SEUROPEAN TOURISM 2016

Transcription

1 SEUROPEAN TOURISM 216 TRENDS & PROSPECTS APRIL 216

2 EUROPEAN TOURISM IN 216: TRENDS & PROSPECTS Quarterly Report (Q3/216) A quarterly insights report produced for the Market Intelligence Group of the European Travel Commission (ETC) by Tourism Economics (an Oxford Economics Company) Brussels, November 216 ETC Market Intelligence Report 1

3 Copyright 216 European Travel Commission European Tourism in 216: Trends & Prospects (Q3/216) All rights reserved. The contents of this report may be quoted, provided the source is given accurately and clearly. Distribution or reproduction in full is permitted for own or internal use only. While we encourage distribution via publicly accessible websites, this should be done via a link to ETC's corporate website, referring visitors to the Research/Trends Watch section. The designations employed and the presentation of material in this publication do not imply the expression of any opinions whatsoever on the part of the Executive Unit of the European Travel Commission. Data sources: This report includes data from the TourMIS database ( STR Global, IATA, AEA and UNWTO. Economic analysis and forecasts are provided by Tourism Economics and are for interpretation by users according to their needs. Published and printed by the European Travel Commission Rue du Marché aux Herbes, 61, 1 Brussels, Belgium Website: info@visiteurope.com ISSN No: This report was compiled and edited by: Tourism Economics (an Oxford Economics Company) on behalf of the ETC Market Intelligence Group Cover: Europe, Transylvania, Romania, 13th century Castle Bran, associated with Vlad II the Impaler, AKA Dracula. Queen Marie of Romania s later residence. Image ID: Copyright: Emily Marie Wilson 2

4 TABLE OF CONTENTS Foreword Tourism Performance Summary Global Tourism Forecast Summary Recent Industry Performance Air Transport Accommodation Special Feature Key Source Market Performance Key Intra-European Markets Non-European Markets Origin Market Share Analysis United States Canada Mexico Argentina Brazil India China Japan Australia United Arab Emirates Russia Economic Outlook Overview Eurozone United Kingdom United States Japan Emerging Markets Appendix Appendix

5 FOREWORD STRONG GROWTH OVER THE SUMMER PERIOD The earlier strong performance in Europe continued into the third quarter of 216. Despite challenges including safety and security, most destinations across the region shared in the good summer growth in visitor numbers. According to UNWTO, Europe experienced a 3% increase in international tourist arrivals compared to the first six months of International tourist arrivals by destination 216 year-to-date, % year Source: ETC, TourMIS One in three reporting destinations enjoyed double-digit growth in arrivals. Iceland s staggering growth (+34%) is partly due to its key position as a hub for trans-atlantic travel while Slovakia and Cyprus (both +19%) benefited from deferred Russian travel typically bound for Turkey. Southern/Mediterranean destinations, Portugal (+12%), Serbia, Slovenia and Spain (all +1%) also saw a robust increase. Fast growth was also recorded by Bulgaria (+13%), Lithuania and Romania (both +1%), all three considered as key destinations for bargain hunters. Turkey (-32%) continues to endure the aftermath of its diplomatic tensions, threat of terrorism, and weakened relations with its largest source market, Russia, after a decade of sustained tourism growth. Belgium s tourism performance is still at a low ebb (-13%), affected by the slowdown in arrivals from both short and long-haul markets following the attacks in March 216. European air passenger traffic (measured by Revenue Passenger Kilometres (RPK)) remains robust up 3.5% based on 216 year-to-date data. Growth is fuelled by strong demand from the Americas, mainly from the US helped by a stronger US dollar against key European currencies and good economic 1 UWNTO World Tourism Barometer Vol. 14 September 216 4

6 conditions. Low oil prices continue to result in lower air fares, and both factors play a role in sustaining air travel demand. GROWTH MOMENTUM DRIVEN BY KEY LONG-HAUL MARKETS Since the UK voted to leave the European Union on June 23rd, there has been considerable uncertainty about the long run impact of Brexit. Although a weaker sterling against the euro has made travel abroad more expensive for Britons, they continue to travel internationally with two in three reporting destinations posting double-digit growth from the UK. Large Southern/Mediterranean destinations such as Portugal (+14%) and Spain (+13%) saw substantial growth from British visitors based on data to August. However, many of these travellers would have planned their trip before the decision to leave the EU and it is still too early to untangle the likely impact of this decision on outbound travel from the UK. Tourist flows from Russia continue to recover following a long period of weakness. Top destinations rebounding from previous years poor performance are Cyprus, Iceland and Slovakia up 45%, 22% and 21% respectively. Russia s travel ban to Turkey was cancelled at the end of June this year, however a slowing economy and a devalued rouble continue to weigh on outbound travel from this market. While year-to-date data points to a 4.5% decline in travel from Russia, in the longer run an estimated 8% increase is forecasted over the next four-year period. Inbound travel from Russia by destination Russian share of total arrivals, 215 Source: ETC, TourMIS A number of European destinations saw encouraging visitor arrivals form the US. Travellers from this market continue to take advantage of a stronger currency and competitive air fares. Despite security concerns and travel alerts issued by the US Government, the flow of US holidaymakers to Europe continues to grow. Compared to the same period last year it is estimated that US arrivals to Europe has increased by 7% so far in 216. Despite its economic 5

7 slowdown, the Chinese market is showing signs of growth as many destinations reported double-digit growth in arrivals during the first six months of the year. Chinese arrivals to Europe has been growing at a moderate pace (+13% a year on average ) and growth is so far estimated at 6%. Prospects remain positive, helped by the rapid growth of China s middle class. Nevertheless, there are fears in terms of safety and security concerns dissuading Chinese travel to Europe. INDUSTRY-WIDE COLLABORATION TOWARDS A SUSTAINABLE PROMOTION OF EUROPE Entering the final part of the year, European tourism continues to grow strongly showing great resilience to economic woes, geopolitical tensions and threats of terrorism. ETC s Outlook for the coming year remains positive with growth in arrivals forecasted to be 3% among ETC members. To foster Europe s competitiveness and achieve a better promotion of the region as a tourism destination, European authorities should capitalise on attracting investment from public and private stakeholders in order to increase flows of tourist to Europe, especially from third markets said Eduardo Santander, Executive Director of the European Travel Commission. Jennifer Iduh (ETC Executive Unit) With the contribution of the ETC Market Intelligence Group 6

