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Can Tourism Be the Ticket to Turkey’s Economic Recovery by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

Can Tourism Be the Ticket to Turkey’s Economic Recovery?

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Tourism is one of the most dynamic and fastest-growing sectors in Turkey. The country is highly reliant on tourism for foreign exchange earnings. However, the COVID-19 outbreak and the Russia-Ukraine war have affected the country’s tourism industry and resulted in a decline in tourist visits. While the spike in energy and commodity costs due to war has widened the current account deficit gap, it has also made tourism cheaper in the country due to a significant decline in currency value. This has resulted in an unprecedented influx of tourists once the pandemic subsided. Furthermore, various initiatives have been taken by the government to boost tourism in hopes of reducing the current account deficit, bringing down inflation rates, and supporting economic growth.

Turkey is known for its vast historical sites in the major cities of Istanbul and Antalya, as well as the Aegean and Mediterranean Sea coasts. The tourism sector employs about 2.6 million people in the country. The sector also contributes significantly to new tourism-related business sources and foreign exchange earnings and, thus, plays a crucial role in the economic development of the country, especially in the post-COVID era. In 2021, it is estimated that Turkey generated about US$25 billion in revenue from the tourism sector.

The country’s dependence on tourism has increased significantly over the past few years. Turkey’s travel and tourism sector contribution to GDP increased to 11% in 2019 as compared with 4.7% in 2014. As per the United Nations World Tourism Organization (UNWTO), Turkey was the sixth-most visited country in the world in 2019. While the country’s rank came down to 15th in 2020 due to the COVID-19 outbreak, it jumped to fourth in 2021 in the post-COVID-19 recovery phase.

In addition to this, as per the 2022 Economic Impact Report (EIR) by the World Travel and Tourism Council, Turkey’s Travel and Tourism GDP is expected to increase by about 5.5% on an annual basis over the next decade (2022-2032) and create over 716,000 new jobs in the country. The projected growth rate in the country’s travel and tourism sector is more than double the projected growth rate of the overall economy, which is expected to be 2.5% during the same time period.

Challenges faced by the tourism sector over the years

While the tourism sector remains one of the best-performing sectors in Turkey, it has faced its own set of challenges over the past several years. Inflation has been rapidly rising in the country since 2016 due to factors such as low-interest rates, the energy crisis, an increase in commodity prices, and declining currency value. This has significantly affected domestic travelers and business owners in the tourism sector. Several terrorist attacks, particularly in the southeast part of the country and Istanbul and Ankara by the Kurdistan Workers’ Party (PKK) and ISIS, also severely affected tourist visits and economic growth in 2016.

Owing to the 2020 COVID-19 outbreak, spending on tourism by international visitors in Turkey declined by about US$20 billion, a 70% decline in comparison with 2019. This led to a decline in demand and unemployment in related sub-sectors, including airlines, travel agencies, hotels, and car rental companies, among others.

Stringent measures and trade restrictions resulted in a significant decline in air traffic and affected the aviation industry. For instance, the National carrier, Turkish Airlines, reported a net loss of about US$761 million in 2020.

The hospitality industry was also hit due to a fall in tourism in the country. Most hotels faced significant revenue loss during lockdown months. According to the Turkish Hotel Association (TUROB), the hotel occupancy rate in the first nine months of 2020 was just 35.4%, a decline of 47.8% from the same time period in the previous year. Moreover, revenue per available room declined by 52.5% to US$24.7 during the same period.

Can Tourism Be the Ticket to Turkey’s Economic Recovery? by EOS Intelligence

The 2022 war between Ukraine and Russia further affected the tourism sector growth in Turkey. Tourist visits from Russia and Ukraine used to account for a significant share of the total number of tourists visiting the country for holidays from Europe. Over 4.7 million Russians and 2 million Ukrainians visited Turkey for vacation in 2021. While 2.2 million Russians visited Turkey during January-July 2022, it is expected that the total number of tourists from Russia in 2022 will fall short of the 2021 figures due to prolonged war and the imposition of western sanctions and flight suspension. The number of tourists from Ukraine declined to 374,000 in the first seven months of 2022, in comparison with 1.1 million during the same period in 2021. The war also spiked Turkey’s inflation rate, which touched about 80% in August 2022.

While the Turkish government is trying to attract tourists from Russia by collaborating with Turkish aircraft to transport foreign guests amid war, it is not likely to recover tourist visits to pre-war levels.

Depreciating currency value boosts tourism in the country

The increase in the current account deficit due to rising energy and commodity costs in the backdrop of war in Ukraine has led to a massive currency value plunge for the Turkish Lira in 2022. Turkey is a net importer of oil and gas, and a spike in energy costs amid the Ukraine-Russia war has widened the current account deficit gap. As per the Turkish Central Bank data, the current account deficit increased to about US$32.4 billion in the first half of 2022. As of September 2022, the Turkish Lira declined to about TRY18.3 per US$1 compared with an average of TRY 8.9 per US$1 in September 2021 and is likely to decline further in 2023 with rising inflation rates due to interest rate cut.

A significant plunge in the currency value has made Turkey a more affordable destination for holidays in comparison with other European tourist destinations. The cost of stay, food, and travel has become significantly lower for foreigners. Adding to this, there has been a decline in COVID-19 cases across the globe, which has also provided the tourism sector a strong boost.

The number of foreign tourists visiting Turkey increased by 94% in 2021 (compared with 2020), reaching 24.7 million. It further witnessed a y-o-y increase of about 128% for the period of January-July 2022 to reach 23.3 million tourists during the period. The country’s revenue from tourism also witnessed a y-o-y increase of 190% in Q2 2022 to reach US$8.72 billion. In 2022, Germany accounted for the largest share of visitors, reaching 2.9 million from January to August. The number of tourists from Middle Eastern and European countries has also increased significantly in 2022. This has also resulted in an increase in share prices of Turkish Airlines. For instance, the share value of Turk Hava Yollari AO, also known as Turkish Airways, increased by about 147% between January and May 2022.

Since Turkey is highly reliant on tourism for its foreign exchange earnings, the significant boost in tourism is likely to help lower the widening current account deficit in the country. A low current account deficit is likely to increase the value of the Lira and, thus, bring down the inflation rate and support economic growth. However, further decline in interest rates by the Central Bank is resulting in an increase in the inflation rate, which reached 80.2% in September 2022. Therefore, while tourism can help soften the blow on the economy by reeling in foreign currency and earnings, it is unlikely that it will single-handedly help the economy recover from the ongoing crisis. That being said, the government is undertaking several efforts to capitalize on the growth in the tourism sector and provide a much-needed cushion to the economy as a whole.

Initiatives aimed at boosting tourism in the country

The Turkish government realizes the role tourism can play in uplifting the economy and has been undertaking several initiatives to boost the sector. For instance, in 2021, the government adopted a new promotion strategy, ‘Go Turkey’, to boost tourism. The ‘Go Turkey’ website encompasses the use of advanced technologies such as artificial intelligence and communication models. It follows over 100 media and social media outlets which cover news about the country. Additionally, it also analyses positive or negative content on Turkey and determines promotion priority based on this analysis. The aim is to focus on advanced public relations by integrating all 81 provinces under the system and promoting tourism together as a single voice.

A few other initiatives taken up to boost tourism in the country include additional domestic flight routes, medical tourism support, transportation infrastructure development, and several hotel investments. In August 2022, Turkish Airlines signed a deal with the Services Exporters’ Association (HİB) to help increase medical tourism in Turkey to meet the medical tourism industry’s export service revenue target aimed at US$5 billion in 2023.

About US$172 billion has also been invested in communication and transportation infrastructure during 2003-2021, and the government is planning to invest an additional US$198 billion by the end of 2053. Some of the key ongoing projects include The MBB – Gari – Mezitli Metro, The IBB – Kazlicesme – Sogutlucesme Metro Line, and the IMM – Ucyol-Buca Koop Light Rail, among others, aimed at boosting the transportation network in the country. Additionally, according to the Hotel Association of Turkey (TÜROB), new investments were planned in about 30 provinces in the first half of 2022. The new investment incentive includes applications for 11 five-star hotels, 18 four-star hotels, and 26 three-star hotels.

As of March 2022, TUI Group, a leading German travel and tourism company, together with its partners in Turkey, planned on expanding its holiday program and developing a winter program across destinations to attract more tourists as compared with pre-pandemic levels.

Additionally, in July 2022, Cengiz Construction, a leading construction company, started the construction of villas and hotels in Bodrum’s Cennet Bay together with Bulgari, a luxury hospitality company, with a significant increase in international visitors in the country.

Furthermore, travel companies and agencies are focusing on the adoption of digital platforms to promote tourism in the country as people are becoming more technology savvy and prefer online booking. It also helps attract travelers from different countries across the globe. Hotel booking through digital platforms increased to 81% in 2019, up from 73% in 2014, and is expected to increase further with rising penetration of smartphones and easy internet access. Turkey’s Tourism Development Agency (TGA) is likely to spend about US$100 million to promote tourism in over 120 countries through internet platforms and media in 2022.

