THE ITIC VIEWPOINT
2019 is proving to be a particularly challenging year for Irish tourism. Latest data from CSO show a drop in arrivals for 3 out of the last 4 months which make up the peak summer season. More worrying, receipts from all main markets were in retreat with the exception of North America.
Regrettably 2019 could see Ireland’s tourism economy decline, the first reversal in 8 years. Brexit, the VAT hike and damaged competitiveness are all hurting the Irish tourism and hospitality industry and next week’s budget represents a critically important opportunity for the Government to support the sector.
The pattern of weakening growth trend is against a backdrop of global economic slowdown, international trade tensions and, of course, Brexit. The short to medium term outlook continues to be uncertain as demand for travel weakens in key markets. Trading conditions for international tourism businesses will become increasingly challenging.
Against the background, the industry’s competitiveness will be increasingly challenged over the coming months and years. A strategic response, based on increased investment in product innovation and international marketing, is required. Businesses in the sector continue to heavily invest in expansion, creating employment and boosting the Exchequer coffers. The tourism industry in its pre-Budget submission calls for specific response from the Government to secure the future growth of the sector.
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Flat half year tourism earnings
Ireland earned €2,254 million from overseas tourists over the first six months of 2019, almost unchanged from the same period a year ago. The number of tourists into the country rose by just 2% to 4,386,000. The results show a marked stalling of the continuous growth enjoyed by the industry in recent years.
A 9% increase in volume and value from North American tourists helped to compensate for the drop in receipts from Britain and mainland Europe. As in the recent past Ireland is becoming increasing dependent on spending by long haul tourists to sustain revenue growth. Spending by the British market was down 4%, Germany down 2%, France down 18%, Italy down 20%, and rest of Europe up 5%. Long haul source markets from the east, while showing a 9% volume growth, have delivered a drop in revenue.
The downturn in demand was most marked in Q2 with no change in the number of tourist arrivals (excluding day trips and transfer passengers) compared to the previous year, despite Easter falling in April 2019.
An analysis of expenditure data shows a 2% drop in the average daily and per trip expenditure.
Spending by holiday visitors increased by 5%, while receipts from VFR (Visiting friends & relatives) trips dropped by 5% as spending by business visitors dropped 3%.
31.8m bednights in the country by overseas tourists was up 2% on a year earlier, driven primarily by a 7% increase in bednight demand from North American tourists. Bednight demand from mainland Europe and the rest of the world each increased marginally (+1%), while demand from Britain was almost unchanged (+0.3%). Hotels continued to perform well with an 11% increase in overseas bednights to 9.6m, largely due to the growth in demand from North America.
While the average length of stay declined somewhat in Q1 from 6.5 to 6.0 nights, the average length of stay in Q2 increased from 6.3 to 6.5 nights.
The above analysis focused exclusively on tourists to the country – those spending at least one night – excluding arrivals into the country on day trips and those transferring flights, which increased by 14% in the first half of the year to account for 663,000 arrivals.
Interesting to note that outbound travel by Irish residents rose by 7% to just over 4m trips, with spending up 19% to almost €3 billion in the first half of the year. This suggests spending by the home market on staycations could be in decline although CSO data on the domestic market for 2019 has yet to be published.
[Commentary and estimates derived from CSO’s Tourism and Travel Quarter 2 2019, published September 11, 2019]
Passengers at Irish airports up 6% in 1H ‘19
In the first half of 2019, almost 18.0 million passengers (17,915,119) travelled through the main Irish airports, an increase of 5.6% compared with the same period in 2018. The growth in traffic reflects a more buoyant outbound demand and increasing incidence of transfer traffic at Dublin Airport in contrast to a softening demand from inbound tourists. Passenger traffic at Europe’s airports grew by +4.3% during the first half of this year – a significantly slower rate than last year (+6.7%) – according to Airport Council International. Most recent data on international air travel shows a soft start to the peak summer season with traffic up 3% in July.
In the second quarter of 2019, almost 10.5 million passengers passed through the five main Irish airports, an increase of 4.5% over the same period in 2018. Passenger numbers increased in Cork, Dublin and Knock, while passenger numbers decreased in Kerry and Shannon. Dublin airport accounted for 85.5% of all air passengers handled in the second quarter of 2019.