8 Iceland Slovakia Cyprus Bulgaria Portugal Ireland Rep Norway Serbia Spain Romania Slovenia Lithuania Poland Croatia Malta Czech Rep Estonia Latvia Montenegro Netherlands Austria Sweden Denmark Hungary Finland UK Germany Luxembourg Greece Monaco Switzerland Belgium Turkey European Tourism in 216: Trends & Prospects (Q3/216) 1. TOURISM PERFORMANCE SUMMARY 216 The overwhelming majority of European destinations report continued growth in tourism demand through the summer months. 33 destinations have now submitted 216 year-to-date data in some capacity, with most reporting data for the peak months of July and August. 28 of these destinations have recorded either positive arrivals or overnights growth so far in 216. In most cases it is both. By contrast Turkey, Belgium, Switzerland, Monaco, and Greece have all reported a fall in either arrivals, overnights, or both so far in The number of European destinations reporting growth in 216 to date 33 destinations have reported on tourism performance in 216 Many of the very high growth rates observed in some destinations earlier in the year have now moderated, which is typical as data now include the more important and less volatile summer months. This will likely continue over the remainder of 216, including further peak season months. Nonetheless, some impressive growth rates remain. Iceland remains the top growth destination in Europe, based on data to September, keeping it on an impressive growth trajectory which it has maintained since 212. This growth is supported by a wide array of both short and long haul markets and this has perhaps been key to Iceland s longevity as the top performing Europe destination market since its exposure to risks and economic shocks is well-spread. Ongoing growth in air capacity on transatlantic routes using Iceland as a hub continues to benefit the destination and suggests that arrivals growth is not yet ready to abate, although there are some suggestions that accommodation capacity constraints may start to bite. Foreign visits and overnights to select destinations 216 year-to-date*, % change year ago 35 Arrivals Nights Source: TourMIS *date varies (Jan-Sep) by destination Slovakia s strong start to the year helped it retain position as Europe s second fastest growth market in the year-to-date. Growth has moderated from earlier in the year when arrivals and overnights growth both exceeded 2%. Based on data to August arrivals growth was 19.1% and overnights growth was 17.5% and this should secure its status as a top performing destination in 216. This 7

9 growth is a continuation of the rebound in 215 following on from a poor 214 growth performance, and some slowdown is still likely later in 216. Cyprus enjoyed both strong arrivals and overnights growth of 18.8% and 8.6% respectively based on data to September. This may involve some gain in market share at the expense of Turkey given the threat of terrorism and its tumultuous political landscape of late. Russia was a notable contributor to this growth with arrivals up 44.5% and overnights 28.2% higher, more than offsetting the falls in 215. The Czech Republic, Serbia, Bulgaria, and Romania all appear to be faring well, each making strong gains in both arrivals and overnights. As relatively lower cost markets growth this perhaps reflects some continued bargainhunting in the market. With the exception of Bulgaria, these markets have all enjoyed double digit growth from the UK, and while post-brexit data is limited at this stage, growth from the UK to these markets may accelerate as British holiday makers look to stretch a relatively weak pound. Travel from the UK to other European destinations may fall following the Brexit vote, primarily due to weaker sterling. UK should benefit as a destination from the currency movement Following the UK s vote to leave the EU, the outlook for outbound travel demand has been downgraded. This is in line with weaker near-term growth prospects amid significant uncertainty as well as a fall in the value of the pound. But weaker sterling means the UK is now a more price-attractive destination and inbound travel should continue to thrive. This will mostly be supported by leisure travel growth, while domestic UK travel should also benefit due to these pricing effects. Arrivals growth has been strong in Ireland, with growth reported as 12.3% based on data to August. However, it shoulders a particularly large exposure to Brexit fallout since the UK is its biggest European source market, albeit with limited impact in 216 to date. Since a holiday within the Eurozone became approximately 1% more expensive when paid for in sterling following the outcome of the referendum, Ireland will have lost some its appeal from a UK standpoint. Additionally, a weaker pound will inevitably encourage some displacement in travel from other source markets away from Ireland and towards the UK. The relative strength of the Swiss franc continues weighed on Switzerland s performance in 216 to date. Both arrivals and nights to Switzerland have fallen by 2.1% and 2.5% respectively based on data to August. This marks an acceleration in the rate of decline compared to arrivals growth to April and compounds similar falls endured in % Drop in tourist arrivals in Turkey in the first eight months of 216. Arrivals in Turkey fell 1.6% in 215 as a whole and a larger drop is likely this year. Turkey reported lower arrivals from all monitored source markets based on data to data to August as it continues to suffer from a combination of political unrest, weakened relations with the large source market of Russia, and the threat of terrorism. Attacks in Turkeys came after threats by the same group which claimed responsibility for attacks carried out in tourist resorts in Tunisia and Egypt and in excess of 1 people have been killed as a result of these attacks in 216 alone. This will only continue to discourage some tourists from visiting Turkey and travel to Turkey for 216 as a whole is looking likely to fall further following a more modest drop in 215. Russia s temporary ban on travel to Turkey following the shooting down of a Russian bomber will have had a large impact 8

