.12 71.9 73.65 68.25 64.43 212 78.19 79.9 77.95 78.17 72.8 7.12 7.11 2% 213 81.29 81.27 79.27 76.48 73.97 71.66 67.59 1% 5% % 29 21 211 212 213 Retail Shops 14 15

Over the period 29 213, the scores, on average, the highest tourist satisfaction index of 79.6. It has been stable, fluctuating slightly between -1.15 and 1.67 points. The market of Australia, New Zealand and the Pacific together averages 78.6, which is 2.69 points lower than its 213 index of 81.29. The market of Europe, Africa and the Middle East together averages 76.62, which is 2.64 points lower than its 213 index of 79.27. South and Southeast Asian market averages 74., which is 2.48 points lower than its 213 index of 76.48. remains stable in its tourist satisfaction index of 73.11, with slight fluctuations over this period. Taiwan and Macau together average 69.75, fluctuating significantly from nearly 3 points below the average to more than 3 points above the average. Japan and Korea together score the lowest tourist satisfaction index of 66.59 on average, almost 13 points less compared to that of the. In 213, the indices of all seven source markets for the first time in our survey exceed their corresponding average scores 4.2 Among the seven source markets, the scores the highest tourist satisfaction index of 85.7 in transportation, followed by attractions (84.54), immigration (82.21), hotels (8.76), retail shops (78.54) and restaurants (76.27). Compared to the previous year, the record the largest increase of 6.67 points in attractions while the largest drop is 2.36 points in restaurants. Figure 8 Tourist Satisfaction Index 1 over the last five years. 8 6 Figure 7 Variation from Average Tourist Satisfaction Index by Source Market 4 2 5 4 3 2 1-1 -2-3 -4-5 29 21 211 212 213 Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau Retail Shops 29 85.3 81.12 81.35 76.5 72.8 75.56 21 83.92 82.32 78.87 76.64 71.83 74.7 211 82.2 81.29 78.22 7.77 76.54 72.78 212 8.13 77.87 83.42 79.9 78.64 78.63 213 85.7 84.54 82.21 8.76 78.54 76.27 As for the contribution of the service sectors to the tourist satisfaction index, the attractions sector is the largest contributor, making up as much as 33%, followed by restaurants (17%), transportation (16%), retail shops (), immigration (1%) and hotels (1%). Figure 9 Tourist Satisfaction Index Weights 16% 33% Retail Shops 17% 1% 1% 16 17

4.3 Australia, New Zealand and the Pacific 4.4 Europe, Africa and the Middle East Australia, New Zealand and the Pacific scores the highest tourist satisfaction index of 83.71 in attractions, followed by immigration (83.34), transportation (81.29), restaurants (8.95), hotels (79.61) and retail shops (78.62). Compared to the previous year this market records an increase of 6.42 points in attractions, followed by hotels (4.82), restaurants (4.12), retail shops (2.), and immigration (1.76), with a decline of 2.32 points in transportation. Figure 1 Tourist Satisfaction Index Australia, New Zealand and the Pacific 1 Europe, Africa and the Middle East scores the highest tourist satisfaction index of 84.18 in attractions, followed by transportation (83.11), immigration (8.48), retail shops (75.91), hotels (75.78) and restaurants (75.26). Compared to the previous year, this market shows an increase of 6.5 points in attractions and 2.52 points in hotels, but a decline in restaurants (.87), retail shops (.57) and immigration (.49). Figure 12 Tourist Satisfaction Index Europe, Africa and the Middle East 1 8 8 6 6 4 4 2 2 Retail Shops 29 76.74 78.3 81.16 71.18 76.48 73.64 Retail Shops 29 77.3 81.72 75.59 72.7 72.9 71.93 21 79.51 76.27 83.31 71.88 73.82 72.4 21 78.78 81.42 77.11 73.6 7.57 71.99 211 78.25 71.7 85.37 74.52 75.86 72.86 211 78.56 81.23 69.21 72.59 69.66 7.76 212 77.29 81.58 83.61 76.83 74.79 76.62 212 77.68 81.2 8.97 76.48 73.26 76.13 213 83.71 83.34 81.29 8.95 79.61 78.62 213 84.18 83.11 8.48 75.91 75.78 75.26 As for the contribution of the service sectors to the tourist satisfaction index of Australia, New As for the contribution of the service sectors to the tourist satisfaction index of Europe, Africa and Zealand and the Pacific, the hotels sector is the largest contributor with 23%, followed by the Middle East, the attractions sector is the largest contributor, accounting for 24%, followed by immigration (22%), transportation (19%), restaurants (16%), attractions (12%) and retail shops (8%). immigration (21%), restaurants (2%), hotels (18%), transportation (17%), and retail shops which makes up an extremely small proportion. Figure 11 Tourist Satisfaction Index Weights Australia, New Zealand and the Pacific Figure 13 Tourist Satisfaction Index Weights Europe, Africa and the Middle East 19% 12% 17% 24% 8% 16% 23% Retail Shops <.1% 2% 18% Retail Shops 22% 21% 18 19

4.5 Japan and Korea 4.6 Japan and Korea scores the highest tourist satisfaction index of 7.22 in hotels, followed by transportation (68.85), attractions (68.76), restaurants (67.18), immigration (65.78) and retail shops (65.11). Compared to the previous year, the scores for Japan and Korea dropped in five service sectors between.16 points () and 3.15 points (), with only a slight increase of.41 point in immigration. Figure 14 Tourist Satisfaction Index Japan and Korea 1 scores the highest tourist satisfaction index of 77.45 in transportation, followed by attractions (77.6), retail shops (75.4), immigration (73.69), restaurants (71.51), and hotels (69.2). Compared to the previous year, has the largest increase in immigration (5.99), followed by hotels (2.77), attractions (2.36), restaurants (2.24) and retail shops (1.7), while only a slight decline of.1 point is observed in transportation. Figure 16 Tourist Satisfaction Index 1 8 8 6 6 4 4 2 2 Retail Shops 29 7.32 67.47 67.86 64. 65.4 63.25 21 64.68 71.91 64.78 6.14 64.88 61.34 211 62.91 68.59 65.6 62.48 59.1 6.88 212 73.37 7.1 71.84 67.34 65.37 66. 213 7.22 68.85 68.76 67.18 65.78 65.11 Retail Shops 29 79.9 73.97 73.23 76.78 69.49 72.46 21 78.5 74.71 67.82 72.87 62.3 71.81 211 78.32 77. 71.15 72.97 63.71 72.8 212 77.46 74.7 73.34 67.7 69.27 66.25 213 77.45 77.6 75.4 73.69 71.51 69.2 As for the contribution of the service sectors to the tourist satisfaction index of Japan and Korea, As for the contribution of the service sectors to s tourist satisfaction index, the the attractions sector is the largest contributor, accounting for 46%, followed by retail shops (19%), immigration sector is the largest contributor, accounting for 33%, followed by hotels (24%), hotels (12%), immigration (11%), restaurants (6%) and transportation (6%). transportation (19%), attractions (17%), retail shops (7%) and restaurants with an extremely small contribution. Figure 15 Tourist Satisfaction Index Weights Japan and Korea Figure 17 Tourist Satisfaction Index Weights 6% 19% 17% 6% 19% 11% 46% Retail Shops 7% <.1% 24% Retail Shops 12% 33% 2 21

