THE ITIC VIEWPOINT
5.5% growth in arrivals over the first quarter, welcome as it is, it is not necessarily a reliable bellwether for the season ahead. The industry is facing challenges from Brexit, mixed economic and consumer confidence indicators in the main source markets, and a decline in competitiveness as VAT and rising input costs push up tourist prices. More recently, cut backs on planned airlift from North America and Germany – two markets which have delivered the bulk of Ireland’s tourism growth in recent years on the back of ever growing air connectivity – represents a threat to growth in tourism receipts this summer. The postponement of a Brexit outcome continues to depress demand from Britain and Northern Ireland with serious threats to many tourism businesses. In short, the trading conditions have become more challenging since the start of the year threatening the realisation of modest growth in 2019.
Looking beyond the current year, the Irish Tourism Industry Confederation’s first annual review of the implementation of its ‘An Industry Strategy for growth to 2025’ calls on the Government to prove its commitment to tourism and not lose the opportunity for regional growth and up to 80,000 new jobs. The review finds evidence of policy drift and indecision plus inadequate investment on the part of the state, while the industry is committed to an estimated €2.5 billion investment over the next 3 years.
ITIC’s priority goals are to continue to push the implementation of its Strategy 2025, through research based advocacy with Government, while seeking to work with the tourism state agencies to respond to the changing trading environment to secure growth in tourist expenditure and sustainability of jobs in the face of the latest challenges facing the sector.
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Since the deadline extension for the UK to leave the EU was moved end October, Brexit may have faded from the news headlines but the uncertainty remains. Issues impacting tourism linked to future cross-Border infrastructure, regulatory alignment, state aid regimes, and reciprocal visa arrangements, remain unresolved. More immediately, the value of sterling and consumer confidence are depressing demand. Arrivals from Britain, including increasing numbers of transfer passengers through Dublin Airport, were up 1% for the first three months of the year. The tourism sector is facing a difficult season, with the potential loss of up to €1 billion this year due to Brexit and the rise in VAT on tourism services.
Businesses in the tourism sector continue to be discriminated against when compared to the range of supports and financial assistance being provided through state agencies to other export earners across a wide range of industries.
Whatever the outcome the UK leaving the EU means change. As part of the preparedness and contingency planning the Government has passed legislation, the Brexit Omnibus Bill, and has issued regular briefings on changes affecting various trading sectors. Changes impacting tourism, as well as border and regulatory concerns, in the event of a no deal Brexit include:
- Duty free shopping on travel between the UK and Ireland will not return. Ireland would lose out should there be a reintroduction of duty free shopping between the UK and other EU member states.
- Visitors from outside the EU would no longer be able to shop tax free unless their combined spend is over €175 compared to the current threshold of €0.01. Such a move would competitively disadvantage Ireland when compared to thresholds applied in other EU countries.
The legislative measures in the Omnibus Bill are precautionary and will be subject to commencement order to be signed by the Minister should the UK crash out of the EU.
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£ Pound Sterling
One British Pound currently buys close to €1.16, having edged up against the euro in recent months, but suffered a marginal set back as the March 29 Brexit deadline passed.
The outlook for Sterling is expected to hinge largely on Brexit – a ‘No Deal’ continues to be the key threat to future outlook for the currency, while the euro may slip on the back of slower economic growth.
$ US Dollar
1US$ buys €0.89. The exchange rate has been roughly steady over the past three months at €0.88. American visitors currently enjoy a 10% increase in the dollar compared to this time last year.
The euro-to-Dollar exchange rate is likely to be determined by unfolding economic data over the coming months, particularly the impact of the outcome of Brexit on economic sentiment in Europe.
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Ireland will benefit from 34 new air services, including 26 new routes, this summer, including the following with potential to boost incoming tourism:
- Vienna-Dublin (Laudamotion)
- Calgary-Dublin service (WestJet)
- Hamilton, Ontario-Dublin (Norwegian)
- Halifax-Dublin (WestJet)
- Shenzhen-Dublin (Hainan Airlines)
- Bordeaux-Dublin & Lourdes-Dublin (Ryanair)
- Nice-Cork (Aer Lingus)
- Luton-Cork (Ryanair)
- Bournemouth-Dublin & Southend-Dublin (Ryanair)
- East Midlands-Shannon (Ryanair)
- Cologne-Knock (Ryanair)
- Frankfurt-Dublin (Ryanair)
- Naples-Cork (Ryanair)
- Gothenburg-Dublin (Ryanair)
- Aalborg-Dublin (Great Dane Airlines)
- Lisbon-Dublin (TAP)
- Lisbon-Cork (Aer Lingus)
- Moscow-Dublin (Aeroflot)
- Dallas Fort Worth-Dublin (American Airlines)
- Minneapolis-Dublin, from August 1 (Aer Lingus)
Other new services will operate to Ireland from Luxembourg, Kiev, Malta, Riga, Budapest, Thessaloniki, Dubrovnik, Split, Cagliari, Bodrum, Dalaman, and Poznan. However, several carriers are adjusting frequency and capacity on selected routes.
