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Business Traveller

How the World is Weathering the Economic Storm in Tourism.

Aired November 15, 2008 - 00:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

High: Travelers, frightened by the global financial crisis, have cut back on spending. International tourism has slowed sharply. And the worse may be yet to come.> Spec: Tourism; Hotels; Airlines; Asia; Peru; Africa; London; New York City; Financial Crisis; Economy; Travel>
RICHARD QUEST, CNN HOST: Hello, and welcome to "CNN BUSINESS TRAVELLER." I'm Richard Quest, this month reporting from the top of the rock, at Rockefeller Center in New York.

We are here because this city is the epicenter of the financial crisis. Markets and industries all around the world are now feeling the effect of a global recession. New York is the perfect place for us to continue our look at how this will affect travel and tourism.

Over the course of this program, we will be getting a global perspective. Are travelers cutting back? Or are we still finding that extra bit of spare cash for our getaways? In other words, is tourism feeling the (inaudible).

Oh, dear, the sun didn't last long. The storm clouds have gathered. The rain is now falling. And I'm on Wall Street with the charging bull. It's looking a bit forlorn these days now markets are in tatters.

Let's begin our look at travel and tourism with an overview of how the industry overall is likely to be effected.

This is a global slow down, not a meltdown. In the air, there's been a 3 percent fall in passenger traffic. Not too bad perhaps, but this is the first fall since SARS in 2003.

Hotels have been affected in every region. Asia Pacific faring the worst in falling occupancy rates. Supply far outweighs demand with new buildings in places like China. European occupancy has fallen 5 percent. The Middle East and Africa is more fortunate, having experienced smaller falls. South America has done particularly well, possibly helped by North Americans choosing to go on holiday closer to home.

With such worrying numbers, the experts are relying on history to guide the way.

MALCOM PERSTON, HEAD OF TRAVEL, PWC: The good news is that after any bad event, they should recover quicker now than they used to. Consumers are more resilient. A different profile if it's a war than if it's a national disaster. But broadly, countries and territories recover really quite quickly from bad news these days.

QUEST: For instance, three years after 9/11, tourism figures in New York picked up from where they left off. Even faster, it took London's tourism industry three months to recover from the July 7th bombings. Sometimes though, it can take much longer. Crises like SARS paralyzed the tourism industry in Asia for 18 months.

SARAH MILLER, EDITOR, CONDE NAST TRAVELLER: A health scare is something that really puts people off. When it comes to the idea of spending money that you either haven't got or that you don't need to spend, that's a completely different ballgame. I think you'll see many more people going -- travelling economy. I think you'll see many more people maybe not doing the kind of grand trip of a lifetime at Christmas and at peak season. But they'll look to do it out of season. So they'll still have the experience. Maybe they won't have the weather.

QUEST: Fear of the unknown, it is the major difference this time around.

JEAN-CLAUDE BAUMGARTEN, PRESIDENT, WORLD TRAVEL & TOURSIM COUNCIL: Day by day the stock exchange is changing, the value of the real estate is changing. You know, it has a psychological inference on the consumer. So I would say it's definitely a crisis, but it's not a crisis as we used to have.

QUEST: This is different, you believe?

BAUMGARTEN: Yes. This is different because the stabilization of the market takes time. You don't know which level you are. We know, in medium and long term, that it will increase, come back, bounce back. There's no doubt. We don't -- we just don't know how long it's going to take.

QUEST: The huge wave of optimism and excitement which greeted Barack Obama's election has given hope in other quarters too that there will be a revival of confidence. And that ultimately, will get tourists traveling again.

It's 11:30 in the morning here at the New York Stock Exchange, the center, if you like, of this global marketplace. Twelve hours ahead, it's 11:30 at night in Hong Kong. And that's a good place for us to start our world review as Hugh Rimington takes a look at the Asian travel issues from Bali to Bangkok and points in between.

(BEGIN VIDEOTAPE)

HUGH RIMINGTON, BUSINESS TRAVELLER CORRESPONDENT: Go on, admit it. You want to be here, sunset on Sanur (ph). This is Bali. And this is every dream of an Asian holiday.

But are Asian holidays increasingly just a dream? And are the people here riding the last wave?

UNIDENTIFIED MALE: Probably, we won't travel next year, so we try to really enjoy the time we spend here.

RIMINGTON: The impact is still to come. Tour operators say most travelers to Asia book six to 12 months ahead. The people here then, most of them, are relaxing on the basis of decisions they made back when Wall Street still looked relatively OK.

Tourism operators in Thailand carry an extra burden. A protest movement has occupied government offices for months. It's already helped bring down one prime minister. It's prompted violence, sometimes death, and a 16 percent plunge in visitors.

