Tourism Dynamics Issue 1

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1 October 2014 Tourism Dynamics Issue 1 At a Glance In this issue Tourist arrivals 3 Arrivals of tourists per 3 country Opportunities ahead 4 Income from tourism 4 key GDP component Income by country 5 New tourist policy 5 Capacity rates 6 Occupancy rates 6 Gross occupancy rate 6 by hotel category Accommodation 7 preferences Location of stay 7 Recent developments 8 in 2014 The tourism sector is a mainstay of the overall economic growth of the island, with its revenue contributing 12.6% to the country s GDP for From 2010 to 2012, there was a notable growth in tourist arrivals to Cyprus reaching 2.47mn visitors in This growth was driven by the large increase in arrivals from Russia, and by a general increase in arrivals from European citizens that chose to come to Cyprus instead of countries like Egypt, Syria, Turkey and Ukraine (mainly due to their various incidences of political unrest in these countries). Despite the increase, the highest ever number of tourist arrivals remains the 2.7mn, figure achieved in The 2014 forecasts for the tourism sector are positive, with the Cyprus Tourism Organisation, (CTO), projecting another increase in arrivals from Russia. Also, the World Tourism and Travel Council, (WTTC), issued a positive outlook for the Cyprus tourism industry for At the moment, the official figures for the first eight months of the year seem to confirm these predictions. The tourist arrivals climbed to 1.7bn (5.9% rise, YoY), while the total revenue from tourism for the first seven months of the year reached 1.1bn, enjoying growth in excess of 6% YoY. As part of the Memorandum of Understanding on Specific Economic Policy Conditionality (MoU) signed with the Troika (European Commission (EC), International Monetary Fund (IMF) and European Central Bank (ECB)), the Government has committed to present an updated plan enhancing the coordination of the various tourism stakeholders and relevant authorities and an action plan for the implementation of an aeropolitical strategy by 3Q2014. As part of the efforts to diversify the Ministry of Energy, Commerce, Industry and Tourism (MECIT), put forward a draft law regarding the creation of an Integrated Casino Resort in Cyprus. This development, along with other upcoming development projects, is expected to further upgrade the Cyprus tourist product and at the same time provide a stimulus to the Cyprus economy. Already, it is generally accepted that the tourism industry, was amongst the sectors that helped in a milder GDP contraction of 5.4%, below the 6% initially projected by the Troika (3rd MoU Review, February 2014).

2 International tourist arrivals grew by 5% reaching 1,087mn The capital investment in Travel and Tourism Sector in Cyprus reached 245mn or 10.7% of the total capital investment 2013 Tourism in Numbers Total arrivals in Southern Meditteranean Europe increased by 5% The total arrivals of tourists in Cyprus fell by 2.4% YoY (c. 2.4mn) Tourism receipts contributes 12.6% to the GDP of Cyprus (c. 2.1bn) 27,000 jobs created directly (or 8% of total employment) by the tourism sector in Cyprus 4-4.5% growth in the international tourist arrivals The capital investment in Travel and Tourism Sector in Cyprus will reach 400 mn Tourism receipts in Cyprus will rise to 2.6bn 2014 Forecast 28,000 jobs will be created by the tourism sector in Cyprus 5% growth in the total tourist arrivals in Southern Mediterranean Europe 5-8% growth in the total tourist arrivals in Cyprus 2 Tourism Dynamics October 2014

3 Tourist Arrivals In August 2014, Cyprus welcomed an additional 373,085 arrivals, raising its total arrivals for the first eight months of 2014 to 1.7bn compared to 1.6bn in the same period of 2013 (YoY increase: 5.9%). The annual increase in the cumulative arrivals for the first eight months of 2014 is mainly a result of the increased arrivals from Russia (Jan-August 2014: 483,179, Jan-August 2013: 413,495 and Ukraine (Jan-August 2014: 31,043, Jan-August 2013: 22,673). In the same period, the total tourist arrivals from Germany, declined sharply by 19.7% YoY to 51,104 arrivals. CTO forecasts that total arrivals for 2014 will reach 2.6mn (CTO, May 2014). Arrivals of Tourists per Country For the first eight months of 2014, the total tourist arrivals from the EU (EU-28) declined by 1.2% YoY, and so did the total arrivals from America and Africa (by 17.4% and 6.8% respectively). A notable growth of 42.2% was recorded in the total arrivals from Asia. In the same period, the total arrivals from Eastern European countries, including Russia and the Ukraine, increased by 19.3% YoY. and the Great Britain travel giant, TUI, (May, 2014) is expected to boost the total arrivals from the UK (f. 50% in the winter period). Furthermore, Russian arrivals in Cyprus are rising, making Russia the second biggest tourist market in Cyprus after the UK for the years 2008 to 2013, with the 2013 cumulative arrivals from Russia reaching 608,579 (or 25% of the total tourist arrivals). The total arrivals from Switzerland are also expected to increase by 115.1% YoY (reaching 48,000) in 2014, according to the CTO Office Director in Switzerland. According to the MECIT, since the beginning of 2014, flight bookings to Cyprus from Russia and the Ukraine remain at high levels. As foreseen by the MECIT, the total Russian arrivals will increase by 5-10% YoY in As borne out by the figures, the Russian arrivals will make-up about one third of the total tourist arrivals in Almost 900 thousand tourists came to Cyprus from the UK in Since 2005 however, the tourist arrivals from the UK have been on a downward trend. This trend is attributed not only to the financial crisis but also to the competitions from destinations that are cheaper relative to Cyprus. An agreement between the MECIT Figure 1: Tourist Arrivals by Country 3000 MECIT (May 2014) Source: CyStat ( ) Other Countries Sweden Israel Greece Germany Russia United Kingdom Tourism Dynamics October