10 given that Russia typically accounts for over 1% of arrivals to Turkey. Russian arrivals accounted for around 75% of the fall in European travel to Turkey in 215, with larger falls seen so far this year. But with the ban now lifted and the restoration of relations between the two underway, this negative trend may be reverse in 217. However, international travel to Turkey in 216 as a whole is likely to be lower than in 215 before recovery fully begins next year. Tourism Performance, 216 Year-to-Date International Arrivals International Nights Country % ytd to month % ytd to month Austria 5.1 Jan-Sep 4.9 Jan-Sep Belgium Jan-Aug Jan-Aug Bulgaria 13.2 Jan-Aug Croatia 7.3 Jan-Aug 8.8 Jan-Aug Cyprus 18.8 Jan-Sep 8.6 Jan-Jul Czech Rep 6.5 Jan-Jun 4.1 Jan-Jun Denmark 4.9 Jan-Aug Estonia 6.5 Jan-Aug 6.4 Jan-Aug Finland 3.8 Jan-Aug 1.7 Jan-Aug Germany 1.3 Jan-Aug 1.3 Jan-Aug Greece -1.6 Jan-Jun Hungary 4.6 Jan-Aug 4. Jan-Aug Iceland 33.9 Jan-Sep Ireland Rep 12. Jan-Sep Latvia 4.1 Jan-Jun 5.7 Jan-Jun Lithuania 9.5 Jan-Jun Luxembourg 1. Jan-Aug Malta 8.3 Jan-Aug 5.7 Jan-Aug Monaco -1.9 Jan-Sep Montenegro 5.6 Jan-Aug -2.6 Jan-Aug Netherlands 5.5 Jan-Jul 5.6 Jan-Jul Norw ay 11.7 Jan-Sep Poland 6.8 Jan-Aug 9.2 Jan-Aug Portugal 12.3 Jan-Aug 1.9 Jan-Aug Romania 9.9 Jan-Aug Serbia 11.1 Jan-Sep 11.7 Jan-Sep Slovakia 19.1 Jan-Aug 17.5 Jan-Aug Slovenia 9.7 Jan-Aug 8.3 Jan-Aug Spain 1.1 Jan-Aug 1.1 Jan-Aug Sw eden 5.1 Jan-Sep Sw itzerland -2.1 Jan-Aug -2.6 Jan-Aug Turkey Jan-Aug UK 3. Jan-Aug Source: TourMIS, w w.tourmis.info; available data as of Measures used for nights and arrivals vary by country See TourMIS for further data including absolute values 9

11 2. GLOBAL TOURISM FORECAST SUMMARY Tourism Economics global travel forecasts are shown on an inbound and outbound basis in the following table. These are the results of the Tourism Decision Metrics (TDM) model, which is updated in detail three times per year. Forecasts are consistent with Oxford Economics macroeconomic outlook according to estimated relationships between tourism and the wider economy. Full origindestination country detail is available online to subscribers. TDM Visitor Growth Forecasts, % change year data/estimate/forecast *** Inbound* Outbound** d e f f f d e f f f World 4.1% 4.5% 3.8% 3.8% 4.6% 3.2% 4.7% 4.% 4.% 4.8% Americas 8.5% 6.1% 4.2% 3.8% 4.% 6.9% 5.1% 3.7% 4.6% 4.% North America 9.7% 5.6% 3.6% 3.8% 4.% 8.3% 4.4% 4.8% 5.3% 4.2% Caribbean 5.3% 8.1% 3.6% 4.3% 3.7% 9.6% 16.1% 3.8% 2.8% 3.9% Central & South America 6.8% 6.5% 6.4% 3.7% 4.2% 1.7% 6.8% -.7% 2.1% 3.1% Europe 2.1% 4.7% 1.9% 3.% 4.4% -.2% 3.3% 1.8% 2.8% 4.6% ETC+4 4.4% 4.9% 1.9% 2.6% 4.1% 2.4% 5.5% 2.8% 2.5% 4.4% EU 4.4% 5.5% 3.9% 2.1% 3.8% 2.% 5.4% 2.8% 2.6% 4.5% Non-EU -6.2% 1.5% -6.4% 7.1% 6.9% -8.9% -5.8% -2.8% 3.7% 5.2% Northern 5.2% 6.5% 5.1% 3.5% 4.4% 5.2% 7.4% 4.3% -.6% 4.2% Western 2.2% 3.9% -.5% 1.9% 3.8% -1.2% 3.3% 1.2% 3.7% 4.7% Southern/Mediterranean 7.1% 4.7%.9% 2.7% 4.4% 5.9% 7.5% 2.8% 3.1% 4.2% Central/Eastern -7.9% 5.2% 5.2% 4.5% 5.% -4.8% -3.8% -.3% 5.% 5.1% - Central & Baltic 1.9% 7.2% 8.4% 2.4% 3.4% 6.4% 7.7% 5.8% 4.9% 3.7% Asia & the Pacific 5.2% 5.8% 8.8% 4.6% 4.9% 6.7% 7.8% 8.8% 5.4% 5.3% North East 7.3% 4.3% 8.6% 4.2% 5.% 8.% 8.9% 1.2% 5.3% 5.4% South East 2.8% 8.1% 9.2% 5.2% 4.8% 4.5% 6.4% 7.2% 6.% 5.9% South 9.7% 3.5% 9.2% 4.3% 5.3% 13.8% 9.% 5.4% 6.7% 6.2% Oceania 6.1% 7.2% 9.% 5.3% 4.3% 3.9% 4.% 4.6% 4.7% 2.6% Africa 2.1% -4.7% -2.6% 5.7% 6.2% 3.9% 1.8% -.2% 4.% 4.1% Mid East 8.% 1.9% 3.6% 5.6% 6.1% 8.7% 1.4% 4.2% 7.3% 8.% * Inbound is based on the sum of the country overnight tourist arrivals and includes intra-regional flows ** Outbound is based on the sum of visits to all destinations The geographies of Europe are defined as follows: Northern Europe is Denmark, Finland, Iceland, Ireland, Norway, Sweden, and the UK; Western Europe is Austria, Belgium, France, Germany, Luxembourg, Netherlands, and Switzerland; Southern/Mediterranean Europe is Albania, Bosnia-Herzegovina, Croatia, Cyprus, FYR Macedonia, Greece, Italy, Malta, Montenegro, Portugal, Serbia, Slovenia, Spain, and Turkey; Central/Eastern Europe is Armenia, Azerbaijan, Bulgaria, Czech Republic, Estonia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Poland, Romania, Russian Federation, Slovakia, and Ukraine; Central & Baltic Europe is Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia; ETC+4 is all ETC members plus France, the Netherlands, Sweden, and the United Kingdom 1