Brexit and the British inbound and outbound market
Based on the first 5 months of the year it would appear that inbound holiday traffic to the UK is on a par with last year, while trips for all other purpose of visit have declined. Visits from the EU are down 4% while visits from North America are up 7%.
Competitiveness and Investment at a time of uncertainty: ITIC budget
In its budget submission the representative body for Ireland’s tourism industry, ITIC, argue that competitiveness and strategic investment is vital if the sector is to be supported in this unprecedented time of uncertainty. The submission makes the case for:
- A review of the tourism VAT rate
- Reducing the cost of doing business
- Implementation of insurance reform
- Expansion of overseas marketing budgets
- A Brexit market diversification fund for businesses
- More investment in product investment
The World Economic Forum Travel & Tourism Competitiveness Report 2019
Ireland ranks 26th out of 140 countries included on the Travel & Tourism Index. Some key high scores for Ireland include:
- ‘Effectiveness of marketing and branding to attract tourists’ – Ranked number 3 globally (same position as 2017) behind New Zealand and Lesotho.
- ‘Government prioritization of travel and tourism industry’ – Ranked number 49 globally (same position as 2017).
- ‘Comprehensiveness of annual Travel & Tourism data’ – Ranked number 63 globally (up 3 places from 2017).
- ‘Country Brand Strategy Rating’ (this measures the level of accuracy of the strategy of the National Tourism Organisation) – Ranked number 48 globally (up 8 places from 56 in 2017).
- ‘Aircraft Departures per 1,000 population’ Ireland ranks number 2.
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£ Pound Sterling
The value of Sterling has been marked by exchange rate volatility in recent months. As at late September £1 sterling buys close to €1.10.
Most recently the Pound Sterling gained a positive bias against the Euro, with the GBP/EUR exchange rate rising to hit a 7-week high over the past two weeks. The gain was on the back of the markets belief that the prospect of a ‘no deal’ Brexit has been reduced by Parliament’s passing of a law that means the Prime Minister has to request an extension to the Brexit deadline on October 31.
$ US Dollar
The US dollar as at end of September buys close to €0.90, having slowly increased on a value trajectory from €0.86 over the past 12 months.
On the back of weak economic data from Germany the euro is weakening against the US dollar. As the markets view the interest rate gaps, the response of Germany and the European Central Bank will be key to the level of exchange rate going forward.
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Initial signs relating to winter 2019/20 suggest a weakening of air access into Ireland.
The principal changes to air services compared to last winter include:
Aer Lingus add transatlantic capacity, including:
- New service from Minneapolis St.Paul.
- Increased service from Shannon to JFK & Boston.
Cathay Pacific suspends service
- Hong Kong-Dublin four times weekly service temporarily suspend from November 07, 2019 to March 29, 2020.
Hainan Airlines withdraws Ireland services
- Shenzhen-Dublin route discontinued from August 30.
- Beijing to Dublin and Edinburgh triangular service will be withdrawn on October 13.
Norwegian cut backs
- Transatlantic services from Irish airports ended on September 15.
- Services from Helsinki and Copenhagen to Dublin will be terminated from October 28.
Ryanair: New winter services include:
- Dublin: Billund; Toulouse; Bordeaux; Malpensa; Pisa; Kiev; Gothenburg; Southend; Bournemouth.
- Cork: Alicante; Budapest; Malta; Poznan; Katowice.
- Stuttgart-Dublin service withdrawn.
- Cologne-Dublin service suspended.
- Paris-Cork suspended for winter.
Summer 2020 ‘heads up’
- Further transatlantic expansion with expanded fleet.
- Will commence Tel Aviv-Dublin service with 3 flights per week from May 26.
- Ryanair new services include Dublin to Marseille, Verona, Billund, Toulouse, Palanga (Lithuania) and Podgorica (Montenegro).
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Gloomy outlook for UK economy amid Brexit stalemate and global slowdown
A slowing of GDP growth in 2019 and 2020 appears likely, although avoiding a technical recession, in the face of a weaker outlook for investment, trade and productivity amid a continued lack of clarity over the outcome of Brexit and deteriorating global economic conditions.
