Industry Postcard – February 2016

Further Growth Expected in 2016

Irish tourism is poised for further growth in 2016, following on from a record year in 2015. Last year, combined with a strong product and competitive industry, tourism enjoyed a favourable tail wind – economic growth and stronger consumer confidence in source markets; more access capacity on air and sea services; a weakened euro; and aggressive marketing of a competitive tourist offering. At this point the omens are good for the year ahead, as the industry continues to enjoy a favourable market environment for international travel, continued currency benefits and an expansion of air services. While the foreseeable external threats to another good year for the industry include a global recession or terrorism dampening demand, the danger of complacency as to the continued competitiveness of the product and service is real. Capacity shortages, particularly within the accommodation sector, could also frustrate demand. Ensuring the delivery of good value for money is critical to sustaining growth for an industry that is now worth €7.3 billion to Ireland.

The forecast volume growth of 5% is certainly achievable in light of the favourable conditions in the main source markets. As happened in 2015 one could realistically expect solid growth in revenue from North America on the back of greater access and a strong dollar, while the prospects from Europe are arguably better than at this time last year. Furthermore, the domestic market is showing definite signs of buoyancy.

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2015 Best year on record for international travel

1,184 million international trips were taken in 2015 a 4.4% increase or some 50 million more tourists compared to 2014. Last year was the 6th consecutive year of above-average growth, with international arrivals increasing by 4% or more every year since the post-crisis year of 2010. Global air passenger traffic grew by 6.5% in 2015 – the fastest pace since 2010 and above the 10-year average annual growth of 5.5%. Falling air fares helped to boost global traffic demand.

 


Buoyant 2016 outlook for international airline industry

The airline industry is poised for another year of above average growth, following on a 6.5% growth in airline traffic and record high load factors in 2015. Airline financial performance improved significantly in the third quarter of 2015 despite fares falling by 5% last year, according to IATA’s latest Airlines Financial Monitor. Lower air fares combined with an improvement consumer confidence in many markets are together fuelling the appetite for travel and boosting business confidence for 2016.

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Currency Advantages

The US dollar is holding strong against the euro, with $1US currently buying euro 0.92cent, about 7% stronger than in January 2015, although the dollar did appreciate further in March and April last year, before reaching its peak of 93 cent to the dollar in November. The indications are that the US dollar should remain at around this level relative to the euro over the coming months, although volatility cannot be ruled out due to global economic jitters and the upcoming US Presidential election.

GRAPH-USDollar-Feb16

 

The pound sterling has been slipping back against the euro from its peak of €1.41 to an average of €1.32 during January. The £stg. was closer to €1.40 during much of last year and is expected to be subject to some fluctuation over the coming months as the UK moves closer to the referendum on continued EU membership.

GRAPH-Sterling-Feb16

 

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More seats on offer to Ireland for summer 2016

A record number of air services will operate this year into Ireland with new routes and additional frequencies on offer. Growth in capacity, and competition between airlines, is critical to continued growth in visitors. More seats on offer is necessary for tourism to grow against a backdrop of increasing load factors on existing services, a resurgence in demand from Irish originating passengers, and the proven strong correlation between growth in airline seats and an increase in visitors. The latter is perhaps most apparent in the growth in visitors from North America in recent years.

The principle additions to air service routes and frequency during the peak summer months which will benefit inbound tourism include:


Long haul routes

Transatlantic services will be boosted by new routes and additional capacity on existing services throughout the summer and into winter 2016. The principal changes from last summer include:

From the US

Aer Lingus is reintroducing service from Los Angeles effective May, with additional frequency from Chicago to Dublin. New services will be launched from Newark (Sept. 1st) and Hartford/Stanford Connecticut (Sept. 28th). The Washington Dulles service, which resumes in March, will operate year round.

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United Airlines has announced increased year round service from Newark to Dublin operating twice daily from May 26th to November 19th, when it will reduce to 13 departures per week.

American Airlines is adding capacity from Chicago to Dublin with larger aircraft.

Delta Air Lines is increasing capacity with change of aircraft on services into Ireland.

From Canada

Air Canada Rouge will launch a new Vancouver-Dublin service with 3 departures per week to complement its daily Toronto-Dublin service.

