The day after Britons voted to leave the European Union, the pound fell from $1.50 to $1.35 against the US dollar, increasing the dollar’s spending across the UK by 10 per cent. The euro also weakened against the dollar, effectively putting the whole of Europe on sale. The travel industry is one of those most affected by currency changes and depending on the currency one uses, the impact could be positive or negative.

From a tourism perspective, dollar-based destinations could face a fall-off in arrivals for two main reasons. First, for those who target the major US market, Americans could take advantage of the bargains afforded by the strong dollar and head to Europe and other non-dollar-based destinations. And, second, for travellers such as Europeans, whose currencies are not dollar-based, destinations such as Bermuda, which are dollar-based, become more expensive.

And there is evidence to support this theory. Historically, dollar-based destinations have seen a fall-off in arrivals or spending when the dollar has been strong. According to Evan Soltas, an economics blogger, “for every one percentage-point increase in the dollar’s value — as measured by the real trade-weighted rate — foreigners’ travel spending drops by half a percentage point”. And he further states that those impacts are immediate.

In addition, a special report from TD Bank on March 22 of this year ran a headline, “High-flying dollar takes some shine off New York tourism”. The article went on to state that “much of the industry’s early recovery was related to international tourism, while domestic travellers were still on the sidelines. However, a strong dollar and weaker global economic conditions will leave international travellers playing second fiddle this year and next”. And a report in the online travel industry publication, Skift, reporting on June 27, just a few days after “Brexit”, stated that “Brand USA” was having trouble meeting its tourism goals.

To see if this strong-dollar theory had any significance for Bermuda, we modelled the nominal annual dollar exchange rates against US arrivals to Bermuda. First, modelling data from 1980 to 2015, there was a very weak, inversely rated correlation between a strong dollar and US air arrivals. What this means is that when the dollar was strong, US arrivals to Bermuda generally fell. Modelling the data from 2000 to 2015 improved the relationship, but it was still weak. The relationship was weak since there were some years when a strong dollar did not negatively affect US arrivals. (See chart)

So what do these results mean for Bermuda? They may mean nothing at all. If the relationship is weak, why worry at all? Soltas, crunching US travel data, found that Americans don’t necessarily travel more when the dollar strengthens but he did find that foreigners travelled less to America and, by extension (our emphasis), other dollar-based destinations. Our data, on the other hand, does show that a drop-off in US arrivals is possible. Further, if we follow Soltas’s findings, we could also expect a drop in European arrivals as well.

So to do nothing would be unwise. Although US arrivals to the end of May this year were up 15.7 per cent, this is against the backdrop of decades of declines. Canadian arrivals were down 22.8 per cent for the same period and European arrivals, including from the UK, were flat (up 0.1 per cent).

If, as Soltas states, the reaction to the strength in the US dollar will be swift, at the very least we should be carefully monitoring forward bookings for any negative trends. We should also be contemplating a “Brexit Package” to take to the marketplace to offset any possible declines. This package should include air fare — at least from Europe — hotels, transfers and participating restaurants such that the savings should compensate for gains of the dollar; for instance, at least 10 per cent.

For the US market, the message could be “Come to Bermuda and get the same savings as going to Europe”. For the UK/European, and Canadian, market the message would be the opposite: “Come to Bermuda, your pound/euro/(dollar) has not lost its value!”

• Cordell Riley is the Institutional Research, Planning and Accreditation Officer for Bermuda College and can be reached for more information at 239-4356 or criley@college.bm.