Written by Andrew Butter
There is an increasing adjustment to the idea that the “totally unexpected” slump in oil prices to below $70 may prevail for some time.
The model that predicted since 2011 Brent would, at some point, bottom at $67 which is just 3% below where it reached yesterday (not bad for a prediction made three years ago)… says the slump will last four years.
If the model that was 100% right in the past, continues to work…in the future, and there is indeed a four year slump…what is the likely effect on the tourism industry… supposedly the world's largest industry?
This analysis looks at two timelines – (1) the stock price of Starwood Hotels (HOT) which is proposed as a marker for tourism worldwide, and (2) Dubai hotel revenues which represents a special case of tourism excellence and for quite a few years has been the fastest growing tourism destination in the world.
If you can build a model to explain the past, chances are the model can provide a basis for anticipating what might reasonably be expected to happen in the future. This is a model of the monthly average stock price of Starwood Hotels (HOT) since 2000 as a function of {Oil Price} and {S&P 500}
The model says a drop in prices from $110 (Brent) to $70 will push the stock price down 7% below the reference point of tracking the S&P 500.
That suggests that any potential boost to tourism via lower aviation fuel costs will likely be more than offset by a decline in the number of fat-cats with petrodollars in their pockets buying a weekend break. In other words it looks like the main reason people go on holiday, and business/pleasure trips, is more to do with how much spare cash they got in their pockets, rather than the cost of aviation fuel; AND that the folks who benefitted from high oil prices had more cash in their pockets than other folk.