Europe Airpost’s Halifax-Dublin weekly service will operate over a longer summer season.

From the Middle East

Etihad is cutting back from double daily to daily service over the summer.

 


Short haul routes

Ryanair is adding frequency on a number of routes, while dropping certain routes, to provide upwards of 6,000 net additional seats per week during the summer. Aer Lingus’s summer schedule provides for increases on 21 routes coupled with selected cutbacks, netting an additional 4,000 seats per week. Services withdrawn, compared to summer 2015, include Brussels-Cork (Aer Lingus) and Copenhagen-Dublin (Aer Lingus) and Nice & Poitiers-Shannon (Ryanair). The principal additions on routes of importance to inbound tourism include the following:

From Germany

New Dusseldorf-Cork service by Aer Lingus.

Lufthansa add frequency from Munich to Dublin.

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From France

Aer Lingus is launching a Montpellier-Dublin service and increasing frequency from Paris and Barcelona to Cork.

Transavia is increasing frequency from Paris Orly to Dublin.

CityJet will operate services from La Rochelle and Nantes to Cork

From Spain

Iberia Express will launch a summer service from Madrid to Cork.

From the Netherlands

Ryanair has launched service from Amsterdam to Dublin.

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From Finland

Finnair is increasing frequency from Helsinki to Dublin

From the UK

Ryanair is increasing frequency from London Gatwick, Manchester, Birmingham and Liverpool to Dublin.

Aer Lingus Regional will launch new service from Southampton and Leeds Bradford to Cork, as well as increasing frequency from Glasgow, Manchester and Newcastle to Cork. An Edinburgh-Shannon service is reinstated.

Aer Lingus is increasing its mainline services from Manchester and Liverpool, with a change of aircraft providing more lift from Heathrow to Shannon.

Since last summer CityJet launched a service from London City to Cork.

Flybe is reinstating service from Birmingham and Edinburgh to Knock as well as increasing its service from Manchester.

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International Tourist Arrivals to Europe Increased by 5% in 2015

2015 marked the 6th consecutive year of above-average growth for tourism in Europe. This positive performance is attributed to the on-going economic recovery of the Eurozone, the decrease in oil prices and favourable exchange rates that make the region a more affordable option for visitors from overseas.

Growth spread across the majority of European countries, with Ireland amongst the top 5 countries reporting highest growth rates – Iceland (+30%), Romania (+17%) and Slovakia (+16%). Montenegro (+15.5%) and Ireland (+14%). These are the findings of the European Travel Commission’s latest report “European Tourism 2015 – Trends & Prospects“,

“Travel to Europe continues to surge amidst a migration crisis, and safety and security concerns. Prospects for 2016 remain optimistic with growth expected to increase by 3%,” said Eduardo Santander, Executive Director of ETC.

 


UK’s tourism says ‘yes’ to EU

82% of UK’s inbound tourism industry support remaining in the EU, according to a recent trade association poll of its 350 members. Overseas visitors to the UK contributed £22 billion to the UK economy last year, with each inbound visitor earning £216 for the Exchequer. The European Union market accounts for two out of every three visitors to the UK.

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Uncertain global economic outlook

The recent turmoil in the international stock market has increased fears about the health of the global economy. Fears about a slowdown in China, falling oil prices, global deflation and the prospect of lower interest rates lasting for longer have been fueling investor worries. In short, investors can’t make up their minds about the global economy, but the risk of recession and deflation is rising. The economic outlook is also clouded by geopolitical concerns in several regions of the world.

 


European economies – Weathering new challenges

The European economy, now entering its fourth year of recovery, continues to record moderate growth, driven mainly by consumption. The European Commission’s latest forecast remain unchanged at 1.9% this year and rise to 2.0% next year, although the risks to growth are increasing due to external factors. Private consumption is expected to remain the main driver of growth, supported by an improving labour market and growing real disposable incomes. The economies of all Member States are expected to expand, but GDP growth rates will continue to differ substantially due to both structural features and different cyclical positions.