4.7 South and Southeast Asia 4.8 Taiwan and Macau South and Southeast Asia scores the highest tourist satisfaction index of 82.6 in transportation, followed by attractions (81.27), immigration (76.21), restaurants (73.27), retail shops (72.73) and hotels (71.44). Compared to the previous year, the scores drop in five service sectors, namely immigration (3.78), hotels (2.89), restaurants (2.45), retail shops (2.4) and transportation (.26) while attractions records an increase of 3.31 points. Figure 18 Tourist Satisfaction Index South and Southeast Asia 1 Taiwan and Macau scores the highest tourist satisfaction index of 75.53 in immigration, followed by attractions (73.5), hotels (72.2), transportation (71.69), retail shops (69.85) and restaurants (68.63). Except for transportation with a decline of 4.3 points, Taiwan and Macau records an increase in scores in the five sectors compared to the previous year, namely immigration (5.41), attractions (1.86), retail shops (1.56), hotels (1.12) and restaurants (.25). Figure 2 Tourist Satisfaction Index Taiwan and Macau 1 8 8 6 6 4 4 2 2 Retail Shops 29 76.75 74.1 72.12 67.74 69.33 65.82 Retail Shops 29 69.76 68.17 65.82 7.45 62.66 62.4 21 79.38 79.31 72.69 67.3 69.76 67.27 21 68.41 68.94 68.88 73.97 64.37 62.74 211 75.15 73.98 7.4 67.72 7.74 68.13 211 67.13 67.63 64.97 73.8 63.33 62.5 212 82.32 77.96 79.99 75.72 75.13 74.33 212 7.12 71.64 71.8 75.72 68.29 68.38 213 82.6 81.27 76.21 73.27 72.73 71.44 213 75.53 73.5 72.2 71.69 69.85 68.63 As for the contribution of the service sectors to the tourist satisfaction index of South and As for the contribution of the service sectors to the tourist satisfaction index of Taiwan and Macau, Southeast Asia, the immigration sector is the largest contributor making up 27%, followed by the restaurants sector is the largest contributor making up 4%, followed by attractions (2%), attractions (24%), transportation (23%), hotels (17%), restaurants (7%) and retail shops (2%). transportation (17%), immigration (11%), hotels (7%) and retail shops (5%). Figure 19 Tourist Satisfaction Index Weights South and Southeast Asia Figure 21 Tourist Satisfaction Index Weights Taiwan and Macau 23% 24% 17% 2% 2% 7% 17% Retail Shops 5% 11% 7% Retail Shops 27% 4% 22 23

5 Tourist Satisfaction Indices by Service Sector 5.1 Overall Tourist Satisfaction Indices by Service Sector Among the six service sectors, the attractions sector earns the highest tourist satisfaction index of 79.27. It increases 3.78 points from 75.49 in the previous year. That is followed by transportation with 78.58, increasing.1 point from 78.48 in the previous year. The third is immigration, earning a tourist satisfaction index of 76.55 with an increase of 1.4 points from 75.15 in the previous year. The hotels sector comes fourth, earning a tourist satisfaction index of 73.93, with an increase of.97 point compared to the previous year. Retail shops ranks fifth with the tourist satisfaction index of 73.63, increasing.21 point from 73.42 in the previous year. ranks sixth with a tourist satisfaction index of 73.36, increasing.41 point from 72.95 in the previous year. Over the period of 29 213, transportation earns the highest tourist satisfaction index on average at 78.28 and fluctuates around.5 point below or above the average over this period. The average score for the attractions is 75.84, fluctuating between -1.58 and 3.43 points around the average. is averaged at 73.69, fluctuating between -4.7 and 2.86 points around the average. earn an average score of 71.69, which fluctuates between -2.3 and 2.24 points around the average. The average score for retail shops is 7.97, which fluctuates between -2.31 and 2.66 points around the average. have an average of 69.83, which fluctuates between -3.22 and 3.53 points around the average. The indices for all six sectors in 213 are greater than the average for the period of 29 213. Figure 22 Overall Tourist Satisfaction Index by Service Sector Figure 23 Variation from Average Tourist Satisfaction Index by Service Sector 1 8 6 4 2 Retail Shops 29 74.26 77.79 74.27 71.67 69.44 68.85 21 75.57 78.73 72.85 7.52 68.66 66.61 211 74.62 77.81 69.62 69.39 69.71 67.39 212 75.49 78.48 75.15 72.96 73.42 72.95 213 79.27 78.58 76.55 73.93 73.63 73.36 5 4 3 2 1-1 -2-3 -4-5 29 21 211 212 213 Retail Shops 24 25

