The Black Swans of Tourism Summary

SECTION 15: THE BLACKSWANS OF TOURISM

A “Black Swan” is a metaphor first described by Nicholas Taleb in his best-selling book Fooled by Randomness. Taleb’s premises that rare, and in some cases devastating, events occur randomly from time to time. He goes on to say that we attempt to assign them logical origins, and presume they could have been predicted, when in fact they are extremely difficult to foresee.

These events may affect individual countries or the entire world. Phuket would have had a trouble-free run of late, if Covid had not happened. Apart from the pandemic, there have been very few black swan events occurring in the past decade or more. In the nineties and noughties, however, Thailand was not so lucky.

The country’s tourism industry had barely recovered from the Asian Crisis of 1997 when the 9/11 attacks happened in 2001. Around the same time, the dot-com bubble burst, and the subsequent market crash left people with serious holes in their pockets.

With no time to recover, the bird flu epidemic in 2002 continued to frighten the tourists away from Asia, only to be followed by the SARS scare of 2003. Then one year later, in December 2004, the big one hit. The Indian Ocean Tsunami struck the West Coast of Thailand, crippling the tourist industry, which had to be slowly rebuilt.

Five Black Swans in four years was a difficult start to the new Millennium.

What followed was a fair amount of political unrest in the South of Thailand, as well as the capital. As late as 2010, tens of thousands took to the streets in Bangkok, and over 90 Thais died in the violence.

The weather has also played its part in interrupting tourism. While the nationwide floods of 2011 never affected Phuket, they did stop people flying into Bangkok for weeks. Although the airport was not underwater, most of Greater Bangkok was. And the fact that trips to Bangkok were cancelled certainly impacted Phuket, given that roughly 40% of all flights to Phuket originate in the capital.

Five Black Swans in four years was a difficult start to the new Millennium.

What followed was a fair amount of political unrest in the South of Thailand, as well as the capital. As late as 2010, tens of thousands took to the streets in Bangkok, and over 90 Thais died in the violence.

The weather has also played its part in interrupting tourism. While the nationwide floods of 2011 never affected Phuket, they did stop people flying into Bangkok for weeks. Although the airport was not underwater, most of Greater Bangkok was. And the fact that trips to Bangkok were cancelled certainly impacted Phuket, given that roughly 40% of all flights to Phuket originate in the capital.

The Phoenix Boat Disaster

On 5 July 2018, the boat Phoenix PC Diving left the popular snorkeling island Koh Racha to return to Phuket. A massive storm whipped up five-metre high waves, which capsized and sank the Phoenix. Of the 105 passengers on board, 89 were tourists, and all but two of these were Chinese nationals. The sinking cost the lives of 46 Chinese tourists, including 13 children.

If this were an isolated incident, then it may have been quickly forgotten. But just one month earlier, a bus carrying 33 Chinese passengers also made the headlines when its brakes malfunctioned and the passengers found themselves in a runaway bus. The driver deliberately scraped the bus against a fence to try and slow it down, before hitting a parked pick up truck and nearly falling into a ravine, teetering on the edge before the passengers were rescued. Luckily no one was hurt in this incident. However, in 2015, three Chinese tourists did lose their lives and many were injured when another bus went over the side of a hill in Chalong.

The Most Recent Black Swan

More recently, in August of 2024, a landslide in Karon municipality sent boulders, trees and vast amounts of earth and muddy debris down the mountain side, killing two Thai nationals, two Russian nationals and nine Burmese.

The negative repercussions of these mini-black swans accumulate and undoubtedly change public perception of the safety of the island. Certainly, when it involves Chinese visiting Phuket, the bad publicity has a knock on effect and we usually see the numbers of Chinese visiting the island drop off dramatically.

The Swan That Hasn’t Happened (Yet)

One potential Black Swan for tourism, which we have thankfully yet to experience in Phuket, is a major hotel fire with catastrophic loss of life. There have been fires, and there have been fires in hotels, but guests and staff have always escaped harm. Some hotels in Phuket operate without the requisite license, and it would only take a fatal fire at one such establishment – a fire in which foreign tourists perish – to cause yet another black swan interruption in Phuket Tourism.

Hotel licenses are emphatically focused on health and safety, and anyone flouting those requirements by operating an unsafe, illegal hotel would likely seethe full weight of the law come down on them. But this would not only affect conventional hotels, hostels and guest houses. Anyone who is currently renting their condo or villa for periods shorter than 30 days requires licensing, and they would see their rental income stream shut down if they have not obtained the necessary license for short-term rental.

A tragic fire might stop some people from traveling to Phuket, but that would not be the Black Swan event. The Black Swan event would be the illegal hotels and condominiums that do not conform to current safety standards possibly being closed down. This could result in the short-term condo rental market grinding to a halt, which might mean an end to the current practice of new developments offering longer-term guaranteed returns, and/or a change in the licensing and safety standards to which new builds must adhere.

Phuket’s Resilience/Overcoming Black Swans

We know that Phuket has seen consistent increases in tourist numbers for nearly three decades. We also know that during this time there have been multiple Black Swans, each of which has had a recognisable impact on both the tourist industry and Phuket’s real estate market.

Black Swans are, in their very nature, rare. They are also random and unpredictable. In the past three decades, we have been through the Asian Crisis, the bursting of the Dot Com bubble, 9/11, bird flu and SARS, the 2004 tsunami, political unrest with red shirt/yellow shirt demonstrations in the capital, the floods of 2011, and last but certainly not least, the fallout from the 2008 global financial crisis.

But despite these very real assaults on Phuket’s tourism industry, the impact in each case has been short-lived. Phuket has always bounced back, and has emerged more vibrant each time. Tourism continues to increase, investment in the economy (especially the tourist economy) continues to increase, and Phuket continues to prosper.

ROI and Black Swans

Whether owners are renting their own villas or condo in Phuket, or participating in a guaranteed return program offered by a newly constructed condotel, Black Swans will always have a noticeable effect on any rental returns generated.

The most damaging Black Swan to have affected Phuket in terms of rental returns, was Covid. Throughout 2020, as well as for most of 2021, owners and many developers were under immense financial strain just to cover their overheads or maintenance costs. Some villa owners, relying on rental income for living expenses, were even forced to sell their properties at below market value. And many condominium projects are still sitting idle and unfinished in 2024.

But not all Black Swans have been as severe as Covid, and most have created just a blip in the figures for investors seeking a solid return on investment. Although Phuket has always had up and down years of tourist numbers, it has always managed to maintain its upward trajectory. And there is still a strong possibility that 2025 may surpass the record set in 2019 of just under 13 million visitors.

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