Industry Information

TOURISM EXECUTIVE BRIEF CARIBBEAN

A DECADE OF TUMULT ENDS WITH A LOOK BACK A NEW WORLD ORDER
The first decade of the 21st century is now behind us and what a tumultuous and challenging decade it was! Trying to put so many extraordinary events into any context with meaning for the future is a near to impossible task.

However, we consider that the most significant development of this era, certainly for its long-term effect, was less of an event than an evolution. We refer to the birth of a new world order involving a dramatic and probably irreversible shift in economic power from the West to the East plus fast-emerging Brazil. Countries like Brazil, China, India, Indonesia and others with vast natural resources, huge populations and improving financial positions are seeing more rapid growth, more inward investment and a faster recovery than the United States and Western Europe. These nations are the new market leaders spearheading the climb out of the worst global recession since the Great Depression of the 1930s on the backs of strong consumer consumption from a fast-growing middle class.

The implications for the Caribbean are obvious and multi-national, however, relations with China must be near the top of the list. Asian expert, Daniel Erikson, of the Jamestown Foundation put it succinctly when he described China for the Caribbean as “the new big brother” in a recent publication. Trade between the latest economic colossus (China became the world’s largest exporter in 2009, taking over from Germany) and the small nations of the Caribbean has increased rapidly in the last decade; today, virtually every country in the region has extensive economic and political ties to China.

 GLOBAL STOCK MARKET PERFORMANCE
The past decade was undoubtedly the most volatile in international stock market history and took investors on a wild roller-coaster ride ending with negative results for most. It was marked by two collapses of epic proportion, the first occurring shortly after the 9/11 disaster when the dot.com bubble burst and again in late 2008 and early 2009 at the height of the global financial crisis when some of the biggest names in banking bit the dust. Fortunately, the world’s stock markets came roaring back in late 2009 with strong last-quarter rallies, although not enough to erase the cumulative losses of the decade.

On Wall Street, the Dow Jones Industrial Average gained nearly 19 percent while the broader Standard and Poor’s composite index rose nearly 25 percent. Both marked their best performance since the rally of 2003. In Canada, the S&P/TSX Index finished up with a 30.7 increase for the year.

In Europe, the Dow Jones Stoxx Index representing results from that region’s 600 largest corporations was up by 28.1 percent, its largest gain since 1999. Individual markets of special interest to the Caribbean fared well, including Britain’s FTSE 100 up 22.1 percent, Spain’s IBEX 35 up 29.8 percent, Germany’s DAX up 23.8 percent and France’s CAC 40 up 22.3 percent. Russia was by far the biggest winner as its RT Index shot up an astounding 128.6 percent for the year.
Emerging markets did even better as internal and external investors everywhere took advantage of higher yielding stocks and bonds in Asia, Australia and Latin America moving out of more secure liquid assets and savings.

Asia, led by China which was up 80 percent on the strength of its large government reserves and solid banking industry, had a collective increase of 68.3 percent excluding Japan. Japan is the odd man out in an otherwise bright picture. The strong Yen caused big losses in traditional exports of vehicles and electronics to South Korea with its much weaker currency plus a big improvement in quality from manufacturers in that country. While the Nikkei did record a gain of 19 percent last year, it has declined over 44 percent during the decade.

Latin American stocks also enjoyed large gains in 2009. Morgan Stanley’s weighted index of regional stocks rose 98 percent, an extraordinary turnaround from the 53 percent loss recorded in 2008. Argentina and Brazil were the star performers, followed by Venezuela, Colombia and Chile. Even Mexico with a stagnant economy and its heavy dependence on the U.S. closed out 2009 with a big increase of 56 percent in its IFC Index, near an all-time high.

THE IMPACT OF GLOBAL TERRORISM
The past decade was marred by an alarming growth in global terrorist activity due largely to a radical group of militant Islamic fundamentalists that recognizes no borders or constraints in the pursuit of Jihad against the West. Not since the waning years of World War Two when the kamikaze pilots of Imperial Japan crashed their planes into enemy warships have we seen so many zealots prepared and ready to die for their beliefs in suicide attacks. In fact, some military observers have already declared today’s situation as World War Three because of the scope and widespread nature of these attacks. As a consequence, although the U.S. remains the world’s strongest military power, its resources in money and manpower have been stretched to the limit by two large-scale wars in Iraq and Afghanistan plus firefights and confrontations in other countries where the U.S. has declared interests.

The negative effect on the international travel and tourism industry has been devastating, second only to the global recession itself while the full impact of more stringent security measures and border controls, together with an increased fear of flying among the public, is still to be measured in length and severity.

POLITICAL WINDS OF CHANGE
Among the significant political developments of the decade were the extreme polarization of electorates and the political process of governance in the West with the United States the prime but not the sole example. The art of compromise in U.S. politics seems totally lost and bi-partisan promises are honored only in the breach. This has made progress on vital issues, foreign and domestic, increasingly difficult to achieve to the detriment of the country and its other-nation partners including the Caribbean. No better example need be sought than the intense acrimony resulting from the 100 percent party line divide in voting for the all- important U.S. Health Care bill which will affect millions of Americans of all persuasions for years, perhaps decades, to come. Increased polarization following the stunning election victory of President Obama has turned back the clock on what seemed to be the dawn of new relationships with Cuba early in his administration and attempts to drop all restrictions on travel there by U.S. residents has stalled.

Significantly, the President’s early approval ratings of more than 75 percent have slumped to 46 percent in the most recent Rasmussen Poll and the spirit of optimism that prevailed at the start of his administration has palled.