In Hong Kong's Ocean Park, they're still packing them in. Nearly half the visitors are from mainland China, a relatively resilient market so far. China is still growing in the high single figures. And the very lack of financial integration with Western banks has likely protected China from direct exposure to things like risky subprime debt. Even so, visitors to Hong Kong are edging down. Ocean Park recently cut prices five (inaudible).

In Asia, a tourism downturn doesn't just hit the obvious things like airlines and resorts, high-end shopping is another major motivation for people who travel to places like Hong Kong and Singapore. Retail sales are down. There is talk of recession, the fear of jobs being lost.

Tour operators say don't expect massive discounts in Asia. It may be a jungle out there, but Bali has survived terrorist bombings and is convinced it has the strengths and the range to weather this downturn.

IDA BAGUA NGURAH WIJAYA, CHAIRMAN, BALI TOURISM BOARD: A holiday is one of the -- one of the needs of Western people. So they will come to Bali.

MARCUS WILLSON, KUDOTA RESTAURANT: People still find overall Bali a very, very inexpensive place to visit, combination wise, especially food wise. And in your everyday expenses like travel, it's very, very affordable. So I would be surprised if Bali does suffer as much as the rest of the world in the current crisis.

RIMINGTON: See? There really is an earthly paradise.

(END VIDEOTAPE)

QUEST: Let's turn our attention to countries in Central and South America, also badly buffeted by the financial crisis. In Argentina, for instance, the government has nationalized pensions, hoping to stave off a default. And across the continent, weakening commodity prices and currency fluctuations are taking their toll.

Can the tourism industry take up the slack? Can tourists replace much of the lost revenue?

From Peru, CNN's Morgan Neill reports.

(BEGIN VIDEOTAPE)

MORGAN NEILL, CNN BUSINESS TRAVELLER CORRESPONDENT: For centuries, these walls built by the Inca have withstood the ravages of time. Now Peru's hoping they'll help the country withstand the ravages of the global financial crisis.

So far, so good, says Genaro Galdo.

We still haven't felt any effects from this crisis, he says. We hear comments, but here in Cusco (ph), we haven't felt it.

A new report from Lima's Chamber of Commerce estimates tourism in Peru will grow more than 8 percent in 2008, ranking second in Latin America behind only Chile.

Nearly two million tourists came to Peru in 2007. Flights to top sights in the country are still full, airports nearly overflowing.

So far, tourism in Peru hasn't missed a beat. And people here are hoping that sights like this one, the ancient Inca city of Macchu Picchu, will continue to draw people from around the world with its unique mix of history, unanswered questions and stunning beauty.

Tourists generally book trips here at least six months ahead. So it may be too soon to know just what the crisis will mean.

But the visitors we ran into say the crash wouldn't have changed their plans anyway.

UNIDENTIFIED FEMALE: We'd had already booked our passage before the crash of the stock market. And I would have come anyway because, if I have to teach piano lessons the rest of my life, so what.

UNIDENTIFIED FEMALE: I think it's a matter of priorities. So there will always be a certain percentage of the population that's going to come here because a destination like this is a life-time dream.

NEILL: Peru's Minister of External Trade and Tourism says she expects to see slower growth within a year. Nevertheless, she says, Peru is well positioned to weather the crisis.

MERCEDES ARPOZ, PERUVIAN TOURISM MINISTER: We know that the whole market is difficult, but we are not in the massive market. We are usually in market segments of the market, cultural, nature. Markets are usually less susceptible (ph) to price changes or income changes.

NEILL: What's more, Peru has been aggressively seeking new markets in Latin America itself, the Middle East and Asia. And the crisis may make it cheaper to travel to Latin America.

HANZO BARBIEN, EQUALIBRIUM: (through translation): Today, nearly all the Latin Americans' currency have suffered devaluations. In that sense, it's becoming cheap once again to visit certain countries in Latin America.

NEILL: So, while the path out of this crisis may be long and treacherous, Peru is betting its one-of-a-kind appeal will help it rise above.

JOSEPH DURANO, FILIPINO TOURISM MINISTER: I perceive that even with a slower growth in the global economy the next few years, I perceive that there is still enough opportunities for the Philippines to support its growing tourism sector.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: Every country in the world should take this crisis seriously. This is what I strongly believe. And the sooner we all start to prepare ourselves for the next season, the better we will face the challenge.

QUEST: The magnificent cathedral to rail travel that is Grand Central Station.

And welcome back to CNN BUSINESS TRAVELLER where this month we're looking at the effect of the global recession on tourism.

