Industry Postcard – April 2016

Bumper Start to 2016

Global travel demand continues on an upward trajectory from 2015 into 2016, with good results for the first quarter coming in from airlines and destinations. However, the tragedy at Brussels Airport on March 22nd is a grim reminder that travel and tourism remains a target for terrorism. Nonetheless demand for travel has proven to be resilient in the face of such incidents and threats in the past.

Ireland has been enjoying a boom in overseas visitors due largely to an improved consumer confidence in source markets, increased air lift into the country, a weakened euro and improved competitiveness at home. None of these can be taken for granted. While we enjoy a short term boost in demand there are challenges ahead, not least Ireland remaining competitive as the global economic and national political landscapes change. There are very real risks to continuing success – ensuring investor confidence, economic stability, a competitive cost environment and addressing bottle necks in meeting demand, such as in Dublin City, are essential foundations for sustainable growth.

There is an urgent need for a coherent and integrated public and private sector approach to planning for the future. Irish tourism needs a clear vision with correct policies and adequate investment strategies to ensure that the industry realises its full potential. The Irish Tourist Industry Confederation (ITIC) has called for better policies and targets, and is committed to working closely with any new Government to map out a course to sustainable growth and avoid the boom and bust cycles of the past.

As always, your comments are most welcome on info@itic.ie.

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Good news – holiday visitors give Ireland the ‘thumbs up’

Ireland matched or exceeded expectations for almost all overseas holiday visitors (98%) last year, with 68% indicating that they would definitely recommend a holiday here. Perhaps more importantly, two out of every three (68%) rated their experience as ‘good’ or ‘very good’ value for money. These are the results from a Fáilte Ireland recently published survey.

North Americans appear to be more glowing than other nationalities in their evaluation with 55% reporting the holiday exceeded their expectation while the experience matched their expectation for a further 44%. As with all other nationalities ‘people and scenery’ were the main contributors to the experience being better than anticipated. The scores over the past 3 years have been reasonably consistent across all source markets, suggesting that promotional campaigns are finely tuned to the market needs and are not overselling the appeals of a holiday here.

Ever since Ireland suffered badly from a lack of competitiveness in the noughties, the value for money rating of a holiday here has become a key metric in recent years as recovery has mirrored an improvement in competitiveness. The results from 2015 show a continuation of an upward trend with 63% rating their holiday here as ‘good’ or ‘very good’ value for money – a significant boost from the figure of 30% ten years ago. While 2015 showed a further improvement on the previous year, the rate of increasing satisfaction with value has slowed. Holiday visitors from North America gave it a higher rating than others, with 28% claiming it was ‘very good’ and a further 43% rating it ‘good’ value, undoubtedly boosted by the strong US dollar. Similarly, sterling spending visitors were more complementary of the value last year. However, visitors from mainland Europe are more critical of value received with just fewer than 10% dissatisfied over recent years. It should be noted that these survey finding results are from work concluded by Millward Brown for Fáilte Ireland that end in October 2015 and thus are dated. There is an argument that as this is such a sensitive and important subject for Irish Tourism they should be brought fully up to date.

View report here >> Fáilte Ireland – The Visitor Attitudes Survey 2015


Rising domestic costs allied to exchange rate exposure threatens sustainable recovery

The headline from the National Competitiveness Council’s latest Costs of Doing Business in Ireland 2016 report, is very relevant to the tourism industry. The report benchmark cost inputs for businesses which are largely determined domestically, such as labour, property, energy, water, waste, communications and business services, and points out where these are getting out of line with our competitors. Tourism, as other export industries, has benefited from Ireland regaining competitiveness in recent years leading to increased demand, more jobs, renewed investment and profit. However, as the Irish economy is experiencing rapid growth, while the global economy is not proving as robust, there is a real threat to our cost base getting out of line as happened in the early to mid-2000s and wiping out the gains in competitiveness achieved over the past six years. Already a number of downside risks for Ireland have emerged which could potentially undermine national competitiveness and growth in tourism. These pressures include emerging infrastructure bottlenecks, skills shortages, wage hike demands and levels of industrial unrest.

View report here >> National Competitiveness Council’s – ‘Costs of Doing Business in Ireland 2016’ report

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$ US Dollar

The US dollar has been holding strong against the euro, with 1 US$ buying 0.90 cent on average during March, close to where it was a year ago but over 20% stronger than at the same time in 2014. The expectation is that the dollar/euro exchange rate will remain at around this level over the coming months although volatility cannot be ruled out due to global economic jitters and the upcoming US Presidential election.

