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 (and for that matter, Thailand) ha shad a trouble-free run of late, with very few black swan events occurring in the past decade. 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.
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 47 Chinese tourists.
In the same storm, another tourist boat (the Serenita) also sank off Phuket, although all 42 people on board were rescued. The immediate impact of these two accidents was the cancellation of tours from China, which could already be felt in the market by early August. A slower than normal high-season was then exacerbated by global economic volatility in the latter half of the year.
By the new year (2019) the negative headlines surrounding the tragic sinking of the Phoenix were all but forgotten, and tourists who used this as their rationale not to travel to Phuket began to return. It required a bit of coaxing, and even diplomacy on the part of the tourism industry and the government, but as with all Black Swans, it proved to be a blip rather than a protracted trend.
The Most Recent Black Swan
Just as the millennium began with the joint threat of Bird Flu and SARS taking their toll on tourism in Phuket, 2020 was barely two weeks old when another global health scare emerged, forcing people to radically rethink their travel plans.
Coronaviruses are a family of zoonotic viruses, meaning they are transmitted to humans from animals. This latest virus, which the Centers for Disease Control have officially designated “COVID-19” was traced to a market China’s Wuhan province. As with most coronaviruses, it almost certainly originated in bats, but bats generally do not transmit the virus directly to humans.
SARS was also a coronavirus, transmitted to people from civet cats, and to the civet cats from bats. In the case of COVID-19, the “prime suspect” for transmission on to humans is the endangered Pangolin – a mammal with overlapping plate-like scales. Native to Asia and Africa, its scales and meat are in high demand in China.
The first people were thought to have been infected in late 2019, but an official acknowledgement of the outbreak was slow to be made public. By the time the Chinese New Year holiday rolled around, with no preventative measures in place, millions of people were traveling around China and the world, thus increasing the possibility that COVID-19 would be spread far beyond the boarders of either Wuhan or China.
As we have discussed above, Thailand is a very popular holiday destination for tourists from China, so it is possible that some travelers brought the virus to Thailand and Phuket on their travels. Thailand was therefore designated an at risk country for international travel, which once again put the breaks on the tourism industry.
Tourism in the country and the island will eventually recover, but it is another example of an event which cannot be predicted.
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 two decades. We also know that during this time there have been multiple Black Swans (mentioned above), each of which has had a recognisable impact on the Thai tourist industry.
But despite these very real assaults on tourism, 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
We have already established that guaranteed returns do not always represent a 100% cast iron guarantee, and that the likelihood of receiving the full value of your investment is largely dependent on the tourist industry.
Over the last 20 years, despite every Black Swan which has conspired against Phuket tourism, investors have generally achieved those guarantees, or at least come very close.
Even though the longer-term guarantees are more vulnerable to such events than short-term ones, it would require some seriously bad luck, and some seriously cataclysmic Black Swans, for these properties to be anything other than very lucrative investments over the next 20 years.
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