Morrison

Caribbean countries dependent on tourism for jobs, foreign exchange and as the main driver of economic activity are being bombarded by the sharp downturn in the global travel industry. Consequently, several of these countries have had to knock at the doors of multilateral lending agencies seeking financial support, while those that are dependencies are being shored up by their 'mother' countries.

Already, St Vincent & The Grenadines, St Lucia and Dominica have sought support from the International Monetary Fund (IMF), and Grenada has had its existing arrangement augmented to deal with the effects of the crisis. St Kitts is expected to do the same. To date, Antigua & Barbuda, the Bahamas and Barbados have not gone to the IMF, although their external accounts must be hurting from the slump in tourism. For the next two to three years, these regional economies will remain shaky as recovery of global economic activity, to which the fortunes of the travel industry are tied, is expected to proceed at a slow pace.

Under the pressure of the worst economic recession in 65 years, both business and leisure travel are experiencing huge declines. In the first five months of this year, total air passenger movements in the six regions of the world airport system dropped by a whopping 7.5 per cent. The poor financial returns of major airlines, some of which like British Airways have been perennially profitable, are clear evidence of the depth of the fall-off in air travel.

The North American and European regions that account for over 65 per cent of airline traffic showed the largest slippages of 9.4 per cent and 10 per cent, respectively, in total passenger movement. In both regions, domestic and international passenger movements fell due in large measure to the slide in business travel. In the case of the European region, internal air travel declined by as much as 13 per cent; and in North America, which is by far the leader in domestic air travel, the decline was 9.6 per cent.

resilience

Buoyed by the cash-rich oil-producing countries, the Middle East has been the only region spared, recording growth of 2.3 per cent. Though total airline traffic in the Asia-Pacific region was down, the dynamism of its economies and the resilience of domestic air travel served to restrict the decline in total passenger movements to just 3 per cent. In fact, a 1.9 per cent growth in domestic air travel helped to offset the steep 8.7 per cent decline in international passengers.

Airlines, especially in the USA, are under severe pressure and even low-cost carriers such as Southwest are struggling to contain losses. Cost-cutting measures, including redundancies, are being implemented across the industry, and in April the total number of employees at American carriers was 24 per cent below the peak level in May 2001. On the revenue side, items such as snacks, drinks and check-in luggage which were normally covered by the airfares now attract fees. Yet airline losses continue to mount, pushing the carriers to cut seat capacity, with indications that the number of seats on US domestic flights will drop to 66.5 million in September, which would be the lowest figure for that month since 1984.

Tourist destinations in the Caribbean that are heavily dependent on US carriers for airlift, particularly those countries in the southern part of the region, must view the reduction in seat capacity with great unease. In the past, the shortage of seat capacity has forced them to enter into revenue guarantee arrangements in order to protect their tourist industries. As the demand for travel contracts, the competition for vacationers will heighten and, hence, this factor is going to be more pressing for the region's tourism officials.

The gravity of the situation is demonstrated by the extent of the downturn in tourist arrivals for the peak winter months. Apart from Cancun, Cuba and Jamaica, all other destinations recorded declines, and except for the Dominican Republic, these were steep. For example, Antigua & Barbuda, the Cayman Islands, St Vincent & The Grenadines and St Lucia recorded double-digit or high, single-digit falls in arrivals. The Bahamas is likely to have suffered a similar fate, although it has not been releasing its tourism data.

regional tourism

The recession in the USA has been the single most important factor responsible for the slide in regional tourism and with unemployment rising and expected to go above 10 per cent, the outlook is discouraging. Furthermore, European economies are on the same downward trajectory and, therefore, that market is not a source that can make up for the loss of demand in the USA. This period is unique in that the USA and Europe are experiencing recessions simultaneously. Canada has, so far, provided some relief for some destinations like Barbados, Dominican Republic, Jamaica and St Lucia.

The overwhelming importance of the US market and the high dependence of most Caribbean destinations on that market means, however, that growth in tourist arrivals from Canada cannot offset the fall in American visitors. Another important negative impact of the global recession and the problems in the US economy in particular is the virtual halt in investment activity in the regional tourism sector.

The fall-off in foreign exchange inflows from the resulting reduced level of foreign direct investment activity is likely to be as damaging to the balance of payments of some regional economies as the downturn in tourist arrivals, reinforcing the pressure to seek IMF support.

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.