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 £ Pound Sterling

The pound sterling has been on a downward slide again against the euro over recent months. In March the average exchange rate was £1stg. = €1.28, down 10% on November and July last year. Many forecast that sterling will soften further over the coming weeks leading up to the EU Referendum. The consensus short term outlook appears to suggest that sterling would weaken further in the immediate aftermath of a vote to leave the EU.

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Summer capacity up 9%

Total capacity on direct scheduled air services into Ireland is up 9% this summer. Almost 435,000 seats per week in the peak months will be on offer into Irish airports, with a further 103,000 into Northern Ireland. Into the Republic of Ireland the main changes are:

Cross-channel: +14% with up to 160,000 seats per week on services;
Mainland Europe: +6% with up to 217,000 seats per week;
Transatlantic services: +7% to just over 48,000 seats per week in the peak months;
Middle East services: +5% to approximately 9,000 seats per week.


Air services updates include:

Long haul routes

From the US

Aer Lingus add services from Boston for American College Football in September.

Aer Lingus Dublin-Washington service will operate through the winter with B757 aircraft.

Delta’s seasonal Atlanta – Dublin daily service upgraded to larger Airbus A330-300s.

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United’s Newark-Shannon service will reduce to 6 departures per week from early November to end March.

From Canada

Air Transat providing link from Calgary to connect with its Toronto–Dublin thrice weekly departures, effective May 23rd.

From the Middle East

Etihad will fly double daily Abu Dhabi – Dublin June 15 to September 16, before reverting to daily departures.

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Short haul routes

Aer Lingus hire in BA CityFlyer aircraft to operate weekend services from Dublin to Bilbao; Lyons; Nice; Perpignan; and Santiago de Compostela.

Aer Lingus Regional adds service from Doncaster Sheffield to Dublin.

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Flybe to end Cardiff-Dublin service from October 28.

Ryanair launches new summer twice weekly flights from Vigo (Galicia) to Dublin.

Ryanair has cancelled its Alghero-Dublin service.

Ryanair adds frequency from East Midlands to Knock from June to August.

Ryanair’s Dublin to Brussels’ Zavantem Airport will resume May 02, with all flights using Brussels Charleroi until that date.

Ryanair cuts Shannon winter services, dropping Paris Beauvais route and reducing frequency from Manchester.

VLM axes Waterford-Birmingham service from May 02.

Wow Air’s Keflavik to Dublin service goes from 3 to 5 departures per week from May 30.

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New 3,110m runway at Dublin Airport

The announcement by daa to build a 2nd parallel runway at Dublin Airport has been widely welcomed by tourism interests. Dublin Airport received planning permission in August 2007 to build a new runway, but the plans were put on hold due to the economic downturn and subsequent fall in passenger numbers. However, the recovery in passenger numbers, particularly in the past two years, has been significant. The continuation of growth at Dublin Airport is dependent on having sufficient capacity available to satisfy future demand. Enabling works on the €320 million project are due to commence later this year with construction of the north runway scheduled to start in 2017 to be operational in 2020. Dublin Airport’s North Runway development has the potential to open up connectivity to a range of long-haul destinations, particularly in fast growing economies in Asia, Africa and South America. The delivery of a new runway could support a further 31,000 new jobs over the next two decades, contributing €2.2 billion to GDP.

DUB-Runway-North-0416

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Air travel has its strongest start in 8 years

Demand for flights was the strongest at the turn of the year since 2008 with global passenger demand showing continued growth into the first two months of 2016, according to the International Air Transport Association (IATA). Global passenger traffic results for February show continuing increase in demand for domestic and international travel, with total revenue passenger kilometres (RPKs) up 8.6%, compared to the same month last year.


UK’s tourism sets new records

Almost £22 billion expenditure by inbound visitors to the UK for the 12 months to end January set a new record. 2016 got off to a record start with holiday and visits to friends and relatives (VFR) arrivals in January 2016 each 15% up on the same month last year.


Marriott and Starwood merge to become the world’s biggest hotel company

A Chinese-led consortium abandoned its US$14 billion offer for Starwood clearing the way for Marriott international to close the deal at US$13.3 billion. Marriott has obtained regulatory approval for the merger from US and Canadian authorities and expect to receive the green light from European Union and China. The combined company will have 30 brands and 1.1 million rooms. Starwood’s brands include the Westin, W Hotels, St. Regis, and Aloft. Marriott has Renaissance, AC Hotels, The Ritz-Carlton, among others.