Of all the areas of the world that have seen such good growth in good times, Africa is way up there. Holidays on the African continent are usually denoted by safaris and, of course, beaches. But they are expensive holidays. So what happens when there's an economic downturn?

(BEGIN VIDEOTAPE)

AYEAHA DURGAHEE, CNN BUSINESS TRAVELER CORRESPONDENT: The dream picture for which you pay dearly. It is precisely because Africa is a dream vacation that the continent could be facing dire problems as wealthy tourists postpone their trips.

One ray of hope is the falling value of the South African Rand. Five- star safari holidays at the Angola (ph) Lodge used to cost almost $800 a night. Now they charge half that.

UNIDENTIFIED MALE: The weakening of the Rand has definitely been an advantage to us. And as brand conscience or as experience conscience that international travels are, price is too important. And if you're going to get a good deal on luxury products at a good price, why not? And South Africa offers it.

One just called though to me and said, "I'd like to travel to South Africa next year. I don't know when, but can I pay you now."

DURGAHEE: And that's why keeps occupancy rates high. The same isn't true for properties in Kenya, Botswana and Tanzania where they charge in dollars. It means South Africa is cleaning up with its cheaper currency.

MARTHMAS VAN SCHALLUYL (ph), SOUTH AMERICAN TOURISM MINISTER: We know that we cannot continue to rely on that. People come here and they don't only want to see the big five. They also want to see how people live in Africa. So we're making sure that we don't put all our eggs in one basket and that we continue to increase our tourism offerings.

DURGAHEE: South Africa could also make the most of its domestic market. Last month, 700,000 Africans visited compared to 100,000 from overseas.

The need to attract African tourists is something of which Kenya is well aware.

NAJIB MOHAMED BALATA, KENYAN TOURISM MINISTER: There's a huge market traveling within Africa, Africans within Africa. And that's a market we want to start looking into because that is a sustainable market.

DURGAHEE: To maximize its potential, Kenya has teamed up with four other East African countries to market themselves as a single destination. Tourists requiring just the one visa.

In November, Kenya has also marked the beginning of Obama tourism. Salmack (ph) Holidays is selling an all-inclusive, seven-night Obama routes tour for $4,000 per person with a safari thrown in.

With the new president-elect's Kenyan routes, a 15 percent increase of visitors to the country is expected.

BALATA: I wish we could sustain for the next eight years. But definitely, we are not going to sit down and just keep quiet. We are going to ride on the Obama success.

DURGAHEE: Even if everything goes according to plan, Africa cannot afford to ignore the elephant in the room -- recession.

(END VIDEOTAPE)

QUEST: Monty Python's "Spamalot," one of New York's productions that is perhaps closing early as a result of the credit crisis. In some cases here on Broadway, the audiences are less than 60 percent capacity. It's a similar story on the other side of the Atlantic, in London's West end. Jim Bolden explains.

(BEGIN VIDEOTAPE)

JIM BOLDEN, CNN BUSINESS TRAVELLER CORRESPONDENT: Whether it's the West End theaters or celebrity watching or the royal family, London is the most visited city in Europe.

Tourists come to gawk. Business people come to do deals. Some even come to this pricy place to go shopping.

London has just so much to offer, so many different hooks to grab tourists. Now, this is Harrods. The store says it's the third most visited attraction in the capital. And it's beginning to look a lot like Christmas.

Last year, overseas visitors spend some $16 billion here, though visits are down since 2006, and were expected to fall by nearly 3 percent this year to below 25 million people.

In the first quarter alone this year, the number of North American visitors dropped nearly 10 percent. But that was before the stock market collapse in early October and before the American dollar soared in value against the British pound.

UNIENTIFIED FEMALE: He's over here studying. When he first came in, the end of August, it was like two for one basically. And now it's down to like 1.6 something.

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED FEMALE: So we actually picked a great time to be here.

UNIDENTIFIED MALE: Well, I say things are looking better to buy than they were two weeks ago.

BOLDEN: And while London's hotels are reporting decent enough bookings, there has been an impact at the higher end.

JACQUELINE FRENCH, VISIT LONDON: What we're seeing actually is even very affluent travelers are looking at the ways that they decide to travel. So they want to get value for money rather than just being prepared to spend. Anecdotal evidence from the Australian market is that they may spend a few nights in budget accommodations, but then the last night or the last couple of nights, book into a five-star hotel.

BOLDEN: Some 5,000 extra Americans were in London recently when their style of football graced Wimberley Stadium. And you can't underestimate the importance of the Yanks abroad. Americans shell out around $3 billion annually in London, more than visitors from the next four countries, France, Germany, Spain and Italy, combined.

