Buoyant Outlook for 2018
Last year was another record year for global tourism. According to industry figures, Ireland also enjoyed its own record year with 8.9 million visitors to the country. With the well heralded upturn in the global economy, and consumer confidence on a high in most source markets, the expectation is that 2018 will be another year of buoyant demand for international travel.
But the year ahead is not without its challenges for tourism businesses in Ireland. On the plus side the recent growth in visitors and revenue from North America looks set to continue as airlines expand service, especially the increase in capacity on offer by Aer Lingus in the US and by Air Canada north of the border. Double digit growth from new developing long haul markets in recent years is also most welcome as Ireland diversifies its source market base. However, the downturn in the number of British visitors and the slower market growth from traditional mainland European source markets, while not unexpected in mature markets, represent particular challenges for businesses so heavily dependent on these high volume, nearby markets.
The dramatic drop in state funding for tourism – down circa €40 million over the last decade – is hurting as Ireland loses share of visibility and voice to competitors in several key markets. Product and marketing investment by carriers, tour operators, hoteliers and other businesses is increasingly becoming the key influencer of demand in several markets. Notable investment decisions in recent weeks and months by Irish Ferries, Aer Lingus’ parent IAG, hotel companies and developers, amongst others, reaffirms the confidence the industry has in the potential for sustainable growth in tourism to Ireland. Sadly, the lack of investment by Government in both destination marketing and new tourism product development could undermine this confidence.
Industry sentiment is positive for 2018, with targets of upwards of 5% volume growth achievable provided resources are focused on driving demand for the significantly expanded air and ferry services. Pressure on some supply bottlenecks is expected to ease with more hotel accommodation coming on stream in Dublin and the expansion of the range and capacity of attractions throughout the country. The shadow of Brexit and a weakened pound sterling hangs over the British market where once again Ireland has been shown to be more exposed to shifts in exchange rates and value for money perceptions than other outbound destinations from the UK
Looking beyond the immediate year ahead, the Irish Tourism Industry Confederation (ITIC) is finalising an industry driven strategic road map for continued growth in Irish tourism to 2025, due to be published in March.
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£ Pound Sterling
The pound to euro exchange rate has seen a narrow shift in favour of the Sterling currency in recent weeks thanks to Brexit hopes and some UK economic numbers.
Currently the pound buys €1.14, an improvement from €1.10 last August and €1.12/€1.13 in November/December.
However, still a long way off its €1.30 value over the first half of 2016, an effective 13% devaluation.
$ US Dollar
The US dollar has been on a downward trend against the euro for the past 12 months, dropping from buying €0.95 cent in December 2016 to €0.85 in December 2017.
Recent events, including U.S. Treasury Secretary’s statement favouring a weak dollar, have seen the greenback take a further hit.
On January 25, the dollar was trading at close to €0.80. A weakened dollar would damage Irish tourism’s competitiveness and is a cause of concern.
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2018 will see considerable expansion of air and ferry capacities on Ireland routes, as carriers invest to grow demand, most notably from North America and the top European source markets.
USA – Capacity up by close to 10%
Aer Lingus will operate from a record 12 gateways, including new services from Miami, Philadelphia and Seattle, with increased capacity on other routes.
Norwegian International will increase service to Shannon from Providence and Stewart NY.
Indirect capacity increases via Iceland with WOW & Icelandair.
Canada – double digit growth in summer season capacity
Air Canada launching new services from Toronto to Shannon; from Montreal to Dublin while maintaining flights to Dublin from Toronto and Vancouver.
Air Transat adding service from Toronto.
Far East – first non-stop service
Cathay Pacific will launch service from Hong Kong to Dublin in June.
Croatia – new summer service
Croatia Airlines will launch twice weekly summer service (Thurs & Sun from 3 May – 25 Oct) from Zagreb to Dublin.
France – increased frequency on many routes
Aer Lingus adding flights from Paris, Bordeaux, Lyon, Toulouse, Marseille, Nice, Montpellier, and Rennes.
Air France new Paris CDG-Cork service.
Germany – over 20 additional flights per week
Ryanair’s new services from Munich and Stuttgart and extra flights from Hamburg.
