Energy and Tourism
Caribbean tourism can be broken down into land-based guests, charter guests and cruise ship visitors, with the greatest revenue generated by those staying in the region for the duration of their vacation. Historically, it’s apparent we haven’t given much thought to the expense of travel for vacationers eying the British Virgin Islands, since consistent economic growth and low energy costs have sustained the growing demand for a piece of paradise.
Recently, however, increased economic volatility and rising fuel prices have been changing the relationship between supply and demand for tropical getaways. Increased energy costs are consuming the disposable income of would-be tourists. As the cost of living increases, funds typically available for travel are depleted. Fortunately, the challenges associated with this transition can be overcome.
Upward trends in fuel prices continue to impact price-sensitive leisure travelers, according to the International Air Transportation Association (IATA). So it’s worth evaluating the potential impact of energy costs on an economy heavily vested in its tourism product. About half of all jobs in the BVI are attributed to tourism. This industry contributes $456 million towards the BVI GDP, a 39.9% contribution according to the Caribbean Hotel & Tourism Association (CHTA). It’s a significant contribution capable of further growth if industry and governments recognize and respond to the energy challenge and it’s impact on tourism.
Given the great contribution of tourism toward the success of the Caribbean economy, it is important to respond to the impact of energy prices on this industry. According to the IATA’s Industry Outlook, fuel accounts for 27.9% of airline operating costs. Based on a $100 barrel of oil, an increase of $1.00 per barrel translates to an additional cost of $1.66 billion dollars to the airline industry. Jet fuel today is 52.7% more expensive when compared to fuel prices only one year earlier. These costs carry directly through to the traveler, reducing the affordability of travel and disposable income upon reaching their destination.
According to Dr. Campbell, a retired geologist for BP, Texaco and Amaco, we are currently witnessing peak oil prices. Going forward, world demand for oil will increase but production will gradually decline, resulting in consistent fuel price increases. Given this information, Caribbean nations reliant on diesel fuel for power generation are more vulnerable than countries with an energy mix.
Managing the impact of energy costs on our cost of living is critical to the sustainability of our economy. Energy price impacts are far reaching in a Caribbean Island economy. The majority of our goods are imported. We recognize the relationship between increased cost of flights with fuel prices, but might not realise that increased costs of goods are directly related to energy prices also. Importers have become quite familiar with the fuel surcharge on shipping, but few people are familiar with the impact of energy prices on food. As an example, bio-fuels such as corn-based ethanol production are increasing demands for grains historically used for food. As a result, the Commodity Food Price Index has started to track the cost of fuel. Recent discussions with a large North American Veal farm confirmed the impact of energy prices on our food supplies. Feed corn has doubled in price during the past two years as ethanol plants increase consumption to produce fuel. As a result, the cost of your steak and ground beef has increased.
During a recent BVICCHA luncheon, a Caribbean Hotel and Tourism Association (CHTA) representative mentioned that electricity is the second greatest expense for hotels in the Caribbean. This is not surprising when considering the cost of electricity in the region. Currently, electricity prices worldwide range between $0.13/kWh and $0.45/kWh. Electricity in the BVI is near the top with April’s electricity prices combining the $0.225/kWh generation fee with a fuel surcharge of $0.191/kWh for a total of $0.416/kWh. Increasing energy prices correlate directly with the price of diesel, the BVI's one and only energy source. However, It is possible to manage the economic impact of these costs.
It is reasonable to expect continued increases in fuel prices. This price increase translates into higher travel expenses. We must find ways of reducing our costs locally in order to maximize the benefit of tourism revenue in the region. So how do we tackle this problem when the price of fuel is out of our control? The answer: investment in energy conservation and alternative energy sources will reduce our dependence on fuel thereby reducing the financial resources consumed to keep our lights on.
Initiatives to mitigate the impact of increasing energy costs will serve Caribbean nations and the tourism industry well. Exxon Mobile’s Energy Outlook states that energy conservation initiatives will reduce energy demand growth by 65% between 2005 and 2030. Without conservation initiatives, Exxon anticipated energy demand to double during this period of time.
Given the Caribbean’s abundance of solar and wind resources, it will not be difficult to surpass Germany’s progress in regards to dependence on renewable energy. Combine conservation initiatives with renewable energy and the Caribbean can leverage its sustainability to attract tourists. Energy expenses will go down, and prices will stabilize, improving the affordability of travel in paradise.
Our response depends on our recognition of the challenge and the creation of a compelling vision for the future. The USVI has targeted a 60% reduction in fossil fuel consumption by 2025 for both electricity production and transportation. Germany will place one million electric cars powered by renewable energy on the road by 2020. Conservation and renewable energy will facilitate this transition. It is clear that fossil fuels are not the future of our energy supply.