EOS Perspective

Tourism contributes a significant amount to the Turkish GDP and is likely to help limit the consequences of increasing commodity and energy prices by reducing the widening current account deficit gap and easing the pressure on the economy. That being said, it is unlikely to help the country recover completely from its economic woes. Although the depreciating Lira has made Turkey a very affordable destination for holidays, people operating in tourism businesses are significantly affected by the high inflation levels as well. Hotels and resorts are facing high costs of employee wages, food supplies, and car rents, among others, which hurt their profits. Interest rates cut by the Central Bank are further increasing the inflation rate. In addition to this, the key tourist season, which is the summer season for Turkey, lasts for just a few months, and the sector’s revenue and profitability fall in the winter season. This makes it evident that the Turkish economy must base its recovery on a balanced mix of support across several sectors.

Crippled by COVID-19, Tourism Gears Up to Rebound
by EOS Intelligence EOS Intelligence No Comments

Crippled by COVID-19, Tourism Gears Up to Rebound

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COVID-19 has disturbed practically every business vertical across the globe, and the travel and tourism sectors were one of the first ones to fall prey to the devastating effects of the pandemic. Complete lockdowns made taking a leisure trip or planning a vacation impossible for a long time to come. Not only were people unable to travel, but also multiple businesses serving in the tourism sector closed down temporarily, with some shutting their doors for good. Recently, leisure travel started to resume, but at a snail’s pace. In many countries, businesses, local authorities, and government agencies are developing a coordinated approach to aid the economic recovery of the sector. The actions and approaches taken in these uncertain times will lay the foundation for the future of the tourism sector.

The travel & tourism industry contributed US$ 8.9 trillion to the global economy in 2019. Leisure travel made up the majority of total travel & tourism revenue, standing at 78.6%. The trend was expected to follow in 2020, but the coronavirus outbreak crippled the entire leisure tourism sector as travels were canceled globally for at least three months (mainly from April to June, though in many locations, those cancellations have continued at least till autumn, and again at the end of the year).

Read more on the pandemic impact on business travel in our previous Perspective: Business Travel: On the Mend but Long Recovery Ahead

Travelers evolving preferences

Demand for domestic leisure travel is expected to rise as people are likely to be less inclined to travel to international destinations due to safety, hygiene, and uncertainty concerns. Unwillingness to spend on international travel in the immediate future also suggests that people are less inclined to make trips to international destinations. Self-driving trips to nearby destinations and weekend getaways are likely to increase in popularity.

In terms of traveler type, the group travel segment (irrespective of the size of the group) has always generated higher revenue for the global leisure travel market, in comparison to the solo traveler segment (in 2018, the group travel segment contributed nearly 73% of revenue to the global leisure travel market). Travelers were always able to take advantage of group discounts offered by hotels, resorts, airlines, and vehicle rental companies.

It is anticipated that group travel will continue to be a common practice among travelers (both during the pandemic and post-pandemic). However, to avoid crowded places, it is highly likely in the future, travelers will need (and perhaps also desire) to travel in smaller groups. This trend is expected to continue in the distant future, mainly due to the growing acceptance of social distancing norms as the new normal for sanitation and hygiene purposes globally. However, whether or not this type of travel arrangement will be monetarily favorable to various market stakeholders (in terms of discounts and margins when compared to larger group travels) and what discounted rates would consumers receive is yet to be seen.

It is highly likely in the future, travelers would need (and perhaps also desire) to travel in smaller groups. This trend is expected to continue in the distant future mainly due to the growing acceptance of social distancing norms as the new normal for sanitation and hygiene purposes globally.

Demand for private charter flights is also rising among leisure travelers. Wary of flying with regular flights, people are turning to charter planes for taking vacation trips to safe destinations (for both short and long-distance locations). However, this trend is expected to be short-lived mainly because only upper-class travelers will be able to afford such travel, and most of the demand for charter flights comes from business travelers (which is also limited to a need-only basis, for now, at least).

Moreover, interest in trips to off-the-beaten-path locations and niche tourism (such as adventure tourism, wellness tourism, and heritage tourism) is also expected to grow as these locations are likely to be considered safer to travel to in comparison to famous tourist locations, at least for some time in the foreseeable future.

Crippled by COVID-19, Tourism Gears Up to Rebound by EOS Intelligence

Governments to the rescue

Travel and tourism businesses have been hit hard as they had to temporarily close business operations (many small and medium-sized business players are permanently out of business) and suffered heavy revenue losses. To mitigate the impact of coronavirus (on both the travel and tourism sectors and economies), many governments have offered aid packages to help the sector.

Governments globally have taken a range of measures to revive the sector in order to shield the economy and protect employment. For instance, Italy, one of the most popular tourist destinations and also one of the worst-hit economies by the first wave of the pandemic, announced a relief package to revive businesses in the travel sector. The package includes a US$ 645.7 million fund for the aviation sector, a US$ 129.1 million fund to support regions that generated lower revenue owing to lower number of people paying tourism taxes, US$ 19.3 million for tourism promotion, and subsidies worth US$ 129.1 million for museums and other cultural sites to recover lost ticket revenue for 2020, among others.

Similarly, under the Hong Kong government’s Anti-Epidemic Fund, licensed travel agents will receive a subsidy ranging from US$ 2,580 to US$ 25,803, travel agents’ staff and freelance tourist guides and tour escorts will receive a monthly subsidy of US$ 645 for six months, licensed hotels will receive a subsidy of US$ 38,705 or US$ 51,607 (depending on the size), and tour coach drivers a one-time subsidy of US$ 1,290. An additional US$ 90.3 million has been allotted to the Hong Kong Tourism Board for tourism promotion.

New Zealand announced that for the losses borne by travel agents for canceled travel plans by their consumers, the government will pay 7.5% of value for cash refunds or 5% of credit value to be capped at US$ 31.4 million.

In another example, the Australian government allotted a package of US$ 177.2 million for regional tourism, which will include US$ 35.4 million to support businesses in regions heavily reliant on international tourism and the remaining US$ 141.8 million to boost local infrastructure in regional communities, of which US$ 70.8 million will be used for tourism-related infrastructure. For regional tourism rebound, the Western Australian government has allotted US$ 10.2 million in the form of two funds – US$ 7.3 million as one-off cash grants of US$ 4,608 to up to 1600 individual small businesses and US$ 2.8 million as grants of US$ 17,723 to US$ 70,894 for tourism operators.

To revitalize tourism, some countries are assigning special reserves for campaigns as well. The UK initiated a US$ 12.9 million ‘Kick Start Tourism Package’ for the recovery and renewal of the tourism sector, wherein businesses can access government grants of up to US$ 6,462 to restart operations. Similarly, Norway allocated US$ 19.9 million for rebounding the country’s internal tourism businesses while Denmark assigned US$ 7.8 million for international tourism campaigns.

Various employee training programs and digital technology management processes are also being implemented to support the sector. One such example is the Singaporean government’s move to fund up to 90% of the training course and trainers’ fee for employee upgrading and talent development through its Training Industry Professionals in Tourism fund.

With minimal to no action happening in the travel and tourism segment, all these efforts are likely to not only protect jobs but also give the necessary push to restart the businesses, albeit from ground zero, in some cases.

Tourism-dependent least developed economies in deep waters

Considering that out of the 47 least developed countries identified by the United Nations, 45 consider travel and tourism of significant relevance to their economies in terms of job creation, growth prospects, and overall development, COVID-19 has a real potential to adversely affect these vulnerable countries.

In January 2020, through the ‘Visit Nepal Year 2020’ campaign, Nepal expected to attract two million visitors and generate US$ 2 billion in revenues in 2020. It should be noted that in normal circumstances, travel and tourism contribute nearly 6.7% to Nepal’s GDP. However, with the onset of the pandemic, not only was the campaign suspended, but also the tourist arrivals declined drastically – 177,975 tourists visited Nepal up until August 2020, only 24% of what had arrived during the same period in 2019 (739,000 tourists arrived between January and August). Also, nearly 20,000 tour and mountaineering guides risked losing jobs due to the cancellation of all mountaineering expeditions.

In Cambodia, where travel and tourism contribute nearly 26% to the nation’s GDP, the effects of the virus have also been damaging. The country may lose up to US$ 3 billion in revenues as the inflow of international travelers was down by 52% to 1.16 million between January and April 2020 (2.41 million visitors in 2019 during the same period). Up until May 2020, more than 45,000 jobs had been affected due to the pandemic.

Likewise, for countries such as Kiribati, Gambia, Sao Tome and Principe, Madagascar, Tanzania, Solomon Islands, Rwanda, and Comoros, the travel and tourism sector forms a key contributor to their economies by contributing 18%, 17.7%, 16.2%, 11.8%, 10.7%, 10.5% 10.2%, and 10.1%, respectively, to the countries’ GDPs.