Lufthansa adding flights from Frankfurt and Munich.
Iceland – new year round service
Icelandair will launch 6 x weekly (daily excl. Sat) service from 8 May from Reykjavik to Dublin.
Switzerland – more seats on offer
Swiss adding service from Zurich to Dublin and Cork.
Aer Lingus, Ryanair, Finnair, Luxair and Turkish Airlines are increasing service on a number of selected routes.
Irish Ferries will provide daily sailings from France to Ireland over the peak months with the introduction of its new €144 million cruise ferry W.B.Yates to/from Dublin, operating alongside the Oscar Wilde to/from Rosslare. From September the W.B.Yates will transfer to the Holyhead-Dublin route adding capacity alongside the Ulysses. The Dublin Swift fast ferry service on the route will become a summer seasonal service.
Brittany Ferries will launch a new route linking Spain and Ireland, twice weekly from Santander to Cork, effective end April to November. The new ship will also operate an additional weekly return sailing between Roscoff and Cork.
Irish Continental Group plc to build a new €165.2 million ferry for Dublin-Holyhead route
Irish Ferries parent, ICG, has entered into an agreement, with the German company Flensburger Schiffbau-Gesselschaft & Co.KG to build a new €165 million cruise ferry. The new ferry, scheduled for delivery before mid-2020, will be the largest cruise ferry in the world in terms of vehicle capacity. The new ferry will accommodate 1,800 passengers and crew, with capacity for 5,610 freight lane metres, which provides the capability to carry 330 freight units per sailing and an estimated maximum 1,500 tourist car spaces. The ferry is expected to serve on the Holyhead-Dublin route.
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Irish Tourism News
The next 10 months will significantly influence the outcome of Brexit negotiations, as the UK and the EU hope to sign off on a formal divorce agreement and at least an outline of future trading ties by October 2018. London aspires to having a transition deal, or ‘implementation period’ agreed by April of this year, a challenging target. Technical talks are already underway in Brussels in advance of formal “phase two” negotiations commencing in March.
The decision of EU leaders in December which allowed Brexit talks to move onto the second phase of negotiations was based on a number of commitments, including specific Ireland assurances of a soft border and regulatory alignment. While this allowed progress to trade talks it is still far from clear as to shape of future relationship between the UK and the EU. Without some kind of customs union with the EU, as staying in the single market is a red line for London, there is no immediate solution in sight for the Irish border. An issue further complicated by the political landscape in Belfast and London. There is a real fear that talks could fail to reach agreement resulting in a hard Brexit.
The immediate concern of the travel and tourism industry is clarity on the arrangement post March 2019 for the aviation sector. As airlines publish schedules and sell their seats up to 12 months in advance a decision is required urgently to ensure uninterrupted air services between the UK and the EU after March 2019. In mid-December, the European Commission Directorate-General for Mobility and Transport stated in a notice to all UK and EU aviation bodies that “as of withdrawal date (March 30, 2019) the operating licences granted to airlines by the UK Civil Aviation Authority will no longer apply”. Ryanair recently applied for a British air operating licence in a bid to keep its domestic UK services operating in the event of a hard Brexit
The promise for Ireland of full regulatory alignment between North and South, contained in the final wording of the December 15 agreement between the UK and the EU is welcome news for the tourism sector. If achieved it would avert any market distortion and help to consolidate an all-island approach to tourism.
Employment growth in tourism moderates
Employment in the accommodation and food services increased by a modest 1.3% in Q3 ’17 compared to the same period in 2016. However, 164,900 employed in the category represented a 9.5% increase or almost 15,000 new jobs since 2015. Latest total employment supported by the wider tourism sector is estimated at close to 240,000.
Dublin hotel supply to remain tight for 2018
A recent report from Davy says just 800 net new rooms will come onto the Dublin hotel market in 2018, 38% less than expected. While 2018 “will be the first time in almost 10 years that Dublin will see a meaningful increase in new room supply”, Davy says that this growth may actually be less than expected, despite a number of new properties and extensions of several existing hotels. It expects about 1,300 new hotel rooms to open in Dublin city this year, with more than 500 of these coming from extensions, bringing supply up by 6%. This is the same as a recent forecast by property group Jones Lang LaSalle. An estimated 500 hotel rooms will be taken out of the Dublin stock by year end for redevelopment.
