by Kari Grenade, PhD, Regional Economist and Macroeconomic Advisor
In this article, I examine short-to-medium-term prospects for the Tourism industry in the context of the Covid-19 pandemic, as well as offer some ideas for reshaping the industry to be more resilient and enriching to the lives of Caribbean people post Covid-19.
Short-term Outlook for Caribbean Tourism
Several factors combine to support a negative prognosis for the Tourism industry for the rest of 2020 and possibly well into 2021. I see the following as 2 of the most salient factors:
- Covid-19 Fears and Increased Travel Hassle
- In the absence of a vaccine, persons will naturally be fearful of travelling and vacationing. Even when a vaccine becomes available (hopefully within one year), persons might still be reluctant to go on a vacation to long-haul destinations such as the Caribbean, not necessarily because Caribbean countries might make it difficult for them to visit, but because of increased requirements of their home countries such as quarantine upon their return or a health certificate from the country/ies visited. Business trips to the Caribbean are also likely to decline because organisations and event planners are probably going to make greater use of technology. I also think that cruise travel will be affected due to Covid-19 fears and the likely increase in health checks and requirements that might dissuade potential cruisers. Two decades after the 9/11 event security checks are still in place when travelling. Just imagine the various health checks and requirements that will come about when travelling post Covid-19!
- Global Recession and High Unemployment in Major Tourism Source Markets
- The International Monetary Fund (IMF) estimates that the global economy will contract by 3.0% in 2020 (World Economic Outlook, released 14 April 2020). The IMF estimates declines in some of the Caribbean’s main tourism source markets as follows: Euro Area (-7.5%); UK (-6.5%); Canada (-6.2%); and USA (-5.9%). Economic recession will elevate unemployment in those countries. Already unemployment benefit claims are rising; for example, as at 9 April 2020, more than 17 million unemployment benefit claims were filed in the USA in the preceding 4-week period (Washington Post News Paper). In this context, it is reasonable to assume that vacationing and travelling will not be a priority for persons who might have otherwise taken a long-haul vacation to the Caribbean in 2020. Even if economic growth returns in the Caribbean’s main tourism source markets in 2021, there will be a lagged labour market effect, in other words, not every single person who would have lost his/her job in 2020 would find a new one in 2021, and even if jobs are found in 2021, vacationing to the Caribbean might still not be a priority then.
One could argue that many Caribbean destinations are high end and cater to high-income vacationers who might be unaffected by the unemployment situation. Perhaps, but it is important to point out that these high-income earners might have suffered losses in their wealth with the turbulence in financial markets. Standard and Poor’s (S&P) reported that by mid-March Americans had lost on average of US$22,313 as a result of stock markets’ volatility and an estimated US$7.3 trillion were wiped out from stock markets. Certainly, a dip in one’s wealth can cause them to delay their vacation to the Caribbean in the short term.
Considerations for the Medium Term
The Tourism industry will eventually rebound, but the rebound is not likely to be strong for some years to come. Indeed, the industry in major destinations in the Caribbean took about 5 years on average to get back to normal following the 2008/2009 global financial crisis. If the Covid-19 is contained in 2020, if a vaccine is found within the year or in 2021, and if airlines and cruise lines resume their respective services, the recovery of the industry could begin in the latter part of 2021. My assumption though is that any recovery that occurs in the latter part of 2021 would be tepid at best.
During the slow recovery phase (latter part of 2021 perhaps to 2023), countries should consider focusing on increasing electronic and virtual tourism/travel options to their destinations. Just imagine a virtual tour of Brimstone Hill in St Kitts or Harrisons’ Cave in Barbados or the under-water sculpture park in Grenada! Electronic and virtual options would benefit individuals as well as small and medium-sized enterprises in areas such as graphic design, IT, photography and the like.
Countries might also wish to consider taking a new approach to marketing and (re)branding that appeals to the psychology of travellers. It is quite possible that vacationers might be more inclined to engage in purposeful travel such as family retreats or to connect with nature (for the environmentally conscious) for example. Vacationers are likely to have specific agendas, as well as possibly shorter itineraries and booking windows. Caribbean destinations must find innovative ways to target such persons. Whatever the respective approaches, potential vacationers would have to be convinced that the health systems in destinations are on/near par with those in their home countries. Marketing messages must be able to give them some level of comfort in that regard.
