Finance, not tourism, is the key to our future prosperity

FRIDAY, DEC. 9: Bermuda’s future lies in establishing itself as a Mid-Atlantic Financial Centre.

This means that Bermuda and Bermudians must forever abandon the idea of reviving tourism to the state and status that tourism occupied between 1920 and 1990.

In today’s column we compare the contribution made by Tourism and the Financial Services (FS) sector to our overall economy.

Since tourism was such a large part of the Bermudian way of life for such an extended period of time, we have endeavoured to show where it now finds itself and why we can no longer be reliant on it.

In 2010, the Department of Statistics reported that tourism made up only 4.7 per cent of GDP. This was vastly different to the pre-1980s when tourism made up around 70 per cent.

For tourism, 1980 represents Bermuda’s ‘golden peak’ with 609,000 tourists delivering an income that hit $317m. In 1980, tourism was bringing in $317m while Government was spending $120m in that year. In 2010, tourism was bringing in $384m while Government was spending $1.2b (ten times more) in that year.

By 1987, tourism income had risen to $468m from 635,000 total arrivals. However, in spending power, this was only worth about $250m in 1980 dollars. In 2007, tourism brought in $513m from an all time high of 659,000 tourists. But this $513m was worth only about $114m in 1980 dollars. In 2010, tourism income was $384m from 585,000 total arrivals but in terms of spending power and compared to 1980 dollars, was equivalent to only $77m, about 75 per cent less than 1980’s tourist income.

Overall, between 1980 and 2010, tourist numbers fell only four per cent (from 609,000 to 585,000) but the value of income from tourism plummeted 75 per cent.

In 2003, the balance between air arrivals and cruise arrivals shifted. Bermuda was no longer a ‘landstay’ or air arrivals destination. Bermuda had switched into a Cruise destination.

Year          Air                Cruise

1980        81%               9%

2010        34%              66%

Tourism income, 2010:

Arrivals                          Income

347,931 (cruise)             $61m

187,000 (air, leisure)  $260m 45,393 (air, business) $63.0m

So Bermuda’s real national income from leisure tourism is $321m ($260m air plus $61m cruise). It should be specially, even alarmingly noted, that in 2010, those 45,393 business visitors provided more national income ($63.0m) than did 347,931 cruise visitors ($61m).

This business to cruise visitor comparison holds for all other years as well. One air arrival or one business visitor is worth the same as seven cruise visitors. For every $1.00 received from an air arrival or business visitor equates to $0.15 from one cruise visitor.

What would happen if we could maximize tourism? Assuming Bermuda’s infrastructure can support the numbers, if cruise visitors double to 700,000, cruise arrivals income should also double to $125m. If air arrivals rise so that each of Bermuda’s 5,870 hotel beds have a 365 day-a-year 100 per cent occupancy with an average five nights stay, Bermuda could possibly host 425,000 air arrivals. Air tourism income should generate around $590m.

By 2010, this is what has happened in Bermuda’s tourism industry:

Value of national income from tourism had fallen from being $317m Government annual revenue in 1980 to $77m Government annual revenue in 2010.

The arrival balance has shifted from 81 per cent air and 19 per cent cruise in 1980, to 34 per cent air and 66 per cent cruise in 2010.

Spending pattern analysis showed that air arrivals, whether business or leisure, were spending $1.00 for every $0.15 spent by cruise visitors. [This ratio had held since the 1980s.]

• 45,393 air arriving business visitors brought in $63.1m;

• 347,931 cruise visitors brought in $61.0m.

Total tourist arrivals were down only 4 per cent from 609,000 in 1980 to 585,000 in 2010; but the value of total national tourism income was down 75 per cent.

A maximized tourist industry might result in tourism making up possibly eight per cent of an increased GDP.

Tourism in Bermuda cannot be revived to its heyday numbers and incomes. Tourism cannot support Bermuda and Bermudians in the way that it once did. Tourism has now become a supporting pillar to our real income earner, financial services.

Focus on air arrivals

In order to keep tourism active going forward we should concentrate on increasing our air arrivals and not our cruise arrivals. Air arrivals of 315 visitors bring in as much money as one cruise ship carrying 2,500 passengers. We cheapen our tourism product with these cruise ships. We put a strain on our infrastructure for very little return and now we look like we are being blackmailed by their demands to open their casinos while in port. If cruise passengers are only spending $0.15 for every dollar spent by air arrivals now, what will they spend if we give them that concession?

When we compare the finance and tourism industries, simple arithmetic speaks volumes: Out of every dollar ($1.00) of Foreign Currency Earnings earned by these two sectors:

• Financial services and business visitors deliver $0.86

• Air arriving leisure tourists deliver $0.11

• Cruise visitors deliver $0.03

Financial services has, is, and perhaps will always bring in over five times as much as tourism.

As long as FS remains successful, FS’s foreign exchange earnings will always be a multiple of Tourism’s earnings. Tourism’s earning capacity can never match successful FS’s earning capacity.

Tourism cannot be revived to its relative heyday earnings. Tourism’s maximal earnings are well below FS’s current earnings and future earnings potential. We must therefore concentrate on the FS industry which is clearly contributing much more to our economy.

If a larger portion of the effort, budget and manpower was dedicated to building FS and rebuilding Tourism, Bermuda would prosper and continue to grow well into the future reducing the stress on our society by creating additional employment opportunities for Bermudians, rental income for Bermudians and revenue for social programmes and infrastructure improvements.

Get involved and send us your thoughts. This continues to be a collective effort by all Bermudians and we need your continued support, comments and ideas. For further information or to express your comments email us at [email protected] or visit us on Facebook: Regeneration of Bermuda’s Economy.