News from the CSO
The monthly Overseas Travel Release will now include monthly data for the following categories for trips to Ireland (total), Great Britain, Other Europe, North America and Other Areas, as well as monthly data on arrivals of residents from France, Germany, Italy, Spain, Australia, New Zealand and Other Oceania, and Other Areas. The first new monthly release is due for publication at the end of February. Previously the CSO issued aggregate arrival data for a 3 month period.
The CSO, in compliance with Eurostat requirements, will commence collecting data on day trips by Irish residents in 2018 using its quarterly Household Travel Survey.
Some International Perspectives
Bullish outlook for global airline industry in 2018
Against a backdrop of robust global economic growth, and rising input costs, IATA forecast yields to rise modestly in 2018. Year-on-year growth in both passenger and freight volumes is carrying solid momentum into 2018, alongside elevated load factors: the seasonally adjusted passenger load factor rose above 82% for the first time on record in November 2017. Industry-wide passenger yields are currently broadly unchanged from where they were a year ago. Oil prices continue to trend upwards into 2018, driven by OPEC-led production cuts, and at time of writing, the Brent crude oil price is around $70/bbl. – its highest level since December 2014. Prospects for continued growth in demand are good, including the ongoing pick-up in global trade conditions continuing to support premium-class demand and freight carryings in many key markets.
How has Britain – a key competitor to Ireland – done in 2017?
Britain forecasted a 6% volume growth and 11.5% value growth in inbound tourism in 2017, higher respective figures than Ireland. Latest data show that inbound tourism volume to Britain was up 5% to end October, with revenue up 10%. Britain, similar to Ireland, enjoyed double digit growth in arrivals from North America and other long haul markets, while growth from EU countries was more modest between 2% and 5%, with a 9% increase in visitors from European countries outside the EU. Holiday visits were up by 13% while business travel was down.
VisitBritain is forecasting a 4.4% increase in volume, with a 7% growth in revenue, in 2018.
The British are still travelling
Despite a Brexit driven fall in the value of the pound, and failure of wages to keep pace with rising inflation, the British holidaymaker continued to travel throughout 2017, although there are indications that demand may have softened towards the end of the year. For the first 10 months of 2017, outbound travel by British residents grew by 3% in volume and value. The growth in holiday travel was higher, while the number of business trips abroad declined.
China’s aviation market is expanding strongly – but how much of that is to Western Europe?
The explosion in Chinese outbound tourism, coupled with its growth as an economic superpower, has led to huge increases in air capacity in the last five years. Total seats between China and the rest of the world have grown by an astonishing 29.8 million in the last five years, with 4.4 million of that between 2016 and 2017. Unsurprisingly, the majority of that growth has come between China and its near-neighbours, particularly Thailand.
Growth in capacity between Western Europe and China has been more subdued. In total there were 6.3 million seats between the two destinations in 2017, up from 4.7 million seats in 2013, a 34% increase over the period.
Germany takes the largest share of traffic with 1.5 million, closely followed by France’s 1.2 million. Meanwhile the UK, with which Ireland is visa aligned, is a distant third with 833,602 seats in 2017.
Chinese airlines dominate the route, while Air France, Lufthansa, KLM, Turkish and Finnair are the top European carriers serving the market.
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Global economy set to grow by 3.9% in 2018 & 2019
The global economy will grow faster than expected this year and next as Donald Trump’s corporate tax cuts provide a short-term shot in the arm, despite fears over rising inequality and overheating financial markets. The International Monetary Fund (IMF), launching its latest World Economic Outlook (WEO) report in Davos, upgraded its growth forecast for the world economy by 0.2 percentage points to 3.9% for both 2018 and 2019.
The IMF’s upgrade comes amid a ‘synchronised global upswing’ as the economies of the US, the eurozone and Asia recover from the depths of the 2008 financial crisis. However, the current economic sweet spot has been helped by central banks around the world keeping interest rates low and pumping billions of dollars into their economies via quantitative easing.