In a normal scenario, the majority of the travel and tourism revenue in these countries is generated by leisure travel (for most of these countries, the leisure segment generates >50% of the revenue) as against business travelling. The sudden onset of the pandemic prohibited the entry of travelers (for vacationing purposes) within these countries, stopping cash inflow and thus hampering revenue generation.

Governments in most of these countries, through relief funds and aid packages, attempt to cushion the negative impact of the virus on the sector and the livelihoods of people involved. However, they are far from being able to fully offset the devastating repercussions, considering that these economies had already been at a disadvantageous position with limited growth and development even prior to the pandemic.

EOS Perspective

COVID-19 has altered most travelers’ perspective on vacationing, a fact that is unlikely to change in the short term. It is now upon the various stakeholders operating the leisure tourism sector to ensure that travelers will have an easy and reassuring path back to the sector’s services.

In the current scenario, regions where governments have been able to contain the spread of the virus, even if to a small extent, leisure traveling is slowly resuming. However, reduction in disposable income (due to unemployment), safety concerns, and overall economic slump are causing people to plan affordable regional trips rather than international vacations.

Globally, the impact of the pandemic on leisure tourism has been detrimental to the latter’s growth, to say the least. In some regions, people are slowly keener on booking vacation trips again but the volumes are low. They are likely to remain so, at least in the near future, especially with the returning spikes in number of infections and increased travel restrictions that follow.

Safety is not the only factor holding people back from traveling. Equally important is the financial crunch, fueled by job losses and uncertainty about the future. Travel and tourism industry stakeholders are observing this trend and trying to alter their strategies and business models in collaboration with government agencies to survive in these changing, challenging, and uncertain times.

Safety is not the only factor holding people back from traveling. Equally important is the financial crunch, fueled by the job losses and uncertainty about the future.

More so, partnerships among tourism industry stakeholders, regional communities, government authorities, and private sector enterprises would also contribute to the sector’s recovery. For instance, in October 2020, Nigeria Tourism Development Corporation (NTDC) partnered with Google to launch Google’s Arts & Culture collection called ‘Tour Nigeria’, which is an online exhibition that includes videos, photographs, and commentaries highlighting the country’s scenic beauty and cultural festivals. This collaboration aims to provide online training programs to small businesses and impart digital skills training to individuals in order to support the local tourism sector. As part of the initiative, a video series named ‘Explore Nigeria’ was also launched wherein social media influencers are roped in to publicize ‘best of Nigeria’ in order to reach a large number of viewers via influencers’ social media followers.

Post the lockdown, stakeholders in the travel and tourism landscape restarted their operations by evolving their product offerings (hotel stay packages with increased flexibility or airlines not flying to full capacity, thus practicing social distancing), experience services (such as tours and excursions or offering upgrades at no or minimal fee), and overall business approach. However, in some regions, this re-opening was short-lived and was paused by the second wave of the pandemic (with the third one on the horizon for spring 2021).

In the foreseeable future, it would not come as a surprise if customers can book a service provider for a leisure trip based on the hygiene and sanitation rating associated with it. Businesses are therefore being promoted on the basis of adopting upgraded cleaning procedures. It is highly likely that the pandemic may push tourism councils and governing bodies to come up with a hygiene assurance standard, either on a global or national level, that all players in the travel industry might need to abide by – this could be a bit of a stretch but such an initiative, if taken, is very likely to be embraced by many travelers.

Automation, though already at the forefront of travel and tourism, is likely to pick up pace. Travelers can expect to witness increased contactless interactions such as contactless check-in or check-out and usage of mobile apps such as hotel room keys, virtual reality for sightseeing, and chatbots and robots for concierge services. The usage of contact tracking apps to monitor traveler’s health and automatic disinfectors will also increase.

The adoption of digital identity and biometric tools will drive the travel industry in the future. Consolidated technology solutions offering a transparent and seamless flow of information ensuring travelers’ safety are essential. One such digital identity tool is the Known Traveler Digital Identity (KTDI), which holds the potential to offer a secure and seamless travel experience. An initiative by the World Economic Forum, KTDI not only aims at optimizing passenger processing experience but also manages risks in real time by monitoring a traveler’s health records.

Nevertheless, while it is optimistic to think that once the vaccine is widely available, the virus will be eradicated and travel will resume as before, one thing that the pandemic has brought to the forefront is that adaptability and adjustment are the key for travel and tourism sector players to keep their businesses running.

Crippled by COVID-19, Tourism Gears Up to Rebound
by EOS Intelligence EOS Intelligence No Comments

Business Travel: On the Mend but Long Recovery Ahead

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To contain the spread of coronavirus, many governments globally implemented country-wide closures resulting in discontinuation of large part of business activities. As a result, business-related travels also came to an abrupt halt as flights got cancelled and hotels temporarily shut down. Even after partial reopening, the continuing travel restrictions and the fear of contracting virus while travelling have restrained people from taking work-related trips. The shift towards working from home and conducting meetings virtually furthers the need to not travel. Thus, to revive the business travel sector, various stakeholders are devising new short and long-term strategies to minimize the impact of COVID-19 on corporate travel.

Business travel spending was expected to reach US$ 1.6 trillion in 2020. However, as per Global Business Travel Association’s estimates, due to coronavirus, the global business travel market is expected to lose US$ 820.7 billion in revenue in 2020. China, the epicenter of the pandemic, is expected to lose US$ 404.1 billion followed by Europe (US$190.5 billion) in revenue from corporate travel.

Read more on the pandemic impact on leisure travel in our next Perspective: Crippled by COVID-19, Tourism Gears Up to Rebound

Innovative travel protocols to the rescue

For the most part of 2020, tourism sector took a beating due to the multifaceted crisis presented by coronavirus. Governments globally are devising new travel practices to facilitate economic recovery for the business travel industry. This new form of international travel consists of green lanes, travel bubbles, and air bridges which essentially facilitates the reopening of international air travel between countries where the COVID-19 outbreak is under control. Furthermore, each business traveler must go through strict health screening at entry and exit points to ensure safe travel.

Governments’ globally are devising new travel practices to facilitate economic recovery for the business travel industry. This new form of international travel consists of green lanes, travel bubbles, and air bridges which essentially facilitates the reopening of international air travel between countries where the COVID-19 outbreak is under control.

The key idea behind these new travel corridors is primarily to bestow normalcy to the tourism sector with travels currently being reserved for business travelers for whom travel is a necessity rather than an option. Such planned travel movements are an effective means to give the necessary push to tourism sector, thus economically aiding the countries, even if to a small extent.

Singapore is one such country which carefully weighed its reopening options and as of late September had the following agreements in place:

  • Fast Lane Agreement with China and South Korea – enabling essential business and official travel between both countries for travelers carrying a Safe Travel Pass issued by a company or government agency of the respective country
  • Reciprocal Green Lane (RGL) with Malaysia, Brunei, and Japan – facilitating short-term essential business and official travel between both countries for up to 14 days carrying a Safe Travel Pass issued by a company or government agency of the respective country; RGL with Japan is also referred to as Business Track
  • Periodic Commuting Arrangement (PCA) Agreement with Malaysia – permitting residents of both countries holding work passes in the other country to enter that country for work
  • Air Travel Pass with Brunei and New Zealand – allowing short-term visitors (including foreigners who have remained in either of the two countries in the last consecutive 14 days prior to entry in Singapore) entry into Singapore and the travel reason may extend beyond official business

Under all agreements, all travelers entering Singapore have to abide by strict health measures such as pre-departure and post-arrival testing (to be paid by the traveler), serving stay-home notice, using the TraceTogether app (that allows for digital contact tracing by notifying the user if they have been exposed to COVID-19 through close contact with other app users), and adhering to a controlled itinerary for the first 14 days of stay (being prohibited from using public transportation).

Other than Singapore, Thailand had also planned to allow foreign business travelers from Hong Kong, Singapore, South Korea, Japan, and some provinces of China into the country from July as part of its business bubble travel approach. However, the discussions were delayed amid rising cases of coronavirus in East Asian countries where previously the outbreak was under control.

Business Travel: On the Mend but Long Recovery Ahead by EOS Intelligence

Hospitality players bending rules to appeal to corporate travelers

Business travel is of great importance for both airlines and hotels. Corporate travelers purchase high-value airline tickets, airport lounge access memberships, and reside in business hotels forming a major chunk of their clientele. However, hotel and airline industries have taken a major hit due to the ongoing pandemic.

Also, travelers currently show an unprecedented concern about their health and safety, and demand assurance that they can get on a plane or check into a hotel without worrying about the risk of infection. For hotels and airlines, safety has gone up their priority list, as they are developing premise-scrubbing protocols and ensure clear information about cleaning and safety procedures to their guests.