5.2 5.3 Among the six service sectors, attractions earn the highest tourist satisfaction index of 84.54 from the, followed by Europe, Africa and the Middle East (84.18), Australia, New Zealand and the Pacific (83.71), South and Southeast Asia (81.27), (77.6), Taiwan and Macau (73.5) and Japan and Korea (68.76). Compared to the previous year, the largest increase of 6.67 points is in attractions for the while Japan and Korea sees a decline of 3.8 points. Figure 24 Tourist Satisfaction Index earn the highest tourist satisfaction index of 8.76 from the, followed by Australia, New Zealand and the Pacific (79.61), Europe, Africa and the Middle East (75.78), Taiwan and Macau (72.2), South and Southeast Asia (71.44), Japan and Korea (7.22) and (69.2). Compared to the previous year, the largest increase of 4.82 points in hotels is for Australia, New Zealand and the Pacific, while a drop of 3.15 points for Japan and Korea and 2.89 points for South and Southeast Asia are observed. Figure 26 Tourist Satisfaction Index 1 1 8 8 6 6 4 4 2 2 Europe, Africa & the Middle East Australia, New Zealand & the Pacific South & Southeast Asia Taiwan & Macau 29 81.12 77.3 76.74 74.1 73.97 68.17 67.86 Australia, New Zealand & the Pacific Europe, Africa & the Middle East Taiwan & Macau South & Southeast Asia 29 76.5 76.48 72.9 65.82 65.82 7.32 72.46 21 82.32 78.78 79.51 79.31 74.71 68.94 64.78 21 76.64 73.82 7.57 68.88 67.27 64.68 71.81 211 81.29 78.56 78.25 73.98 77. 67.63 65.6 211 7.77 75.86 69.66 64.97 68.13 62.91 72.8 212 77.87 77.68 77.29 77.96 74.7 71.64 71.84 212 79.9 74.79 73.26 71.8 74.33 73.37 66.25 213 84.54 84.18 83.71 81.27 77.6 73.5 68.76 213 8.76 79.61 75.78 72.2 71.44 7.22 69.2 From the sample distribution of the seven source markets, the top two are Europe, Africa and the The sample distribution of the seven source markets shows that the top two are Europe, Africa and Middle East, accounting for 18%, and the accounting for 16%. The other source markets the Middle East accounting for 18% and Japan and Korea 16%. The other source markets range range between 12% and. between 11% and. Figure 25 Tourist Satisfaction Index Sample Distribution Figure 27 Tourist Satisfaction Index Sample Distribution 13% 13% 16% 18% 12% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 11% 16% 11% 18% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 26 27

5.4 5.5 earns the highest tourist satisfaction index of 83.34 from Australia, New Zealand and the Pacific, followed by the (82.21), Europe, Africa and the Middle East (8.48), South and Southeast Asia (76.21), Taiwan and Macau (75.53), (73.69) and Japan and Korea (65.78). Compared to the previous year, the largest increase of 5.41 points is for immigration handling for Taiwan and Macau while the largest drop of 3.78 points is for South and Southeast Asia. Figure 28 Tourist Satisfaction Index earn the highest tourist satisfaction index of 8.95 from Australia, New Zealand and the Pacific, followed by the (76.27), Europe, Africa and the Middle East (75.26), South and Southeast Asia (73.27), (71.51), Taiwan and Macau (68.63) and Japan and Korea (67.18). Compared to the previous year, restaurants see the largest increase of 4.12 points for Australia, New Zealand and the Pacific and the largest drop of 2.45 points for South and Southeast Asia. Figure 3 Tourist Satisfaction Index 1 1 8 8 6 6 4 4 2 2 Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 29 78.3 81.35 75.59 72.12 69.76 76.78 65.4 Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 29 71.18 75.56 71.93 67.74 69.49 62.4 64. 21 76.27 78.87 77.11 72.69 68.41 72.87 64.88 21 71.88 74.7 71.99 67.3 62.3 62.74 6.14 211 71.7 78.22 69.21 7.4 67.13 72.97 59.1 211 74.52 72.78 7.76 67.72 63.71 62.5 62.48 212 81.58 83.42 8.97 79.99 7.12 67.7 65.37 212 76.83 78.63 76.13 75.72 69.27 68.38 67.34 213 83.34 82.21 8.48 76.21 75.53 73.69 65.78 213 8.95 76.27 75.26 73.27 71.51 68.63 67.18 The sample distribution of the seven source markets shows that the top one is Europe, Africa and With respect to the sample distribution of the seven source markets, the top one is Europe, Africa the Middle East accounting for 19% while Australia, New Zealand and the Pacific only accounts for and the Middle East accounting for 19% while Taiwan and Macau only accounts for 1%. The other 1%. The other source markets range between 12% and. source markets range between 12% and. Figure 29 Tourist Satisfaction Index Sample Distribution Figure 31 Tourist Satisfaction Index Sample Distribution 12% 1% 19% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 1% 12% 19% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 28 29

5.6 Retail Shops 5.7 Retail shops earn the highest tourist satisfaction index of 78.62 from Australia, New Zealand and the Pacific, followed by the (78.54), Europe, Africa and the Middle East (75.91), Mainland China (75.4), South and Southeast Asia (72.73), Taiwan and Macau (69.85) and Japan and Korea (65.11). Compared to the previous year, retail shops also see the largest increase of 2. points for Australia, New Zealand and the Pacific while the largest drop of 2.4 points is for South and Southeast Asia. Figure 32 Tourist Satisfaction Index Retail Shops The transportation sector earns the highest tourist satisfaction index of 85.7 from the, followed by Europe, Africa and the Middle East (83.11), South and Southeast Asia (82.6), Australia, New Zealand and the Pacific (81.29), (77.45), Taiwan and Macau (71.69) and Japan and Korea (68.85). Compared to the previous year, the score in transportation sees the largest increase of 4.94 points for the while the largest drop of 4.3 points is for Taiwan and Macau. Figure 34 Tourist Satisfaction Index 1 1 8 8 6 6 4 4 2 2 Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 29 73.64 72.8 72.7 73.23 69.33 62.66 63.25 Europe, Africa & the Middle East South & Southeast Asia Australia, New Zealand & the Pacific Taiwan & Macau 29 85.3 81.72 76.75 81.16 79.9 7.45 67.47 21 72.4 71.83 73.6 67.82 69.76 64.37 61.34 21 83.92 81.42 79.38 83.31 78.5 73.97 71.91 211 72.86 76.54 72.59 71.15 7.74 63.33 6.88 211 82.2 81.23 75.15 85.37 78.32 73.8 68.59 212 76.62 78.64 76.48 73.34 75.13 68.29 66. 212 8.13 81.2 82.32 83.61 77.46 75.72 7.1 213 78.62 78.54 75.91 75.4 72.73 69.85 65.11 213 85.7 83.11 82.6 81.29 77.45 71.69 68.85 The sample distribution of the seven source markets shows that the top two are Europe, Africa and The sample distribution of the seven source markets shows that the top two are the (17%), the Middle East accounting for 19% and Japan and Korea accounting for. The other source Europe, Africa and the Middle East accounting for 16%. The other source markets range between markets range between 11% and. 11% and. Figure 33 Tourist Satisfaction Index Sample Distribution Retail Shops Figure 35 Tourist Satisfaction Index Sample Distribution 13% 11% 19% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 13% 17% 11% 16% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 3 31

