KEY POINTS:
The tyranny of distance looms large again.
Our tourism industry is bracing for what could be the biggest and ugliest effect of the US credit crunch to hit the New Zealand economy.
The financial crisis in New York and London has had its flow on to the NZX but the real shock will come if US (and British and European) travellers put their passports away.
After a decade long boom, tourism is now this country's biggest earner of foreign dollars.
There is no historical precedent for exactly what sort of slowdown to expect or how dramatically it will impact on jobs and earnings. But the industry is clearly worried.
There have been global downturns before. But in the wake of the oil shocks of the 1970s, the market crash of 1987, or even the Asian crisis of the late 90s, tourism was a much less significant contributor to the wealth of the nation.
Filled with positive, can-do, entrepreneurs this is an industry that would rather talk about challenges than problems. But even the most optimistic operators must prepare for a very big challenge indeed - at least in the next 12 to 18 months.
Not only are world's richest economies on the brink of recession, the oil shock is forcing airlines to cut capacity and raise ticket prices just as the discretionary spending of world's middle class tourists market starts to fall.
Last week as Air New Zealand downgraded its profit forecast for the second time this year, Qantas cut capacity and airlines around the world raised prices there was talk in the aviation sector about the end of a golden era.
For more than a decade ticket prices have barely risen in nominal terms - in real (inflation adjusted terms) they have fallen dramatically. Flying has become cheaper and easier and their is no doubt New Zealand has benefited greatly from the trend.
Any drop in US and European visitors is likely to be offset by continued growth in travellers from the booming Chinese market.
But while tourists from China are feeling flush relative to a few years
ago, they still don't command anywhere near the spending power of the Yanks, Brits and Germans.
It's not all gloom. One thing won't change. New Zealand will remain a beautiful exotic location in the minds of the global travelling public.
No one is predicting a wholesale collapse in tourist numbers.
But the difficulty for an industry where rapid growth has become the norm is that any kind of slowdown will bring pain to the thousands of small operators who compete aggressively for their slice of the tourist pie.
The kiwi dollar is - as always - the white knight on the horizon. If the industry has made it this far with a dollar above US75c then there is hope. If the economy starts to falter then the dollar will fall and New Zealand may again look like a cheap destination to our big spending American friends.
THE OTHER BIG EARNER
Meanwhile, the flipside of the commodity boom that is driving oil prices and squeezing the wallets of consumers around the world is that dairy prices continue to stay strong.
Despite what a nation of complaining supermarket shoppers might think, this is a very good thing for New Zealand.
Yesterday Fonterra injected an additional $750 million cash into New Zealand's slowing economy.
That's roughly on par with the total returns generated by our celebrated wine industry (wine exports hit a record $766 million last year) and takes Fonterra's payout for the year to about $9.6 billion.
Almost all of that - about 95 per cent - came from exports. New Zealand consumers aren't making farmers rich, consumers in Asia and Europe are. And actually, most farmers aren't rich. They certainly don't keep their money in their pockets.
When they get a payout and splash out on a new tractor or a fencing upgrade that money heads off into the local economy. The same goes for the dollars earned by small town tourist operators and South Auckland manufacturers.
There are pretty much only two kinds of dollars in this country. The kind that we borrow from foreign banks and the kind that we earn by exporting. Only the latter will improve the standard of living of the average New Zealander in the long term. Fonterra should be commended for its fantastic result this year.
Declaration of interest. This columnist is a life long city dweller and a big cheese lover. He has taken to buying a mere 750g house brand block instead of the usual 1kg. It really isn't that bad.
* Liam Dann is the Herald's business editor
