The Business Of Terrorism

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"Anyone who was thinking about a holiday in India will now think twice and many will cancel," a marketing executive for a hotel chain that has been expanding in India told me. "Terrorists know the game. They know if they frighten travelers away, they scare off the companies that cater to travelers. If we decide not to proceed with more hotels in India that decision ripples throughout the economy. It's not just that there'll be no new jobs for maids or waiters or bellmen. Construction companies lose, lawyers lose, architects lose. And the people who feed and clothe and sell to the lawyers, architects, and construction workers lose."

The developments in Bangkok and Mumbai are already seeping through the cities' economies. In Bangkok, hotels have slashed room rates by as much as 80 percent in an attempt to lure local traffic until international visitors return. And in Mumbai, the city's best hotels have decided to cancel or tone down their traditionally lavish New Year's parties. That'll cost the economy hundreds of thousands of dollars immediately and millions down the line.

But we needn't theorize about the financial impact of terrorism aimed at tourism. We know terrorism is good business (so to speak) by even the most cursory glance at tourism in Bali and Israel, two places that depend on travel spending.

Tourism is the largest industry on the Indonesian island of Bali. Besides agriculture, in fact, it's virtually the only industry. But terrorism attacks in 2002 and 2005 ravaged the island's tourism. After the 2002 incident—suicide bombers targeted two clubs favored by tourists and killed 202 people—the number of visitors dropped by about 25 percent in 2003. The island's tourist arrivals had finally returned to 2002 levels when suicide bombers struck again and killed 20 people late in 2005. Tourism declined by 20 percent during the first five months of 2006.

And Israel's tourism is still recovering from the so-called Second Palestinian Intifada, launched in September 2000. About 2.4 million travelers had visited in 2000, but that number was cut in half the following year. Tourist traffic fell below a million visitors in 2002. In fact, the visitor count didn't return to the 2000 level until last year.

The Fine Print… Stopping terrorism against travelers also has a cost. Egypt's tourism industry, which accounts for about 20 percent of its foreign-exchange earnings, was devastated by a wave of terrorist attacks in the 1990s. After a 1997 massacre, when 63 travelers were gunned down in Luxor, the Egyptian government cracked down hard. The visitor count has topped the 10 million mark in recent years, but human-rights groups claim Egypt is now ruled by one of the world's most repressive governments.

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