Industry Postcard – June 2016

2016 shaping up to be a record year for tourism worldwide

Monthly positive news of double digit growth in arrivals into Ireland are to be warmly welcomed but critically the tourism industry must guard against any complacency. Ireland is not alone in reporting record tourism numbers, although the rate of growth over the first months of the year has outpaced many competitors suggesting that Ireland is gaining market-share. However sustainable long-term growth must be the policy goal and Irish tourism, while enjoying increasing visitor numbers driven partly by external factors, is facing a number of challenges in this regard. Key to sustained growth is maintaining and retaining competitiveness. Already there is ample evidence that supply of new hotel bedrooms in Dublin and other popular tourism hubs has not kept pace with growing demand. This puts an upward pressure on prices which runs the risk of Ireland losing its hard won-back reputation for competitiveness. For Ireland to realise its tourism potential new hotel stock in Dublin, the country’s top gateway for tourist arrivals, quickly needs to be added.

In common with some other sectors, tourism has suffered from under investment in infrastructure and product in recent years, a situation which needs to be reversed to sustain growth. While businesses continue to invest and carriers provide increased capacity on Irish routes, the level of state investment in destination marketing has steadily declined since 2008 to a situation where Ireland’s share of voice and consumer awareness have dropped across the top source markets. The inevitable consequence of not investing in destination marketing will be fall in demand in the future. The industry is ready to work with the new Minister and Government to address the challenges to ensure that businesses and employment in tourism continue to develop and deliver to the country’s recovery as it has done over the past 3 years.

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

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June 23rd – Brexit vote too close to call

Ireland’s biggest single tourism market in terms of visitor numbers – the UK – goes to the polls on June 23rd to vote on their “in-out” EU referendum. Latest opinion polls suggest rising support for the ‘leave’ side causing the pound to fall in value. Amidst claims and counter claims on the impact of a vote to leave the EU, the only thing for sure is that Brexit could bring huge uncertainty and would likely hit investment, spending and the value of sterling. Most commentators forecast a particularly damaging impact on Northern Ireland, while the exact effect on trade and travel between Ireland and Britain is unknown although expected to be negative. In the event of a vote to leave the Irish Government and businesses will be faced with a period of transition whereby Ireland will have to negotiate as a member of the EU rather than on a bi-lateral basis. A changed scenario with the prospect of border controls and impediments to free movement of people and goods, on the face of it, would appear to be detrimental to tourism. Analysis carried out by the Irish Tourist Industry Confederation (ITIC) pointed unequivocally to benefits to Irish tourism of Britain voting to remain within the EU – for a detailed look at the likely impact of Brexit on Irish tourism see ITIC’s report here.


Ireland moves up to 7th place in global competitiveness ranking

Ireland ranked 7th most competitive country, an improvement of 9 places from last year, in the latest IMD World Competitiveness Yearbook. This is a welcome improvement but according to the National Competitiveness Council (NCC), it should not distract us from outstanding challenges. The IMD’s World Competitiveness Yearbook is an internationally renowned publication which assesses 61 countries, using over 300 competitiveness indicators. Ireland’s 7th place ranking is a significant improvement on 2011 when Ireland was ranked 24th, and represents Ireland’s highest ranking since 2001. Despite this the NCC in April reported that rising domestic costs threaten the national economic recovery.


Geostrategic risks a growing concern for international business

MCKINSEY-0616

Top global executives believe that geopolitical and domestic political instability will affect global business and their own companies in coming years, according to the newest McKinsey Global Survey. In a new survey on globalization, the share of executives identifying geopolitical instability as a very important business trend has doubled in two years. Most respondents expect that geopolitical, political, and macroeconomic instability—which, taken together, are called geostrategic risks—will affect their companies, with decidedly negative implications for profits. Other trends that have risen in importance include technological developments which present both challenges (such as cybersecurity) and opportunities (such as the use of big data and data-driven management techniques). Tourism as a global industry is more exposed than many other sectors to geostrategic risks.

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$ US Dollar

The US dollar has been holding strong against the euro, with 1US$ buying 0.88 cent on average over the past three months, 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.

