Disaster Takes an Economic Toll on Tourism Industry

Times Staff Writers

Joakim Hedelin, a 37-year-old Swede, says only luck allowed him to escape the rushing waters that crashed through his beachfront office here Sunday.

But his 3-year-old diving business didn’t have a chance of surviving. “No gear, no office, no customers,” he said.

So on Tuesday, Hedelin headed back to a Swedish winter to contemplate his future.

“There is nothing left of my business,” he said at this vacation mecca’s cramped airport, squatting on a duffel bag holding all the clothes he salvaged. “The beach is a mess, and the looters are taking everything now.”


While southern Asia is still reeling from the human toll wrought by Sunday’s earthquake and tsunami, it must also deal with widespread economic devastation wrought among the brutalized coastlines of Thailand, Sri Lanka, Indonesia, the Maldives and southern India.

Damage to businesses and property will reach into the billions of dollars -- losses that will fall mainly on small-business people like Hedelin and others in the tourism industry catering to throngs of vacationers who are now leaving in droves.

The business fallout threatens fragile island economies long racked by poverty and political instability.

Otherwise, analysts say, the disaster probably won’t have a powerful global financial impact, as it missed major industrial and financial centers. Port facilities, oil refineries and drilling rigs, as well as electronics and computer factories, appeared to have dodged major damage.


Because most damaged property was uninsured, the disaster has dealt only a glancing blow to the international insurance industry. The payout will probably reach only about 20% of the $20 billion that insurance carriers faced from this year’s Florida hurricanes, said Matthew Josefowicz of the consulting firm Celent Communications.

Companies such as sports shoe giant Nike, which depends heavily on Asian manufacturing, reported “little to no impact” on its output or supply chain.

Still, the latest calamity was a huge financial blow to many coastal communities.

Most victims, such as people in fishing and farming villages in Thailand and Indonesia, are too poor to afford insurance coverage and must rely on government agencies and relief organizations to recover. For instance, the Thai government said about 3,000 fishermen had lost their livelihoods. More than 1,700 fishing boats sustained damage.

Thailand moved swiftly to reassure citizens and investors, saying it planned to spend $768 million rebuilding roads, phone systems and power and water utilities. Economists and bankers say Thailand should be able to meet that burden, because its economy has bounced back from the Asian financial crisis of the late 1990s, thanks to strong increases in exports to China and other foreign investments.

“We have to invest and fix, and the government is in good shape,” said Pairoj Hengskul, senior economist at Bank of Thailand.

Rebuilding will be more difficult in Indonesia and Sri Lanka, where resources have been depleted by long civil, ethnic or religious violence and corruption. In Indonesia, for instance, large swaths of the Aceh province, crushed by the magnitude 9 earthquake off its coast and the tsunami that followed, have been a battleground between separatists and government troops since the 1970s.

These places “have been left alone because they were too dangerous, too disobedient, too separatist. And with a high degree of corruption, it will take a very long time for those areas to recover,” said Wolf Dombrowski, a professor in the disaster research unit at the University of Kiel, Germany.


“The region’s short-term recovery depends on access to the medical and economic supplies to meet daily needs, and then, farther down the road, recovery will be linked to whether tourists return,” he said.

Tourism is the lifeblood of these regional economies, a critical source of hard currency.

In the Maldives, an island chain 400 miles southwest of the southern tip of India, about 20% of the country’s economy depends on recreational revenue. In Thailand, the industry rakes in almost $8 billion a year, or about 6% of its gross domestic product. Tourism is also a small but growing economic engine in Sri Lanka, accounting for 5% of the economy.

The region has already taken a hard hit from terrorist attacks in Bali, Indonesia, in 2002, followed by the outbreak of the SARS virus, then bird flu this year. Still, business had been picking up steadily in southern Asia, and places like Phuket were wrapping up a terrific year as the final week of December, the start of the peak season, approached.

Then the tsunami hit. In Phuket, where tourism brings in $2 billion a year, a third of the hotels were damaged, but only 10% of the island’s hotel rooms are out of commission, according to the Pacific Asia Travel Assn.

A spokeswoman for Marriott International said its 277-room Phuket Resort & Spa sustained damage to its beach, gardens, pool, one restaurant and several beachfront suites. But “the rest of the resort is operating ... at 100%,” and the restaurant and suites will be repaired within 10 days, she said.

Executives acknowledged that it would take time for the tourist trade to recover from the haunting images of bodies piled on the beach, as well as hotel rooms damaged.

Travel industry analyst James V. Cammisa Jr. predicted it could take up to a year for the number of vacationers to come back to pre-tsunami levels, not only in disaster areas but elsewhere in southern Asia.


That’s because consumers “don’t have the greatest sense of geography so an entire region is impacted,” Cammisa said.

Already there are signs that the short term will be painful for tourist resorts.

A Hangzhou China Tourism Agency executive said people wanted to delay their Chinese New Year’s trips, cancel or switch plans to travel to places such as South Korea instead.

“Without doubt, we will lose money because of this incident,” Li Hui said.


Wallace reported from Phuket, Lee from Shanghai and Frammolino from Los Angeles. Times staff writer Barbara Demick in Seoul also contributed to this report.