BORIS JOHNSON, MAYOR OF LONDON: This is not only the greatest artistic, financial, cultural capital of the world. It is also a place where you can get more bang for your buck than you ever could before.

BOLDEN: That stronger U.S. dollar could just be the engine to keep this economy turning.

(END VIDEOTAPE)

UNIDENTIFIED FEMALE: The (inaudible) activity is somehow the thing. By the time the world gets over this meltdown (inaudible), we should be ready to receive more people.

(COMMERCIAL BREAK)

QUEST: The Statue of Liberty, welcoming tourists and immigrants to this city since 1886.

And welcome back to CNN BUSINESS TRAVELLER. I'm on the Staten Island ferry now, as you might have gathered. Over there, the island of Manhattan.

It's time now to consider how the financial crisis will affect New York City itself. With so many revenue streams affected -- Wall Street, media, entertainment, publishing -- can tourism be the savior of the city's economy?

This is the New York site most familiar in recent months. Watching wealth evaporate is hardly the stuff of which vacation dreams are made.

(SINGING)

QUEST: This is the sight New York wants you to think of. A city attracts 46 million visitors a year, eight million of them from overseas.

The man responsible for selling New York knows this year's numbers will be stagnant at best.

GEORGE FERTITTA, PRESIDENT, NYC & COMPANY: We are not looking at a calamity. We think we are going to have some difficult times and we think that there may be some softness in the hotel rates. There may be some softness in occupancy. But we are really not looking at this as the kind of tragedy for the travel and tourism industry that many of the cities around the world are already beginning to experience and certainly looking forward to or not looking forward to next year.

QUEST: This is not just patriotic blind optimism. The city that never sleeps currently has more heads on pillows than any other U.S. city, so room rates remain high.

New York only has 77,000 rooms. Compare that to London with 83,000.

One of the biggest New York hotels is the Marriott Marquis in the heart of Times Square were Mike Stengle is the general manager.

There are how many rooms here?

MIKE STENGLE, GM, MARRIOT MARQUIS: Almost 2,000.

QUEST: Two thousand rooms? Two thousand rooms!

(LAUGHTER)

STENGLE: Yes.

QUEST: I hate to tell you, you know, but there's an economic -- how are you going to fill them?

STENGLE: We're going to shift -- what's going to happen is, when demand shifts, we shift our efforts into different markets to be able to fill the hotel. Whether we move from group to, convention to transient leisure to business travel, we'll switch our markets to be able to fill the hotel.

QUEST: Instead of slashing prices, the hotel is crafting packages that will keep occupancy rates up.

STENGLE: What we're going to do is we'll add value ads to the prices. We're do things like packaging, where, you know -- we're doing a shopping package where, when you come and stay, you get a $50 gift certificate to Bloomingdales. You know, we'll do those sorts of things that will ad value to your stay.

QUEST: Hot dogs.

UNIDENTIFIED MALE: Hot dog?

QUEST: A hot dog.

In the past 18 months, New York has been on sale for European tourists brought in by the cheap dollar. Now the currency has gained 20 percent, which isn't really worrying New York & Company.

FERTITTA: The best vacation you could possibly have is walking around the streets of New York. You don't need to spend money to really enjoy all of what New York has to offer.

QUEST: Which, of course, goes against the ritzy image of a city of excess. It is actually true. Here, you can eat more cheaply than in, say, London, Paris or Milan.

UNIDENTIFIED MALE: The large mushroom and Swiss omelet blank (ph), all right?

QUEST: The great thing about eating at the diner in these recession times is that it's cheap and there's choice. Here, at the Cozy, there are 30 different types of burger, from the humble hamburger to the five alarm with jalapenos, mushrooms and cheese, and all at $9.50. That's what I call lunch. But I don't like the pickle.

In New York, all tourists aren't equal. Overseas visitors make up 20 percent of the numbers, but they bring in 50 percent of the revenue.

So New York will next week announce a variety of alliances with airlines, hotels and industry partners to fight back.

FERTITTA: I don't believe that New York City is recession proof. But I think we're very recession resilient. And I think that we have a lot of confidence in the draw and the magnetism and the energy and the excitement that New York has with people from all over the world.

QUEST: With a plan now being put in place, New York seems set to weather this storm. Ultimately though, New York is still the one city overseas visitors come to time and again. It truly is a wondrous toy.

Well, the rain stopped. At least that's something. Now the wind's just blowing hard.

And that's CNN BUSINESS TRAVELLER for this month. I'm Richard Quest. Over the course of this program, we've shown you how much of the world is going to weather this economic storm in tourism.

Wherever you're travels may take you, I hope it's profitable. And I'll see you next month.

END