12 3. RECENT INDUSTRY PERFORMANCE INDUSTRY PERFORMANCE STRONG Passenger growth in 216 to date has continued in line with the strong expansion seen in 215 worldwide. European passenger growth has been maintained and the deterrent of further terror attacks in Europe has eased but still weighs on growth from Asia. A strong dollar helps bring travel growth from the Americas to Europe. European hotel industry is exercising pricing power but tourists remain price conscious. 3.1 AIR TRANSPORT 5.8% The rate of World RPK growth in 216 to date YTD growth based on data to August In the year to August, World Revenue Passenger Kilometre (RPK) growth was 5.8%, slightly slower than earlier 216 year-to-date growth but still comfortably above the average annual growth rate over the past 1 years (5.2%). Growth has been helped by low oil prices continuing to feed into reduced air fares. RPK growth was strongest in the Middle East based on 216 year-to-date data, with many of its hubs benefitting as gateways between Asia, Europe, and the Americas. Growth has exceeded that for 215 as a whole and is despite some weaker regional traffic related to the oil industry. However, capacity growth has continued to outstrip that of demand and passenger load factors (PLF) have declined in the year to August on some transcontinental routes via the Middle East and some routes to and from the Middle East itself. As these hubs continue to jostle for market share, by adding new routes, PLF may suffer further. Annual International Air Passenger Growth % year, RPK ytd Africa Asia/Pacific Europe Latin America Mid. East N. America World Source: IATA 11

13 Air passenger demand to and from Asia/Pacific has grown by 8.6% so far in 216 based on data to August. The reported rate of RPK growth marks 216 as the fastest growth year of the past decade, excluding the post-recession rebound in 21 of 9%. Fears of slowing economic growth in China have eased in recent months, with indicators from the services side of the economy indicating that it is still expanding strongly. Household wealth and spending continues to rise and is supporting international travel demand. In Latin America year-to-date RPK growth has slowed to its lowest rate since 29. Recessions in Venezuela and Argentina, coupled with the particular deep recession in Brazil offset demand growth elsewhere in the Latin America region and total regional growth will remain sluggish in 216. Both business and leisure-related travel are suffering and RPK growth is unlikely to surpass that of 215 at any point this year. In the case of Brazil, the summer s Olympic Games in Rio de Janeiro may have provided temporary respite, while recoveries in Venezuela and Argentina are currently a distant prospect. Monthly International Air Passenger Growth % year, RPK May-16 Jun-16 Jul-16 Aug Africa Asia/Pacific Europe Latin America Mid. East N. America World Source: IATA In Europe, year-to-date RPK growth is also at its slowest since 29 but growth is still robust and has grown in all months of 216 so far. Fear of further terrorist attacks such as those seen Paris and Brussels are a likely cause of this as some European destinations are perhaps being substituted for destinations elsewhere. 12

14 août-6 janv.-7 juin-7 nov.-7 avr.-8 sept.-8 févr.-9 juil.-9 déc.-9 mai-1 oct.-1 mars-11 août-11 janv.-12 juin-12 nov.-12 avr.-13 sept.-13 févr.-14 juil.-14 déc.-14 mai-15 oct.-15 mars-16 août-16 European Tourism in 216: Trends & Prospects (Q3/216) International Air Passenger Traffic Growth % year, RPK 2 Total 3mth mav Source: IATA Data from the Association of European Airlines (AEA) confirmed that strong growth in European airline capacity continued throughout the first quarter of 216. Growth has averaged 4.5% so far in 216 compared to 4.2% for the same period in 215. This remains in line with the trend in recent years and continued capacity expansion at this rate is supportive of further demand growth. European Airlines Capacity ASK, 4 week moving average, % change year ago Q1 Q2 Q3 Q4 Source: AEA Airline load factors have eased a little in recent months but remain high despite this capacity growth. Oil prices have risen recently, but remain historically low and continue to feed into lower air fares, in line with the usual lag period due to price hedging, providing a further boost to demand. Average load factor for the year-to-date is only marginally lower than for the same period in previous years (78% compared to 8.9% in 215 and 8.5% in 214). 13

15 European Airlines Passenger Load Factor Weekly load factor, % Q1 Q2 Q3 Q4 Source: AEA % Peak of European airline passenger load factor in 216 to date Based on data to Q3 In 216 total European airline passenger growth has significantly outpaced demand on European-Asian routes. This may be related to fears regarding recent terrorist attacks, as well as some slowdown in emerging markets. This is particularly true in the case of travel to France where nearly 4% fewer Japanese and 23% fewer Chinese arrivals are reported in year-to-date data to October (not available through TourMIS). Passenger demand growth for Asian routes has diverged from total European passenger demand to an unprecedented extent in 216: the average percentage point (pp) difference has widened further to 3.4pp (compared to 2.8pp as of Q2 216). This follows a period in 214 and 215 when travel between Europe and Asia increased at a faster rate than total European airline passenger growth. European Airline Passenger Traffic: Asia RPK, 4 week moving average, % change year ago 2 Asia Total Source: AEA Air passenger flows between Europe and the Americas continued to grow at a faster rate than total scheduled travel to and from Europe in 216. The two flows have also diverged to an unprecedented degree. The average difference between them was 5.3pp for 216 to date. This is a substantial premium compared to the average difference in 215 of 1.7pp. The greatest percentage point difference observed in 216 was 9.7. United States outbound travel to Europe has been particularly strong due to the relative strength of the dollar 14

