Tourism and the Global Economic Crisis of 2008
Historically all economic recessions have the same fundamental cause. An unregulated or under regulated market fuels speculative and unsecured investments which leads to a paper growth share market values which ultimately leads to a slump when the real value of shares and investments are found wanting. Economists refer to this as a correction. In the process, thousands of businesses and millions of individuals who have been sucked into the maelstrom lose their financial shirts.
The amorphous creature which constitutes the “market” throws a toddler style tantrum, panics and the value of currencies, investments and businesses. Historically national, regional and occasionally the global economy is plunged into shock. During the Great Depression from 1929-35 most democratic governments moved slowly to correct the problem. In the United States Presiodent Franklin D Roosevelt overcame intense opposition to implement his plan for massive government intervention into the damaged US economy. In 1987 the same applied and in the Asian Economic Crisis of 1997-8 Asian governments moved gingerely to head off a regional economic crisis.
In this particular financial meltdown governments all over the world, to their credit have acted swiftly, decisively and in concert to put the brakes on the panic which overtook the private sector. George W Bush’s may not go down in history as a great President of the USA but to his credit he has acted decisively if belatedly in dealing with the collapse of the market. Its too early to judge whether the actions of the G7 and the G20 will stem the global economic haemorrhaging which began in Wall Street and spread like a eubola virus around the world but as result of international government intervention, there is good reason to believe that a global depression will be averted even though there is no doubt there will be a recession of indeterminate longevity. As Dr Peter Tarlow sagely observed the tourism industry is an integral component of the global economy and there is no doubt that tourism will be affected by the outbreak of global economic volatility.
Tourism is especially vulnerable to economic uncertainty and volatility for a simple reason. Most travel and tourism involves discretionary expense. During tough economic times people conserve their cash to cover the essentials of life, food, shelter and family necessities. However, this does not mean that tourism stops. The trend that we have learned from past crises whether we refer to past economic crises or the global tourism scare resulting from the events of 9/11 is
that people continue to travel but they will travel differently from the way they do during times of economic buoyancy. Those tourism and hospitality businesses which will survive and indeed thrive in the months ahead are those which can adapt because there are always winners and losers in any outbreak of economic volatility.
In the short to medium term there is almost certain to be a trend of travellers spending less on travel. Those tourism and hospitality businesses which can adapt to service travellers on a tighter budget will do well. The demand for the luxury end of the market is likely to decrease while demand for either low cost or perceived good value products and services is likely to grow. Airlines and hotels especially need to rapidly adapt to this trend. In the currency shakeout which has occurred in recent weeks, destinations with “favourable” exchange rates may benefit. Ironically the surge in value of the US dollar and the Euro may stimulate Americans, Europeans and Japanese to resume travelling overseas. The growth of Chinese and Indian outbound travel may slow but will continue because these economies are still gowing. There is likely to be a growth in domestic travel or short haul international travel as people choose to stay closer to home. If governments seek to help bail out industries they could help the global tourism industry by reviewing the plethora of crippling departure and other obscure taxes which have inflated the cost of international air travel.
However, gloomy some pundits have depicted the current economic environment most people worldwide will continue earn income from their jobs. Most will want to take a vacation, and weddings, honeymoons and illicit affairs will still contiuue. People will want to get away from home, make a religious pilgrimage and travel will remain part of the way people do business.
The optimistic growth forecasts of tourism associations such as the WTTC, UNWTO and PASTA will almost certainly require some revision but tourism will survive this challenge as it has overcome a wide range of challenges since this crazy 21st century began. The tourism industry will have a rough ride over the months ahead but those who think and act strategically and have to ability to adapt their business model quickly to the new realities will overcome this challenge.