Why dwell on it?

Here’s the issue of the week: Now that a local favorite, Northwest Airlines, has filed for bankruptcy, along with the legendary Delta Airlines, does the financial poison of high oil prices mean that the CNMI’s tourism industry will suffer?

Answer: Sure. How much, however, is a tangled issue. But the cause and effect isn’t, though few in the CNMI government seem to understand it.

A higher cost structure for any of our supply side—be it airlines, hotels, restaurants, or whatever—will dampen tourism activity. Businesses can’t just “pass on” cost increases to customers; if they could, then they would have already spiked prices, since businesses seek to maximize profits. So the real, long-run effect of higher fuel prices will be less available capacity; in other words, a contraction in supply. For a given amount of demand, a contraction in supply causes one unambiguous result: Higher market prices.

To our econocrats, it looks like higher prices have been “passed on” to consumers, but, since these Bozos don’t understand free markets, they don’t understand the real causes for the price shifts. You can expect to hear these Bozos doing their usual bloviating after the fact, seeking to explain (incorrectly) what they are too incompetent to predict, but this is just the usual sideshow in the CNMI’s economic freak show.

Anyway, the CNMI is, by and large, a budget tourism destination. Consumers will probably be very sensitive to changes in airfares, so I doubt that airlines have much pricing power for vacationers. Business travelers are another matter entirely, of course, as any of us can attest.

Based on the CNMI’s policy mismanagement, not oil prices, I warned back in 1998 that the Commonwealth would face an eventual reduction in airline capacity, which would eventually cause a long-term reduction in tourism expectations here. That, of course, is already happening. Fuel costs will merely amplify the problem. International bankers know it. Hoteliers know it. Airlines know it. Tour agents know it. But few of our illustrious policy makers do, and on the current course, things are just going to get worse.

Golf courses, if nothing else, will continue to offer a bedrock level of demand, but beyond that, I don’t see much hope for tourism as long as the current state of insane mismanagement continues. Once your supply side starts to shrink, you are in a losing spiral. Once you’ve alienated and insulted international business managers, your reputation swirls down the drain.

A lot of my pals ask me how such a beautiful chain of islands, blessed with so much free money from Uncle Sam, can manage to screw up tourism, which isn’t exactly rocket science. Do the people of the CNMI, I am asked, want to be poor? Do they not want economic opportunity? Do they reject notions of being able to afford a good education for their children? I’m no sociologist, so I don’t bother to try answering these questions. But I can predict the CNMI’s behavior, and, more importantly, the consequences of it.

I have confidence that the airline industry will counter the fuel price spike with resourcefulness and competence. The world’s tourism industry will, too. As for the CNMI, it has found just another convenient excuse for its comical refusal to deal with reality, which brings a smile to businesses in Guam, which is where the smart money is going.

Meanwhile, a true bummer for Guam, Thailand, and everyone serious about tourism may be the indirect effect of high oil prices on tourism. I refer to the macroeconomic effects of oil costs on industrial Asia. Eventually, high fuel prices will put a damper on Japanese, South Korean, and Chinese industry, which might tighten the purse stings of their workers and managers. Hardly something you want to see if you’re in the business of selling vacations to those same people.

Overall, high fuel prices are a bummer, but are not responsible for the CNMI’s tourism woes. The CNMI alone takes the blame for that; if it couldn’t compete in great times, how will it compete in tougher ones? It shows no interest in even trying…so why dwell on it?