4 Opportunities Ahead The USA, the UK and Germany were the top three outbound travel markets globally during the last years. However, according to the latest figures (World Travel Monitor, 2013), China and Russia are joining the world travel leaders. The Russian market is already a tourism target market for the Cypriot tourism sector, and the Chinese market could be another. Indicatively, about 97mn Chinese travelled around the world in 2013, while at the same time Cyprus attracted only 3,000 Chinese tourists. The CTO considers the Chinese market as an opportunity for growth and various incentives are being evaluated including the waiving of the need for a visa. Income From Tourism Key GDP Component The total revenue from tourism for the first seven months of 2014 increased by 6.2% compared to the corresponding period of 2013, reaching 1.1bn. At the same time, the total expenditure per tourist for the first half of 2014 was well above the average amount in the corresponding period of 2013 ( and respectively). The total revenue in 2013 reached 2.09bn, presenting a notable annual growth of 8.3% compared to 2012 (c. 1.93bn). The MECIT forecasts a further increase in the total revenue of about 19%, reaching 2.6bn by In 2013, the tourism sector contributed 12.6% to the Cyprus GDP (or 2.09bn in real terms). This is the biggest percentage recorded in the last decade. The tourism sector is one of the largest sectors in Cyprus and a significant potential driver of future growth. Therefore, a possible revitalisation of the sector could enhance economic recovery, easing the islands economic recession. Figure 2: Revenue From Tourism as % Of GDP 3bn 20% 2bn 15% 10% 1bn 5% 0bn % MECIT (May 2014) Total Revenue (bn 's) Revenue from Tourism as % of GDP* Source: Eurostat (2014), CyStat ( ) *Based on EC forecasts 4 Tourism Dynamics October 2014

5 Figure 3: Average Expenditure per Person ( ) and per Country ( ) Greece Israel Source: CyStat (2013) Sweden Germany United Kingdom H2014 Russia Income by Country In the first seven months of 2014, the average annual expenditure per Russian tourist was the highest amongst tourists coming from countries with the highest level of arrivals in Cyprus. New Tourist Policy The CTO is implementing a Tourism Strategy ( ) in order to promote the Cyprus as a destination and attract quality tourism. The main objectives of the policy are: Improvement of the tourist product by promoting the development of new infrastructure projects. Restriction in the creation of new bed capacity, concentrating on the upgrade of existing ones. Improving the competitiveness of the Cypriot tourist product. Development of agro-tourism. Funding of the agro-industry, handicrafts, traditional wineries, farming and selfemployment schemes. Increase in the earnings from tourism. Cyprus has to further develop other types of tourism. Examples include the medical, religious and sports tourism, according to the General Director of the CTO. Specifically, the personal average spending of a Russian tourist for the first seven months of 2014 was approximately 949, whilst lower spending was demonstrated by tourists from Germany ( 808), the UK ( 772), Sweden ( 667), Israel ( 499) and Greece ( 426). Tourism Dynamics October

6 Capacity Rates The licenced tourist beds in operation are in a declining trend over the last decade, totalling 87,218 as of the end of 2Q2014 (hotels: 54,021, hotel apartments and tourist villages: 23,722, other categories: 9,475). The decrease in the number of licenced beds in operation is mainly attributed to the withdrawal of lower quality beds. As of the end of 2Q2014, the district with the highest bed capacity was Famagusta (34,825), followed by Paphos (23,860), Limassol (12,861), Larnaca (5,997) and the Mountain Resorts (2,309). Hotels Hotel Apartments - Tourist Villages Other Categories Total Area Units Beds Units Beds Units Beds Units Beds Nicosia 20 2, ,860 Limassol 34 9, , ,032 Larnaca 23 4, , ,982 Famagusta 72 18, , , ,053 Paphos 56 16, , , ,858 Hill Resorts 20 1, ,309 Total , , , ,094 Source: CTO (2014) Table 1: Accommodation Industry Capacity Occupancy Rates In 2013, the two districts with the highest gross (bed) occupancy rates were Famagusta (50.4%) and Paphos (46.0%). Across Cyprus, the average occupancy rate in all licensed establishments narrowed to 43.9% in 2013, declining by 5% YoY. This decline is mainly attributed to the lower number of tourist arrivals in 2013 compared to 2012 (total arrivals for 2012:2.47mn, 2013:2.41mn). In the first half of 2014 however, the gross occupancy rate further declined to 31.6%. The districts with the lowest bed occupancy, 23.8% and 26.1%, were Nicosia and Limassol respectively. In the remaining districts, the occupancy rates stood at 32%-35% Figure 4: Tourist Beds in Operation Versus Gross Occupancy Rates Tourist Beds in Operation Sources: CTO ( ), CyStat ( ) H2014 Average Occupancy Rate (%) (Gross) 60% 50% 40% 30% 20% 10% 0% Gross Occupancy Rate By Hotel Category The highest gross occupancy rate in the last five years was reported in 2012, standing at 48.9%. In 2013, the gross occupancy rate in 1*- 2* hotels was down by 2.5% to 19.7% YoY, while the occupancy in 3* hotels stood at 46%. In 4*-5* hotel establishments, a bigger decline of 4.4% was recorded, bringing down their gross occupancy rate to 48.7%. For the first semester of the year, the 4*-5* hotels continue to record the highest occupancy rate (37.7%), followed by the 3* hotels (31.6%) and the 1*-2* hotels (14.9%) Figure 5: Gross Bed Occupancy Rates by Hotel Category H Source: CTO ( ) 6 Tourism Dynamics October 2014

