Tourism's Resilient Fantasy
The twin shocks of the massacre in Tunisia and the financial meltdown in Greece have sent tourism shares sharply lower. The industry has grown increasingly resilient in recent years, however, and it probably will recover relatively quickly. That would be good news for shareholders, but it could also reflect a false sense of complacency.
The steep declines in travel and tourism stock prices haven't only affected big European companies such as TUI and Thomas Cook, but even Royal Caribbean Cruises and Priceline, which are less vulnerable to trouble in southern Europe and North Africa:
The pessimism is likely to be short-lived, because the global travel industry regenerates with lightning speed. Initially, traffic to Tunisia and Greece will drop, but similar destinations will pick up the slack. For example, when the protests in Cairo's Tahrir Square erupted in 2011 and hotel occupancy at Egypt's seaside resorts fell by almost 40 percent, the United Arab Emirates benefited with occupancy rising 8 percent for the year.
The data show recoveries even at destinations that have undergone catastrophes. According to a Deloitte study published in the World Economic Forum's 2015 Travel and Tourism Competitiveness Report:
Occupancy levels in New York hotels took 34 months to recover from 9/11 (2001), and the wider US market took 45 months, with the impact compounded by an economic recession. For comparison, Madrid bounced back in 12 months from the 2004 train bombings, and London recovered in nine months from the July 2005 attack.
In 2013, two years after the Fukushima nuclear accident, Japan had a record number of foreign visitors, 9 million. After the SARS outbreak in Asia and the swine flu epidemic in Mexico, hotel occupancy rates recovered within a year. Here's a chart from the Deloitte report, showing that even major terrorist attacks don't leave a lasting impression on travelers:
This resilience partly reflects the efforts of affected countries. When tourist numbers dwindled in Bali, Indonesia, after a series of bombings in 2005, the island used a steep devaluation of the Indonesian currency to run an advertising campaign with the slogan "Our loss is your gain!" Greece might consider a similar message if it reintroduced, and promptly devalued, the drachma. In Tunisia, too, tourist flows are mainly sensitive to prices: If they are low enough, the attack will cease to be a deterrent to tourists.
The growing accessibility of travel and the increasing sophistication of the tourist industry are turning the world into a product. Going places today is less of an adventure now than it was 20, or even 10 years ago. That's convenient, because the population of wealthier countries, which provide most of the world's leisure travelers, is aging. Older travelers are less interested in adventure of the nerve-tickling kind, and they encourage the industry to make staying in one country a lot like staying in another. In many cases, travelers don't even care what's going on in the country they're visiting. When Bangkok experienced a series of coups in 2008, Thailand's resort islands didn't experience a drop in tourist traffic.
This kind of separation is good for economies, but I'm not sure it's equally good for the traveler's psyche. We bet on the industry's ability to shelter us from harsh reality. Yet other lands are not amusement parks. Sometimes reality intrudes -- from the lack of cash in teller machines to a hail of bullets on a beach.
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