16 9.7pp The gap between Europe- Americas and total European airline passenger growth in 216 This is the biggest observed pp difference in 216 against key European currencies as well as favourable economic conditions in the United States. Even with some slightly softer US demand implied by this data in recent months it will remain an important long-haul growth market in 216, especially with some weakening demand from Asia. European Airline Passenger Traffic: Americas RPK, 4 week moving average, % change year ago Americas Total 5-5 Source: AEA 3.2 ACCOMMODATION Global accommodation sector performance remained mixed in the first nine months of 216. The worst performing region was the Middle East & Africa; all three measures of Occupancy, ADR and revenue per available room (RevPAR) showed a downturn compared to the first nine months of 215. Meanwhile all other regions boasted at least one positive performance measure although in Europe s case this was just occupancy. Global Hotel Performance Jan-Sep year to date, % change year ago 4 2 Occ ADR ( ) RevPAR ( ) Asia/Pacific Americas Europe Middle East/Africa Source: STR Global In Asia/Pacific occupancy was up 1.8% compared to the first nine months of 215. However, this growth was likely aided by lower average daily rates (ADR) in the region which fell 3.2% in euro terms over the same period. As a result, 15

17 RevPAR also fell the only global region for which this was the case. This modest demand and price cutting is consistent with some weakening economies and softer travel demand from Asian markets. In the Americas, room rates continued to rise in US dollar terms (2.3%) but this continued to be entirely buoyed by North American performance; ADR in other regions of the Americas fell over the same period. North American hotel occupancy was unchanged from 215 levels, allowing hotels to continue to exercise pricing power and raise rates, indicating a degree of optimism regarding future growth. However, across the rest of the Americas occupancy rates were down with large falls in the Caribbean and South America. South America s accommodation sector in particular continued to feel the pinch of recessions..2% The rate of occupancy growth in Europe in 216 Based on 216 year-to-date data to September In Europe as a whole, accommodation sector performance was exceptionally lacklustre with occupancy growing by just.2% alongside a 2.3% reduction in ADR over the same period. This led to RevPAR contraction of 2.1%. However, the regional growth trend includes ADR priced in euros while in local currency terms a majority of destinations were able to raise room rates. Notably, the UK and Russia have been able to raise rates in local currency terms in Russia s case by 12% in rouble terms but, because of weaker currencies in 216 to date, ADR is lower than a year ago in euro terms. Recent depreciation of sterling will exacerbate this trend for the UK. European Hotel Performance Jan-Sep year to date, % change year ago 8 6 Occ ADR ( ) RevPAR ( ) Europe Eastern Europe Northern Europe Southern Europe Western Europe Source: STR Global In Eastern Europe occupancy rates grew by 5.4% whilst ADR was up.3% compared to 215. RevPAR was therefore 5.6% higher in the first nine months of the year compared to 215. Occupancy rates in several countries in the region continue to rebound from the lows of 214 and 215 linked to the Russia-Ukraine crisis which had severely dampened tourism to the region most notably to Russia itself. Occupancy in Russia is gradually recovering and is now edging 6%. However, and it will take some time before pre-crisis levels are restored. Occupancy rates were also strongly up in Slovakia and Romania. Northern European destinations have not been able to maintain the momentum gained in 215 when the sub-region achieved the highest levels of growth in Europe in terms of ADR and RevPAR. Occupancy grew across the sub-region 16

18 Russia Slovakia Romania Croatia Poland Spain Lithuania Finland Portugal Bulgaria Netherlands Ireland Czech Republic Greece Israel Austria Germany Hungary Switzerland Latvia Italy United Kingdom Malta France Belgium Turkey European Tourism in 216: Trends & Prospects (Q3/216) (.5%). Finland was the top performing Northern European country in terms of occupancy growth; up 3.% despite a 6.1% hike in room rates over the same period. ADR and RevPAR for Northern Europe were 6.2% and 5.8% lower respectively in the first nine months of 216 compared to 215, but are heavily influenced by the fall in UK ADR denominated in euros. UK ADR continued to rise 1.6% in local currency terms, but fell 9.3% fall denominated in euros; a clear illustration of the affordability benefits for UK as a destination. Ireland s ADR was some 15.4% higher than in the same months of 215. Southern Europe presented a mediocre picture; occupancy fell by.3% whilst room rates rose by.9% over the same period. Croatia was the best performing country in the region. Occupancy grew 5.4% in the first nine months of the year against a backdrop of rising room rates which were 27.9% higher than in 215. Turkey was the worst performing of the Southern European countries with ADR falling by 21.4% compared to the same period last year denominated in Lira, resulting a RevPAR fall of 42%. These large decreases in ADR and increases in affordability were exacerbated by further falls in the value of the lira over the summer months but appear to have failed to attract cost conscious travellers. Continued safety and security issues are a greater deterrent. It is no surprise that the three worst performing destinations in terms of occupancy are France, Belgium and Turkey as some potential travellers have been deterred by security concerns. Some of these potential travellers may be lost to Europe as a region, but others have simply been diverted to other comparable destinations within the region. For example, Spain has enjoyed strong demand and occupancy growth in 216 to date. Hotel Occupancy Rates Jan-Sep year to date, % change year ago Source: STR Global Western Europe as a whole presents a similarly mixed picture in the first nine months of 216 with a 1.1% contraction in occupancy compared with the same months of last year and only a minimal increase in ADR. Occupancy rates in both France and Belgium show few signs of recovery. Belgian occupancy is 15.3% lower than over the same period last year whilst France is down 5.5%. French demand did not receive any immediate boost from the hosting of the Euro 216 football as any new visitors were offset by displaced travel as 17