The British Chambers of Commerce in its latest economic forecast, downgraded growth expectations for the UK in 2019 to 1.2% and to 0.8% for 2020, while GDP growth forecast of 1.2% remains unchanged for 2021.
Relentless Brexit uncertainty and the diversion of resources by many businesses to guard against the chaos of a messy and disorderly Brexit, are expected to limit investment intentions over the forecast period. The UK’s net trade position is forecast to weaken over the period as companies face the combined headwinds of relentless uncertainty on the UK’s future relationship with Europe, weakening growth in key international markets and mounting global trade tensions.
U.K. consumer confidence hit a six-year low in August as the prospect of a no-deal Brexit raised households’ worries about their finances. GfK’s headline consumer confidence index stood its lowest since the U.K. almost slid into recession in 2013. Meanwhile Nationwide Building Society said house-price growth remained unchanged on the month and rose 0.6% from a year earlier, a ninth straight month of sub-1% change.
While a last minute new Brexit deal would be a fillip for the UK economy, a no deal exit from the EU would lead to extensive economic consequences with sudden and unanticipated changes for the UK economy. According to a recent Reuters poll of economists, a no-deal Brexit would prompt a four-quarter recession, with UK GDP contracting by 1.5% in 2020, driven by delays to internationally traded goods and services.
Outlook: Continued uncertainty as Brexit deadline looms, with trade, consumer demand and value of sterling at risk.
Data suggest increasing risk of recession in Eurozone
The eurozone economy is close to stalling, dragged down by a steep drop in German manufacturing activity, according to the latest Purchasing Managers’ Index (PMI) which fell to a 10 year low in September. This reflects how trade tensions, problems in the car industry, and Brexit uncertainties are weighing on the eurozone’s biggest economy. Germany’s car sector has suffered a 12% drop in production and a 14% decline in exports this year, hit by a slowdown in the Chinese market and disruption from new environmental standards. Meanwhile, French private sector economic activity grew more slowly than forecast in September, as its manufacturing sector was hit by a fall in exports. In Italy, GDP is forecast to grow by 0.1%, while the new government expects the economy to expand by only about 0.4% next year. All these factors weigh heavily on the eurozone economy and its currency.
The European Central Bank cited slowing economic growth in the eurozone as one of the reasons for cutting interest rates further into negative territory and restarting its programme of bond-buying this month. But many economists are sceptical that the ECB’s loosening policy will do much to restore growth.
The collapse of Thomas Cook, Europe’s largest tour operator, with the loss of over 21,000 jobs will put a dent in consumer confidence and potentially a short term dip in travel demand.
The European Commission’s consumer confidence indicator for both the eurozone and the EU are holding on a broadly horizontal trajectory in recent weeks, although below the level of last year.
The outcome of Brexit will determine the future trajectory for the economy across Europe.
Outlook: Deterioration of economic indicators impacting consumer demand, with possible more negative impact from Brexit.
A softening of the US economy?
The U.S. economy remains in a good place despite a worsening global picture. The Fed, despite divided opinion over the economic outlook, decided to cut its benchmark rate by a quarter percentage point recently.
Meanwhile, the chief executives of the nation’s biggest companies downgraded their outlook for the U.S. economy amid uncertainty over the trade war and slowing global growth. The Business Roundtable survey showed a decline in its indexes of hiring, capital investment and sale prompting a revision of forecast growth down from 2.6% to 2.3% for 2019. The downbeat assessment was blamed on tension with China and the stalled free-trade agreement with Mexico and Canada. Yet, the S&P 500 and Dow are up more than 19% and 15%, respectively.
Consumers are growing increasingly uneasy as the trade war rages on, according to Bank of America Merrill Lynch. The firm’s US consumer-confidence indicator this month dipped by 3.8 points, to 50.1, and even fell briefly below 50, marking the lowest reading on record. Consumers appear to be rattled by the latest escalation in the US-China trade war as the rating coincided with the latest round of tariffs on a tranche of Chinese imports that contains more consumer goods. There are already signs that consumers are spending less. As the trade war continues, US consumer sentiment is becoming an increasingly important indicator of how the economy is doing and whether the expansion is likely to continue.
Outlook: Mixed signals in the shadow of trade wars – a strong consumer and solid labour-market conditions will be crucial variables determining consumer demand.
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