For years, hotel industry had been rigid in regard to guest’s arrival and departure timings, cancellation policies, etc. However, in the current scenario, corporate travelers’ expectations for hotels to offer flexibility have greatly increased. Thus, hotels are focusing on extending flexible services such as round the clock check-in/check-out option, accommodating refunds in case of room cancellations, and being more pliable to room upgrades (for free or at a minimum charge) so that guests can still work in case of event cancellations (or if they have to be in quarantine when traveling internationally for longer durations).

Other than offering generous discounts on flight tickets and hotel stays, airlines and hotels are highly likely to offer extra perks and bonuses such as fee waivers, extension on rewards redemption dates, bonus reward points, and upgrades, among others, as part of loyalty programs for corporate clients. Extension on expiration date of loyalty programs also make business travelers feel welcomed.

For hotels and airlines, safety has gone up their priority list, as they are developing premise-scrubbing protocols and ensure clear information about cleaning and safety procedures to their guests.

Corporates shake up travel maneuvers

Traveling priorities changed overnight during the coronavirus pandemic driving companies to reconsider their travel protocols and develop contingency plans. It is expected that 5-10% of business-related travel will be permanently eliminated as companies reduce their travel budgets and embrace virtual interactions, wherever possible, avoiding the need to travel. Moreover, companies are working on developing robust travel policies to account for safety before sanctioning any trip.

As a result of these changes, reliance on travel management companies for corporate travel is likely to increase, however, working with a trusted partner will be key to ensure travel safety. Companies will look for partners that can help them strategize travel plans, prioritize safety, and monitor spending. Round-the-clock travel support staff, flexibility to authorize last-minute itinerary changes, ability to track employee location online via an app, and expansive portfolio of hotels and travel partners to choose from in case of replacements, sudden cancellations, etc., are some of the key requirements corporates would expect their travel partners to offer. Availability of a single digital platform for travelers, agents, and company travel managers comprehending all travel-related information will make it easy to plan and track employee’s movement.

Availability of a single digital platform for travelers, agents, and company travel managers comprehending all travel-related information will make it easy to plan and track employee’s movement.

Many companies plan to resume their travel plans on a need-only basis with sales and marketing related trips being the first ones to recommence. Companies are keen to adopt a remote work location approach, wherever applicable, to limit the number of trips their employees take and to keep them safe. Additionally, including specific COVID-19-related do’s and don’ts around booking trips (via air, rail, or road), lodging, and rentals in the travel policy will prevent companies from being at litigation risk.

Business Travel On the Mend but Long Recovery Ahead by EOS Intelligence

Corporate events take a backseat

Restrain on public gatherings and travel bans hit the corporate event industry the hardest. Many events were cancelled or postponed indefinitely while many events gradually shifted to virtual platform. It is anticipated that between mid-February and mid-March 2020, the corporate event and conferences industry globally lost US$ 26.3 billion and US$ 16.5 billion in potential contracts and revenues, respectively. With the rising number of virtual events, some of which might never return to the real world, the corporate events industry is in troubled waters, at least in the foreseeable future.

As of now, the fear of contracting the virus at an event and the comfort of participating in an event remotely will continue to stifle the recovery rate for the event industry. However, in the medium term, a blended approach (in-person attendance and digital medium) may offer some respite. Organizing multi-location small gatherings, wherein small groups of people (located in a particular area or smaller region) connect online with other such groups to form a larger event could be a successful model for conducting corporate events.

EOS Perspective

Demand for business travel is most likely to elevate gradually. Domestic travel entailing client meetings and site visits are likely to resume first. Even when travelling within the country, travelers will prefer to undertake self-driven trips and same day return tours to avoid using public transport or rental vehicles and staying at hotels. International trips are likely to take much longer to rebound owing to diverse government regulations and quarantine procedures in each country. Moreover, it is highly probable that travel related to global events and conferences may never return to pre-pandemic levels.

It can also be expected that for some time, the business travel industry will revolve around the degree of flexibility and sanitation standards offered to customers. Business travel industry stakeholders will have to continuously readjust their business policies, product offerings, and day-to-day functions as situation improves (or worsens) to accommodate changing customer needs. For instance, while some hotel chains may decide to temporarily shut their properties, others may offer them for quarantine purposes for travelers visiting for longer work durations.

Similarly, it is up to the airlines to decide which routes to fly, how frequently to fly, and how much to charge (they can offer to sell premium and business-class tickets at much discounted rates to attract travelers, to at least recover some costs, if not to make profits). Modifying their offerings to appeal to business travelers (when travel is neither necessity nor priority) during these uncertain and volatile times would be of great merit for players operating in this space.

Nevertheless, the road to recovery for business travel sector is bumpy. Business travel will certainly pick momentum but the recovery is likely to be slow. However, whether the sector will reach pre-COVID revenue levels (and how many years it will take) is still debatable. This being said, stakeholders in the business travel industry who are adaptable and operate around customer expectations are the ones who have a higher chance to sail through this less damaged.

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Iran’s Tourism Industry Sprouts despite US Sanctions

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For several years, the US sanctions on Iran continued to have a detrimental impact on the economic growth of the country, with tourism sector being severely affected throughout the period under sanctions. The 2016 sanctions removal brought many visible changes to the development of the country, with hopes for tourism industry to benefit from the potential influx of travelers and new opportunities for the industry players.

Iran’s tourism was severely affected by the US sanctions

Iran was in a quivering state for more than 35 years owing to the never-ending political tensions with the USA post the 1979 Iranian Revolution. This led to no formal diplomatic relationships between the countries since 1980, and considerable sanctions imposed on Iran over the years. The impact of these sanctions was visible through a range of profound economic problems such as inflation, unemployment, poverty, and underdevelopment of virtually all industries in the country.

One sector that faced severe repercussions of the sanctions was Iran’s tourism industry. A negative image of the country was reinforced by the mainstream media as a flag-burning, west-hating nation, a fact that caused a major dent to Iran’s tourism industry. Adding to it, lack of resources to tackle this negative discourse had further left Iran in an international isolation over all these years. Despite being rich in culture, natural history and landscapes, a country with such an image could not persuade foreign tourists to visit.

Moreover, the US sanctions drastically affected Iran’s economy, which resulted in lack of proper resources to establish a well-equipped transportation sector, including airlines, trains, and buses, which in turn led to Iran becoming even less attractive to tourists. In addition, lack of proper hospitality infrastructure such as hotels, restaurants, roads, etc., further negatively impacted international tourists’ interest in Iran. Adding to it, the US sanctions also created greater tensions between Iran and the USA which led the US government to issue a travel advisory over all these years, which restricted its citizens to travel to Iran due to safety risks, such as getting kidnapped or arbitrary arrest and detention in the country. Thus, this resulted in almost no tourist from the western countries visiting Iran.

Iran’s tourism sector did witness a very modest growth over the years, largely thanks to pilgrimage tourism visiting the shrines and originating mostly from regional countries such as Iraq, Azerbaijan, and Turkey.

According to The World Bank data, the number of international tourists’ arrivals in Iran fluctuated, increasing from 2.7 million in 2006 to just 4.9 million visitors in 2014. Iran’s tourism industry was suffering particularly badly not only from the lack of arrivals of American tourists, but generally more affluent, well-spending tourists from western hemisphere, who were universally deterred by sanctions, poor state of the tourism infrastructure, as well as the negative image of the country created by international media.

According to official figures by Iran’s Culture Heritage Organization, during the sanctions period, tourism sector contributed around 2.0% to the country’s GDP (an average of US$7.5 billion in a year), leading to sluggish infrastructural development throughout that period. Iranian tourism sector’s hopes for change and better growth started budding when Iran signed a nuclear deal with six countries in July 2015, an event that led to the US sanctions being finally lifted.

The nuclear deal came as a ray of hope

Even before the US government removed the sanctions, the country started witnessing a slight increase in the number of foreign visitors. This was thanks to the nuclear deal signed between Iran and a group of six countries (the permanent members of the United Nations Security Council – Russia, France, UK, USA, and China, plus Germany) and the EU in July 2015. The deal included Iran’s commitment to restricting its nuclear activities, agreeing to keep check on the uranium stockpile, among other agreements.

The deal immediately mellowed down Iran’s negative image and released a positive message of lowered risks associated with visiting the country. This gave a slight boost to the tourism sector with a moderate growth of 4.5% with 5.2 million foreign tourists visiting the country in 2015, the highest arrivals number till date.

Another upward push on the growth trajectory came the following year, when the US government removed sanctions from Iran in January 2016, as part of the nuclear deal. This was expected to have a major impact on tourism sector as it offered hope for much needed economic stimulation, along with investments and development in the economy, and tourism sector in particular.

