The View from Europe
By David Jessop

What future for tourism?

As oil and food prices continue to rise and further levies are introduced on travel, could the Caribbean be priced out of the low to middle end of the European tourism market? 

This alarming prospect may be closer at hand than the region would wish if the situation in the Middle East and Japan was to deteriorate further.  So much so, that the Caribbean could face a tourism shock in 2012 equivalent to that experienced after the terrorist attack on the World Trade Centre in 2001 or the global financial crisis of 2007/8.

In recent years, when the region had near guaranteed earnings from the preferential prices paid by Europe for primary agricultural products such as sugar and bananas, a fall off in tourism arrivals may have been less significant. However, today, when some Caribbean economies obtain as much as 40 per cent of their GDP from tourism, the effect could be devastating.

Although most Caribbean nations are to some degree protected domestically by Venezuela’s PetroCaribe arrangement, which provides oil on deferred terms, the risk lies elsewhere. The region’s tourism depends on airlift from virtually everywhere other than South Florida, the home of the majority of cruise lines that sail the Caribbean.  

If the price of oil, food and aviation taxes escalate together, there is a real danger that the cost of a Caribbean vacation may pass beyond the ability of consumers at the lower and middle end of the market to pay. This is especially so in the case of visitors from nations like the United Kingdom, Ireland and Spain - key feeder markets for nations for the Eastern Caribbean - which are instituting austerity measures in order to cope with huge budgetary deficits.

If oil prices escalate through the US$120 per barrel mark as some commentators now believe - many Caribbean national budgets assumed oil at US$80 per barrel - the cost of virtually every tourism input will increase, just at the time that hoteliers have discounted rates to stimulate recovery and to sustain them through the weak summer and fall periods of the year. 

So serious has this become that both scheduled and charter carriers are already introducing new fuel surcharges and indicating that they will be cutting services to the region. Concern about rapidly escalating oil prices is also causing problems for key tour operators, uncertain about the level of risk to price into their packages over the coming summer and winter period. 

Less apparent is the potential effect of the growing move to tax aviation emissions. 

While the Caribbean’ principal focus has been on the UK’s Air Passenger Duty (APD), which discriminates against the Caribbean and in favour of travellers to the US, the European Union has moved ahead with its scheme to introduce a form of levy on airlines that in some nations like the UK may be additional to existing aviation duties. 

On March 7, Connie Hedegaard, the EU Commissioner for Climate Action, provided some of the detail about the manner in which the EU will in 2012 bring aviation into its emissions trading scheme (EU ETS).

From next January all airlines entering or leving EU airspace will be subject to European cap-and-trade scheme that limits carbon emission as a part of Europe’s approach to climate change. Airlines will be allocated allowances equal to the total amount of carbon dioxide they emit. Under the scheme each carrier will then be granted licences annually, free up to an agreed but gradually diminishing level, so that when emissions exceed this amount carriers will have to buy further licences either from other emissions regulated companies or through the carbon market or from government auctions.

Under the so called EU ETS scheme it will then be up to the airlines to determine how they pass on the cost to travellers, deciding on a commercial basis which routes or classes of travel they wish to incentivise.

Although the European Commission claims that this will add just Euro12 long haul  to the price of a ticket, analysis by some industry specialists suggest that not only will the price be significantly higher- possibly as much as Euro 40 to 60 long haul - but may escalate significantly as the price at which carbon is traded increases.

Moreover, as with all environmental levies no one is clear what will happen to the money. Although the EU ETS Directive states that European Member States should use all auction revenues from aviation allowances to tackle climate change, few believe that cash strapped governments will do anything other than take such sums into general revenue.

Unfortunately, aviation taxation in relation to the environment falls into the category of law with unintended consequences. It directly impacts on Caribbean development as it has the capacity to negatively affect visitor arrivals. While the Caribbean would prefer to see a multilateral approach that treats all airlines and countries equally in a manner linked to development and in particular to the risk the region faces from climate change, such a global approach is many years away.

What is again happening is that extra territorial events and measures are moving beyond the control or ability of the region to influence.  

Recent development s are hugely difficult to plan for, but suggest that Governments need to consider rapidly how best to lower the input costs for tourism by seeking to integrate, as far as possible, new investments in agriculture and manufacturing with the tourism sector through holistic policies that ensure Caribbean nations retain a greater  element of tourism earnings.  

None of which should be taken to suggest that Caribbean people are not also suffering as a consequence of increasing energy prices and taxation. Rather it is to argue that if the region does not consider rapidly a response to the present threats to tourism, the region wide economic and social consequences will be severe.

David Jessop is the Director of the Caribbean Council and can be contacted at [log in to unmask]
Previous columns can be found at www.caribbean-council.org
March 10th, 2011