Caribbean countries might also wish to promote staycations as well as travel within the region. Regarding regional travel, the messaging regarding adequacy of health systems would be important and cost of travel deemed sufficiently affordable.
Concluding Thoughts
The Covid-19 pandemic has reminded us how vulnerable the Tourism industry is and the attendant downside risks that are associated with investing in the Tourism industry and its related sectors. For sure, the region cannot continue with “business as usual” that involves environmental degradation due to tourism activities, maximum profits for hotel owners but minimal wages for the majority of workers, limited local ownership stake in the industry, and high susceptibility to natural and other shocks. Of necessity, the industry must be reshaped to be more resilient and also to prioritise long-term environmental sustainability as well as to better support high human development. Becoming financially self-sustaining is also a long-term imperative. In this regard, hotel owners for example, might want to consider listing their businesses on the respective regional stock exchanges and offering shares to regional investors as well as to hotels workers. In so doing, hotel owners would not only be expanding their financing options, but importantly also, creating opportunities to increase the wealth of ordinary workers and locals through ownership of assets.
Consolidations, strategic coalitions and outright mergers within the industry (within and across countries) might also become inevitable in order to take advantage of economies of scale and the sharing of risks. Indeed, Covid-19 presents the region with an opportunity to rethink its entire approach to tourism – policies, models, practices, financing, operational strategies, and importantly, how its value to our economies and societies can be more durable and better optimised. I therefore call on all tourism organisations within countries and the Caribbean Tourism Organisation to reimagine what sustainable tourism is/should mean for the Caribbean. This calls for innovation, smart solutions, and an infinite mindset (open mind) of all stakeholders; the words, “we have always done it this way” must be banished forever!
This is a brilliantly written article with brilliant ideas. Firstly the author did exactly what she said she would do in her opening/thesis statement. I like the idea of financial enhancement for the workers. I like the idea of virtual tourism. I like the idea of mergers in the industry. I especially like the mention of sustainability. @ Andrew Bradshaw I wish I could understand why the ferry industry is not further developed in the Caribbean.
I personally think that integration and the CSME would have been further advanced had inter-island ferries and a competent airline or two had been supported.
I think the bigger question is when do you open Grenada up for foreign visitors
Good day as i see the tourism industry decline drastically due to covid 19 ,weust take a national approuch in dealing with this pendemic ,Grenada must look at ways off uniting to caribbean together one economy market by dropping hotel rates ,airlines travelling to an from other nabering caribbean countries,metigating structure for screening on arival on arival by medical exspert machines checking your temputure an blood an covid diognoisis ,an we as a people have to be inovative to make our economy grow despite the odds we must put our faith an strenght an direction from god as we look forward on a way out off this destruction ,an we must abide by all medicle procedures to keep your public business licenes for customers on a national appeouch throughout Grenada carraiccou and petete martinique ,to combat covid 19.
Start catering for the common man , give the ordinary people a chance to come and spend holiday in the carribean. Forget the luxury all inclusive resorts. And for the love of god, open up a proper ferry line to the mainland South America, , there will be people of all kinds coming and going. Get the taxes down, so people can get quality products for a reasonible price, put pressure on the government to nationalize the electricity, and put efforts into the aggriculture, what the world will always need and are willing to pay for is chocolate, believe it or not. There must be change in the existing politics.
There will be a pent up demand for travel once this virus doesn’t not resurge in the winter months. One lesson this virus has taught me is to make the most today when practical so if people adopt that philosophy,the tourism industry could bounce back rapidly in the Caribbean. I want our people to take advantage of new opportunities present especially for entrepreneurial individuals and not back to the same old servant mentality.
We SHALL RETURN.
Caricom leaders need to reach out to Royal Caribbean Cruises, Carnival Cruise Line, Norwegian Cruise Line for Financial Support to purchase PPE to Fight spread of COVID 19 in the Caribbean. These cruise Lines are Multi-Billion-Dollars Co-operations that have using these islands to enrich themselves and shareholders. They have a vested interest to make sure that COVID 19 is properly managed in the Caribbean.
Yes I do agree with some of your analysis of the new normal for the tourism sector; however, these Multi-Billion Dollars co-operations will not allow COVID 19 bring about their total obliteration. These fortune 500 companies put profits first before human lifes, the airline and cruise line industries will continue to conduct business as usual. We the travellers will be required to take the risk and adhere to the new health guidelines.
