Hospitality Economics Assignment- Economic Effects of Terrorism

Hospitality Economics 1
HOSPITALITY ECONOMICS
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Hospitality Economics 2
Table of Contents
Abstract……………………………………………………………………………………………3
Introduction………………………………………………………………………………………..4
Economic effects of terrorism on the hotel industry……………………………………………..8
Rationale for Government intervention ………………………………………………………….7
Conclusion……………………………………………………………………………………......9
References………………………………………………………………...……………………..10

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Abstract
This report explores the economic effects of terrorism on the hotel industry and the
rationale for government intervention in counter-terrorism in the hotel industry.

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Introduction
Undeniably, there has been recent terrorist attacks globally.Recently, we had the Paris attack
and the Brussels attack in 2015 and 2016 respectively.These attacks have prompted the
importance of government intervention to counter terrorism due to its obligation to protect its
citizens and its property, capacity to research and put in place the necessary counter-terrorist
measures.The failure to counter terrorism in the hotel industry has resulted in reduced occupancy
levels, reduces revenue for the government through taxation, reduced number of tourists,
employment challenges and reduced consumer and investor confidence due to anxiety and fear
instilled by terrorism.However, the involvement of government in counter-terrorism has also
invaded confidentiality and privacy of individual citizens which isn’t agreeable for all
stakeholders.
Economic Consequences of Terrorism on the Economy
All in all, I think there s need for government intervention in counter-terrorism because the
government upholds public, national and federal interests of a nation which benefits all citizens
and foreigners and not just hotel industry owners and their employees.Following the recent
terrorist attacks on the various hotel industries around the world, there s need for the respective
government to incorporate national and federal measures to prevent terrorist attacks on the hotel
industry globally. Noteworthy, hotel revenue fell significantly following the Brussels and Paris
Terrorist attacks in 2016 and 2015 respectively. Specifically, the occupancy rates reduced from
82% from the night before the bombings to 25% thus resulting in drastic hotel revenue (Chow
2016).In addition, terrorist attack erodes consumer confidence and choice due to the uncertainty.
Indirectly, terrorisms erode consumer and investor confidence in the sense that investors are

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likely to shun away from setting up hotels both at local and foreign countries in areas previously
attacked by terrorists or potential targets for terrorist attacks whereas consumers would rather
postpone or cancel their occupancy at hotels previously attacked or likely to be targets of
terrorist attacks(Picardo 2016).
Due to market uncertainty resulting from terrorist attacks economic activities slow down for a
short period of time.Specifically, following the Paris Terrorist attack 2015, there was a huge
reduction in hotel industry performance due to cancellations and early checkouts thereby
reducing the occupancy levels 21.1 percent and 28.5 percent on Saturday and Sunday
respectively following the attack.Also, in the long term, terrorism reduces productivity due to the
additional investments into security measures, insurance, and counterterrorism measures and
infrastructure by hotel industry players.However, terrorist attacks have temporary economic
damages on the hotel industry. Typically, terrorist attacks negate investment and employment
opportunities in the affected areas as opposed to a larger wider scale. To which effects, the
government can offset through increased expenditure without negatively affecting aggregate
hotel insurance industry growth levels.
However, following the recent frequent occurrence of terrorist attacks on the hotel industry,
there s remarkable insurance covers for hotel owners.Through insurance of terrorist attacks on
hotels, employment opportunities are created in the insurance sector.However, the hotel owners
are likely to encounter high premiums rates due to the high-cost nature of the insured risk which
might lead to some hoteliers laying off part of their staff to comfortably pay premiums. In
addition, not all insurance providers indemnify hoteliers in the event of terrorist attacks thus
making it even riskier for investors both foreign and domestic to venture into the hotel
industry(Ross 2016).Also, terrorist activities in the hotel industry can result in loss of human

