Economic Analysis
of the CaribbeanBrazilian Tourism
Market
São Paulo,
Brazil,
November 26, 2013
Therese Turner -Jones
IDB Representative,
Jamaica
Motivation
• Caribbean tourism is highly concentrated in terms of
visitor origin.
• Brazil offers a big, fast growing country with
travelling population
However,
• Challenges arise from accessing new markets
Upfront investment and recurrent guarantee liabilities.
Fiscal challenges in many countries.
Specific details of cost/risk sharing for guarantee and
marketing cost essential for benefits to countries.
Is it worth it?
Benefits
 GDP
 Revenues
 Employment
 New trade routes
 Freight possibility
Costs
 Marketing
 Guarantee
 Future liabilities
Cost-Benefit Analysis
• Success depends on
Number of visitors (NV)
Spending per visitor
Value for money, experience
• Influences marketing spend in subsequent years.
Benefits = NV·$ + NV·$· Tax Rate
Cost = MARKETING + GUARANTEE (depends
on guarantee agreement and load factor)
Assumptions
• One additional weekly flight with capacity of 220
– US$800 for Jamaica and Bahamas, US$700 for TT and
Barbados.
• Full guarantee for Barbados, 85% capacity guarantee
for Jamaica and Trinidad and Tobago and none for
Bahamas.
• Spending is US$3000 for one week. Different taxation
for different spending categories.
• US$1 million for marketing in first year, then
US$500,000.
• Capacity 90% and 65% in high and low season.
Baseline results
High Scenario (100%/70)
Medium Scenario (90/65%)
Low Scenario (70%/50%)
Break Even
Net GDP
Fiscal
Net GDP
Fiscal
Net GDP
Fiscal
Yearly Capacity
19,909,786
1,364,842
17,523,366
508,830
11,487,130
(1,656,374)
69%
21,542,772
4,564,390
19,682,447
4,105,192
14,976,915
2,943,693
14%
Jamaica
20,424,655
1,303,542
18,415,247
872,090
12,336,915
(1,214,941)
65%
T&T
19,542,590
971,952
17,540,520
405,757
11,744,496
(1,465,545)
65%
Barbado
s
Bahama
s
Under high and medium loading scenario, no fiscal burden on
government. Guarantee and marketing costs lead to losses under
low scenario.
Except for Bahamas, 65% or higher capacity is needed to avoid
negative fiscal impact.
Sensitivity
Three major assumptions and its influences
• Load factor of flights
– Marketing expenditures (research before and on relationship
with travel agents)
• Guarantee
– Wide range from 100% seats guaranteed to partial (e.g. below
85%) to fixed amount per seat.
• Marketing
– New initiative will require substantial first time investment.
However, amounts should decline over time and could be shared
with hotels, travel providers (PPP)
Risks and possibilities
 Under the baseline, the initiative
would add 0.1% in GDP and
US$405K of revenue.
 However, airlines might insist in a
full guarantee of all seats, which
would add almost US$2 million in
cost.
 While Brazilian tourists have
relative high spending power,
Tobago might attract lower budget
travelers.
GDP and Fiscal Effects under
different scenarios
Medium Scenario (90/65%)
22,111,455
405,757
All seats guaranteed
20,211,008
-1,494,690
Lower spending in Tobago
11,694,381
 Suggestion: Type of guarantee and targeting of potential
visitors will determine economic and fiscal impact of
initiative.
-364,341
Risks and possibilities
• Under the baseline, the initiative
would add 0.2% in GDP and
US$800K of revenue.
• If Brazilians spend similar to
current tourists, revenues would
not be sufficient to compensate
for additional cost.
• Airlines might insist on a full
guarantee , which would add
almost US$1.2m. Ideally, GOJ
would ‘subsidize’ each seat.
GDP and Fiscal Effects under
different scenarios
Medium Scenario (90/65%)
23,241,541
872,090
Spending at current rates
12,667,469
-144,125
All seats guaranteed
22,009,541
-359,910
Fixed amount per seat as
guarantee
23,993,941
1,624,490
 Suggestion: Type of guarantee central. Marketing is
burden but might be lower in following years.
GDP and Fiscal Effects under
Risks and possibilities
different scenarios
 Under the baseline, the initiative
Medium Scenario (90/65%)
would add 0.5% in GDP and US$4 m
24,508,741
4,105,192
of revenue.
 Bahamas has potential for two
Two weekly flights/ Miami visitors
weekly flights and attracting Miami
49,017,482
8,210,385
visitors.
Guarantee of 85% flight load
 Airlines might insist on a
23,017,917
2,614,369
guarantee, which would add
Expenditure at current level of
US$1.5m in cost.
spending by Brazilian tourists
 Current Brazilian visitors spend
36,045,383
5,441,574
above baseline.
• Suggestion: Potential to use marketing for two weekly
flights or to market short trips from the US. Specific
targeting of visitors similar to current ones could increase
benefit.
Risks and possibilities
•
•
•
•
•
Under the baseline, the initiative would
add 0.5% in GDP and US$500K of
revenue.
Marketing would also benefit existing
flight.
The current guarantee scheme
concentrates risk on government.
Savings could be achieved by changing
it, for instance restrict it to 85% load.
If capacity is not achieved, additional
incentives could be given, adding
US$800K cost.
GDP and Fiscal Effects under
different scenarios
Medium Scenario (90/65%)
17,523,366
508,830
Marketing only in addition to current
efforts
18,023,366
1,008,830
Guarantee limited to 85% capacity
18,601,366
1,586,830
Additional incentive needed to get load
factor
16,691,766
Suggestion: Marketing could increase load factor of the existing
flight. Savings could also be achieved by using different
guarantees (up to 85%). At the same time, experience shows that
additional incentives might be needed.
-322,770
Opportunity costs
 Cost-Benefit cannot be seen in isolation as marginal
impact is important for decision.
– What would be effect of same marketing and guarantee scheme
for existing, mature markets (USA, Canada, UK)?
 General rate of return of government expenditures.
Versus exploring new market
• Private sector focuses more on mature markets.
• Accessing new markets is costly, requires front loaded
investment and has externalities (everyone benefits whether
they pay or not).
• Public good character.
• Diversification.
• Externalities in terms of trade routes, knowledge about
Caribbean.
Conclusions
• Brazil offers new opportunities for the Caribbean to
diversify visitors, both in terms of origin but also
characteristics.
• Our results indicate that there are potential benefits from
the initiative under realistic assumptions.
• New market probably requires upfront investment and
some kind of guarantee. These expenditures have
characteristics of a public good.
• Creative solutions needed to share burden and risk, PPP,
regional PR campaign.
• However, potential liabilities for government as well as
incentives for airlines/travel agents depend on details of
the guarantee.
http://blogs.iadb.org/caribbean-dev-trends/
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