7 Accommodation Preferences The tourists accommodation preferences do not change significantly over the years. Approximately half of the tourists every year prefer to stay in hotels, rather than in hotel apartments or tourist villages. A small proportion of them stay with friends and relatives or at their own holiday home. Location of Stay The purpose of their visit also explains the preference of the tourists for the seaside areas of the island. Most of the tourists prefer to stay in Paphos, followed by Ayia Napa and Limassol. For the FY2013, Paphos was ranked first in the tourist preferences as location of stay. For the first five months of 2014, Paphos also ranked first in the tourist preferences, with an average percentage of 36.3%, followed by Famagusta with a percentage of 22.5%. Figure 6: Average Percentage as Location of Stay for Year 2013 Nicosia 7.4% Paphos & Polis 37.6% Limassol 13% Source: CyStat (2014) Larnaca 10.5% Paralimni 10.9% Ayia Napa 15% Tourism Dynamics October

8 Recent Developments in 2014 February Four Ukrainian airlines initiated scheduled flights between Cyprus and the Ukraine. The Cypriot Government introduced new schemes to tackle unemployment amongst workers in hotels that close down during the winter season and also for recently unemployed without previous experience in the hotel industry. April Qatar Airways instituted a daily flight from Doha to Larnaca. Μay The MECIT signed an agreement with the large British travel operator, TUI in order to promote the tourist product of Cyprus and attract more tourists from the UK. The CTO approved specific criteria for the environmental sustainability of hotels in Cyprus; these are the first criteria introduced in any tourist destination worldwide. The CTO announced the institution of the Cyprus Tourism Quality Label. The institution aims to reward quality services in the tourism sector that meet a number of criteria and adopt and achieve high levels of quality service. The CTO participated in the Worldwide Exhibition for Incentive Travel, IMEX. The policy document for the creation of casinos in Cyprus was completed by the CTO. Casino licences are expected to be issued in early The original CTO study into the establishment of casinos in Cyprus, predicted annual revenues for the state of between 35 and 50 million, as well as a significant boost of employment opportunities. June Zagrosjet instituted a weekly flight from Erbil (Iraq) to Larnaca. FLY NIKI increases the number of the flights from Vienna to Larnaca from 3 to 4 per week, from June 2014 to November Also, introduces a new flight from Vienna to Paphos beginning in March The Russian Emerald Coast Properties Ltd acquired the 75% of the hotel complex La Meridien Limassol Spa & Resort. (January 2014: 50%) August On August 29, the Cypriot Authorities extended the deadline for submission of non-binding proposals for the Cyprus Airways to September 3, The government agreed to give the Zenon consortium until the end of the year to secure financing for the Larnaca port and marina project. September On September 3, nine investors express an interest in Cyprus Airways with the submission of non-binding proposals. The MECIT published the legal draft proposal for the creation of the Integrated Casino Resort in Cyprus 8 Tourism Dynamics October 2014

9 Abbreviations CyStat Cyprus Statistical Service CTO EC ECB Eurostat IMF MECIT UK UNWTO WTTC Cyprus Tourism Organisation European Commission European Central Bank European Statistical Service International Monetary Fund Ministry of Energy, Commerce, Industry and Tourism United Kingdom World Tourism Organisation World Tourism and Travel Council International Tourism Figures: WTTC (2014) Definitions Capacity rate: The number of units/beds in operation. Occupancy rate: The number of beds occupied by visitors as a percentage of total beds in operation. References CyStat (2014). Tourism. Nicosia, Cyprus. CTO (2014). Occupancy rates. Nicosia, Cyprus. European Commission (2014) Tourism industry sub - sectors, Country Report: Cyprus ITB (2013) ITB World Travel Trends Report 2013/2014. World Travel and Tourism Council (2014) Economic Impact 2014 Cyprus. World Tourism Organisation (2014) International tourism exceeds expectations with arrivals up by 52 million in World Tourism Organisation (2014) Annual Report Tourism Dynamics October

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