European Tourism in 2009: Trends & Prospects

Executive Summary

As we enter the second quarter of 2009, the first signs are becoming visible that the global economy's rate of decline may be slowing.   Yet significant headwinds to global growth remain.

Travel demand is elastic - that is, it tends to exceed the growth of the overall economy in good times, and to contract more severely when the economy falters. This is clearly evident in the pace of travel declines over the past few months.

Air passenger demand continues to fall. In the last three weeks of March, demand was 10% lower than a year earlier. And indicators from the European hotel sector confirm this story, as occupancy rates were 10% lower in January and February compared with the same months last year.

So far, only eleven countries in Europe have reported figures for arrivals or nights in the first two months of the year. But of these, only one (Austria) reports an increase. The others all report declines - often in double digits.

Leisure travel will be constrained by job losses and weak consumer confidence, compounding the huge losses in wealth over the past year. But the majority of Europeans still have their jobs and some are benefiting from low interest rates reducing their monthly mortgage payments. Most households will still travel but their trips will be marked by a shorter length of stay, shorter distances and bargain hunting. Domestic tourism may benefit at the expense of international trips.

Business travel will continue to be the hardest-hit sector. Corporate profits will remain weak into 2010, but in addition to the need to cut costs, corporations are increasingly sensitive to public criticism of companies that have been bailed out, yet continue to send their staff on what are often seen as 'junkets'. So incentive travel is well down, as is demand for conferences and meetings of all kinds. The pressures on business travel are expected to have a growing impact on airlines' and hotels' premium rate business.

However, low fuel prices, industry price discounts and strong government responses give reason for hope that by the third quarter, we may see business travel demand begin to stabilise. In addition, consumer confidence has time to rebound before the peak leisure travel season.

Tourism Economics currently predicts that visits to/arrivals in European destinations will decline by 3.8% this year. The recovery will be modest, it believes, with an increase of just 1.7% forecast for 2010 - implying a two-year recovery period to get back to 2008 levels. This assumes, of course, that the swine flu epidemic does not have a severe and prolonged impact on world tourism.