Trump’s tax cuts, passed into law at the end of last year, should encourage businesses to invest in additional economic output – which the IMF said should provide a positive, albeit short-lived, boost for the US and its trade partners. But it also said there were risks on the horizon from a potential sharp drop in markets after the recent surge in equity valuations.
U.S. economy to grow 2.7% in 2018, boosted by Trump tax overhaul
The United States is projected to grow 2.7% in 2018 as President Trump’s tax cuts boost growth, the International Monetary Fund (IMF) said in its latest report, delivering more positive economic news for the US. However, the report points to deep inequality in the country and the IMF does not expect the growth to last long. The IMF had originally forecast just 2.3% growth for America but lifted its projection significantly after Republicans in late December passed the largest overhaul of the U.S. tax code in over 30 years. Wells Fargo now predicts 3% growth for 2018.
The massive reduction in the corporation tax rate from 35% to 21% should stimulate business investment and growth. America should also benefit from the global economic rebound that is underway, causing more trade and purchases of some U.S. products.
US consumer confidence remains high, despite a slight fall in January (University of Michigan, Consumer Sentiment Index). Consumers apparently reacted to rising prices for big-ticket purchases and rising gasoline prices, following an exceptionally strong fourth quarter, when retail sales surged at an 11.3% annual rate.
Outlook: Continued economic expansion, high consumer confidence levels should lead to continuing demand for outbound travel, although changes in exchange rates may impact the choice of destination.
Eurozone consumer confidence at 17 year high
Consumer confidence climbed to a near-record high in January. A flash estimate from the European Commission showed the consumer confidence indicator rose beating analysts’ predictions, bringing the index within touching distance of its previous peak, reached in 2000. Recent economic data point to the breadth of the region’s economic recovery, with both consumers and businesses experiencing a marked upturn. Unemployment in the eurozone is at a 9 year low. Household spending is on the rise, despite some soft retail numbers towards the end of 2017. Prospects for the year ahead are positive throughout the eurozone, with German households expected to benefit from a fiscal fillip if a grand coalition is formed.
The IMF revised up its growth estimate for the eurozone, though it said it still anticipated the rate of expansion to fall from 2.4% in 2017 to about 2.2% this year and 2% in 2019.
Outlook: Positive based on good economic fundamentals, including high consumer confidence, which augurs well for continued growth in demand for travel.
UK economy in 2018: steady growth tempered by Brexit politics
Despite the political upheavals of the past year, the UK economy enters 2018 in better health than many would have predicted. The post referendum recession never materialised. Consumers have carried on spending despite a decline in real term disposable incomes, while global growth and a weak currency have helped British exporters. The economic outlook is far from the post-Brexit recession some envisaged. The threats to UK economy growth hinge on investment decisions by businesses which are sensitive to any lingering uncertainty on a transition deal and the future trading relationship with the EU and the wider global community.
British households have had a difficult 2017, with prices in the shops rising because of the weak pound while wages lagged behind inflation. The impact from sterling’s rapid devaluation is gradually being washed out of the system with inflation forecast to drop from a peak just above 3% in the final months of 2017 to a targeted 2% in 2018. Near record low unemployment and falling net migration improve workers’ demands for wage increases. That said, Britain is set to have the worst wage growth of any wealthy nation in 2018, ranking at the bottom of 32 OECD countries, as real earnings lag behind inflation. Employment growth is at risk should investment falter on a Brexit deal. Given the uncertainties facing the UK economy as Brexit talks intensify, the Bank of England looks set to maintain a low interest rate regime which will help the most hard-pressed households.
Commentators suggest that, at most, interest rates may be nudged higher from 0.50% to 0.75%.
The IMF held its outlook for growth in the UK, forecasting the rate of GDP expansion to moderate from 1.7% in 2017 to 1.5% this year. It also lowered its forecast for 2019 from 1.6% by 0.1 percentage points to the same level as 2018.
Outlook: Expected improvement in household spending, assuming an agreement on a soft Brexit, but an increasingly value conscious consumer.
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