1 Introduction The (PolyU ) was launched in 212. It measures the performance of tourism-related services in Hong Kong. The literature has concluded that service quality is an antecedent of customer satisfaction, therefore improving service quality should be a means of boosting customer satisfaction. Yet high service quality does not necessarily lead to high customer satisfaction because the latter may be affected by other factors that are out of the control of service providers. Unlike customer satisfaction that is deeply grounded in consumer psychology, service quality is a state of mind that customers achieve after consuming a service. Despite the involvement of consumers themselves in evaluating a service, service quality is by its nature external. While customer satisfaction is aroused and based on a service, it is internally perceived by individual consumers. 2 Methodology 2.1 Service Quality: Theories A service is an outcome and a process delineating how the outcome is produced, delivered and consumed. A process by which the outcome is fulfilled fundamentally distinguishes a service from manufactured goods or agricultural products for example. It is natural to measure quality of manufactured goods or agricultural products by simply measuring their ultimate outcome, usability or duration, in short, their performance. Yet it is inadequate to measure quality of a service by measuring its outcome only. How a service is produced (process) is equally important as a service being an outcome (result) itself. This remains the fundamental rationale for modelling and measuring service quality by first and foremost articulating the difference between a service and other products. In this sense, the literature concludes four characteristics of a service inseparability of production and consumption, intangibility, perishability and heterogeneity that describe not only the outcome but also the process of a service (Brady & Cronin, 21; Parasuraman, Zeithaml, & The research design underlying the PolyU resembles that of the PolyU. The index of Berry, 1985). tourism service quality builds upon the models developed by Parasuraman, Zeithaml, and Berry (1985) and Brady and Cronin (21). Tourism service quality is affected by three constructs, namely interaction quality, servicescape 1 quality and outcome quality (Brady & Cronin, 21; Grönroos, 1984). As with the tourist satisfaction index, service quality of the six tourism-related service sectors was evaluated, and they are attractions, hotels, immigration, restaurants, retail shops and transportation. Tourists were surveyed from the seven broad source markets: (1) the, (2) Australia, New Zealand and the Pacific, (3) Europe, Africa and the Middle East, (4) Japan and Korea, (5), (6) South and Southeast Asia, and (7) Taiwan and Macau. The 213 PolyU Tourism Service Quality Survey was conducted along with the tourist satisfaction survey from September 1 to December 15, 213, with 1,693 valid responses collected. Among the fundamental elements that describe a process is the interaction between producers and consumers. This means inseparability of production and consumption as one of the important attributes of a service. In other words, a service incorporates consumers involvement as an important input. The literature has explicitly suggested that measuring service quality is impossible without taking note of both consumers and producers perspectives (Brady & Cronin, 21; Parasuraman et al., 1985). A review of twenty service quality models including the Nordic model (Grönroos, 1984) and the SERVQUAL model (Parasuraman et al., 1985) reveals that consumers perception and expectation are critical for measuring service quality. More precisely, the foundation of service quality lies in the disconfirmation that describes consumers perceived discrepancy between their prior expectations and perceived performance of a service (Churchill & Surprenant, 1982). Theories of service quality can be traced back to two seminal models. One is the Nordic model developed by Grönroos (1984) who argues that service quality consists of three fundamental dimensions technical quality, functional quality and image quality. The other is the American model, also known as the SERVQUAL model, developed by Parasuraman et al. (1985) who identify five gaps between consumers and producers and between producers themselves in delivering a service. These two models have set a research paradigm for modelling service quality, which consists of two parts. First, service quality can be measured by, or is a function of, the difference between consumers expectation and perception of a service. Second, a service can be decomposed into different attributes, either of an outcome or of a process, each of which can be measured to form an integrated service quality. For a comprehensive literature review on these service quality models, please refer to Seth, Deshmukh, and Vrat (25). 1 Totality of the ambience and physical environment in which a service occurs 32 33

2.2 Service Quality: Models Figure 37 Aggregation Model of Tourism Service Quality Index There are basically two types of service quality models. The first is a framework, suggesting how service quality is managed through examining the process of service delivery (Parasuraman et al., 1985). The second is a measurement model. Instead of outlining a process of service delivery, a measurement model explains how service quality is perceived by consumers and what influences service quality (Grönroos, 1984). By its nature a management framework is descriptive while a measurement model is explanatory. The aim of this research is to compute an index of service quality that is grounded in service quality measures rather than service quality management. From a theoretical point of view, the model of the service quality index should be explanatory, the constructs can be operationalised, and the model can be tested. It answers two fundamental questions: what aspect of a service should be measured and how. The first question addresses what a service is and the second is how service quality is explained by theory. The theoretical model of the PolyU builds upon the Brady-Cronin model which, in turn, is an integration of the Nordic model and the SERVQUAL model (Brady & Cronin, 21; Grönroos, 1984). Aiming for efficiency and ease of use, the PolyU model was developed by modifying the Brady-Cronin model on two aspects (Figure 43). First, the nine sub-dimensions at the second hierarchical level were dropped, as one sub-dimension for each quality facet can also capture the very quality aspect. This modification leads to an appreciated simplification model for a service quality index. Specifically, interaction quality is measured by the sub-dimension of behaviour on the two quality dimensions. Physical environment quality is measured by the sub-dimension of ambient conditions, and outcome quality is measured by tangibles as the only sub-dimension. Second, physical environment quality is replaced with servicescape quality without changing its indicators. Figure 36 Sectoral-Level Model of Tourism Service Quality Index Service that satisfies my needs Provision of excellent services Retails Shops In addition to the sectoral-level service quality model, an aggregation model for computing the overall service quality index was developed (Figure 44). This model was modified from the aggregation model of the PolyU (Figure 2). Since service quality and customer satisfaction are conceptually consistent, a number of studies, especially those dealing with service quality measures, have treated service quality as one of the antecedents of customer satisfaction (Anderson & Fornell, 2; Fornell et al., 1996). These studies include the American Customer Satisfaction Index (ACSI) model in which perceived quality is one of the three antecedents of customer satisfaction in addition to customer expectation and perceived value. Yet Lacobucci, Ostrom, and Grayson (1995) argue that service quality and customer satisfaction are theoretically distinct as they have different antecedents. Aggregate Service Quality Overall Destination Satisfaction Overall Satisfaction Comparison with Expectations Comparison with Ideal Service Quality Analysis indicates that service quality and customer satisfaction are theoretically related yet distinct. They are related because the literature has arrived at a consensus that service quality is an antecedent of customer satisfaction. This means that improving service quality is a precondition for increasing customer satisfaction. Yet high service quality does not necessarily lead to high customer satisfaction which is affected by other factors that may be out of the service providers control. They are distinct because service quality tends to be an evaluation on a given object Interaction Quality Servicescape Quality Outcome Quality service. In this sense, service quality is no more than product performance as in manufacturing. That is, despite the involvement of consumers themselves in evaluating a service, service quality is by its nature external. Customer satisfaction is essentially a state of mind which, when relating to Experience of interactions Quality of interactions The best physical environment Highly rated physical environment Excellent experience Good feelings an outside object such as a service, turns out to be a proxy of service quality measurement. It is thus not surprising that customer satisfaction is the consequence of service quality. 34 35

