The immediate impact of BREXIT on the Caribbean’s tourism sector may not be a reduction of arrivals from the UK to the Caribbean resorts. The impact may have to do with the state of Balance Sheets, through Accounts Receivables.
There are two major factors which will affect the Balance Sheets of Caribbean resorts. These factors will be affected by the devaluation of the pound vs the US dollar. For example, on June 22, 2016, US$1 was worth 0.7314 pounds.
However, after BREXIT on June 25, 2016, US$1 was worth 0.8994 pounds. What does this mean? This means that between the two dates and the event, one will have to find 0.1680 more pounds to purchase US$1.
As a result, the cost of vacations to the Caribbean by British visitors has increased. However, this may not have an immediate impact on arrivals to the Caribbean because vacationers normally plan and book their vacations in advance. On the other hand, if the following happens, then both Caribbean arrivals will plunge and the Caribbean could lose billions of dollars in the now term.
The financial impact could be two fold. For example, let us assume that Travel Agencies and Tour Operators collected, in advance, payments for vacations to the Caribbean, before the BREXIT referendum. They would have collected these payments at the exchange rate of US$1=0.7314, on or around June 22, 2016.
As a result of the practice of “bicycling” these currencies, the Travel Agents and Tour Operators would not have dispersed these currencies before the referendum and would have preferably invested these currencies to earn greater revenue. How will the devaluation of the pound affect them?
The devaluation of the pound since the BREXIT referendum has led to a new exchange rate of US$1=0.8994, June 25, 2016, which now has a spread of 0.1680. In other words, Travel Agents and Tour Operators now have to find an additional 0.1680 to pay resorts for advanced bookings to the Caribbean.
This could translate into millions of additional dollars for specific islands and billions of additional dollars for the Caribbean, as a region. As a result, UK Travel Agents and Tours Operators will most likely declare bankruptcy leaving their clients unable to vacation on the Caribbean islands for the Summer. Whereas Caribbean resorts will not incur any costs because they did not deliver the service to the visitors, they will experience a plunge in occupancy levels. What are their options?
The second factor which could impact Caribbean resorts will be Cash Flow. Let us assume that Caribbean Resorts have huge Accounts Receivables with Travel Agents and Tour Operators which have declared bankruptcy. As a result, these resorts will have to struggle to meet their expenses while at the same time experiencing low occupancy levels. Will this scenario result in sending Caribbean resorts into bankruptcy?
As a result of an analysis of the above, one can anticipate two pieces of Breaking News this week. Firstly, bankruptcy of UK Travel Agencies and Tour Operators and secondly, the Caribbean losing billions of dollars.
The absence of strategies to cushion against these negative occurrences leaves an already fickle industry more vulnerable to global changes. Finally, whereas climate change has been highlighted as the biggest threat to the Caribbean, BREXIT may very well be the event to cause the most damage.