GRAPH-USDollar-Jun16

£ Pound Sterling

The pound sterling is softer against the euro than last year, the average exchange rate in March, April and May has been close to £1stg. = €1.28. The slide of 10% compared to last November and July would appear to have stabilised although volatility can be expected leading up to and immediately after the EU Referendum on June 23rd. The consensus short term outlook appears to suggest that sterling would weaken further in the immediate aftermath of a vote to leave the EU.

GRAPH-Sterling-Jun16

 

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Summer 2016 – updates

Cork-London City service folds as CityJet withdraws after 8 months on June 26th . The service, currently scheduled to operate with up to 3 flights per day, failed to achieve viable loads.

Waterford loses its last schedule service. The Flemish VLM airline, which entered examinership in late May, will have operated its last service between Waterford and Luton on June 7th, having already withdrawn its Birmingham service on May 2nd. Unfortunately, despite attempts with up to 10 airlines over the past 35 years, the airport has found it difficult to sustain scheduled services. Meanwhile it has been announced that Waterford Airport is to receive funding to develop runway capability for larger aircraft in a deal secured on the formation of the Government.

More services on outbound sun routes as Ryanair and Aer Lingus add capacity to Spain, the Canaries and Portugal. Both carriers are increasing frequencies to meet demand for fans travelling to Euro 2016 in France.


Winter 2016/17 – news

Aer Lingus adds 19 weekly transatlantic departures on services to Los Angeles, Newark, Hartford and Chicago.

Aer Lingus to offer 15% more seats on sun routes to Malaga, Las Palmas, Lanzarote, Tenerife, Fuerteventura, Faro and Lisbon.

Flybe to end Cardiff-Dublin service from October 28th.

Ryanair drops Paris-Shannon service which had operated twice weekly last winter.

Ryanair’s new flights from Sofia and Porto to Dublin, with 3 departures per week from Sofia and twice weekly from Porto.

RYANAIR-0616

Ryanair new flights to the sun from Cork converting summer seasonal routes to year-round to Malaga, Las Palmas, and Tenerife.

Ryanair’s Manchester-Shannon service is being reduced from daily to 5 flights per week.

United reduces Newark-Shannon frequency to 6 departures per week from early November to end March.

 


Aer Lingus to expand transatlantic services in Summer 2017

The airline is planning to launch at least one new transatlantic route from Dublin in time for summer 2017, as well as possible capacity increases on existing routes, according to IAG’s boss. The airline is in discussion with daa and the US pre-clearance facility at Dublin Airport on scheduling issues for an expanded peak operation in 2017.

AER-LINGUS-A330-0616


Aran Islands air services – new tender

A new invitation to tender for the provision of air service from Galway Inverin Airport to the Aran Islands has been issued by the Department of Arts, Heritage and the Gaeltacht after the previous process ran into difficulties and was cancelled. The new tender is to run from October1st, 2016 for four years.


Irish Ferries’ new €144m ship

Irish Continental Group, Irish Ferries’ parent, has entered into an agreement with the German company Flensburger Schiffbau-Gesselschaft & Co.KG to build a cruise ferry at a contract price of €144 million for delivery in May 2018. The new ferry will accommodate 1,885 passengers and crew, with 435 cabins and with capacity for 2,800 lane metres of freight (165 freight vehicles) plus an additional dedicated car deck with capacity for 300 passenger cars. The new ship is expected to operate on Irish Ferry routes from Dublin to Britain and France.

IRISH-FERRIES-NewShip-0616

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European air traffic grew by over 12% in Q1

Air travel within Europe expanded by over 12% in the first quarter of 2016, helped by surprisingly robust economic growth, according to IATA. However growth in April dropped to just under 2%, partly attributable to disruption following the Brussels terrorist attacks in March and the timing of Easter.

Global air traffic enjoyed a robust start to the year with 6.4% growth over the first four months of the year measured in revenue passenger kilometres (RPKs). Allowing for this being a leap year the growth rate was head of the annual average over the past decade. Growth in April dropped to 4.6% – its slowest pace since January 2015.


Boom time for UK travel & tourism

VISIT-BRITAIN-COM-0616

The number of passengers travelling on international flights from UK airports rose by 8.7% to 44 million in the first quarter of 2016, according to UK CAA. Ireland, the second largest market after Spain, saw its traffic grow by 14.2%, second fastest growth rate after Spain and Poland within the top 10 country routes. This good start to the year comes on the heels of a 9.4% increase in outbound travel in 2015 to 65.7 million visits abroad spending a total of £3.5 billion, up 9.8%.

