Dollar denominated tourism and sterling

As  November  begins,  many,  if  not  most  Caribbean  tourism  ministers,  hoteliers  and  others  in  the   industry,  will  be  heading  to  World  Travel  Market  (WTM)  in  London.    This  is  the very  large  annual   international  trade  fair  at  which  traditionally,  buyers  and  sellers  meet  to  strike  deals  for  the  year   ahead.

The ¬†2016 ¬†event ¬†and ¬†its ¬†collateral ¬†industry ¬†discussions ¬†will ¬†be ¬†of ¬†particular ¬†significance ¬†as ¬†the ¬†event ¬† comes ¬†in ¬†the ¬†wake ¬†of ¬†the ¬†UK ¬†electorate‚Äôs ¬†June ¬†23 ¬†decision ¬†to ¬†leave ¬†the European ¬†Union ¬†(EU), ¬†and ¬†‚Äď more ¬†importantly ¬†from ¬†the ¬†perspective ¬†of ¬†the ¬†Caribbean ¬†‚Äď ¬†the ¬†recent ¬†and ¬†likely ¬†continuing ¬†collapse ¬† in ¬†the ¬†value ¬†of ¬†sterling.

By ¬†way ¬†of ¬†background, ¬†it ¬†has ¬†become ¬†clear ¬†in ¬†the ¬†last ¬†few ¬†weeks ¬†that ¬†the ¬†UK ¬†government ¬†may ¬†be ¬† heading ¬†for ¬†what ¬†has ¬†become ¬†known ¬†as ¬†a ¬†‚Äúhard ¬†Brexit‚ÄĚ. ¬†This ¬†means ¬†that ¬†the ¬†UK next ¬†March ¬†may ¬† decide ¬†to ¬†withdraw ¬†from ¬†both ¬†the ¬†EU ¬†and ¬†its ¬†customs ¬†union, ¬†ending ¬†its ¬†free ¬†trade ¬†relationship ¬†with ¬† Europe ¬†while ¬†introducing ¬†controls ¬†on ¬†the ¬†free ¬†movement ¬†of EU nationals ¬†into ¬†and ¬†out ¬†of ¬†the ¬†UK.

Recognising  the  likely  impact  on  UK  economic  growth  and  the  short  to  medium  term  implications  for   the  British  economy,  the  markets  have  responded  by  effectively  devaluing sterling  by  around  17  per   cent  since  the  vote.

The ¬†consequence ¬†has ¬†been, ¬†taking ¬†the ¬†average ¬†UK ¬†bank ¬†rate ¬†for ¬†international ¬†payments, ¬†that ¬†the ¬† pound ¬†has ¬†slid ¬†from ¬†US$1.54 ¬†in ¬†mid-¬≠‚ÄźOctober ¬†2015 ¬†to ¬†an ¬†average ¬†now ¬†on ¬†the ¬†same date ¬†in ¬†2016 ¬†of ¬† US$1.18

This  is  clearly  not  good  news  as  far  as  Caribbean  tourism  is  concerned;  particularly  for  those  nations   that  not  only  have  a  high  dependence  on  UK  visitors  but  have  been  seeing after  a  period  of  slow  or   no  growth  up  to  2014,  significant  increases  in  UK  visitor  arrivals.

According  to  the  Caribbean  Tourism  Organisation  (CTO)  statistics,  the  countries  benefitting  the  most   from  the  1.2m  British  visitors  who  travelled  to  the  region  in  2015  were Barbados,  Jamaica,  the   Dominican  Republic,  Antigua,  Cuba,  St  Lucia,  Trinidad  (presumably  meaning  Tobago),  Grenada,  St   Vincent  and  the  Cayman  Islands  in  that  order.

What  CTO’s  figures  also  suggest  is  that  countries  like  Barbados,  St  Lucia  and  others  in  the  OECS   which  have  not  significantly  diversified  their  markets  or  airlift  and  still  have  a very high  overall   proportion  of  UK  visitors,  may  suffer  more  than  others.

Although ¬†the ¬†industry ¬†suggests ¬†that ¬†forward ¬†UK ¬†bookings ¬†remain ¬†strong ¬†across ¬†this ¬†coming ¬†winter ¬† season ¬†‚Äď ¬†when, ¬†typically, ¬†high-¬≠‚Äźend ¬†British ¬†visitors ¬†who ¬†are ¬†less ¬†likely ¬†to ¬†be affected ¬†by ¬†currency ¬† fluctuations ¬†travel ¬†‚Äď ¬†there ¬†is ¬†a ¬†sense ¬†that ¬†from ¬†the ¬†spring ¬†of ¬†next ¬†year ¬†onwards, ¬†middle ¬†and ¬†lower ¬† end ¬†UK ¬†visitor ¬†numbers ¬†may ¬†begin ¬†to ¬†decline ¬†if, ¬†as ¬†is likely, ¬†the ¬†value ¬†of ¬†sterling ¬†continues ¬†to ¬†remain ¬† weak.

Although ¬†at ¬†present ¬†anecdotal, ¬†there ¬†is ¬†growing ¬†parallel ¬†evidence ¬†in ¬†the ¬†UK ¬†media ¬†and ¬†from ¬†the ¬†UK ¬† travel ¬†trade ¬†that ¬†there ¬†has ¬†been ¬†a ¬†surge ¬†in ¬†middle-¬≠‚Äźmarket ¬†staycations ¬†and ¬†in weekend ¬†breaks ¬†in ¬† English ¬†cities ¬†and ¬†the ¬†countryside.

Equally ¬†unscientific, ¬†but ¬†another ¬†probably ¬†reliable ¬†indication ¬†of ¬†a ¬†likely ¬†decline ¬†in ¬†UK ¬†arrivals ¬†is ¬†the ¬† reaction ¬†of ¬†the ¬†price-¬≠‚Äźsensitive ¬†Caribbean ¬†diaspora ¬†in ¬†Britain. ¬†At ¬†a ¬†recent conference ¬†unrelated ¬†to ¬† tourism, ¬†it ¬†became ¬†clear ¬†to ¬†me ¬†that ¬†not ¬†only ¬†was ¬†the ¬†collapse ¬†in ¬†sterling ¬†causing ¬†concern ¬†about ¬†how ¬† frequently ¬†this ¬†important ¬†group ¬†of ¬†visitors ¬†travelled home, ¬†but ¬†if ¬†they ¬†did, ¬†how ¬†long ¬†in ¬†future ¬†they ¬† could ¬†afford ¬†to ¬†stay, ¬†and ¬†what ¬†may ¬†happen ¬†to ¬†air ¬†fares ¬†as ¬†the ¬†input ¬†costs ¬†for ¬†UK ¬†aviation ¬†increase.

Recent  commentaries  from  the  IMF  and  other  international  financial  institutions  suggest  that  in  the   short  to  medium  term  the  outlook  for  the  UK  economy  will  worsen  and  that sterling  may  remain   weak  for  some  years.

For  all  these  reasons,  this  year’s  WTM  will  be  a  litmus  test  of  sorts.

It  will  provide  a  first  medium  term  indication,  when  deals  are  being  struck  between  hoteliers  and  the   airlines  and  tour  operators  for  2017,  and  promotional  incentives  agreed  with governments  and   tourist  boards,  how  those  involved  in  UK  outbound  tourism  are  thinking  about  the  future  demand   for  dollar  related  markets  like  the  Caribbean.