Effects of inflation on travelers according to a financial expert, ASEAN economist, and Dua Lipa fan
I am not going to talk about the technicalities of inflation versus factor of tourism innovation and slap you with equations such as V = f (P,N) or SdV = S [0/P]dN, where S is integral value and 0 is the number of people who give a shit about formulas.
I had a chance to have a Sunday Tito talk with my good friends, the Financial Guru Fitz Villafuerte (@brodfitz) and ASEAN Economist Joy Val (@joyvalph), I don’t want to use the term virtual tête-à-tête, because I find this Mot Francais a bit distracting, but yes we chewed each other’s brains so let’s just call it Tito-a-Tito (WALEY).
I once read somewhere that “If you’re working hard, you will not be affected by this inflation.” I must admit that there is truth in this statement, but looks like whoever wrote it lacks basic logic. Working 8 hours a day and getting 8 apples is different from getting 8 apples after working 6 hours a day. Though you get the same amount of—ah fuck it!
ON TRIP BUDGET
The current exchange rate is at PHP 54.50 to USD 1. This directly impacts Filipino travelers going overseas as your Peso’s value dropped. That means, for hotel rate of USD 100 in December 2017 where you should only shell out PHP 5,000.00 is now PHP 450.00 more expensive at per night rate. This is good if your salary is constantly increasing at the current rate of inflation, which is sadly not the case.
In reverse, it is beneficial to incoming foreign travelers in the next few months, as their dollar will be able to purchase more in terms of value and services. However, this is only good until the local small-medium enterprise establishments start depleting their stock which they purchased when the Peso is strong–Which is not the case as most of businesses increase the prices of goods and services almost immediately after the market value goes up.
Good for the business? Probably, as there would be a window of opportunity to mark up and increase the profit margin even before impacted raw materials are actually purchased. There’s a bubble of “tubong lugaw” and they could evade the bad time to purchase goods if there will be an immediate rollback. But if the inflation extends longer than expected, business owners will have no choice but to roll-out a series of price hikes, which is expected to have a long-term effect on incoming businesses from both foreign and local travelers.
As Joy put it “For hotels, unless they immediately change their rates/utility due to oil prices and weakened currency, they will have to play with competition pricing, and because they are also considering of potentially losing income opportunities, they may have to shoulder some loss, specially with online booking sites that drives the cost down.”
So No booking, no future (that applies to all our sex lives too).
Businesses losing profit is not a good indication in any industry. Joy added, “If only we have state assistance for SMEs, good governance and empowered LGU, we could easily sustain the balance.” But then, ladies and gentlemen, meet corruption.
I will not talk about it any further as our Tito-a-Tito headed towards political blame-storming. That’s for another post.
Plane tickets, transportation, logistics. These will feel the impact immediately as these are the direct consumers of fuel and oil is bought in dollars. This is straightforward, be ready to pay more on getting from point A to point B.
According to my airline insider and business partner, Angel Juarez (@thelakwatsero), “Domino effect naman yan. Expect higher-priced flights specially now that the hike in fuel surcharge was just approved by CAB last week.”
Most flag carriers are barely profitable, PAL’s semi annual statement which was released in June 2018, showed a rather depressing financial figures with consistent loss.
Competing airlines like other big airlines in the region with acquired LCC’s are slightly fairing better as cost distribution is being spread and averaged across several tiers. Big players shouldering loss means we will feel its effect sooner if not, later. Unless the wages increase and consumers’ buying power elevates to match the perpetually increasing cost of miles, which is sadly not the case.
Again topics on labor cost and its relationship with travel habits will be in a separate blog.
ON TRAVEL HABITS
In a country where the average income earners allocate monthly budget for daily cup of expensive coffee, inflation would unlikely have an immediate impact on the way disposable expenses are managed. Fitz said, “Inflation will have a minimal effect on our travel habits. If they travel every 3 months, now it will be every 4.” This may be attributed to the resilient nature of Filipinos and the way we culturally perceive R and R’s as mode of coping mechanism. Fitz added, “Or if they travel twice in the previous year, they will still travel twice, but this time they will choose cheaper destinations or be more budget conscious.”
The biggest consideration of travelers amidst price hikes is managing time, Fitz’ mentioned that we are more likely to use our free time to find ways to earn extra or spend more time doing less expensive activities, like trolling people online and pretending to be experts on topics such as economic inflation. Wait wha—
Let’s use Dua Lipa in an analogy, her previous sets are in fancy hotels like Hyatt for the pastel-swathed fempowered music video. Now, she’s twirling and wall-sliding in an industrial crackhouse with no electricity. But the girl will push it. “… gawan ng paraan, sayang ang oras. Kaya push pa ‘rin mag music video,” Fitz agreed. Filipino travelers will make ways to push the plan, despite looming economic apocalypse.
This poses an imbalance on income vs. expenses of employed individuals. The reason why Philippines have a prevailing first world prices with third world salary, is that the cost of living (COL) – labor cost (LC) cycle is skewed, COL increases but LC remains the same, therefore most business owners will have an upperhand on bigger chunk of profit, hence they have more disposable cash making first world goods still move off the shelves. On the other hand, a huge population of the workforce suffers as spending habits remain unchanged and financial planning is always out of the priorities.
Fitz wrote in his book The Ready To Be Rich Guide To Investing, “People often think that you need to choose between saving and enjoying life now. The reality is if you know how to manage your personal finance, you can do both. You can travel now and also, save for the future.”
Now more that ever, we should start traveling smart and balancing priorities. The inflation will not hinder travel plans for sure, but may chip edges on our profile as foreign tourists in other countries. For now, let us all hope that the government intervenes to lay a well-though-out economic policy, execute it timely, and set aside showbiz ambitions.