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lives who contribute to the labor force in the economy. massive loss of lives due to terrorist
attacks creates employment gaps due to lack of persons to fit in.
Also, hotel infrastructure may be destroyed during terrorist attacks thus additional
reconstruction costs to the hotel owners and unemployment of hotel industry workers during
reconstruction(Sandler and Elders 2005).Usually, terrorist attacks affect occupancy as opposed to
industry growth rate as illustrated by the London Attacks 2002 which saw a 3.2 percent average
growth rate in the hotel industry three months after the attack (Guest Contributor
2016).Moreover, terrorism slightly impacts on average daily rates for hotels which goes to imply
that average daily rate(ADR) is not greatly distorted by a terrorist attack.
Source: Ehotelier.Com

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Rationale for Government intervention
Due to terrorist attacks, there s increased government expenditure in trying to offer some sort
of insurance in terms of finances to help the affected hoteliers recover from their losses.For
instance, in the United States of America, following the September 2001 terrorist attacks, the
United States government offered 5$bn in grants and $40bn emergency spending package.Also
insurance-related policies are few and come with higher premiums which expose hoteliers to the
negative effects of terrorist attacks on their investment thus deterring more hotel industry
investments(O.E.C.D n.d).it is imperative for governments to combat terrorist attacks in their
economies this is because,the hotel industry is directly connected to the travel and tourism
industry which contributes to the gross domestic product of most countries hence as a revenue
source, it's in the interest of the government t to invest in security and deter terrorist attacks on
the hotel industry.
Also, the involvement of government in combating terrorism help restores consumer and
investor confidence after the terrorist attacks. This is because following the attacks, potential and
existing investors might reconsider venturing into the hotel industry due to the fear of repeat
attacks and the massive losses incurred. in the event that there s government support following
the attacks, investments in the sector might expand and recover and the assurance of security
measures by the government, will attract local and foreign tourists to the country thus boosting
its revenue hence it is in the interest of government to eradicate fear and anxiety caused by
terrorism and boost friendly business operating environment(Nicolas 2017).There's need for
restoration of consumer safety which is authoritative when done by the government.

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Predominantly, terrorist attacks are a retaliatory response to government action to which some
persons are dissatisfied thus making it crucial for government involvement through negotiation
and policies to prevent or minimize the occurrence of terrorist attacks(Koebler
2012).Predominantly, the security infrastructure needed to protect the hotel industry from
terrorist attacks is massive and cannot be shouldered by individual hoteliers alone.due to the
expansive nature of the security budget to counter and prevent terrorism,only the government can
shoulder the capital Thu the need for government investment in antiterrorism measures for its
various economic industry players.Specifically, the Australian government has invested $1.2 bn
in its counter-terrorism measures as a way of providing a business-friendly environment(Pash
2015).
Typically, it is the duty of all, if not the most government to protect the lives and property of
its citizens thus the rationale for countering terrorism on their behalf.In the event that citizens
lose their lives and property due to terrorist attacks both internal and external, that government is
believed to have failed moral obligation to its citizens(Wellman 2013).Most governments have
incorporated the bill of human rights which advocates for the protection of lives and property of
citizens.Further research the evolving nature of terrorism there need for extensive research in
counter-terrorism measures and the government has the necessary infrastructure to facilitate this
as compared to hotel industry owners.For small hotel owners, they lack the capacity to venture
into research and development in counter-terrorism thus making it imperative for governments to
intervene in countering terrorism in the hotel industry(Wells 2017).
However, the invasion of user privacy through monitored communication of citizens as anti-
terrorism countermeasures has raised the right to privacy of citizens as to their communication
privacy and confidentiality.There are pro arguments for government invasion of citizen privacy

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on the ground that its in the wider public interest to keep everyone safe whereas advocators
against argue it violates the right to privacy and confidentiality of information(Debate.Org n.d)
Conclusion
By and large, the effects of terrorism on the hotel industry are negative in nature.in the short
term, the terrorist impacts on the economy are immediate and severe but in the long term, the
effects are part of the past. Mainly terrorism destroys lives which is irreplaceable, property which
can be rebuilt over time and reduced revenue for a short period of time.However, consumer and
investor confidence is destroyed by the fear and anxiety of terrorist attacks but after some time,
the same is restored.There's need for government intervention in countering terrorism as a matter
of right and moral obligation.Usually, citizens are guaranteed the right to life, protection of
property by their governments.Further, governments have the capacity to fund counter-terrorism
facilities, measures, policy and conduct research and development in counter-terrorism as
compared to private hotel stakeholders.
In as much as government should partake in counter-terrorism there need for individual hotel
owners to instill their own personal counter-terrorism measures.there's need for counterterrorism
partnership between private and public hotel industry stakeholders.