THE STATE OF THE AIRLINE INDUSTRY
It was a lost decade for most of the airline industry and 2009 was no exception although there were a few encouraging signs at the end of the year, particularly for those carriers most successful in bringing their costs into line with the economic reality of rising energy costs amid decreased demand. Many carriers, some with historic roots and great recognition like TWA and Swissair disappeared through financial failure or acquisition and low-cost carriers were no exception including a whole group of all Business Class airlines like Eos and MaxJet that chose the worst time to challenge legacy carriers in a fast diminishing market for premium services.

We see more bankruptcies and mergers ahead and refer our readers back to our coverage in the July/August 2009 issue of the Brief for more specific information that is still relevant.

TRENDS IN THE CRUISE INDUSTRY
The big cruiselines headquartered in the U.S. demonstrated once again that they are peerless if not ruthless in dealing with financial crises and bad publicity over the onboard crime and health problems that grew in tandem with the growth of the industry over the decade. Management kept its ships operating at 100 percent capacity throughout the worst of two deep recessions by aggressive pricing combined with skillful yield management while never letting up in their advertising and promotion spends. Market leaders Carnival and RCCL were both showing improved results and profitability by the end of last year despite substantial drops in yields and the prospects for all major cruise lines look even brighter for 2010.

New ships continue to come into service throughout the decade although at a slowing pace towards the end. The era was also marked by the advent of numerous mega liners culminating with the launch late last year of RCCL’s 5,400-passenger Oasis of the Seas which is now plying Caribbean seas to generally enthusiastic acclaim from the press. This added capacity has increased downward pressure on cruise pricing, particularly for older ships.

Unlike the hotel industry, cruiselines have moveable assets and are able to change homeports on fairly short notice. The past several years were notable for shifts in tonnage from U.S. and Caribbean homeports to Europe, Asia, Australia and New Zealand by Carnival, Celebrity, RCCL among others. But more recently, the trend has reversed with a return to U.S. homeports and shorter cruise itineraries to Caribbean and Mexican ports of call. Because of the logistical and considerable cost considerations involved we anticipate a lengthier period of stability in the short and midterm.

TECHNOLOGY AND THE MEDIA
The second half of the past decade experienced a virtual revolution in information technology development and usage, that has battered traditional media in print and broadcast to the edge of extinction or beyond for many magazines and newspapers on both sides of the Atlantic.

Over this period, mobile technology and social media are now staples among the growing ranks of Internet users everywhere. In the U.S., the number of adult Americans regularly using the Internet has reached 80 percent of the population according to a recent Pew Internet Research Study. In the U.K. internet advertising sales overtook television advertizing for the first time ever and now enjoy a 23.5 percent share of all British advertising revenues making it the nation’s largest medium.

Similar penetration numbers can be found in most of Europe, Asia, Scandinavia and Latin America with the largest numbers there in Argentina, Brazil, Colombia and Mexico.

In short, the new media is now mainstream and has produced a younger generation of travelers who grew up in the computer age and are capable of adapting instantly to today’s constant changes in technology. At the same time, older segments of the population have demonstrated their willingness to invest in new gadgets like the Kindle and are heavy users of the Internet.

Forward thinking governments in the region and their private sector counterparts with the responsibility for tourism promotion need to stay ahead of the curve in this new reality while laggards may court disaster. Having the right people with knowledge and vision in IT departments who are given the right tools in equipment and software to do the job is the essential ingredient for success. Budgets may need to be adjusted, but fortunately higher costs for IT development and maintenance are likely to be offset by reductions in traditional media advertising and printed promotional material.

We will take a further look at the spread and importance of social media including Twitter in our forecasts for 2010 in part 2 of this Brief.

CLIMATE CHANGE AND THE ENVIRONMENT
No look back at key events of the past decade can afford to omit the torturous, controversial and largely unresolved debates on coping with global warming, its likely impact on all our lives and more narrowly on the future development of the tourism industry, particularly among island nations.

Last December 7, 56 leading newspapers in 45 nations around the world including the Miami Herald as the sole U.S. publication took the unprecedented step of running the identical editorial on their front pages under the banner headline Fourteen days to seal history’s judgment on this generation . The opening paragraph commenced with this statement “Unless we combine to take decisive action, climate change will ravage our planet, and with it our prosperity and security.” These ominous words were published as the United Nations 15th Conference on Climate Change (COP15) was getting underway in Copenhagen and largely fell on deaf ears as skepticism and deadlock on issues between developed countries and poorer nations blocked any binding agreement once again.
COP15 was the culmination of several years of planning and many pre-negotiations and the lack of resolution was a bitter disappointment for most participants. Its principal objectives were to limit and reduce carbon-based emissions worldwide thereby slowing the rise in global temperatures, and to establish a fund to aid those impoverished nations already affected by radical climate change.

The talks ended on December 18 when more than 100 Heads of State including President Obama joined the negotiations in an attempt to rescue the conference with a broad, nonbinding political agreement that hopefully would serve as the basis for a binding treaty to be signed in 2010.

This was clearly optimistic and now seems impossible. While the Copenhagen Accord recognized the problem of climate change and pledges were made to reduce carbon emissions and several nations promised contributions to the neediest nations fund, the Accord was not formally accepted with delegates merely voting to “take note” of it. And so it seems that the stage shifts to next year’s COP meeting in Mexico in another case of fiddling while Rome burns.

Part Two of the January Brief will be released shortly with our look ahead at 2010 and beyond with some predictions for the economy, individual airlines of concern, the agency world and the hotel sector.
For more information visit CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)