May 14, 2010

Oil spill's potential economic blow at least $700 million, says UAB expert

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Gulf Coast economies from Louisiana to Florida could lose as much as $700 million if the slick makes a far-reaching landfall, says a retail and marketing expert from the University of Alabama at Birmingham School of Business.

“I would estimate the potential tourism-industry losses due to the oil spill at somewhere between $700 and $800 million for the summer tourism season if the oil continues to disrupt fishing operations and reaches land and forces beach closures,” says Bob Robicheaux, Ph.D., chairman of the Department of Marketing, Industrial Distribution and Economics at the UAB Collat School of Business.

“This disaster will affect nearly every trade and business along the coast without exception – from fishermen to the restaurants that serve their catch to the rental properties left vacant should fearful tourists stay away,” Robicheaux says.

Reported options to slow the spill include a “top hat” procedure to control the oil flow and a “junk shot” method to block the leak with debris. Whatever the solution, Robicheaux says, the spill must be contained quickly if coastal communities have any chance of salvaging the most important revenue-generating season of the year.

“The beaches are still open for business, and oil is not washing ashore yet, but the fear generated by the uncertainty of the future is already forcing some condominium and hotel owners to consider dropping their prices to lure tourists to the area,” he says.

“The hotels and condo owners who are forced to drop prices to get people to frequent the restaurants, buy gasoline and shop the outlet malls will see a severe economic blow to local revenues,” Robicheaux says. “Look how price competition is affecting the automobile and clothing industries. You can buy those products at rock-bottom prices across the country these days, but the retailers are suffering.

“I like low prices as much as anybody, but, as a student of business, I know that competing on the basis of price is a no-brainer — you go bankrupt.”

Robicheaux also expresses concern that state budgets already are stretched too thin by the economic recession. A further drop in sales-tax collections could put many states in increasingly difficult circumstances, he says.

“When the restaurants and shops along the coast stop making sales, they stop paying sales and lodging taxes  — that crucial revenue for the states evaporates.  Nothing can be done in the short run to recoup those lost funds until tourism returns, which could take a period of years depending on the severity of any oil landfall,” Robicheaux says.

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