2.3 3 Tourism Service Quality Index: Computations The approach to computing the PolyU is to aggregate the means of the two indicators of tourism service quality weighted by the factor loadings of the indicators. This approach, which was originally proposed by Chan et al. (23), has been used for calculating the PolyU since 29 (Song et al., 212). The computation follows that partial least square estimates the value The PolyU for the year 213 is 77.3 on the scale of to 1, increasing 1.93 points from 75.37 in the previous year. This index is a weighted average of the six sectoral-level tourism service quality indices, representing Hong Kong s overall tourism service quality. of each construct by the weighted aggregate values of its indicators, where the weights are the factor loadings for reflective indicators and regression coefficients for formative indicators after rescaling (Chin, 1998; Fornell & Cha, 1994). Hence, the two estimated un-standardised weights (if yand y3131++ 3232of yy32the 32 two service quality indicators, namely 1 1 + + y y y + + y y y y service that satisfies my need 31( y 31 ) and excellent service provision ( ) are used to estimate the + + 31 32 32 31 32 31 32 32 31 32 31 32 31 32 3131 1 3232 1 1 1 index. The formula is as follows: sectoral-level tourism service quality + + + + 31 31 32 31 32 32 31 32 un-standardised measurements are used) Sectoral = Figure 38 (212 213) 3131 + 31 y 31 + 31 78 77.3 77 y 32 32 1. 76 32 The for a particular service sector equals the weighted average of the mean values of the 75 75.37 two service quality indicators multiplied by a scaling constant of ten. Thus, each tourism service quality index is scaled on a comparable range of 1 (Song et al., 212). The is computed at 74 212 three levels, namely the market-sectoral level, the market/sectoral level and the destination level. 213 The market-sectoral level remains the most fundamental on which the indices of the other two levels are derived. It consists of 42 sub-indices, each representing the index of one of the six service sectors evaluated by one of the seven source markets. The market/sectoral level indices include The restaurant sector is the largest contributor to this index which makes up 26%, followed by seven overall indices at the market level and six overall indices at the sectoral level. transportation (23%), hotels (18%), immigration (18%), attractions (1%) and retail shops (5%). The market-level index is based on the six market-sectoral level indices. The weighting scheme of the six sectors is determined by an aggregation model (Figure 44). The regression weights derived from the estimated aggregation model indicate the contributions of the sectoral service quality to Figure 39 Weights of 213 the overall quality evaluation, and, the factor loadings are adopted as the weights for obtaining 1% the overall service quality index. Given the objective weights obtained from the estimated 23% aggregation model, the aggregation has a strong scientific basis, which in turn guarantees the robustness of overall service quality index estimation. The overall index is computed based on 18% sectoral-level indices using a weighting scheme that is determined through tourists own evaluation. Thus, the overall tourism service quality index is aggregated based on the six sectoral-level service quality 1 1 1 1 21 2(2 2 3 3 3 4 4 4 5,5 5 65 6 6 6 1 indices 2 2 43 3 54 45 4 55 4and 56 5 66 5 ) 6weighted 6 6 6 by the corresponding 11 1 1 22 1,32 23 2,33 34, 3 44 5% Retail Shops factor loadings1 1(11 12,2 22 121,3 3 313,232414 24,41343525and aggregation model: 135 52454636246 63565)4 3derived 5 466 546 5 from 6 5 6 the 6 18% 26% Overall = 36 1 1 + 2 2 + 3 3 + 4 4 + 5 5 + 6 6 1+ 2 + 3 + 4 + 5 + 6. 37

4 Tourism Service Quality Indices by Source Market 4.1 Overall Tourism Service Quality Indices by Source Market Among the seven source markets, the scores the highest tourism service quality index of 82.81 in 213, increasing 3.64 points compared to the previous year. That is followed by Australia, New Zealand and the Pacific with a score of 82.28, increasing 3.57 points, and Europe, Africa and the Middle East with a score of 8.57, increasing 2.19 points. Despite being fourth with a score of 76.76, South and Southeast Asia is the only market which records of a drop of 1.29 points compared to the previous year. ranks fifth, with a score of 76.36, increasing 3.55 points. The market of Taiwan and Macau together ranks sixth with a score of 73.82, increasing 1.9 points. The last is Japan and Korea scoring 68.86, increasing.55 points from 68.31 in the previous year. 4.2 Among the seven source markets, the scores the highest tourism service quality index of 86.22 in transportation in 213, followed by attractions (85.57), immigration (84.42), hotels (83.5), retail shops (79.5) and restaurants (78.14). Figure 41 Tourism Service Quality Index 1 8 6 Figure 4 Overall Tourism Service Quality Index by Source Market 4 1 2 8 Retail Shops 6 212 78.46 77.4 83.22 81.1 77.71 79.23 213 86.22 85.57 84.42 83.5 79.5 78.14 4 As for the contribution of the service sectors to the, the attractions sector is the 2 largest contributor to the index, representing 29%, followed by transportation (23%), restaurants (18%), hotels (), immigration (1%) and retail shops (6%). Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 212 79.17 78.71 78.38 78.5 72.81 71.92 68.31 Figure 42 Tourism Service Quality Index Weights 213 82.81 82.28 8.57 76.76 76.36 73.82 68.86 23% 29% 6% Retail Shops 18% 1% 38 39

