Strong Dollar Could Stifle Tourism Boom

The dollar is up, and so is the cost of being a tourist in New York City. At risk is the city's tourism boom.

A business executive from Rio de Janeiro will find herself paying $329 in Brazilian reales for the hotel room she booked for $300 last winter. Converting from euros will cost 20 cents more for every $2 hot dog, and a Canadian tourist will lose $3.40 on top of every $50 meal.

"A lot of my friends took trips over here when the dollar was really low, and that saved them a lot of money," said Lars Hansen, a tourist from Denmark who recently returned for his second trip to New York. "It's something to think about."

Even incremental cost differences could add up to bad news for the city's tourism industry, which has become a $60 billion mainstay of the local economy. A strong dollar erodes the buying power of foreign visitors and encourages domestic travelers to take advantage of better deals abroad rather than coming to New York.

"There's a direct relationship between exchange rates and tourism revenue," said economist Merih Uctum, director of CUNY's economics Ph.D. program. "I'm sure the hotels and restaurants will be affected."

The Intercontinental Exchange dollar index is up 11 percent since July, its highest level since 2006. The dollar also is up against currencies not even counted in the index, such as those of Brazil and Australia, which sent a combined 1.5 million visitors to New York last year.

In the past decade, the number of domestic and international visitors to New York City has climbed by half, to some 55 million annually. The results have been an explosion of jobs, with tourism-related employment surging 22 percent, three times the city's overall increase.

When the New York Fed explored the city's exposure to currency fluctuations in 1995, it found that a 6.7 percent appreciation of visitors' currencies would lead to a 1 percent increase in hotel occupancy rates, a common indicator for the tourism industry as a whole. A hypothetical 1 percent dent in the city's tourism industry would translate to a $600 million economic loss, or annual wages for about 14,000 average leisure and hospitality workers.

NYC & Company, the city's official tourism promotion agency, insists New York will be unaffected by currency-rate fluctuations. "NYC & Company's presence in a strategic mix of 28 international markets helps soften the impact of changing economic circumstances," said CEO Fred Dixon in a statement.

Indeed, hotel-room prices have continued to increase, and occupancy rates remain at record highs.

"We've certainly watched the dollar—it's getting stronger and may have an impact," said Jonathan Tisch, chairman of Loews Hotels. "But so far we have not seen any decline in our business."

Still, currencies have weakened in nine of the city's 10 largest tourist markets, as well as in many of the emerging markets NYC & Company has targeted for future growth. The very strength of the city's international marketing could backfire if it turns out that international visitors, who account for about half of overall tourism spending, are more sensitive to currency effects than expected.

Trouble could be months away because the correlation between a strong dollar and occupancy rates is often strongest after a year's lag. Many foreign travelers plan their vacations far in advance.

Ms. Uctum isn't convinced that the city's unique global image can trump the macroeconomics of slowing world economies and weakening currencies abroad. "Everything is going in the same direction," she explained. "I don't think marketing will make any difference."

Source: Crain’s