Iran’s Tourism Industry Sprouts despite US Sanctions by EOS Intelligence

Post lifting of sanctions, tourism sector rejoiced with developments

The nuclear deal and removal of sanctions brought growth to the tourism sector, owing to removal of restrictions on imports of financial and transportation-related services. As a result, some European airlines, such as British Airways and Lufthansa, resumed direct flights to the country. As visa requirements were increasingly relaxed, tourists from western countries started to arrive. This in turn slowly raised the demand for accommodation leading to skyrocketing prices of hotel rooms. These changes finally generated higher income for local businesses such as hotels, restaurants, tourist guides, local transportation providers, and other players in the market. Iranians excitedly welcomed foreign tourists, including the Americans, along with the positive outlook for the sector’s growth.

The Iranian government, following the sanctions removal, initiated efforts to attract foreign investments with a clear agenda of reducing Iran’s oil dependency and boost the country’s economy, by betting on increasing revenues from tourism sector.

The initiatives included the launch of a scheme called “100 Hotels, 100 Businesses” that outlined 174 projects to be introduced to investors interested in hotel construction. This is was an ambitious scheme led by the Iranian government focusing on bringing the hotel industry of the country back on track. This scheme aimed at attracting investments for the construction of 100 hotels across 31 provinces with priority given to most popular regions such as Tehran, Kashan, or Mashhad. Also, through this scheme, the government focused on initiating joint ventures with foreign companies, benefiting both the government and foreign investors.

The government also announced other major plans for the development of tourism industry. These included creating regulations to facilitate investment, creating brands of hotels and restaurants, promoting new types of tourism such as sports, climate, and industrial tourism, developing knowledge-based human resources, creating a comprehensive system of standards, balancing inbound and outbound tourism by improving political relations, and creating a system for the protection and restoration of historical and natural sites.

The Iranian government further assured about the transfer of capital and profits overseas as per the foreign investment law of the country and full protection for the investors against any non-commercial risks such war or border conflict, confiscation or corruption, etc.

The government also started working on changing the image of the country and its tourism industry in the eyes of potential foreign visitors. One major change to this was to allow increased access to the internet, e.g. over social media, for the local players, which gave the restrained westerners a far greater insight into the country without the filters added from the mainstream media.

These efforts undertaken by the Iranian government were welcomed by several foreign investors, as they brought a sense of encouragement and stability to prospects of investing in the country.

This soon led to emergence of international hotel chains, the first being Novotel (296 rooms) and Ibis (196 rooms) hotels by the French hospitality company Accor which came to Tehran already in 2015. The company’s chief executive Mr. Bazin, at the launch of the venture, was optimistic in bringing up the chain of budget hotels such as Ibis and mid and upmarket hotels such as Novotel, Sofitel, and Pullman in 20 cities of Iran, but with no particular timeline given. Another hotel that came up in 2017 was Spanish Melia in Caspian Sea in 2017, built in partnership of Melia and its Iranian partners in Tehran, where the Iranians invested more than US$250 million while the management is taken over by Melia. The hotel includes 319 luxurious rooms, two residential towers, a sports center, and other services in an area of 18,000 square meters. Similarly, the Abu Dhabi’s Rotana Management Corporation planned to open four hotels in Iran’s major cities, Tehran and Mashhad, two in each. One of the hotels (a five-star hotel with 275 rooms and suites in Mashhad) was built within one year in 2017.

Overall, investments in the tourism sector started growing at a moderate level post the removal of US sanctions. According to World Tourism and Travel Council (WTTC) data on the capital investments in Iran’s tourism sector, 2016 witnessed an investment of US$2.75 billion contributing 3.25% of all investments in the country, as compared to the investment of US$2.63 billion in 2015. Since then, capital investments have been growing and are estimated to reach US$3.75 billion in 2028 with a share of 4.86% of all investments.

As a result of increased investments and rise in tourism sector, the GDP of the country also witnessed a slight growth. According to WTTC data, tourism industry’s share in the country’s GDP increased to 7.1% in 2015 contributing US$26.04 billion, up from 6.5% (US$24.38 billion) in 2014. However, it stabilized in the following years (6.8% in 2016, 6.4% in 2017, and 6.5% in 2018), with expected contribution to GDP of 6.52% amounting to US$35.39 billion by 2028. With developments in the tourism sector, the ministry of tourism is hoping to host nearly 20 million tourists per year by 2025.

But as the country started seeing benefits of the sanctions removal, with its improved economy thanks to rise in export and import, infrastructural developments, increase of foreign investments from 2016 to mid-2018, and boost in tourism sector and many other industries, the US government shocked the country by re-imposing sanctions in August 2018. The re-imposition was a consequence of the USA withdrawing its participation from the nuclear deal in May 2018 over political differences. This brought a blow to the Iranian economy with restrictions over imports and exports, thus again leaving Iran in economic struggle due to recession through shrinking oil exports.

EOS Perspective

The economic trembles coming from crude oil export ban led the Iranian government to increase its focus on tourism industry to offset the lost revenues. While American tourists are again restricted to travel to Iran, the country is still witnessing an increased influx of tourists from other regions, including the Middle East and Asia, a fact that cushions the impact of re-imposed sanctions.

Although a blessing in disguise for Iran, one of major reasons for the rise in tourism despite the US sanctions was the almost threefold fall of Iranian currency against US dollar which made travelling to Iran a low-cost affair for many foreign tourists, especially in comparison to other Middle Eastern destinations. This has contributed to the foreign tourists’ influx especially from the western countries – tourists with budget constraints as well as tourist arriving for medical tourism purposes. At the same time, the fall in rial value against the US dollar increased travel expenses for Iranians going overseas. This has constrained the outbound tourism, resulting in a decrease of 6.5% during 2018 (March 21- June 21 of Iranian Calendar).

The weakening of the currency was just one of the reasons that contributed to the slight growth in the Iran’s tourism sector, despite the US sanctions. The country continued to communicate its selling points and positive image to foreign audiences. Iran has been working on reinforcing its position as destination of religious pilgrimages, place with improved infrastructure, natural landscape, and cultural history. Through these messages on social media, the country seems to have attracted various sorts of tourists, from leisure travelers to artists to businessmen and more, resulting in growth of the industry.

According to deputy minister of the Cultural Heritage, Handicrafts and Tourism of Iran, the number of tourists’ arrivals increased by 24% during the first seven months of 2019 (starting from March 21 as per Iranian Calendar) compared to the same period previous year. In terms of tourists’ arrivals numbers, between March 2018 to March 2019, Iran witnessed 7.8 million foreign tourists visiting the country as compared to 4.7 million tourists from March 2017 to March 2018.

Encouraged by the growth in the sector, Iranian government undertook further initiatives to ensure the inflow of foreign visitors continues (and increases). In August 2019, a functionalized center was established in Cultural Heritage, Handicrafts and Tourism Organization, with a task to make decisions on reducing the negative impact of the US sanctions on tourism industry.

Following the US State Department’s warning (issued in May 2018) against travelling to Iran, citing it being an unsafe travel destination, the risk of fall of other western tourists’ arrivals increased. The Iranian government, to compensate for the fall, focused more on attracting tourists from regional countries. For instance, visa fees for Iraqi tourists (accounting for 24% of inbound tourists in 2018) were removed, while visas for Omanis were waived off.

Iran is also looking for tourists in more remote markets, especially in countries that are known to frequently stand against the USA in the international area. China is one such market which Iran is hoping to attract leisure tourism from by allowing visa-free entry of the Chinese nationals into Iran as of July 2019. Iran has an ambitious plan to increase the number of Chinese visitors from just over 50,000 in 2018 to 2 million in 2020.

Furthermore, in order to encourage foreign tourists to visit Iran, the Iranian government decided not to stamp their passports to help them avoid issues with subsequent attempts to travel to the USA. Additionally, the government is also trying to spur medical tourism by developing health tourism hubs, especially in Shiraz with a vision to increase the tourists travel for medical purposes as well.

These measures have been quite successful in promoting Iranian tourism growth, even though the American and other western visitors have (to some extent) been replaced with arrivals from the Middle Eastern and Asian countries. However, looking at the current situation of unrest, with the killing of Iranian general Qassem Soleimani in January 2020 by US military, and Iran responding to this with missile attacks on the US military troops in Iraq less than a week later, the conflict between the two countries is nowhere near its end. This political unrest, if continues, has a potential to again severely affect Iran’s tourism industry, as the country will be unable to grow the sector without reliance on western visitors. Tourists’ sentiments are tightly linked to political climate; therefore, it can be expected that only improved relations with the USA, and through this a better image, will allow Iran to truly develop its tourism industry and its economic situation in general.

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Commentary: Thomas Cook’s Demise – An Eye Opener for Tourism Sector?