19 Croatia Ireland Russia Hungary Portugal Bulgaria Poland Spain Malta Slovakia Finland Netherlands Romania Germany Lithuania Greece Czech Republic United Kingdom Switzerland Austria Belgium Italy Latvia Israel France Turkey European Tourism in 216: Trends & Prospects (Q3/216) expected. However, the real benefit of hosting a mega-event such as this typically follows as the additional exposure generates additional demand. This has been offset by continued terrorist activity in Rouen and Nice over the summer. Hotel Average Daily Rate Jan-Sep year to date, local currency, % change year ago Source: STR Global 18

20 Hotel Performance 216, Year-to-Date (Jan-Sep) Country % change year ago Occupancy ADR* RevPAR* YTD level (%) % change year ago YTD level (euro) % change year ago YTD level (euro) Austria Belgium Bulgaria Croatia Czech Republic Finland France Germany Greece Hungary Ireland Israel Italy Latvia Lithuania Malta Netherlands Poland Portugal Romania Russia Slovakia Spain Switzerland Turkey United Kingdom Source: STR Global *ADR and RevPAR in local currency Note: Includes all European markets for which STR collect data with a sufficient sample for reporting 19

21 4. SPECIAL FEATURE THE IMPACTS OF BREXIT ON EUROPEAN TOURISM 1.4% UK GDP growth in 217 as recession should be avoided Slower growth is due to weaker investment with heightened uncertainty The UK voted to leave the EU in the referendum held on 23 rd June with significant and far-reaching implications for a wide range of business activities, including tourism. A previous special feature (in the Q1/216 report) considered the potential impacts of a UK vote to leave on economic growth. This feature updates that prior analysis and describes potential impacts on tourism across Europe. Since the so-called Brexit vote, the economic outlook for the UK has deteriorated, although recession still appears unlikely. Following some initial gloomy data releases and surveys, the UK economy has enjoyed some good news with continued growth reported in output and spending. But this growth is slower than the trend earlier in the year and Oxford Economics current baseline expectation of 1.4% GDP growth in 217 is consistent with prior scenarios of Brexit. Business investment is set to drop over the next year and will be the largest drag on the economy in coming years. Large businesses are unwilling to spend due to the uncertainty surrounding the UK s future relationship with the EU. Political announcements had removed some of the uncertainty surrounding the timing of the UK s formal exit from the EU and the future relationship, but the high court ruling that this is subject to parliamentary approval adds further confusion. A deadline of the end of March 217 has been set by the Government for triggering Article 5 of the Lisbon Treaty which begins the formal process of leaving the EU and the start of official negotiations. This would begin a two-year negotiating period and the UK will therefore no longer be part of the EU by early 219. But greater parliamentary approval and input may affect this timing and also the goals of negotiations. Exchange Rate: Sterling vs Euro 1 = New baseline Pre-Brexit baseline Government statements have clarified that a key point for the UK in any future relationship will be control over immigration. This stance is incompatible with 2

22 1.15 Expected value of sterling for 217 on average 15% weaker value than pre- Brexit vote expectations the UK remaining within the European Economic Area. The UK government s current preferred option appears to be to negotiate a free trade agreement with the EU; involving complex negotiations within a relatively short timeframe. The alternative would be a reversion to trading under WTO rules. Both options would likely involve lower trade volumes and long-run GDP lower than under a pre-brexit baseline outlook. There has been a strong reaction in currency markets to the clarifications of the UK s future status outside of the EU. Sterling fell further against the euro and the US dollar in October and is likely to remain relatively weak for the duration of the negotiation period. Oxford Economics forecasts suggest an average rate 1.15 for 217; only a modest improvement from the current low rates. This expected rate is 15% weaker than the rate of 1.35 which was anticipated for 217 prior to the vote. The value of sterling, and this large swing in value, is an important factor in understanding the impact on tourism demand. A fall in the value of sterling typically results in a narrowing of the tourism balance. The UK typically runs a negative tourism balance as tourism exports (inbound spending) are smaller than tourism imports (outbound spending) and this is expected to become smaller in 217 and 218 as a result of the falls in sterling. The weaker currency means that UK is a more affordable destination resulting in an increase in visits. At the same time, foreign travel has become more expensive and UK departures are set to fall. UK tourism balance and exchange rate index Tourism exports minus imports, bn -5 Tourism balance (lhs) Exchange rate index (rhs) -1 Exchange rate index, inverted The benefit to UK inbound travel may be partly offset by a possible fall in business travel related to the lower investment. Weaker business activity in the UK and less inward investment will act as a drag on related travel demand. Draft headline UK arrivals data have been published for the year to August and show some modest improvement in the two months following the referendum vote (more detailed data, including the split by source market is only available for months to June fully consistent with that sourced through TourMIS in the source market performance section). UK outbound travel has also not been immediately affected in total for 216 to date according to both UK departures data and data reported by other 11 21

23 European destinations through TourMIS. A majority of European destinations are reporting slower growth from the UK than earlier in the year, but this is also part of the wider trend of more moderate growth being evident as less volatile peak summer months are included in year-to-date calculations. Larger impacts on UK outbound and inbound travel demand are likely to be evident in 217 given the more recent movements in the currency and typical lags between this and tourism behaviour due to pre-bookings. UK outbound travel is set to fall by around 2.5% in 217, taking into account the slower economic growth and weaker value of sterling. This contrasts with an expectation of around 3.5% growth prior to the Brexit vote. This 6% point swing in expected growth will vary considerably by destination. UK visitor arrivals by top 2 destinations, pp change in growth, % -7.9% -7.8% -7.8% -7.7% -7.3% -7.% -6.5% -6.5% -6.2% -6.1% -5.9% -5.5% -4.9% -4.8% -4.8% -4.8% -4.6% -4.6% -9% -8% -7% -6% -5% -4% -3% -2% -1% % Note: Destinations in Europe shaded as light blue. Australia India Thailand China United States Cyprus Canada Ireland Egypt Poland Czech Republic Greece Spain Italy UAE Sweden Belgium France Portugal Typical relationships between exchange rates and travel demand show that long-haul travel demand is more price sensitive than short-haul travel. Hence, UK travel to longer-haul destinations will see more of an impact. In fact some UK travellers may switch away from more expensive long-haul trips with a relative benefit to less expensive alternative destinations within the region. The overall impact for European impacts is likely to be for slower growth from the UK and potential declines at least in the short-term. Exposure to the UK market will determine the extent to which this will affect the market as a whole. Many short-haul destinations are more heavily reliant on the UK as a source market, in which case the overall impact on performance will be larger. However, looking at a city destination level, there are some large long-haul market with high exposure to the UK market. All impacts, are of course, uncertain given the ongoing developments in the political relationships. As well as the economic uncertainty the precise outcome of the negotiated relationship between UK and the EU will be important in several areas. For example, UK currently benefits from high air access as all 22