4.3 Australia, New Zealand and the Pacific The market of Australia, New Zealand and the Pacific together scores the highest tourism service quality index of 83.64 in attractions in 213, followed by immigration (83.11), hotels (83.7), transportation (82.96), restaurants (81.29) and retail shops (79.59). Figure 43 Tourism Service Quality Index Australia, New Zealand and the Pacific 1 8 4.4 Europe, Africa and the Middle East The market of Europe, Africa and the Middle East together scores the highest of 86.13 in attractions in 213, followed by transportation (85.76), immigration (8.9), hotels (76.82), retail shops (76.67) and restaurants (75.69). Figure 45 Tourism Service Quality Index Europe, Africa and the Middle East 1 8 6 6 4 4 2 2 Retail Shops Retail Shops 212 77.42 81.84 75.59 83.92 77.92 75.33 212 76.69 81.39 8.79 75.9 76.6 77.6 213 83.64 83.11 83.7 82.96 81.29 79.59 213 86.13 85.76 8.9 76.82 76.67 75.69 As for the contribution of the service sectors to the index of Australia, New Zealand and the Pacific, As for the contribution of the service sectors to the of Europe, Africa and the Middle East, the the hotels sector is the largest contributor, representing 28%, followed by transportation (27%), immigration and restaurant sectors are the two largest contributors, with each representing 22%, restaurants (19%), immigration (16%), retail shops (1%) and attractions (<.1%). followed by transportation (21%), attractions (17%), hotels () and retail shops (3%). Figure 44 Tourism Service Quality Index Weights Australia, New Zealand and the Pacific Figure 46 Tourism Service Quality Index Weights Europe, Africa and the Middle East 27% <.1% 28% 21% 17% 3% 1% 16% Retail Shops 22% Retail Shops 19% 22% 4 41

4.5 Japan and Korea The market of Japan and Korea together scores the highest of 72.32 in hotels in 213, followed by transportation (71.5), attractions (7.92), immigration (67.5), restaurants (66.58) and retail shops (65.38). Figure 47 Tourism Service Quality Index Japan and Korea 1 8 4.6 scores the highest of 79.15 in retail shops in 213, followed by attractions (78.2), immigration (77.72), transportation (77.6), restaurants (72.58) and hotels (72.23). Figure 49 Tourism Service Quality Index 1 8 6 6 4 4 2 2 Retail Shops Retail Shops 212 73.2 69.5 69.88 65.34 66.4 65.65 212 74.8 74.76 7.49 78.28 72.31 69.39 213 72.32 71.5 7.92 67.5 66.58 65.38 213 79.15 78.2 77.72 77.6 72.58 72.23 As for the contribution of the service sectors to the of Japan and Korea, the attractions sector As for the contribution of the service sectors to s, immigration remains the remains the largest contributor, accounting for 3%, followed by retail shops (23%), hotels (18%), largest contributor, representing 31%, followed by transportation (26%), attractions (), hotels restaurants (), immigration (12%) and transportation (3%). (1%), restaurants (1%) and retail shops (8%). Figure 48 Tourism Service Quality Index Weights Japan and Korea Figure 5 Tourism Service Quality Index Weights 3% 23% 3% Retail Shops 8% 26% 1% Retail Shops 18% 1% 31% 12% 42 43

4.7 South and Southeast Asia The South and Southeast Asian market scores the highest of 82.6 in transportation in 213, followed by attractions (81.56), immigration (77.69), hotels (72.99), retail shops (72.41) and restaurants (72.36). Figure 51 Tourism Service Quality Index South and Southeast Asia 1 8 4.8 Taiwan and Macau The Taiwan and Macau market scores the highest of 79.85 in attractions in 213, followed by immigration (76.51), transportation (74.59), hotels (73.47), retail shops (71.74) and restaurants (7.93). Figure 53 Tourism Service Quality Index Taiwan and Macau 1 8 6 6 4 4 2 2 Retail Shops Retail Shops 212 81.49 78.23 78.65 77.16 75.23 76.32 212 71.77 72.14 75.49 73.71 7.39 71.91 213 82.6 81.56 77.69 72.99 72.41 72.36 213 79.85 76.51 74.59 73.47 71.74 7.93 As for the contribution of the service sectors to the of South and Southeast Asia, the As for the contribution of the service sectors to the of Taiwan and Macau, the restaurants attractions sector remains the largest contributor, representing 23%, followed by immigration section remains the largest contributor, making up 47%, followed by transportation (18%), hotels (22%), transportation (22%), restaurants (18%), hotels (12%) and retail shops (3%). (16%), immigration (9%), attractions (5%) and retail shops (5%). Figure 52 Tourism Service Quality Index Weights South and Southeast Asia Figure 54 Tourism Service Quality Index Weights Taiwan and Macau 22% 23% 18% 5% 16% 3% 18% 12% Retail Shops 5% 9% Retail Shops 22% 47% 44 45

5 Tourism Service Quality Indices by Service Sector 5.1 Overall Tourism Service Quality Indices by Service Sector Among the six service sectors, the attractions sector earns the highest of 81.37 in 213. It increases 6.27 points from 75.1 in the previous year. That is followed by transportation with 8.15, increasing 1.83 points from 78.32 in the previous year. The third is immigration, earning a tourism service quality index of 78.15 with an increase of 2.5 points from 75.65 in the previous year. The hotels sector comes fourth, earning a tourism service quality index of 76.1, with an increase of 1.36 points compared to the previous year. Retail shops rank fifth with a tourism service quality index of 74.83, increasing 1.31 points from 73.52 in the previous year. rank sixth with a tourism 5.2 Among the six service sectors, attractions earn the highest of 86.13 from Europe, Africa and the Middle East, followed by the (85.57), Australia, New Zealand and the Pacific (83.64), South and Southeast Asia (81.56), Taiwan and Macau (79.85), (78.2) and Japan and Korea (7.92). Figure 56 Tourism Service Quality Index 1 service quality index of 73.91, the only service sector experiencing a drop of.39 point compared to the previous year. 8 6 Figure 55 Overall Tourism Service Quality Index by Service Sector 4 2 1 8 Europe, Africa & the Middle East Australia, New Zealand & the Pacific South & Southeast Asia Taiwan & Macau 212 76.69 77.4 77.42 78.23 71.77 74.76 69.88 213 86.13 85.57 83.64 81.56 79.85 78.2 7.92 6 4 For the sample distribution of the seven source markets, the top two are Europe, Africa and the 2 Middle East accounting for 18% and the accounting for 16%. The other source markets Retail Shops range between 12% and. 212 75.1 78.32 75.65 74.65 73.52 74.3 213 81.37 8.15 78.15 76.1 74.83 73.91 Figure 57 Tourism Service Quality Index Sample Distribution 13% 13% 16% 18% 12% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 46 47