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There are few people who would not recognize Thomas Cook, as the company carved its name as a premier travel company in the UK as well as globally. Its name became synonymous with travel for many customers, as reminiscent from its slogan of “Don’t just book it, Thomas Cook it”. Unable to strike a deal to refinance its burgeoning debt, Thomas Cook, UK’s oldest package tour company, shut down operations this Monday, facing compulsory liquidation, and sending passengers as well as the tourism sector into panic. While the announcement may come as a shock, warning signs of the company’s jeopardized existence have surfaced several times over the past decade.

Thomas Cook has been in the news for large part of this year, as the company reported a record pre-tax loss of GBP1.5 billion, with the auditor raising concerns about Cook’s ability to manage a recovery. The company has been trying to secure funding of GBP900 million from banks and the Shanghai-based conglomerate Fosun, while also offloading parts of its packaged tours and airlines business.

However, an inability to secure an additional GBP200 million funding as working capital to cover cost of operations for winter season, which is traditionally characterized by low demand, meant that the company failed to secure its near future. As a result, Thomas Cook entered compulsory liquidation, fate it would have faced earlier, had it not funded its operations through accrued debt over the years, which eventually led to the company’s collapse.

Thomas Cook’s debt problem

It is not the first time that Thomas Cook has to run for its life, with serious doubts rising about the company’s existence already in 2011. At that point, Thomas Cook managed to survive by securing some expensive credit facilities, as well as restructuring and cost-cutting. However, all this came at a cost. High interest paid on these credit facilities left a heavy burden on cash flows.

The company showed signs of recovery in the following years, even posting a pre-tax profit in 2015 and bringing net debt to more acceptable levels. However, due to market conditions and other contributing social and economic factors, the company’s tour operator business displayed a particularly weak performance, suffering massive losses in 2018. These losses resulted in the company struggling to maintain working capital, as well as witnessing net debt increasing close to GBP350 million by end of 2018, with the trend continuing in 2019.

Other contributing factors

While debt remained the largest problem, other factors contributed to Thomas Cook’s demise. Proliferation and growth of budget airlines and hotel offerings such as Airbnb had already increased competition for Thomas Cook, impacting the company’s bottom line, as customers were shifting to these low-cost options.

Demand was also impacted by the 2018 heatwave in Europe, with customers from UK and Northern Europe preferring to stay at home instead of travelling to other warmer European countries, such as Spain and France, which are key contributors to Thomas Cook’s business. Total demand has also been impacted by the lack of clarity around Brexit, with customers delaying their travel decisions under the growing economic uncertainty.

Impact on the tourism sector

The collapse of a major player such as Thomas Cook is expected to impact the tourism sector, albeit primarily in the short term. Thomas Cook had developed relationships with hotels and businesses in key destinations, which are dependent on the company’s customers for majority of their revenue during peak seasons. Thomas Cook’s collapse will negatively impact these players, at least in the short term. In the long term, however, business is expected to return to normal as these companies will develop new relationships.

While customers may look to Thomas Cook’s competitors for their travel needs in the short term, limited capacities (or partnerships) are likely to make the competitors unable to take up this additional demand unless they are paid a premium for it.

EOS Perspective

The collapse of Thomas Cook highlights the challenge that traditional tour operators face in the current tourism market. Customers are shifting from traditional packaged tours to offers that allow them to decide their own destinations, and make bookings through lower-cost online service providers. Traditional players, which generate most of their revenue through offline sales channels, have been put under pressure to evolve their business model, to adopt an online channel that offers more convenience and flexibility to their customers.

Emergence of innovative travel platforms, such as Airbnb, has also put pressure on the bottom lines of these traditional players, impacting their ability to invest in new business opportunities without accumulating debt. Thomas Cook is not the only one impacted. Recently, SOTC (formerly known as Kuoni) has also been in the news for its negative debt position.

Thomas Cook’s case, however, comes as an eye-opener for the tourism industry players, clearly showing that they cannot continue to take on excessive debt. More conservative approaches and cost management need to be considered to build a profitable, and more importantly, sustainable business.

Tunisia’s Bruised Tourism Industry Starts to Recover
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Tunisia’s Bruised Tourism Industry Starts to Recover

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The tourism sector of Tunisia has been in turmoil over the past few years. The terrorist attacks on Sousse beach and Bardo National Museum in Tunis in 2015 crippled the industry, which had been witnessing a healthy growth before these events. As the Tunisian government and tourism industry players have been implementing strategies to revive the industry, some progress has been witnessed. However, the damage to the country’s image was grave and it is yet to be seen if the measures being taken will put the industry back on the growth trajectory.

Grave repercussions to the sector

Post Tunisia’s political revolution in 2011, the government started promoting tourism both domestically and internationally, and by 2014, the tourism sector contributed 15.4% to the country’s GDP. However, the terrorist attacks in 2015 in Sousse and Tunis killed nearly 60 foreign tourists (including 30 UK nationals) and significantly tarnished the image of Tunisia as a safe tourist destination.

The concerns over safety, reinforced by travel bans and no-travel recommendations issued by some EU countries, resulted in a drastic fall in the number of overseas tourists arriving in Tunisia. A travel ban issued by the UK authorities was particularly damaging to the local tourism sector, as UK had been the key demand-generating market for Tunisia. Between 2014 and 2017, the number of incoming travelers from the UK declined by 93% to 28,000 and many renowned UK travel companies, including Thomas Cook and TUI, discontinued their services in Tunisia.

The tourism sector had always been crucial for Tunisia’s economy and was one of the country’s key employment sectors, employing over 200,000 people before the attacks. The sudden decline in country’s tourism industry impacted cash inflow, business operations of several tourism industry players, and further destabilized the already faltering economy of the country.

The Recuperating Tourism Sector of Tunisia

Government reaction and first results

After two years of struggle, the Tunisian tourism market started showing first modest signs of recovery in 2017, following measures undertaken by the government to boost tourist footfall in the country. The Ministry of Tourism’s initial steps to help the industry survive included covering of social security contributions for tourism entities such as hotels, resorts, restaurants, etc., by the government, with the intention to help the providers maintain their employees and stay afloat. While this helped reduce the impact, the country still saw a massive loss of jobs in travel and tourism in 2015.

Simultaneously, the government tried to address the most pressing issue directly responsible for the decreased demand for Tunisian tourism services – traveler safety. To make tourists feel safe, the government tightened security around touristic sites, particularly in Sousse and Tunis. Additional surveillance equipment was placed at airports, hotels, and resorts to enhance security, while sector staff and various security forces received training on detecting suspicious behaviors and on counter-terrorism. Over the following years, Tunisia also received help from western countries in raising its security standards and procedures.

While these initiatives were needed and welcome, preventing attacks of this sort in a country located in close proximity to conflict zones, requires massive funding and complete, deep overhaul of its security and counter-terrorism system at all levels. Regardless of whether the steps already taken are sufficient or not to truly ensure safety, they certainly offered greater sense of protection to tourists, a fact promptly and extensively communicated to target customers across British and other European media.

The government of Tunisia has also taken measures to balance out the losses by trying to diversify its demand markets. To attract tourist from outside Europe, visa requirements for countries including China, India, Iran, and Jordan were eased with the introduction of visa on arrival. This strategy helped Tunisia attract Chinese tourists, whose footfall increased 56% y-o-y in January-May 2018 period.

To fuel business travel arrivals, the MoT started granting one-year multi-entry visa to businessmen and investors of these countries as well. Further, the MoT also removed entry visa requirements for countries including Angola, Burkina Faso, Botswana, Belarus, Kazakhstan, and Cyprus.

In parallel, the industry realized the need to broaden the sector’s offering. One such initiative was to expand the premium and luxury tourism segment targeting (quite interestingly) particularly British affluent travelers (indicating a continuous bet placed on British customers). In 2017, Four Seasons Hotel Tunis was opened, a major step in putting the country on the luxury tourism map, followed by a few more luxury resorts openings. In several locations premium activities have been developed, including marine spas and golf courses.

Europe’s cautious return to holidays in Tunisia

The measures appeared to have worked, and in 2017, the industry witnessed growth of the number tourists by 23.2% y-o-y to reach 7 million. While the government actions were to some extent successful, it was the lifting of travel ban to Tunisia by EU countries including Belgium, the Netherlands, Poland, and the UK that was the main factor leading to growth.

Recovery was further supported by the return of travel companies such as Thomas Cook and TUI, which resumed operations in Tunisia. Moreover, an air service agreement was signed in late 2017 between the EU and Tunisia to increase the number of direct flights between European countries and Tunisia, which soon led to the return of European airlines including Air Malta and Brussels Airlines on these routes.

All these developments have helped to revive tourism sector and regain European visitors to a certain extent. The number of tourists, particularly, from France and Germany, increased by 45% and 42%, respectively, y-o-y for the period of January-May 2018. This growth in tourist footfall was a great sigh of relief for local industry players, whose businesses have suffered tremendously post attacks.