24 EU carriers can freely operate across borders. Any reduction in air capacity from a new agreement could directly increase travel costs 2. City arrivals from the UK, 215 s arrivals Berlin Bangkok Rome Istanbul Cracow Barcelona Las Vegas, NV Warsaw Antalya Dubai Orlando, FL Amsterdam Paris New York, NY Dublin % share of international arrivals 11% 3% 8% 5% 23% 1% 12% 18% 7% 8% 16% 18% 1% 9% 3% , 1,2 1,

25 Iceland Bulgaria Norway Estonia Portugal Slovakia Monaco Latvia Czech Rep Poland Croatia Malta Austria Cyprus Lithuania Spain Slovenia Denmark Netherlands Ireland Rep Sweden Romania Serbia Finland Greece Montenegro UK Luxembourg Switzerland Hungary Belgium Turkey European Tourism in 216: Trends & Prospects (Q3/216) 5. KEY SOURCE MARKET PERFORMANCE 216 MAINTAINS ITS MOMENTUM European travel demand continues to grow across the majority of markets. Intra-European travel remains crucial for future growth while US travel demand continues to grow helped by a strong dollar. Economic slowdown and a weaker pound in the UK as a result of the Brexit referendum is a concern for outbound travel demand but UK inbound will benefit. Trends discussed in this section in some cases relate to the first nine months of the year although actual coverage varies by destination. For the majority of countries July or August will be the latest available data point. Further detailed monthly data for origin and destination, including absolute values, can be obtained from TourMIS, KEY INTRA-EUROPEAN MARKETS 26 out of 32 destinations reported growth from Germany pointing to continued intra-regional growth in 216 The vast majority of European destination markets have reported growth from Germany so far in 216 compared to the same period of 215. Iceland boasted the strongest growth in arrivals from Germany: 22.7% higher based on data to September compared to the same period in 215. Bulgaria has also enjoyed strong growth from Germany (+19.2%). German tourists typically comprise over 1% of all arrivals to Bulgaria, hence growth of this magnitude represents a substantial number of new arrivals. Travel to Belgium and Turkey has fallen sharply as travellers are deterred from both destinations in the aftermath of terror attacks. German visits and overnights to select destinations 216 year-to-date*, % change year ago 25 Arrivals Nights Turkey, -27.6% (A) Source: TourMIS *date varies (Jan-Sep) by destination 24

26 Lithuania Iceland Norway Cyprus Slovakia Bulgaria Portugal Estonia Denmark Croatia Spain Finland Slovenia Ireland Rep Malta Poland Romania Montenegro Luxembourg Germany Monaco Netherlands Latvia Serbia Switzerland Czech Rep Austria Hungary Sweden UK Belgium Greece Turkey Montenegro Iceland Norway Estonia Bulgaria Lithuania Slovakia Portugal Spain Malta UK Denmark Finland Czech Rep Austria Slovenia Greece Croatia Romania Hungary Serbia Luxembourg Poland Switzerland Germany Sweden Monaco Cyprus Belgium Latvia Turkey European Tourism in 216: Trends & Prospects (Q3/216) Montenegro has enjoyed strong arrivals growth of 55.7% from the Netherlands in 216 to date as well as strong overnights growth (+34.3%), both based on data to August. Iceland has also reported robust growth from the Netherlands based on data to September which showed the number of Dutch arrivals to be up 24.5% compared to the same period in 215. Arrivals from the Netherlands to the UK have grown strongly based on data to June, and this growth will potentially be bolstered by the weaker pound in the second half of 216. Dutch visits and overnights to select destinations 216 year-to-date*, % change year ago 25 Arrivals Nights 15 Montenegro, 34.3% (N) & 55.7% (A) Source: TourMIS *date varies (Jan-Sep) by destination French travel behaviour has seemingly normalised following the disruption earlier in the year related to terror attacks. Some of the caution that existed at the beginning of the year appears to have dissipated and the majority of destinations are now reporting some growth from France, returning to more normal trends. Lithuania, Iceland, and Norway in particular have reported strong growth from France. The UK is one of the few destinations which reported falling arrivals from France based on data to June, 6% lower than the same period in 215. As data relevant to the weaker pound becomes available we would expect to see a return to growth. French visits and overnights to select destinations 216 year-to-date*, % change year ago Arrivals Nights Belgium, -14.2% (N) & -15.2% (A) Greece, -2.6% (A) Turkey, -33.5% (A) Source: TourMIS *date varies (Jan-Sep) by destination 25