There are many people in Grenada who believe that they are not impacted by the tourism industry and that it might be a good thing for there to be an extended period of time with no foreigners coming in. Of course the economic reality is something very different. As the planes and ships stop bringing people to the islands, that vital source of foreign currency dries up. Hotels, bars and restaurants close and their staff become unemployed. With up to 1/4 of working Grenadians employed in the tourism sector, the impact to them and their families will be huge, but so too will be the impact to all the sectors they spend money in – supermarkets, clothes stores, buses and food vendors.
Then there are the fishermen. Of course they don’t work for tourism! Except, that much of their catch each day goes into the hotels and restaurants. Its how they’ve been able to sustain so many people in fishing. If the hotels and restaurants are closed, demand for fish (and prices) will plummet. Its not even as though we can sustain the industry through export either, as the hotels in restaurants around the region are facing the same plight.
Those working in construction are not exempt either. Many of the building projects are financed from overseas, whether they be commercial or residential developments. As the recession starts to bite, and travel restrictions continue, those projects will likely slow down. Which will mean those labourers and artisans will be idle too. This will effect every sector of life in our islands.
Farming is the answer? Potentially, but not as we expect it. Commercial farming will also feel the pinch too. As money starts to become more scarce people are not going to want to spend money buying food, and so will turn to their own lands to plant and harvest their own garden crops. They will have the time now to tend to these crops, but this will mean that our farming industry will not get the long term boost many think it will.
A prominent businessman from Grenada made a profound statement as this situation started to unfold. Wise words to prepare ourselves with. He suggested that each passing day whilst we’re in lock down is like Ivan to the islands economy. Except, unlike with Ivan, we could not start the recovery that day after the storm and more importantly (because this is global) no one will be coming to our aid. Sobering thoughts!
Is there a solution to this? There are no silver bullets in life, no single solutions to complicated problems. Yes it is true that many people will be fearful of travel for some time due to the fears associated with this virus, and as the economy stalls the people will be looking to those elected officials for leadership and guidance. They will be looking for brave solutions and big actions. In the US, the government passed a US$2.2 trillion stimulus package, which is the equivalent of US$6,728 per man, woman and child, to help to keep the wheels of commerce turning for Americans. To do this brave decisions were made and pre-existing rule books were re-written. In Grenada, our own government has announced an EC$30 million (US$11.1m) stimulus package, which is the equivalent of US$101 per man, woman or child. Some might argue that the package being put forward by our government is simply not sufficient to sustain our nation for more than a few minutes as we clamour to remain within our pre-existing borrowing rules. Government stimulus will be required globally to prevent the deepest depression since 1929. Some countries will look to recover fairly quickly. I fear Grenada will not be one of those.
Regarding air services, Caribbean Governments should anticipate a major push by airlines to get them to “subsidise” airlift using various models – revenue guarantees, Joint marketing and other strategies to pressure governments to “pay to play” as it were. Regional Governments should therefore preempt this eventuality and prepare a united strategy rather than allow the airlines to dictate the terms and conditions.
Finally a thoughtful, rational commentary on tourism which could and should apply as well to my country of Canada and specifically the Niagara Falls Tourist industry. Too often, as a hospitality advisor/broker (also in Grenada) I keep hearing ‘guesstimates’ or what I call, ‘feel good’ forecasts on the usual, ‘been there, done that…SARS…etc…2008 economic downturn, etc. failing to fully accept, the current global pandemic is beyond comparison. Just look at the daily facts.
Yes, there is an intrinsic need to travel, to mingle with our friends, experience new places (Caribbean is a special place) but as this reasonable report suggests yes, better days ahead but the wounds (some fatal) created by this pandemic will take time to heal, triggered one can only hope with an effective vaccine…But as we appreciate, ‘hope’ is a given, but not a strategy…
You haven’t mentioned that in the short term air fares are likely to rise sharply because carriers will need to recover their balance sheets following the shut down and there will be fewer carriers (some smaller airlines will not recover). In the medium to long term long haul air travel is likely to become increasingly expensive with the need to combat (or at least offset) the effects of climate change.
I wonder if this is the death of LIAT airlines, which has been struggling financially for years.