UK tourist, the most valuable visitor, reluctant to come back

Despite Tunisia’s attempts to diversify its demand markets, the country sees UK as the most important source of tourists for its tourism sector. According to the Tunisian Hotel Association, the market will not fully recover until the British visitors are back in numbers from before the attacks, which will also send a strong message to the world that Tunisia is safe for travel again.

Before the attacks, tourists from the UK formed the bulk of most valuable visitors to Tunisia with high spending capacity, the strongest inclination to spend on high-end accommodation and local cuisines, staying for longer duration in the country, and shopping extensively for locally-made products.

Rebuilding Tunisia’s image in the eyes of British tourists is therefore seen as of great importance. While some British tourists started to return to Tunisia (following tightened safety measures and an extensive publicity thereof) many UK travelers continue to remain wary, and in spite the lift of the travel ban, British arrivals have not reached pre-2015 levels. This reluctance is difficult to break, as UK tourists still do not fully trust that their safety will be ensured, a fear further underpinned by tensions in Tunisia’s neighboring Muslim countries (e.g. Libya).

Some issues remain unresolved

The inability to bring back the UK tourists at levels from before 2015 is still a major problem to the local industry. Although the government undertook several initiatives to improve tourist safety, these steps are likely to be insufficient to prevent such events in the future.

Amidst Tunisia’s frail economic conditions, the availability of sufficient funds to truly and permanently ramp-up security is limited. Moreover, Tunisia must be able to ensure ongoing counter-terrorism abilities as a preventive measure, a task requiring a systematic approach and continuous financing, without dependence on western governments. Considering Tunisia is surrounded by areas prone to continuously produce this sort of danger, ensuring the right intelligence and financing is likely to be a challenge.

Tunisian tourism sector is fighting several battles at the same time, and the blow it received in an aftermath of the attacks had broad repercussions. Various structural issues, which had been present before 2015, still persist. This includes a relatively large share of poor quality accommodation and hotel services, which are not up to par with international standards and expectations of a western tourist, therefore are detrimental to market growth. The 2015 events put several hotel operators under heavy debt and in fight for survival, which pushed upgradation of hotel facilities much lower on their priority list.

There is also a shortage of well-trained hotel and other tourist services staff, which makes it difficult for the Tunisian tourism industry to compete with countries such as Turkey, especially if the substandard service level is paired with outdated and poorer hotel amenities and services. Tunisia does have training centers, however the aftermath of 2015 attacks put the entire sector along with ancillary industries in a standstill, therefore several training center have not been functioning at full capacity. Recovery will take time and it will be a while till a sufficient number of well-trained hotel staff will become available.

EOS Perspective

With tourism playing a pivotal role in Tunisia’s economy, the country found itself in a very difficult position as a result of the attacks. The revival of tourist footfall since the summer of 2017 is definitely encouraging, however the industry is still not out of the woods and needs to continue to work along with the government to ensure the return of the tourists, by addressing the key issues – safety and quality of services.

This should also be a good moment for Tunisia to realize the risks of reviving the industry with the same over-dependence on limited variety of demand markets as before (i.e. UK), and intensify its efforts to diversify target markets across Europe and beyond.

Apart from introducing and maintaining fundamental changes to the safety of the traveler and to what the industry offers, the country needs to revamp the way it markets itself so that it can improve its image and boost tourism. In the past, public authorities and industry players have not paid much attention to promoting the country’s tourism market on social media, relying largely on tour operators and agencies. However, promoting a positive image of the country along with advertising tourist facilities through online channels might help Tunisia reach broader customer segments across markets, e.g. by influencer endorsements (quite a successful approach for Abu Dhabi and Turkey, to name just a few, in the past).

It is also important for Tunisia to look beyond traditional mass-market, organized tourism and explore other avenues of revenue. More focus could be put on promoting cultural tourism as well as access to Sahara Desert – key attraction for people visiting south of Tunisia. Local investors have already started working to develop offers with local cuisines and immersive desert experiences, along with authentic-themed hotels and restaurants.

Tunisia has also made the right (although modest) steps to address the issue of substandard hotel amenities and unclear standard of accommodation that can be expected by tourists. Changes are being made to classification of hotels, as the current star rating system is outdated and based on size and capacity rather than quality of services. Efforts are being made to re-classify hotels in line with international standards. Such reforms are crucial for the industry to ensure higher level of customer satisfaction.

Rebuilding damaged image is always a long and difficult process and Tunisian authorities must do whatever possible to prevent similar attacks in the future. If the public authorities along with the industry players continue to make efforts to pull the country’s tourism market out of the pit, the optimistic expectations about tourist arrivals reaching 12 million by 2028, with a CAGR of 4.6% over 2018-2028, are likely to become reality, bringing back much needed employment and revenue to the economy.

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Zambia Government’s Pro-tourism Steps to Take the Sector to New Heights

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Zambia, like many other African countries, has struggled with the image of being underdeveloped, poor, and unsafe, a perception which has kept foreign travelers at bay. While these aspects do remain true to some extent, the Zambian government has initiated efforts to rebrand Zambia’s image as an attractive tourist destination. To this effect, the government is working on improving the country’s infrastructure as well as increasing marketing efforts to position Zambia as a premiere tourist destination to the world. With the right investments and policies, Zambia has the potential to become a popular tourist place within Africa, giving stiff competition to its neighbors, such as Zimbabwe, and to Africa’s key tourist destinations, such as Kenya. This goal might be achievable, considering that in addition to having a wide range of national parks and game reserves, Zambia is home to Victoria Falls (shared with Zimbabwe), one of the seven natural wonders of the world and a UNESCO Heritage Site.

Previously neglected tourism industry to receive a new push

While Victoria Falls remains Zambia’s most unique attraction, Zambia seems to have more on its tourist offer. The country boasts of around 23 million hectares of land being dedicated to diverse wildlife, in the form of 20 national parks and 34 game management areas (GMAs).

In addition, it is rich in other natural resources and tourist attractions such as waterfalls, lakes, woodlands, several museums, and rich and diverse culture, which gives tourists a taste of the land through many traditional ceremonies and festivals.

Despite all of this, tourism has never flourished in the country, although this might change now, as the government launched a National Tourism Policy 2015, aiming at positioning Zambia among the top five African tourist destinations of choice by 2030. The initiative is hoped to bring increased revenues from tourism needed by Zambia to improve its economic diversification, as the country has largely been dependent on revenues from copper mining and agriculture, a model only moderately sustainable at best.

The government has undertaken multi-pronged approach to put Zambia’s tourism on the map

Regions prioritization

In order to achieve this, the government is prioritizing two major regions, namely Livingstone (which provides access to Victoria Falls) and the Northern Circuit, situated in the Southern and Northern Provinces of Zambia, respectively. It is for this purpose that the government has opened up investments in the Northern Circuit region that encompasses the David Livingstone memorial in Chitambo, Kasanka National Park, beaches at Banguelu, Kasaba Bay, Lumangwe, and Kabweluma Falls, among other key tourism sites.

Appointment of investments facilitator

Industrial Development Corporation (IDC), a state-owned investment company undertaking the government’s commercial investments has assumed the job of facilitating long-term financing of several projects that will help boost tourism, in addition to acting as a co-investor alongside private investors in the sector.

Establishing of tourism development fund

The government has taken several other measures under the Tourism and Hospitality Act 2015 to provide the needed push to its tourism sector. It has established a tourism development fund, a special fund for the sole purpose of developing and funding the various spheres of the sector. To support this fund, in March 2017, the government introduced Tourism Levy, a tourist tax charged at 1.5% of a tourist’s (both domestic and international) total bill in respect to accommodation and tourist events. As per Zambia’s Ministry of Tourism and Arts (MoTA), the tourism fund collection through this tax equaled US$338,885 (K3.4 million) as of 31 August 2017.

An increased tourism marketing budget to the Zambia Tourism Agency (ZTA) for 2018 has been allocated to promote Zambia as a prime tourist destination. In April 2018, the ZTA hosted the Zambia Travel Expo (ZATEX), a tourism fair, which is one of the most important marketing platforms for Zambia’s tourism products. The fair hosted close to 60 international buyers (including both trade and media) from Southern and East Africa, the UK, Germany, the USA, China, France, India, and several other countries.

Hotels grading and licensing

In addition, the ZTA, which acts as the tourism industry regulator in Zambia, has taken up the task of licensing and grading hotels and other accommodation facilities in order to promote efficient service delivery and maintain a certain minimum standard in the tourism sector.

Under its 2018 National Budget, the government is also working on reducing bureaucracy and the cost of doing business in the tourism sector. To achieve this, the government, along with the Business Regulatory Review Agency, is expected to establish a Single Licensing System, which will act as a one-stop shop for obtaining a tourism license.

Quest to re-launch national airlines

Apart from investments and efforts to enhance efficiency and quality of ground infrastructure (such as accommodation facilities), the government has also announced the launch of national airlines, which were expected to commence operations in 2018 (later pushed to unspecified date in early 2019, hurdled by Zambia’s difficult fiscal position). The airline, a strategic partnership between the Zambian government and Ethiopian Airlines, was to have an estimated first year budget of about US$30 million.