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Factors supporting growth, including low oil prices, favourable financing conditions and the euro’s weakness, are now expected to be stronger and last longer than previously assumed. However, at the same time, risks to the economy are becoming more pronounced and new challenges are surfacing: slower growth in China and other emerging market economies, weak global trade as well as geopolitical and policy-related uncertainty.

An overview of the top 4 eurozone economies – and the top European source markets for tourism to Ireland – show varying degrees of consumer confidence and by inference propensity to travel;

  • German consumer sentiment is holding steady as the impact of the refugee crisis and terror threat in Europe looks relatively contained, although both remain risk factors over the medium term. Consumers’ intentions to buy large-ticket items rose in January.
  • French consumer confidence was up in January, belying concerns that the November terror attacks would rattle households in the euro zone’s second-largest economy. However, French consumers’ assessment of their future financial situation and capacity to save declined, as households reported a gloomier assessment of their standards of living.
  • While Italy returned to positive growth in 2015 after years of recession, the rate of growth is modest. For months its consumer and business sentiment has been stronger than almost anywhere else in the euro zone, with the former at a 21 year high, despite economic activity still lagging its peers. Economists say such a marked gap between how people perceive the economy and “hard” data measuring specifics is unlikely to persist much longer. Either growth will accelerate to justify the optimism, or sentiment will weaken.
  • Spain has recently become the fastest growing large country in the euro zone as it has bounced back from a banking crisis caused by a housing bubble, although unemployment is still almost 21%, and overall economic output remains well below what it was in 2008. Consumer confidence in Spain slipped back in January from an all time high in December as consumer expectations over future developments dropped sharply. It is almost 2 months since the general election and Madrid is still struggling to form a government.

 


UK consumer spending on the up

British consumer morale rose for a second month in a row in January to hit its highest level since last summer, but households remain pessimistic about the outlook for the country’s economy, according to the latest survey from GfK. UK consumers appear to remain resiliently bullish on the state of their personal finances. British consumer spending grew at its fastest rate in 8 months in January, based on data from Visa Europe, which cover spending on travel, entertainment and going out as well as retail sales.

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The Bank of England recently cut its growth forecasts for 2016 and 2017, blaming a weaker world economy, but said domestic demand should remain strong, bolstered by cheaper oil prices and a modest pick-up in wage growth. The impact of Brexit on the UK’s economy is unknown at this time but the period, and uncertainty therein, up to any referendum is likely to cause the markets concern.

 


US consumer confidence remains high

The US job and wage growth continues fostering gains in both incomes and consumer spending, leading most forecasters to point to economic activity expanding at a moderate pace in the short to medium term with labour market indicators continuing to strengthen.

While consumer sentiment slipped recently as declining stock prices and weaker global conditions weighed on Americans’ views of the economy, at the same time households were more upbeat about their financial prospects because they expect inflation to remain low. Consumers tend to feel much better about their ability to consume in the near-term when they have a little more cash in their pocket. Retail sales climbed 0.2% in January, the third straight monthly advance, as Americans kicked off 2016 by spending on cars, clothing and online merchandise. US consumers’ attitudes to spending are at a nine month high, with attitude towards spending on big ticket items even more favourable than a year ago. This augurs well for travel demand. Lower oil prices and air fares contribute to the positive outlook. However, fears of terrorism must be factored into the equation given the sensibility of the US traveller.

 


Irish consumer sentiment at 15 year high

Consumer confidence in Ireland is at its highest level since February 2001, according to KBC Bank Ireland/ESRI Consumer Sentiment Index most recent report for January. The survey shows an improvement in household finances is outweighing concerns over jobs and the wider economy, at the moment. Although volatility in the global markets is a concern, the survey found that 62%  envisage a stronger Irish economy in the next 12 months, with only 13% expecting weaker conditions. Latest figures from the Central Bank yesterday showed that Irish household debt continued to decrease during the third quarter of 2015.

This confidence suggests that household spending power is now set on an improving trajectory and is expected to continue which should have a positive effect on retail sales for the rest of 2016. The end of year upswing in retail would appear to have continued into the start of 2016 with the latest figures from the supermarket sector showing consumer spend up by 3.8% over the past 12 weeks. This points to a further recovery in domestic tourism demand in 2016.

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