Since World War II, the Austrian tourism and leisure industry has reached an important position in international competition. Austria is one of the most tourism-intensive countries in the world. From a macro-economic point of view, tourism and leisure activities play a crucial role for the creation of income and employment as well as for the maintenance of external account equilibrium. During the first half of the 1990s, the Austrian tourism sector was hit by the consequences of the international recession. Further setbacks will occur during the current business cycle upturn, which are mainly caused by special factors but which the Austrian tourism sector cannot offset by its own force. Thus, the fall in real disposable incomes in Germany related to the high costs of reunification, currency devaluations in some major competitor countries, and the slump in air fares are causing significant losses in demand for holiday in Austria. The fragility of Austria's position in international tourism uncovers a number of structural problems which have essentially remained unsolved. In Austria, tourism-intensity and the degree of specialization in the production of tourism services are relatively high. Calculations show that about one-third of tourism export revenues are earned on the basis of traditional competitive advantages (in essence the generous endowment with natural, social and cultural resources). If these traditional advantages become less attractive – either because of changing consumer preferences, new tastes and fashions, or because of losses in the quality of resources – Austria may see the size of its tourism sector being reduced as with lower sales prices (as a consequence of declining attractiveness) many firms would cease to be profitable, given the domestic level of wages and other labor costs. A possible solution would be a comprehensive re-positioning of the tourism sector by way of the following alternative strategies: – increased internationalization together with a well-defined marketing image of internationally competitive regions as air-travel destinations; – launching of a broad-based quality and cooperation campaign; – creating new competitive advantages via supply innovations (man-made attractions); – disclosure of new, high-income market segments. If efforts for re-positioning do not succeed the medium-term growth potential will not be exploited. However, current changes in tourism demand suggest that tourism policy measures may only have a limited effect.