Infrastructure investments

In similar lines to the Tourism and Hospitality Act 2015, Zambia’s 7th National Development Plan (NDP) (2017-2021) also outlines several key strategies and measures to boost tourism sector growth. Under the NDP, the MoTA (along with other sectors and ministries) aims at developing and upgrading several roads, bridges, and air-strips that interlink and ease access to the main wildlife reserves and other tourist destinations across the Northern and Southern Circuits. The NDP allocated US$870 million (K8.7 billion) towards road infrastructure development that is pertinent to growth in the tourism sector, such as the Link Zambia 8000, the C400, and the L400 projects.

In addition to this, the NDP allocated about US$94.7 million (K950.5 million) towards the construction of the Kenneth Kaunda and Copperbelt International airports. These airports, once established, are expected to position Zambia as a regional transport hub and in turn uplift tourism.

Furthermore, the government intends to develop requisite infrastructure with the aim to facilitate an increased length of stay, rehabilitate heritage sites, and strengthen wildlife protection.

Ensuring viability of wildlife tourism

The authorities have also realized the importance of rehabilitation and restocking of the country’s wildlife parks, where wildlife population has declined to levels that make it non-viable for safaris and photographic tourism. To achieve this, the government is looking into establishing strict anti-poaching rules and is exploring various public-private partnership models to aid conservation and develop national parks.

Development of non-traditional modes of tourism

To boost further awareness about Zambia’s tourism, the government aims to develop and promote ethno-tourism through events such as the Pamodzi Carnival, which showcase Zambia’s rich art and culture. Developing non-traditional modes of tourism, such as green tourism (covering eco- and agro-tourism), sports tourism, etc., is also on the agenda.

Boosting domestic private and business tourism

The government is also undertaking efforts to boost domestic tourism, by engaging and marketing to the Zambian middle class population. This will help open another revenue avenue for tourism, as local populations are likely to be easier to encourage and fuel the sector growth while Zambia’s international brand is still being developed.

Similarly, the government is also encouraging business tourism by turning several large cities, such as Livingstone and Lusaka, into premiere conference destinations. There is a huge untapped potential in the conference category that will help attract a host of domestic as well as bit of international business-based tourism to the region. In April 2017, the Zambia Institute of Chartered Accountancy (ZICA) bought 102 hectares of land in Livingstone to set up a 5,000-seat convention center, 10 presidential VIP villas, and an international-standard golf course at a cost of US$350 million. This will be the first international convention center of this scale in Zambia.

Zambia is also the host country of the African Union Heads of State and Government Summit 2022. The Ministry of Housing and Infrastructure Development is undertaking the construction of a 2,500-capacity international conference center in Lusaka, which will be the venue for the summit. The government has garnered support from the Chinese government to help construct the center.

 

Zambia Government’s Pro-Tourism Steps to Take the Sector to New Heights

The initiatives start to show modest results

In-bound international tourism on the rise

All these efforts have yielded visible results in the last couple of years and are expected to boost tourism in the future as well. This can be seen in the number of international tourists entering Zambia. While the number of international tourists visiting Zambia remained largely stagnant between 2011 and 2015 (registering a CAGR of only about 0.3%), the government’s initiatives brought an increased influx of tourists, estimated to have reached 1,057,000 by the end of 2018, in comparison with 931,782 in 2015 (registering a CAGR of about 4.3% during the period). International tourist figures are further expected to reach 1,585,000 by 2028, maintaining a CAGR of about 4.1%.

A nudge to the industry job creation

A similar trend is also visible in job creation in the tourism sector (both direct and indirect). In 2016, about 306,000 people worked in the tourism sector (including indirect jobs supported by the industry). Employment in the sector increased by about 2.5% in 2017 and was expected to further rise by 3.4% in 2018 to reach 324,500 jobs. The number of jobs created by the tourism sector is expected to increase to 448,000 by 2028, registering a CAGR of 3.3% during 2018-2028.

Early signs of increased contribution to the GDP

The total contribution of the travel and tourism sector (encompassing both direct and indirect contribution) to Zambia’s GDP was about US$1.79 billion in 2017, rising from US$1.4 billion in 2016. The sector’s contribution to the GDP is further estimated to rise to reach about US$1.87 in 2018 and is expected to reach US$2.9 billion by 2028 (accounting for 7.1% of total GDP).

Sprouting opportunities for investors

The government’s efforts and increasing tourist numbers also result in significant opportunity for investors to enter this sector. A large number of global hotel brands, such as Carlson Rezidor Hotel Group (Radisson), Marriott, Accor Hotels, South Africa’s Southern Sun, Protea Hotels and Sun International, as well as Taj Hotels, have already established presence in the country.

However, further scope for growth in the accommodation sector remains, especially in the 3-5 star category hotels that have 50-500 beds. As per African Hotel Report 2015, Zambia ranked as the 2nd best destination for Hotel Developers in Africa in 2015. During the same year, Zambia had a supply of 122 branded bedrooms per million population. This was well below the average in the Southern African region of about 350 branded bedrooms per million population.

Further scope exists in the development of conference facilities, tourist transport services, global cuisine restaurants, communication facilities, and other supporting infrastructure.

Investment opportunities are also present in the development of gaming venues, considering that gambling is legal in Zambia. This could help build a unique tourism offer that would combine city life and wildlife activities.

Investors are likely to find several reasons to consider investment in the country. Zambia offers easy access to a pool of English-speaking work force at competitive costs. The country has one of the lowest power tariff rates in Africa. Even after a 75% increase in power rates in 2017 (now ranging between US$0.05 and US$0.07), they are still much lower than rates in other countries in the region (where they range between US$0.06 and US$0.11 per kWh). Zambia is also well endowed with abundant water resources, which is essential to the tourism industry (as per World Bank, Zambia’s internal freshwater resource per capita was estimated at about 5,134m3, much higher than in its neighboring countries – Kenya (450m3), Zimbabwe (796m3), Botswana (1,107m3), Namibia (2,598m3), and Mozambique (3,686m3)).

Tourist safety and complex legislation hamper growth of the industry

While Zambia seems to have all the right ingredients to become a popular travel destination, there are several challenges that exist.

The key challenge is tourist safety. Zambia’s reputation has for long been affected by cases of tourists being targeted in financial scams or other types of crimes such as theft, murder, rape, etc. Continuous and consistent efforts to minimize such risks are essential to change the situation, which, apart from greater police involvement and law enforcement, should also include marketing campaigns voicing the benefits of tourism in the country to the local population.

Another challenge that the government must deal with is the level of bureaucracy and excessive number of laws governing various aspects of the tourism operations. Currently, some 10 pieces of legislation that affect tourism business are in force, most of which need to be simplified and harmonized, and in doing this, the government should use input from the local industry players.

The excessiveness in regulations is also paired with magnitude of charges and levies added on many activities, resulting in higher retail pricing. These include 16% VAT, 10% service charge on accommodation, food and beverage, and conferencing, 1.5% tourism levy, and 0.5% skills levy in addition to other levies, such as business levy, fire, health permit, food handling, etc. This leads to Zambian hotels being more expensive than hotels in neighboring countries. A prime example of this is found in Victoria Falls – Zambian tourism offer in Victoria Falls remains largely uncompetitive with regards to price in comparison to the offer on the Zimbabwe side of this major attraction.

EOS Perspective

With the ongoing government support along with growing interest in African wildlife holidays, Zambia has all the ingredients to emerge as a popular tourist destination in the future. China could be one of the key target markets for Zambia, as a large number of financially-capable Chinese tourists have shown keen interest in travelling deep into Africa. Zambia should also bet on business travel and conferences (both domestic and international) to form another lucrative revenue streams.

While efforts to boost tourism are being made in the right direction, with somewhat visible results, revamping such a long-neglected industry will take more than that. Ensuring the safety of the travelers is an objective that should remain on top of the government’s priorities list.

Further, it appears that some forms of tourism have been marginalized in the government’s focus areas, but should probably receive more attention in the long-term plans. Despite the fact that Zambia has about 35% of South African Development Community’s (SADC) water resources, little emphasis has been put on marine tourism development in the form of boat cruises (on lakes), fishing, etc. Similarly, considering the country’s rich wildlife and natural reserves, education tourism seems like an obvious segment to offer a great potential.

It appears that the required will and leadership from the government are in place to change the industry. However, Zambia’s current fiscal struggles (as it is coping with rapidly increasing debt and implementing austerity measures) might limit the resources needed to realize the plans and ambitions. This might lead to lost opportunities (much needed in this agriculture and copper mining reliant economy), as Zambia has the potential of becoming a popular travel destination, giving stiff competition to its neighboring popular travel destinations, Zimbabwe and Kenya.

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