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Grounding of Boeing 737MAX hits transatlantic capacity to Ireland
The worldwide grounding of the aircraft has forced Norwegian Air to suspend services from Shannon to Providence and Stewart, together with the cancellation of service between Cork and Providence – a loss of 12 flights and over 2,000 seats per week in each direction. The airline has also cut services from Providence and Hamilton to Dublin – a reduction of 5 flights and almost 1,000 seats per week, while substituting a daily service with a larger aircraft for its planned double daily flights between Dublin and Stewart.
As a result of the grounding Air Canada has postponed the start of its seasonal Toronto-Shannon service from June 01 to early July, while WestJet has substituted a smaller aircraft from Halifax to Dublin.
Positive start for international travel in 2019
2019 has started on a positive note, with healthy passenger demand in line with the 10-year trend line, according to the latest data from IATA. International travel was up 5.9% in January followed by a 4.6% increase February, with European carriers ahead of the curve with over 7% growth in each of the first two months of 2019. Ryanair passenger numbers were up 6.8%, while Aer Lingus carried 7.5% more passengers in Q1 compared to same period last year. Ireland’s arrivals at +5.5% are broadly in line with the international indicators.
However, there are signs that growth rates for international travel may be moderating. Scheduled airline capacity across Europe shows little change on last summer, while the price of oil creep up.
Tourism: An Industry Strategy for Growth to 2025 – Progress report
ITIC issued a 12-month progress update on its eight-year roadmap for the sector targeting 65% increase in tourism revenue and 80,000 new jobs. The progress report found that of the 51 recommendations within the strategy, 13 had been implemented, 28 are a work-in-progress and warrant increased focus, whilst 10 are heading in the wrong direction. The report points to an estimated €2.5 billion investment by businesses over the next three years, while State investment in the development and marketing of Ireland’s largest indigenous industry falls short of the level necessary to sustain growth in the sector.
4,000+ new hotel rooms under construction in Dublin
Over 1,500 hotel rooms will open this year in the capital, compared to 1,174 added last year, according to the latest release from CBRE Hotel Research. Up to 7,000 rooms could be added by the end of 2021 based on developments currently underway. The bulk (82%) are new builds, with more than two thirds located in the city center. It is projected that almost one third will be 4*/5* category with budget and 3 star each accounting for 25%, while 20% are described as aparthotel rooms.
Airbnb – the sharing economy in Ireland
1.2m guests spent €115m on Airbnb stays in Ireland over the 12 month period to November 2017, generating over half a billion euro in economic activity, based on data released by the company.
Americans led demand accounting for 32% of guests, followed by Europeans and Britain at 28% and 17% respectively, while 17% of demand came from within Ireland. The average booking was for 2.6 people, staying an average of 2.7 nights.
In light of the proposed new legislation governing short term holiday rentals, it is interesting to note that there were 22,800 premises listed with Airbnb, of which 51% were entire houses. The company estimated the value of Dublin rentals at €68m from 547,000 guests over the period.
Aer Lingus’ transatlantic expansion plans – a boost for tourism
The airline plans to increase its annual seat capacity on transatlantic services from 2.8m to 4.7m between now and 2023, a compound annual growth rate of 11% per annum. The planned growth is good news for tourism. Aer Lingus said that it expects 63% of its transatlantic growth over the next five years will be on established routes, while also adding new routes. Increased frequency is a key goal for the airline as it builds point to point and hub transatlantic traffic.