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References
Chow, J. (2016). European Tourism Hit hard by Terrorist Attacks. Market Watch. Available at
http://www.marketwatch.com/story/-tourism-hit-hard-by-terrorist-attacks-2016-03-28[Accessed
3 Oct 2017]
Debate .Org.(N.d).Should government continue to monitor all cell phone activity as a domestic
counterterrorism strategy.Debate.Org.Com.Available at http://www.debate.org/opinions/should-
the-government-continue-to-monitor-all-cell-phones-as-a-domestic-counter-terrorism-
strategy[Accessed 3 Oct 2017]
Guest Contributor.(2016).The impact of terrorism on Europe s hotel
Industry.Ehotelier.Com.Available at https://ehotelier.com/global/2016/05/04/impact-terrorism-
europes-hotel-industry/[Accessed 3 Oct 2017]
Koebler, J.(2012). Why governments should negotiate with Terrorists.U.S.News.Com.Available
at https://www.usnews.com/news/articles/2012/07/31/why-governments-should-negotiate-with-
terrorists[Accessed 3 Oct 2017]
Nicolas, D.B.(2017).Terror threats make it harder for PH to become Key Tourist
Destination.Inquirer.Net.Available at http://business.inquirer.net/230330/terror-threats-make-
harder-ph-become-key-tourist-destination[Accessed 3 Oct 2017]
O.E.C.D.(N.d).Economic Consequences of Terrorism. O.E.C.D. Org.Available at
https://www.usnews.com/news/articles/2012/07/31/why-governments-should-negotiate-with-
terroristshttps://www.oecd.org/eco/outlook/1935314.pdf[Accessed 3 Oct 2017]

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Pash, C.(2015).The budget:$1.2 billion for counter-terrorism Measures.Business
Insider.Com.Available at https://www.businessinsider.com.au/the-budget-1-2-billion-for-
counter-terrorism-measures-2015-5[Accessed 3 Oct 2017]
Pickardo, E.(2016).Don’t Hide from the Reality of How Terrorism Affects the Economy.
Investopedia. Available at http://www.investopedia.com/articles/investing/030215/how-
terrorism-affects-markets-and-economy.asp[Accessed 3 Oct 2017]
Ross, S.(2016).Top 5 ways terrorism impacts the Economy. Investopedia.Available at
http://www.investopedia.com/articles/markets/080216/top-5-ways-terrorism-impacts-
economy.asp[Accessed 3 Oct 2017]
Sandler, T and Enders, W.(N.d).Economic Consequences of Terrorism in Developed and
Developing Countries.Psu.Edu.Com.Available at
http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=224907E800A1228DF6FB19F3AC3A
66BE?doi=10.1.1.129.1037&rep=rep1&type=pdf[Accessed 3 Oct 2017]
Wellman, Carl.(2013).Terrorism and Counterterrorism: A Moral
Assessment.Books.Google.Co.Ke.Available at https://books.google.co.ke/books?
id=eaxEAAAAQBAJ&pg=PA27&lpg=PA27&dq=duty+of+government+to+protect+citizens+an
d+their+property+from+terrorism&source=bl&ots=Sm-
rwZCx8z&sig=fkNA7AlEiZuE2XOr4bfwFXkTMMU&hl=en&sa=X&redir_esc=y#v=onepage
&q=duty%20of%20government%20to%20protect%20citizens%20and%20their%20property
%20from%20terrorism&f=false[Accessed 3 Oct 2017]

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Wells, I.(2017).Government offers 2m for Scientific Research into Counter-terrorism. The
Guardian.Com.Avaiable at https://www.theguardian.com/uk-news/2017/jul/17/government-
offers-2m-for-scientific-research-into-counter-terrorism[Accessed 3 Oct 2017]