Barita Insights: Weekly Newsletter June 19, 2020

Analyst Insights

The tourism sector has been heavily hit by the coronavirus (COVID-19) pandemic. Our government was forced to introduce unprecedented measures to contain the virus, including restrictions on travel, business operations and people-to-people interactions which have brought the tourism sector to a standstill. Now we have entered a new phase in fighting the virus while at the same time managing the reopening of borders. This is a complex and challenging task; however, we believe our government has begun to take the necessary steps to effectively reopen the border. For instance, to gain entry, visitors must complete a pre-arrival authorization that asks about their possible exposure to COVID-19. They also are screened via thermal checks and symptom observation. Any visitor who exhibits symptoms or is ill is subject to quarantine. In addition, according to our Health and Wellness Minister, Dr Christopher Tufton, the government is exploring the option to charge tourist for COVID-19 testing to be done upon their arrival at the country’s ports, thereby providing a more thorough screening. With the government continually working at implementing new health protocols to keep our doors open, they have expressed that we should prepare for an almost exponential rise in new cases and that we should necessarily get accustomed to living with the virus.

Using data from 2000 – 2015, the International Monetary Fund (IMF) has found that the number of flights has a significant influence on the number of tourist arrivals, approximately a 1.0% increase in the number of trips to a destination instantly increases tourist arrivals by 0.3%. Conversely, we can assume that a 1.0% fall in the number of flights should cause a drop in tourist arrivals by 0.3%. The Coronavirus pandemic has severely reduced the number of flights because of lockdowns and bans restricting international travel across the globe. Even though some countries started to recover as the coronavirus spread is being contained, the desired level of recovery may take some time. The change of airline capacity will most likely remain below the 2019 levels. The longer recovery will be dependent on several factors, including COVID-19 economic recession, the confidence of people to travel and even stringent travel restrictions. Confidence is being restored of late as the U.S. airlines are boosting their flight schedules in preparation for the summer after experiencing an increase in customer demand. American Airlines announced that it would increase the number of domestic flights next month. The airline said it is planning to fly more than 55% of it July 2020 local schedule next month after average daily passenger numbers increased from about 32,000 in April to more than 110,000 in late May. This uptick in travel bookings for domestic flights shows that Americans are taking that first step towards leaving the comfort of their homes which will eventually build confidence for international travel.

We anticipate the cruise industry, which represents a large portion of Caribbean tourism, to be the last to recuperate as the outbreak of COVID-19 on the Diamond Princess that reported 712 cases onboard and seven deaths is likely to weigh on demand going forward. However, this may force cruise lines to rethink business models to become more hygienic and sustainable, possibly leading to a quicker recovery than anticipated.


Initially, Americans are going to want to do a staycation, only a relatively small number will want to go overseas. Not many Americans will be getting on long haul flights to Europe, including destinations such as France, Italy and Spain, which is why Jamaica, Cuba and Bahamas are ideally placed to get a larger share of the much smaller number of US tourists who are willing to go overseas. Since remittances have held up much better than expected, should tourism rebound quicker than expected as well, overall economic activity too should rebound quicker as well. Given the direct, indirect and induced effects of tourism on the local economy (approximately 30%), then players in the distributive trade could see more as households exposed to the tourism sector begin to earn again That means, we would be keeping a close watch on
Express Catering Ltd., Wisynco Group Ltd., Jamaica Producers Group Ltd, Lasco Distribution Ltd. and Lasco Manufacturing Ltd. given that they would be beneficiaries of an increase in tourism arrivals. In the near term, the expectation is that domestic tourism offers the main chance for driving and supporting the tourism sector in the absence of overseas tourists. Our country’s tourism industry accounts for approximately 6% of our GDP as of December 2019 but fuels more than on country’s economy directly and indirectly. It is our “Bread and Butter” and essential in returning our economy to pre-COVID levels.

Written by Jonathan Cook, Research Analyst

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Conclusions

The Federal Reserve Board ...

The Federal Reserve Board depicted a US economy that remains fragile and vulnerable and interest rates that remain near zero for at least the next two-and-a-half years. In addition, they projected a 6.5% percent contraction in real GDP this year, 5% growth in 2021 and 3.5% in 2022 and an unemployment rate of 9.5% in the final three months of this year, 6.5% next year and 5.5% in 2022.

On June 1st, 2020, there was a loosening of curfew orders ...

We are approaching another quarter-end for most companies who would have been affected by the lockdown between March 2020 to May 2020. On June 1st, 2020, there was a loosening of curfew orders and an expiration of Jamaica’s stay-at-home orders. While Jamaica still operates under the Disaster Risk Management Act, there has been some life and normalcy returning to business operators and consumers.

The US Fed has indicated that ...

The US Fed has indicated that another economic lockdown is not a viable solution to the second wave of the COVID-19 outbreak as this will have a ‘permanent damage’ to the economy. This second outbreak has only caused a delayed start to the reopening, leading to potential ‘U-shaped’ recovery or ‘Swoosh-Shaped’ recovery for the economy.

Domestic tourism offers the main chance ...

In the near term, the expectation is that domestic tourism offers the main chance for driving and supporting the tourism sector in the absence of overseas tourists. Our country’s tourism industry fuels more than one-third of the country’s economy; it is our “Bread and Butter” and essential in returning our economy to pre-COVID levels.

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