27 Iceland Denmark Slovakia UK Estonia Luxembourg Portugal Ireland Rep Monaco Romania Poland Finland Cyprus Slovenia Spain Montenegro Malta Latvia Serbia Bulgaria Croatia Greece Switzerland Netherlands Austria Hungary Sweden Czech Rep Germany Lithuania Belgium Turkey European Tourism in 216: Trends & Prospects (Q3/216) Iceland was the favoured destination of Italians in arrivals growth terms based on data to September, closely followed by Denmark and Slovakia based on data to August. The UK and Estonia also reported strong growth from Italy based on data to June and August respectively. The UK could see this growth accelerate in the second half of the year thanks to a weaker pound. However, a large minority of destinations report some falling demand from Italy in the year to date, and growth prospects remain subdued. Italian visits and overnights to select destinations 216 year-to-date*, % change year ago Arrivals Nights Belgium, -31.4% (N) & -31.5% (A) Turkey, -57.7% (A) Source: TourMIS *date varies (Jan-Sep) by destination Weaker sterling is likely to weigh on UK outbound in the short term. Thirteen reporting destinations have enjoyed double-digit arrivals growth from the UK so far in 216. Three of these destinations (Latvia, Iceland, and Croatia) have enjoyed arrivals growth in excess of 2%. The large destinations of Spain, Portugal, and Ireland each reported handsome double-digit growth in arrivals and overnights based on data to August. Since arrivals from the UK equate to around 5% of total arrivals to Ireland, 25% of total arrivals to Spain, and 16% of total arrivals to Portugal, such growth is a substantial driver of total growth for all three destinations. But following the UK s referendum vote to leave the EU the near-term growth prospects have been downgraded amid significant uncertainty. UK outbound travel demand expectations have been downgraded due to the weaker growth outlook for the UK economy, coupled with a fall in the value of the pound. Notably, the pound has lost in excess of 1% of its value against the euro in 216. And whilst Britons will continue to travel, some destinations will shoulder a greater proportion of the Brexit burden than others in the short-term, namely Ireland, Spain, and Portugal given their high share of British arrivals. 26

28 Cyprus Iceland Slovakia Bulgaria Greece Spain Montenegro Latvia Croatia Romania Serbia Estonia Norway Lithuania Luxembourg Poland Slovenia Portugal Monaco Hungary UK Denmark Switzerland Czech Rep Finland Germany Netherlands Austria Sweden Belgium Malta Turkey Latvia Iceland Croatia Slovakia Montenegro Denmark Spain Portugal Ireland Rep Greece Slovenia Sweden Romania Cyprus Poland Serbia Netherlands Czech Rep Hungary Norway Lithuania Malta Austria Estonia Switzerland Germany Luxembourg Bulgaria Finland Monaco Belgium Turkey European Tourism in 216: Trends & Prospects (Q3/216) UK visits and overnights to select destinations 216 year-to-date*, % change year ago 35 Arrivals Nights Turkey, -3.9% (A) Source: TourMIS *date varies (Jan-Sep) by destination 2 out of 32 destinations reported falling arrivals or overnights from Russia. The most sizeable falls were observed in Turkey. Turkey has endured the largest decline in Russian arrivals so far in 216, down 87.9% based on data to August, even weaker than the 67.7% decline reported earlier in the year based on data to April. Relations between the two have been fragile since the Turkish Air Force shot down a Russian fighter jet on the Syrian-Turkey border in November 215. Russia had imposed (but has since lifted) travel restrictions on Russian tourists visiting Turkey, and, notable efforts have been made to restore relations between the two countries. Some improvement in tourism performance may follow in 217, but Russians will still share the same safety concerns of other European markets regarding travel to Turkey and any growth is unlikely to immediately offset these falls. Cyprus, Iceland, and Slovakia all reported strong arrivals growth from Russia. In Cyprus, arrivals growth was in double-digit territory (+44.5%) based on data to September. But this includes some rebound from falls in prior years and potentially some substitution from travel which would ordinarily have been bound for Turkey. Russian visits and overnights to select destinations 216 year-to-date*, % change year ago 3 Arrivals Nights 2 1 Cyprus, 44.5% (A) Malta, -31.4% (N) Turkey, -87.9% (A) Source: TourMIS *date varies (Jan-Sep) by destination 27

29 Iceland Latvia Portugal Norway Slovakia Serbia Malta Poland Netherlands Finland Montenegro Slovenia Spain Croatia Denmark Estonia Romania Greece Switzerland Germany Sweden Lithuania Hungary Czech Rep UK Austria Bulgaria Monaco Cyprus Luxembourg Belgium Turkey European Tourism in 216: Trends & Prospects (Q3/216) 5.2 NON-EUROPEAN MARKETS All but six destinations have reported some growth from the US so far in 216. Iceland was the most popular US growth destination, up 63.5% based on data to September. This growth is aided by Iceland s growing importance as a hub for trans-atlantic travel. Both Europeans and North Americans have been increasingly breaking up trans-atlantic trips with some nights in Iceland. In addition, continued growth in scheduled seats on flights between Iceland and the US, and also to European destinations will allow continued growth. Latvia and Portugal also fared well; each reporting respective US arrivals increases of 41.1% and 2.1% with almost equal overnights to match based on data to June and August respectively. Turkey and Belgium have seen notably lower arrivals from the US, each down in excess of 25%, due to a combination of political unrest and terror threats. The US government issued a travel alert to US citizens regarding the risk of potential terrorist attacks throughout Europe in 216. Perceived high-risk destinations included France due to Euro 216, Poland, which hosted World Youth Day (which attracted around 2 million visitors) and Turkey. This travel alert expired at the end of August 216 and is therefore reflected in much of the reported data. US visits and overnights to select destinations 216 year-to-date*, % change year ago Arrivals Nights Iceland, 63.5% (A) Belgium, -25.7% (N) & -25.5% (A) Turkey, -37.2% (A) Source: TourMIS *date varies (Jan-Sep) by destination Arrivals growth was reported in just over half of reporting European destinations, although Japan remains a large source market for many destinations despite this relative stagnation. Some strengthening of the yen in 216, and notably following the Brexit vote, has aided affordability for Japanese travellers, but does not fully offset prior currency depreciation. Japan s economy has been in and out of recession over the past few years and this has been evident in reported outbound tourism performance. Growth has been notable in Montenegro, where arrivals from Japan in excess of 5% (albeit from a relatively low base). Japanese arrivals growth was also strong in Iceland and Poland where volumes increased in excess of 25% based on data to September and August respectively. Turkey and Belgium were amongst the least popular destination markets due to a combination of political unrest and the threat of terrorism. 28