5.3 earn the highest of 83.7 from Australia, New Zealand and the Pacific, followed by the (83.5), Europe, Africa and the Middle East (76.82), Taiwan and Macau (73.47), South and Southeast Asia (72.99), Japan and Korea (72.32) and (72.23). Figure 58 Tourism Service Quality Index 1 5.4 earns the highest of 84.42 from the, followed by Australia, New Zealand and the Pacific (83.11), Europe, Africa and the Middle East (8.9), (77.72), South and Southeast Asia (77.69), Taiwan and Macau (76.51) and Japan and Korea (67.5). Figure 6 Tourism Service Quality Index 1 8 8 6 6 4 4 2 2 Australia, New Zealand & the Pacific Europe, Africa & the Middle East Taiwan & Macau South & Southeast Asia 212 75.59 81.1 75.9 73.71 77.16 73.2 69.39 213 83.7 83.5 76.82 73.47 72.99 72.32 72.23 Australia, Europe, Africa & South & Taiwan & New Zealand & the Middle East Southeast Asia Macau the Pacific 212 83.22 81.84 8.79 7.49 78.65 72.14 65.34 213 84.42 83.11 8.9 77.72 77.69 76.51 67.5 For the sample distribution of the seven source markets, the top two are Europe, Africa and the For the sample distribution of the seven source markets, the top one is Europe, Africa and the Middle East accounting for 18% and Japan and Korea 16%. The other source markets range Middle East accounting for 19% while Australia, New Zealand and the Pacific only accounts for between 11% and. 1%. The other source markets range between 12% and. Figure 59 Tourism Service Quality Index Sample Distribution Figure 61 Tourism Service Quality Index Sample Distribution 11% 16% 11% 18% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 12% 1% 19% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 48 49

5.5 earn the highest of 81.29 from Australia, New Zealand and the Pacific, followed by the (78.14), Europe, Africa and the Middle East (75.69), (72.58), South and Southeast Asia (72.36), Taiwan and Macau (7.93) and Japan and Korea (66.58). Figure 62 Tourism Service Quality Index 1 5.6 Retail Shops Retail shops earn the highest of 79.59 from Australia, New Zealand and the Pacific, followed by the (79.5), (79.15), Europe, Africa and the Middle East (76.67), South and Southeast Asia (72.41), Taiwan and Macau (71.74) and Japan and Korea (65.38). Figure 64 Tourism Service Quality Index Retail Shops 1 8 8 6 6 4 4 2 2 Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 212 77.92 79.23 77.6 72.31 76.32 71.91 66.4 212 75.33 77.71 74.8 76.6 75.23 7.39 65.65 213 81.29 78.14 75.69 72.58 72.36 7.93 66.58 213 79.59 79.5 79.15 76.67 72.41 71.74 65.38 For the sample distribution of the seven source markets, the top one is Europe, Africa and the For the sample distribution of the seven source markets, the top two are Europe, Africa and the Middle East accounting for 19% while Taiwan and Macau only accounts for 1%. The other source Middle East accounting for 19% and Japan and Korea accounting for. The other source markets range between 12% and. markets range between 11% and. Figure 63 Tourism Service Quality Index Sample Distribution Figure 65 Tourism Service Quality Index Sample Distribution Retail Shops 1% 12% 19% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 13% 11% 19% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 5 51

5.7 earns the highest of 86.22 from the, followed by Europe, Africa and the Middle East (85.76), Australia, New Zealand and the Pacific (82.96), South and Southeast Asia (82.6), (77.6), Taiwan and Macau (74.59) and Japan and Korea (71.5). Figure 66 Tourism Service Quality Index 1 6 Comparison of Tourism Service Quality Index and Tourist Satisfaction Index 6.1 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Source Market The 213 PolyU is 77.3, which is 1.34 points higher than the 213 PolyU of 75.96. In 213, the tourism service quality indices for all the seven source markets exceed their corresponding tourist satisfaction indices. The largest gap between the and the is seen in the mainland Chinese market (2.39), followed by Taiwan and Macau (2.16), the (1.54), Europe, Africa 8 and the Middle East (1.3), Japan and Korea (1.27), Australia, New Zealand and the Pacific (.99) and South and Southeast Asia (.28). 6 4 2 Figure 68 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Source Market Europe, Africa & the Middle East Australia, New Zealand & the Pacific South & Southeast Asia Taiwan & Macau 212 78.46 81.39 83.92 81.49 78.28 75.49 69.5 1 8 213 86.22 85.76 82.96 82.6 77.6 74.59 71.5 6 4 2 For the sample distribution of the seven source markets, the top two are the (17%), Europe, Africa and the Middle East accounting for 16%. The other source markets range between 11% and. Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 81.27 81.29 79.27 76.48 73.97 71.66 67.59 82.81 82.28 8.57 76.76 76.36 73.82 68.86 Figure 67 Tourism Service Quality Index Sample Distribution 13% 17% 11% 16% Australia, New Zealand & the Pacific Europe, Africa & the Middle East South & Southeast Asia Taiwan & Macau 52 53