Inbound visits to the UK were up 6% for the first quarter setting a new record for this period of 7.36 million visits. Over the rolling twelve months to March 2016 the UK welcomed 36.53 million visits, the highest rolling twelve month result since records began.


More than two out of three Europeans book travel online

67% of air trips and 55% of accommodation bookings are transacted online, according to the latest report from Eurostat. Finnish and Dutch travellers appear to be highest users with up to 90% of air booking done online. The report found that businesses operating in the accommodation sector are more advanced than several other sectors, when it comes to using ICT.

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Brexit already impacting Britain’s economy

LONDON-Brexit-0616

Uncertainty surrounding the outcome of the June 23rd referendum has already undermined growth, weakened sterling, weighed on investment, new business and job creation. One in three companies reported suffering from uncertainty created by Britain’s referendum on whether to remain a member of the EU. While the outcome of the vote is impossible to foretell, the claims of the consequences for the UK economy are myriad. The OECD, citing the outcome of a Brexit ‘as a major risk for the economy’, has cut its UK growth forecast and repeated its warnings about the economic damage a vote to leave the European Union would cause. According to OECD estimates on the impact of Brexit, UK economic growth could be lower by 0.5 percentage point in 2017 and 2018 and by 1.5 percentage points in 2019. It also warned that the UK could find it harder to finance its record current-account deficit. The organisation sees potential spillovers to other European countries, with the shock felt the most in Ireland, Luxembourg and the Netherlands, all of which have high exposures to the UK in terms of trade and investment. Should the UK vote to remain in the EU, most expect a rebound in activity, while economists on the ‘leave’ side argue for the significant growth potential of trade and investment with countries outside the EU.


Eurozone economy lacks lustre

Business growth across the eurozone remained muted in May, providing the latest evidence that the relatively strong expansion at the start of the year has lost momentum. Also of concern to policymakers at the European Central Bank, who left their monetary policy unchanged, is the continuation of price cutting by companies as they have done for most of the past five years. Despite this the ECB nudged up its 2016 growth and inflation forecasts this week, arguing the risks facing the economy had declined and supporting expectations it would keep further stimulus under wraps at least until the autumn. Meanwhile eurozone retail sales, a proxy for household spending, were reported flat in April on the month before, despite market expectations of a more robust rebound based on price discounting for goods and services, after dropping in March. Across the currency union, results were mixed, providing some glimmers of optimism but also highlighting areas of concern. Growth picked up in Germany and France, the bloc’s two biggest economies, and remained resilient in Spain and Ireland. But expansion slumped in Italy to near-stagnation.


Americans are spending more

NYC-0616

Spending is gaining momentum in the US where consumers account for two-thirds of the economy. In April consumer spending rose to its fastest pace since 2009 and consumer confidence increased in May. Americans are buying big ticket items like refrigerators, cars and televisions while sales of new, single-family homes reached an eight-year high and retail sales rose the most in over a year in April. However, the unexpectedly bleak May jobs report has suddenly muddied the outlook for the US economy. Until last week, the Federal Reserve had seemed poised to raise interest rates perhaps as soon as June 15 — a sign of confidence that the economy was strengthening after struggling just to grow early this year. The economy only grew by 0.8% in the first quarter, with many experts now revising downwards their forecast second quarter growth of up 2.5%.


Positive outlook for Ireland’s economy despite drop in consumer sentiment

While Irish consumer sentiment slumped to its lowest level in over a year in May as optimism about Ireland’s economic outlook deteriorated, the OECD has forecast strong growth for the country’s economy this year and next. Unemployment is expected to fall and consumer spending increase, according to the latest biannual Economic Outlook from the OECD. Although consumers did not report a significant fall in their current financial circumstances, they were less optimistic about the future based on the latest monthly KBC Bank/ESRI Consumer Sentiment Index. As a tighter labour market will drive wages higher there is a danger that high wage growth will lift consumer spending and push inflation thereby eroding competitiveness. The outcome of the UK referendum on EU membership could significantly alter the medium term outlook for Ireland.

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