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Terrorism and refugee crisis changing Europe’s tourism map

Greece, where tourism accounts for 25% of its GDP, is reported to be experiencing a significant downturn in bookings with the East Aegean islands, where refugees arrive from Turkey, hardest hit. Egypt and Turkey continue to lose out with a drop in visitors of at least one third due to terrorist incidents, while several North African destinations are also being deserted by European holidaymakers. The terrorist bombings in Paris and Brussels are reported to have resulted in cancellations, a downturn in bookings, and significant financial loses. Resorts in Spain, the Canaries and Portugal are experiencing an upturn in demand with tour operators reporting escalating prices and full hotels over the peak season.

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The global economic outlook

Concern about where the global economy is heading in 2016 is reflected in a waning of optimism in McKinsey’s first survey of the year. A common worry is slowing growth in China, which many highlight as a threat to global growth, resulting in a more cautious and uncertain outlook. Compared with the previous survey in December, when opinions took a buoyant turn, the outlook is now reported as less rosy on both global and domestic economic conditions, with the downward turn most pronounced in developed markets.

Respondents across Europe are now more cautious with opinion almost equally divided on future outlook – better, the same or worse – compared to almost half expecting an upturn 3 months ago. The drop in optimism is less marked amongst US respondent with 40% still optimistic, down from 44%, while those expecting a downturn increased from 14% to 22%.


UK economy hit by ‘Brexit jitters’

Consumers have seen their confidence in the UK economy dented by uncertainty surrounding a British exit from the European Union, according to the latest GfK Consumer Confidence Index. Conversely consumers felt upbeat about their personal finances which sent new car sales into overdrive in March with the second biggest monthly figure on record. However, many forecasters predict that a vote to quit the European Union, could tip the UK into recession, as such an outcome would trigger political turmoil and economic uncertainty with investment put on hold and consumer confidence dented.

UK economy which in the recent past has been largely driven by domestic demand, particularly consumer spending, is likely to slow in Q1. Meanwhile, core and headline inflation in March both accelerated, mostly due to the sharp increase in air fares because of early Easter holidays as well as the falling value of the pound impacting import costs.

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Where is the U.S. economy headed?

Consumer confidence fell for the fourth straight month in April amid growing concerns about weaker economic growth. Retail sales have been flat or falling over the first three months of the year. Consumer spending has been the biggest driver of economic growth during the latest expansion.

According to Citigroup the US economy is not likely to show significant growth, as the bank downgraded its forecast for the U.S. economy in 2016 through 2017, saying that continued uncertainty has dragged down several key U.S. metrics. Recent forecasts suggest ‘tepid’ growth of 0.9% for the first quarter of 2016 with GDP for the year growing by 1.7%. The downgrading from earlier forecasts is attributed to financial market volatility, uncertainty as to when the Fed will raise interest rates and political events at home and abroad. The IMF and OECD also downgraded their forecasts on a weaker global outlook and low oil prices, pointing to a slowing down of the US economy, which is being reflected in falling sales and profits, and a slowing of hiring for more American corporations.


European growth slowed by global and regional issues

Global economic uncertainties and regional problems have clearly hampered Eurozone growth so far in 2016 not only through limiting exports but also through weighing down appreciably on business and consumer confidence. These in turn have negative implications for employment, investment and consumption decisions. Stock markets across Europe have fallen following weaker than expected economic indicators, falling oil prices, and a warning from the IMF. Germany, the main driver of the European economy, is looking vulnerable as its exports suffer from a downshift in demand from emerging markets. The political context is only adding to the uncertainty, as Europe deals with a wave of migrants and a potential exit of Britain from the European Union. In March, the Economic Sentiment Indicator (ESI) registered the third consecutive drop in both the euro area and the EU.

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In better news for the Eurozone, retail sales increased unexpectedly in February, by 0.2% compared with January. Growing demand in France and Spain helped offset a fall in Germany, according to Eurostat.


Irish consumer confidence hits six-month low

The latest edition of the monthly consumer sentiment index, from KBC Bank Ireland and the ESRI, shows a fall in reading from 105.8 in February to 100.6 in March. As a result, consumer confidence is now at its lowest level for six months. A downgrading of Irish economic prospects, domestic political uncertainty, worry about the global economy and the Brexit issue were key drivers, according to the survey’s authors.

However, consumer spending trends remain positive with retail sales up 11% in February compared to a year ago (excluding motor sales the year on year increase was 7%). Forecasts suggest that retail spend for 2016 should remain ahead of 2015.

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