Possible Impact Of Brexit On Bermuda’s Tourism
The “travel industry is one of those most affected by currency changes,” and “depending on the currency one uses, the impact could be positive or negative,” with statistician Cordell Riley saying we should be carefully monitoring forward bookings and be “contemplating a ‘Brexit Package’ to take to the marketplace to offset any possible declines.”
Mr Riley said, “The day after Britons voted to leave the European Union [Friday, June 24th] the pound fell from $1.50 to $1.35 against the US dollar, increasing the dollar’s spending across the UK by 10%.
“The Euro also weakened against the dollar effectively putting the whole of Europe on sale. The travel industry is one of those most affected by currency changes and depending on the currency one uses the impact could be positive or negative.
“From a tourism perspective, dollar-based destinations could see a fall-off in arrivals for two main reasons.
“Firstly, for those who target the major US market, Americans could take advantage of the bargains afforded by the strong dollar and head to Europe and other non-dollar-based destinations.
“And secondly, for travelers, such as Europeans, whose currencies are not dollar-based, destinations like Bermuda, which are dollar-based, become more expensive.
“And there is evidence to support this theory. Historically, dollar-based destinations have seen a fall-off in arrivals or spending when the dollar has been strong.
“According to Evan Soltas, an Economics Blogger, ‘for every one-percentage-point increase in the dollar’s value [as measured by the real trade-weighted rate], foreigners’ travel spending drops by half a percentage point.’ And he further states that those impacts are immediate.
“In addition, a special report from TD Bank on March 22 of this year ran a headline, ‘High-flying dollar takes some shine off New York Tourism.’ [PDF]
“The article went on to state that ‘Much of the industry’s early recovery was related to international tourism, while domestic travelers were still on the sidelines. However, a strong dollar and weaker global economic conditions will leave international travelers playing second fiddle this year and next.”
“And a report in the online travel industry publication, Skift, reporting on June 27th, just a few days after “Brexit,” stated that “Brand USA” was having trouble meeting its tourism goals.
“To see if this strong-dollar theory had any significance for Bermuda, we modeled the nominal annual dollar exchange rates against US arrivals to Bermuda. Firstly, modeling data from 1980 to 2015, there was a very weak , inversely-rated correlation between a strong dollar and US air arrivals.
“What this means is that when the dollar was strong, US arrivals to Bermuda generally fell. Modelling the data from 2000 to 2015 improved the relationship but it was still weak. The relationship was weak since there were some years when a strong dollar did not negatively impact on US arrivals. [See Chart 1]
“So what do these results mean for Bermuda? They may mean nothing at all. If the relationship is weak, why worry at all? Soltas, crunching US travel data, found that Americans don’t necessarily travel more when the dollar strengthens but he did find that foreigners traveled less to America and, by extension [our emphasis], other dollar-based destinations.
“Our data, on the other hand, does show that a drop-off in US arrivals is possible. Further, if we follow Soltas’ findings, we could also expect a drop in European arrivals as well.
“So, to do nothing would be unwise. Although US arrivals to the end of May this year were up 15.7%, this is against the backdrop of decades of declines. Canadian arrivals were down 22.8% for the same period and European arrivals, including the UK, were flat [up 0.1%].
“If, as Soltas states, that the reaction to the strength in the US dollar will be swift, at the very least we should be carefully monitoring forward bookings for any negative trends. We should also be contemplating a ‘Brexit Package’ to take to the market place to offset any possible declines.
“This package should include air fare [at least from Europe] hotels, transfers and participating restaurants such that the savings should compensate for gains of the dollar; for instance at least 10%.
“For the US market, the message could be ‘Come to Bermuda and get the same savings as going to Europe.’ For the UK/European [and Canadian] market the message would be the opposite; ‘Come to Bermuda, your pound/Euro/[dollar] has not lost its value!”
The fall in the Pound driven by Brexit and the weaker British economy will mean fewer UK tourists as the cost of their trip has effectively risen. That’s a no-brainer.
For the rest Cordell is using weak correlations and finding a pattern that doesn’t exist. Meanwhile there are big variables that do correlate and real-world business decisions that can be taken and are being taken to improve tourism. Real-world tourism is going to start to rebound because the government and Tourism Authority are finally doing the right things to compete worldwide.
Considering that Cordell has “forecasted” both economic growth at the top of the boom (which was dead wrong) and forecasted continued decline at the bottom of the market (which was dead wrong) can we please stop publicising his “analysis”.
Agree completely! This guy has, at best, a high school grad level understanding of statistics and economics. Let it go Cordell – Math just isn’t your thing.
Whom does this person work for.
Very negative.
Speculation.
Totally agree with this piece–we should be monitoring the potential fallout and while we are doing it we should ennsure that we are providing a quality service to our visitors and value for money.
Can you say “taxi strike”–need I say more??
Also visitors like international business vote with their feet and dollars–remember what happened when we fiddled with payroll tax and term limits? Yes of course we all do, though we don’t really like to admit that we screrwed that one up.
So as Bermudians–we need to protect our turf–not be self destructive and do things for self centered personal reasons at the cost our our clients who are paying very high prices for their Bermuda experience!!!
We need to pull together and make Bermuda awesome for our visitors, clients and ourselves.
Maybe you should send this report to Fahy since my people don’t trust him.
Mr Riley said, “The day after Britons voted to leave the European Union [Friday, June 24th] the pound fell from $1.50 to $1.35 against the US dollar, increasing the dollar’s spending across the UK by 10%.
Please do your homework. The last time it was $1.50 was December last year – not June this year.
No it wasn’t it was $1:50 the night of the referendum when it was thought the UK would stay in the EU. It then plummeted as the results came in.
That was a momentary abberation. The general value of the Pound was around 1.43, and now it’s about 1.32. Like Riley says, there is weak correlation to begin with, and when you boil it down the change in value, while not irrelevant, has been hyped to be more than it really was.
The GLBT community won’t be rushing here with their disposable cash now the word is out ,Bermuda deserves what it gets that’s what happens when you try to cherry pick your way through the type of dollars you seem to want to attract that plus we are at least 10 years behind everyone else.
Good, its better to have things natural.
Natural for this rock is empty. Just the way you seem to like it?
That’s right we have long seem to have forgotten that we are only 20 square miles on this vast planet and we are fussy about who want on our little dot which when you think of it has been a massive failing over the years as we only need a small % of the world tourism business to make us tick and we can’t even do that ,can anyone ever remember seeing an add for Bermuda ?
I don’t see a loss here…we can invest in this area in many ways…and guess what…now…is the time.
I see investments that would dividend not unlike stock splitting and compounding!
Mr. Riley suggests a “Brexit Package” when the big visitor loss has been from Canada. BTA and Transport Ministry have spent substantial funds on ads and Air Canada & WestJet financial support. Unfortunately BTA efforts in Toronto are wasted when there is a 30% exchange penalty. Cut losses, put the BTA and Transport funding into “Canadian Package”.