6.2 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Service Sector For the year 213, the tourism service quality indices for all the six service sectors exceed their corresponding tourist satisfaction indices. The largest difference between the tourism service quality index and tourist satisfaction index is found in attractions (2.1), followed by hotels (2.8), immigration (1.6), transportation (1.57), retail shops (1.2) and restaurants (.55). Figure 69 Overall Tourism Service Quality Index and Tourist Satisfaction Index by Service Sector Conclusion The 213 PolyU scores 75.96, the highest since 29. This is 1.91 points above the average of 74.5 for the period of 29 213. The contributions of the six sectors to the overall index have changed to some extent over the past five years. In particular, the attractions sector is the largest contributor of Hong Kong s overall, accounting for 27% while retail shops only contribute 6%. As the framework of PolyU has been adopted by Macau and major cities of China s Guangdong province, the tourist satisfaction index can be compared not only over time but also across destinations, and thereby the competitiveness of these destinations in terms of satisfying the needs of international tourists can be evaluated. In this sense, Hong Kong stands out among these destinations in many of the six service sectors as well as at the destination level. 1 8 6 4 2 Retail Shops 79.27 78.58 76.55 73.93 73.63 73.36 81.37 8.15 78.15 76.1 74.83 73.91 The PolyU has shown its theoretical robustness over time, which is in part evidenced by the stability of the tourist satisfaction indices both at the market and the sectoral levels over the past five years. It can be inferred that tourists from the long-haul source markets Australia, New Zealand and the Pacific, the, and Europe, Africa and the Middle East score higher in their tourist satisfaction than their counterparts do from the short-haul markets, such as, Taiwan and Macau, and Japan and Korea. As for the sectoral level, in 213 the attractions sector scores the highest, followed by transportation, immigration, hotels, retail shops, and restaurants. This stability has significant implications for the tourism industry and individual service suppliers. That is, service suppliers can self-evaluate their service performance regularly by benchmarking the corresponding satisfaction index that is provided for each service sector in the industry. The PolyU for 213 scores 77.3, increasing nearly 2 points from 75.37 in 212. It is 1.34 points greater than the 213 PolyU of 75.96. A deviation between the two indices can help us to detect wherever service performance fails to boost tourist satisfaction. In 213, the tourism service quality indices for all the seven source markets exceed their corresponding tourist satisfaction indices. This indicates that, from a supply point of view, Hong Kong s tourism industry has performed well in its service quality. Yet increasing tourist satisfaction also lies in the effective coordination between the private sector and the government in creating a pleasant and enjoyable environment for tourists by, for example, reducing air pollution, crowdedness and traffic congestion. 54 55

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Glossary Tourist satisfaction index (). A is a market-oriented performance indicator that measures tourists satisfaction with various services encountered at a destination. The index is embedded within a system of cause and effect relationships or satisfaction model, with its score ranging from to 1. Tourism service quality index (). A is a market-based service performance indicator that measures tourists perception of the quality of tourism-related services at a destination. The index is embedded within a system of cause and effect relationships or service quality model, with its score ranging from to 1. Structural equation modelling is a statistical technique for testing and estimating causal relations using a combination of statistical data and qualitative causal assumptions. Latent construct. A latent construct is a variable that cannot be measured directly but rather inferred from other variables that are observed. Measures of a construct are also called indicators or scale items, which can be distinguished as either ones that are influenced by (reflect) or influence (form) latent variables, i. e., reflective measures and formative measures. Service quality is an assessment of how well a delivered service conforms to the customer s expectations. Service quality perceptions are multidimensional, with interaction quality, physical or servicescape quality and outcome quality as three key dimensions. Factor loadings are the weights and correlations between each observed variable (or measurement item) and the unobserved factor (or latent variable). The higher the load, the more relevant in defining the factor s dimensionality. Servicescape is the totality of the ambience and physical environment in which a service occurs. Assessed value. The assessed value of a product or service captures a tourist assessment of the quality relative to the price paid (for private goods and services) or the time spent (for public services), as well as the assessment of the price given the quality of the product or service encountered. Partial Least Squares (PLS) is a statistical method for modelling relations between sets of observed variables by means of latent variables. Instead of finding hyperplanes of minimum variance between the response variable Y and the independent variable X, PLS tries to find the multidimensional direction in the X space that explains the maximum multidimensional variance direction in the Y space. Formative measurement is one of the two ways to define a construct in a structural equation model, as opposed to reflective measurement. By formative measurement, causality flows from the indicators to the construct, and a change in the indicators results in a change in the construct under study. Reflective measurement is one of the two ways to define a construct in a structural equation model, as opposed to formative measurement. By reflective measurement, causality flows from the construct to the indicators, and a change in the construct causes a change in the indicators. 58 59

Acknowledgements Research Team The financial support of The Hong Kong Polytechnic University for this survey is acknowledged (Grant No. 1-ZVA5). We wish to thank the following organisations, governmental departments and persons who supported us in completing this report: Supporters of the Survey Hong Kong Tourism Board Hong Kong International Airport Leisure and Cultural Services Department, Hong Kong SAR, China Marine Department, Hong Kong SAR, China Questionnaire Translators Dr Kyoko Morikoshi Hokusei Gakuen University, Japan Miss Bona Kim The Hong Kong Polytechnic University, Hong Kong SAR, China Miss Liang Wang The Hong Kong Polytechnic University, Hong Kong SAR, China Miss Na-Young Lee Ministry of Knowledge Economy, Korea Survey Supervisor Miss Eva Zhong The Hong Kong Polytechnic University, Hong Kong SAR, China Survey Assistants Master of Science (MSc) students (212) Bachelor of Science (BSc) students (211, 212) School of Hotel and Tourism Management The Hong Kong Polytechnic University, Hong Kong SAR, China Principal Investigators Professor Haiyan Song Associate Dean (Research) and Chair Professor School of Hotel and Tourism Management The Hong Kong Polytechnic University, Hong Kong SAR, China Professor Kaye Chon Dean and Chair Professor School of Hotel and Tourism Management The Hong Kong Polytechnic University, Hong Kong SAR, China Research Team Dr Yong Chen Postdoctoral Fellow School of Hotel and Tourism Management The Hong Kong Polytechnic University, Hong Kong SAR, China Dr Markus Schuckert Assistant Professor School of Hotel and Tourism Management The Hong Kong Polytechnic University, Hong Kong SAR, China Mr Zixuan Gao Research Assistant School of Hotel and Tourism Management The Hong Kong Polytechnic University, Hong Kong SAR, China International Consultants Dr Gang Li Reader, University of Surrey, United Kingdom Dr Robert van der Veen Research Fellow, University of South Australia, Australia Dr Jason Chen Lecturer, University of Surrey, United Kingdom 6 61

Enquiries: Professor Haiyan Song School of Hotel and Tourism Management The Hong Kong Polytechnic University Tel: +852 34 2286 Fax: +852 2362 9362 E-mail: haiyan.song@polyu.edu.hk Website: www.touristsatisfaction.org The research team would like to thank The Hong Kong Polytechnic University for providing financial support for this project (Grant No. 1-ZVA5) Copyright 214 The Hong Kong Polytechnic University. All Rights Reserved.