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Global growth outlook cut to lowest pace since crisis
The world economy has lost momentum since late January. Global economic growth forecast for 2019 has been cut from 3.9% this time last year to just 3.3% (GDP) by the IMF in its latest World Economic Outlook. The downward revision in growth is broad based reflecting negative revisions for several major economies including the euro area, Latin America, the United States, the United Kingdom, Canada, and Australia. The IMF points to the “escalation of US–China trade tensions”, troubles in the “auto sector in Germany” plus “tighter credit policies in China”.
After the weak start, growth is projected to pick up in the second half of 2019, supported by significant monetary policy accommodation by major economies. The US Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England have all shifted to a more accommodative stance. China has ramped up its fiscal and monetary stimulus to counter the negative effect of trade tariffs. Trade tensions, including uncertainty surrounding Brexit, are taking a toll on business and consumer confidence. However, a number of recent developments are stoking optimism, including a strengthening of factory data in China and the US in March, allaying worries those economies were hitting a weak patch. Meanwhile, investors like what they see with global stocks up nearly 14% this year, according to the MSCI world equities index.
UK economy performing better than expected
The Bank of England has lifted the forecast for GDP growth this year to 1.5% from 1.2% on the back of a stronger than expected first-quarter performance. Early indications suggest that the robust GDP growth in the start of the year may be artificially high due to an unprecedented stockpiling by firms bracing for a disruptive no-deal Brexit. However, while the list of retail casualties on the High Street grows, some are clearly doing well as consumer spending has defied expectations, up an estimated 0.4% in the first quarter, as real wage growth drives consumption as employment hits an all time high. Consumption has become increasingly important due to shrinking business investment, which is expected to continue for another two quarters, not least because of Brexit-related uncertainty and slower demand for exports from the likes of China and Germany.
Inflation is steady below 2%, although rising oil prices could cause a rise in inflation. The Bank of England has decided to hold interest rates at 0.75%.
The latest upbeat forecasts are predicted on basis of an orderly Brexit, while a disorderly exit could severely impair the productive capacity of UK businesses. Overall, delays to Brexit, a difficult domestic and political backdrop, and slower global economic activity could work as a break on UK GDP growth this year. U.K. economic data in the short term may be volatile and difficult to interpret because of Brexit.
Outlook: Consumer remains cautious with fewer major purchases being considered, while the Brexit outcome and sterling exchange rates continue to create uncertainty for outbound travel demand.
Euro Area economic confidence slips to lowest since 2016
Preliminary estimate suggest first-quarter GDP growth at 0.4%, up from 0.2% in the final three months of 2018. However, economic confidence in the euro area fell sharply in April to its lowest level since September 2016, suggesting the region may struggle to pick up. The economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened.
The European Commission’s monthly survey suggests that confidence across industry is particularly weak as it struggles with the global slowdown and homegrown difficulties. Consumer confidence also fell reflecting households’ more pessimistic expectations about their future financial situation and, in particular, the general economic situation, while their assessments of their past financial situation and their intentions to make major purchases remained broadly stable.
The ECB in its latest commentary cited slower growth momentum and an intensifying climate of economic gloom to hold interest rates unchanged, backtracking on its plans to tighten monetary policy. Geopolitical, protectionism and emerging markets considerations are negatively impacting investor confidence.
Outlook: Data would suggest some slowing of consumer demand growth, especially in Germany, over the coming month.
US economy powers ahead in Q1
The U.S. economy in Q1 grew at a strong 3.2% GDP annual rate, exceeding the projected 2.1%, buoyed by stronger state and local government spending, lower imports and business inventories. Latest employment data shows that 263,000 jobs were added in April to bring unemployment down to 3.6% – the lowest in half a century.
The top-line Q1 numbers are a pleasant surprise in a quarter marked by a government shutdown, severe weather, Boeing’s troubles with the 737 Max, fears of an escalating trade war and the gradual fading of fiscal stimulus from tax cuts. The economy has so far added almost 1 million jobs this year, while the stock market has rebounded after falling in late 2018. However, core personal consumption spending rose by only 1.3% year-on-year in Q1, with consumer spending increasing at less than half the rate in the final quarter of 2018. Business investment also lagged slowing from the previous quarter.
Earlier in the year, analysts were worried about headwinds like a slowdown in Europe, the trade war with China and Brexit. The Conference Board is projecting 2.5% growth next quarter, but they also forecast a slowdown to 2.3% for the second half of the year. While inflation is well below the Fed’s 2% target the expectation is that interest rates will remain unchanged at least in the short term.
Outlook: Travel demand expected to continue to grow while rate may moderate.
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