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US Economic Default, Credit Downgrading and International Tourism


Tourism professionals must pay close attention to US default crisis

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Tourism professionals must pay close attention to US default crisis
By Dr. Peter E. Tarlow, President of Tourism & More, special to eTN | Jul 30, 2011

While it is still too early to know how the outcome of the current US "default" crisis, tourism professionals would do well to pay careful attention and to analyze the numbers not by headlines or emotions but with cool heads. Despite the fact that the US default crisis may or may not be solved, the fallout from it and the potential credit rating decline will have a major impact on tourism. Here are just a few ways that this ongoing and worldwide crisis will touch people throughout the tourism and travel industry and what tourism professionals may want to consider.

First, do not confuse the headlines with reality. The crisis is less to do with raising an artificial debt ceiling and more to do with simple debt. For example, many Western nations, including the US, simply spend more money then they take in. Most Western nations have practiced some form of this economic policy for decades. The unfortunate results of overspending have been highly unstable societies such as Greece, Italy, Spain, Portugal, and Ireland. In all of these nations, deficit spending has been instituted as a means of paying for what is often called "the social net," and there is the assumption that it is the government's job to "smooth" out a society's business and economic bumps.

In the US, this social net has always existed, but government participation has been much less.

Traditionally, Americans have tended to rely on volunteerism and community-service providers, such as religious institutions, rather than government bureaucracies. Thus the social net has existed but at far less governmental cost. Some economists believe that due to the US' less reliance on government to provide the social net, the US, at least until now, has been able to avoid the economic tragedies that are now occurring across much of Southern Europe.

Despite whatever happens in Washington, there are a number of other factors that will impact tourism. Among these are:

1. Even if the most extreme budget bill is passed, the US is still spending more than $1,000,000,000,000 (one trillion) dollars more than it receives.

2. US economic national product is down to less than 1.4%. That means that economic growth is at about zero.

3. In the US, unemployment is now increasing and housing prices are continuing to be down.

4. China is now facing a major economic slowdown.

5. Germany is now feeling the first signs of a looming recession and may no longer be able to bail out Europe's so-called piigs countries (Portugal, Italy, Ireland, Greece and Spain). While the euro will not disappear tomorrow, its longevity may now be in doubt.

Here are some of the ways that tourism and travel professionals can expect the current economic crisis to impact their industry and some ideas for economic survival in highly turbulent times.

- In this global economy, be prepared for continual currency readjustments. For years, the US dollar acted as the one stable currency. This fact is no longer true, and unstable currencies in an interconnected world means that tourism officials must be prepared for price fluctuations. The impact of such unstable pricing means not only will many tourism providers be unable to set market prices but also that business plans will need to be updated on a continual basis.

- Tourism, especially leisure tourism, is a discretionary expense and, therefore, vulnerable to mood swings. If the public is fearful of not having enough money to pay for basic necessities, then for many people, there is a tendency to pull back. This pulling back does not mean that people will cease to travel. It does mean that they may seek less expensive options, and for shorter time periods. Those tourism businesses that are in or close to major population centers have a great many new opportunities, while those destinations that are dependent on long-haul travel and more lengthy stays may have some challenges to overcome.

- Expect this period of economic turbulence to be here for quite some time. Despite what politicians may say, the bottom line is that no one has a plan that is politically acceptable. In today's world, there are more voters than workers and that means that politicians are afraid to make decisions that may cost them an election.

- Foreign, non-business travel should decline as the cost of travel combined with lower salaries will impact the way citizens from major industrialized nations spend their money. This decline in foreign travel will be especially hurtful to those parts of the world, such as the Caribbean that have long depended on foreign visitors and have a reputation for being expensive, offering poor customer service and tending toward being unsafe.

Here are some ideas to prepare for what may be a difficult economic year.

- Develop creative bundling packages. For example, create packages that allow business travel to be combined with family vacations. Encourage hotels to include breakfasts, Internet services, and other amenities within the cost of a room.

- Keep prices as low as possible. No one likes to cut their profit margin, but some profit is better than no profit at all. Let people know that you care and that your prices reflect your concern for the public's well-being.

- Provide the best customer service possible. When money is tight, our tolerance for bad experiences is even less. These are the times not to make customer service mistakes, and if a mistake is made, make sure to apologize and correct the mistake. In economically-challenging times, no one wants to hear excuses for customer service errors.

In the US, the weak dollar means that many foreigners will find the US a highly-affordable vacation option. US tourism professionals need to internationalize their product and their outlook so as to attract both European and Asian visitors.

- Many Latin American nations, due to the low cost of labor and short food supply distances, can also become new tourism destinations. However, issues of poor customer service, violence, and crime waves against tourists often plague this part of the world.

- Seek markets that are closer to home. Smaller communities and communities that offer short-term tourism (2 or 3 days) can see increases in their potential market if they can solve problems such as: what to do on rainy days, lack of nighttime activities, and how to entertain children during inclement weather such as snow storms.

Unfortunately, the travel and tourism industry cannot change the world's economic policies, but travel and tourism can teach political leaders around the world several important lessons. Among these are: during economically-challenging times, talk less and do more.

This is not the time simply to market what you have, but rather it is the time to launch new products and become innovative. This means that creativity and out-of-the box thinking are essential skills for this challenging economy. The travel and tourism industry are not going to go away. No matter what the credit rating may be, no matter what the cost of money, people are still going to travel. However, for tourism and travel to prosper rather than merely survive, the industry is going to have to be much more creative, innovative, and service oriented. Tourism centers that can choose to not to provide good service, offer poor security, and lack of new product innovation will not survive; those, however who choose to offer excellent service and continually reinvent their product in a safe and secure environment are bound to not only survive, but in the end, will prosper.



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