Islands Business

SUVA, Fiji (Oct. 13) – The number of eggs in the Pacific Islands' basket is rather small. One is tuna, which may or may not become over-fished and will probably become so eventually, despite the region's efforts to regulate fishermen. The few other eggs are, well, Melanesia has timber, which in some countries is being logged to extinction. It also has minerals. These will become mined out.

Who seriously can risk relying - for long-term financial security - on kava, noni juice and coconut cream? A few individuals can do so, but whole countries?

Another egg is tourism. The South Pacific Tourism Organization's forecast is that this business will grow at an annual average rate of about eight percent for as long ahead as can be seen.

Nearly all of the region's island economies are now very heavily reliant on tourism. In total, they receive just over one million visitors a year, a drop in the ocean, compared with the hordes hitting other regions.

There is surely enormous potential for growth. Can that prospect be relied upon?

What are the indicators? Some are puzzlers.

The number one destination, Fiji, is roaring ahead, apparently, with over 500,000 arrivals last year. The Fiji Visitors Bureau has brought forward by one year, to 2006, its forecast that the industry will be a "one-billion dollar one" measured in foreign exchange earnings, although, as Fiji's reserve bank pointed out, 60 percent of that money will be sucked back out of the country in payment for goods and services not obtainable locally and profits by the foreign businesses that dominate the industry.

Fiji's luxury resorts are mostly full. A couple of thousand more hotel rooms are under construction or planned.

On the other hand, the number two and three destinations, French Polynesia (Tahiti) and New Caledonia, are in crisis. French Polynesia's visitor figures are actually dropping and New Caledonia’s stagnant.

What's gone wrong for these two French territories? Several hiccups, which show that some eggs in the basket may go rotten. Other main destinations, Samoa, the Cook Islands, and Vanuatu report growth trends, but all partly rely for future growth on a newcomer airline, Australia's Virgin Blue, and are over-reliant for the delivery of their business on just one or two other airlines.

Virgin, in a joint venture with the Samoan government, will take over flights to Samoa's key Australian and New Zealand markets from Polynesian Airlines. In October, it will begin flights to Tonga from Australia, which is about the best news Tonga has had about anything for a while.

But the worry about Virgin Blue, as rivals Air Pacific and Air New Zealand like to point out, is that being intensely profit conscious, Virgin is liable to make a very abrupt exit from routes that don't quickly produce pleasing results for it. The two other airlines claim they are more reliable long-term trusties; there may be differing opinions about that.

Back to Fiji (Oh, not again!). While this is the most diversified of islands economies, it would be in a disastrous position, economically, if tourism crashed. Tens of thousands of jobs and a big chunk of its foreign exchange earnings would be at risk.

Is the boom a bubble waiting to pop? What are the reasons for Fiji's success? Here are some, not in an order. It has its own successful national airline. It is easily accessible. It has a reasonably sophisticated industry. It is generally fairly cheap. It has a wide variety of accommodation and things to do. It has an active and reasonably well-funded tourism promotion office. It has reasonable infrastructure. Generally, it is a go-ahead place when it isn't going backwards.

What are the reasons for the heady growth of visitor numbers? Firstly, the lowering, two years ago, of air fares on the Australian and New Zealand routes forced on Air New Zealand and Air Pacific when cheap competitors arrived.

There hasn't been a similar growth in North America/Europe and Japan where fares haven't been similarly dropped. Heavier promotion in Australia and New Zealand. Australian and New Zealand alarm about SARS disease (remember it?), terrorism and tsunamis in Asia, and now chicken flu in Asia.

All Pacific Islands destinations have benefited from the perception that they are safe places to visit, although French Polynesia has suffered because of local political trouble, among other reasons.

What could burst the bubble? Hurricane damage (a risk from November), political trouble (most likely in Fiji and still French Polynesia); the ebbing of the Asian flu and terrorism fears (in the medium term), cheap and other low cost competition from other regions, local industry complacency, and hotel and other cost rorting (already happening in Fiji), and the emergence in the Australian and New Zealand markets of the perception: The Pacific Islands? Been there, done that.

Tourism is the biggest egg in the Pacific's basket. But crack it, and it may prove to be a rotten one.

October 14, 2005

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