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European Tourism in 2016: Trends & Prospects (Q3/2016) SEUROPEAN TOURISM 2016 TRENDS & PROSPECTS APRIL 2016

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European Tourism in 2016: Trends & Prospects (Q3/2016)

SEUROPEAN TOURISM 2016 TRENDS & PROSPECTS

APRIL 2016

European Tourism in 2016: Trends & Prospects (Q3/2016)

1

EUROPEAN TOURISM IN 2016: TRENDS & PROSPECTS

Quarterly Report (Q3/2016)

A quarterly insights report produced for the Market Intelligence Group

of the European Travel Commission (ETC)

by Tourism Economics (an Oxford Economics Company)

Brussels, November 2016

ETC Market Intelligence Report

European Tourism in 2016: Trends & Prospects (Q3/2016)

2

Copyright © 2016 European Travel Commission

European Tourism in 2016: Trends & Prospects (Q3/2016)

All rights reserved. The contents of this report may be quoted, provided the source is given accurately

and clearly. Distribution or reproduction in full is permitted for own or internal use only. While we

encourage distribution via publicly accessible websites, this should be done via a link to ETC's

corporate website, www.etc-corporate.org, referring visitors to the Research/Trends Watch section.

The designations employed and the presentation of material in this publication do not imply the

expression of any opinions whatsoever on the part of the Executive Unit of the European Travel

Commission.

Data sources: This report includes data from the TourMIS database (http://www.tourmis.info), STR

Global, IATA, AEA and UNWTO.

Economic analysis and forecasts are provided by Tourism Economics and are for interpretation by

users according to their needs.

Published and printed by the European Travel Commission

Rue du Marché aux Herbes, 61, 1000 Brussels, Belgium

Website: www.etc-corporate.org

Email: [email protected]

ISSN No: 2034-9297

This report was compiled and edited by:

Tourism Economics (an Oxford Economics Company)

on behalf of the ETC Market Intelligence Group

Cover: Europe, Transylvania, Romania, 13th century Castle Bran, associated with Vlad II the Impaler,

AKA Dracula. Queen Marie of Romania’s later residence.

Image ID: 445665049

Copyright: Emily Marie Wilson

European Tourism in 2016: Trends & Prospects (Q3/2016)

3

TABLE OF CONTENTS Foreword ............................................................................................................. 4

1. Tourism Performance Summary 2016 ............................................................ 7

2. Global Tourism Forecast Summary .............................................................. 10

3. Recent Industry Performance ....................................................................... 11

3.1 Air Transport .......................................................................................... 11

3.2 Accommodation ..................................................................................... 15

4. Special Feature ............................................................................................. 17

5. Key Source Market Performance .................................................................. 21

5.1 Key Intra-European Markets .................................................................. 21

5.2 Non-European Markets .......................................................................... 25

6. Origin Market Share Analysis........................................................................ 28

6.1 United States .......................................................................................... 29

6.2 Canada ................................................................................................... 30

6.3 Mexico .................................................................................................... 31

6.4 Argentina ................................................................................................ 32

6.5 Brazil ...................................................................................................... 33

6.6 India ....................................................................................................... 34

6.7 China ...................................................................................................... 35

6.8 Japan ..................................................................................................... 36

6.9 Australia ................................................................................................. 37

6.10 United Arab Emirates ........................................................................... 38

6.11 Russia .................................................................................................. 39

7. Economic Outlook ......................................................................................... 40

7.1 Overview ................................................................................................ 40

7.2 Eurozone ................................................................................................ 43

7.3 United Kingdom...................................................................................... 44

7.4 United States .......................................................................................... 45

7.5 Japan ..................................................................................................... 46

7.6 Emerging Markets .................................................................................. 47

8. Appendix 1 .................................................................................................... 51

9. Appendix 2 .................................................................................................... 53

European Tourism in 2016: Trends & Prospects (Q3/2016)

4

FOREWORD

STRONG GROWTH OVER THE SUMMER PERIOD

The earlier strong performance in Europe continued into the third quarter of

2016. Despite challenges including safety and security, most destinations

across the region shared in the good summer growth in visitor numbers.

According to UNWTO, Europe experienced a 3% increase in international

tourist arrivals compared to the first six months of 20151.

One in three reporting destinations enjoyed double-digit growth in arrivals.

Iceland’s staggering growth (+34%) is partly due to its key position as a hub for

trans-Atlantic travel while Slovakia and Cyprus (both +19%) benefited from

deferred Russian travel typically bound for Turkey. Southern/Mediterranean

destinations, Portugal (+12%), Serbia, Slovenia and Spain (all +10%) also saw

a robust increase. Fast growth was also recorded by Bulgaria (+13%),

Lithuania and Romania (both +10%), all three considered as key destinations

for bargain hunters.

Turkey (-32%) continues to endure the aftermath of its diplomatic tensions,

threat of terrorism, and weakened relations with its largest source market,

Russia, after a decade of sustained tourism growth. Belgium’s tourism

performance is still at a low ebb (-13%), affected by the slowdown in arrivals

from both short and long-haul markets following the attacks in March 2016.

European air passenger traffic (measured by Revenue Passenger Kilometres

(RPK)) remains robust up 3.5% based on 2016 year-to-date data. Growth is

fuelled by strong demand from the Americas, mainly from the US helped by a

stronger US dollar against key European currencies and good economic

1 UWNTO World Tourism Barometer Vol. 14 September 2016

International tourist arrivals by destination

2016 year-to-date, % year

Source: ETC, TourMIS

European Tourism in 2016: Trends & Prospects (Q3/2016)

5

conditions. Low oil prices continue to result in lower air fares, and both factors

play a role in sustaining air travel demand.

GROWTH MOMENTUM DRIVEN BY KEY LONG-HAUL MARKETS

Since the UK voted to leave the European Union on June 23rd, there has been

considerable uncertainty about the long run impact of ‘Brexit’. Although a

weaker sterling against the euro has made travel abroad more expensive for

Britons, they continue to travel internationally with two in three reporting

destinations posting double-digit growth from the UK. Large

Southern/Mediterranean destinations such as Portugal (+14%) and Spain

(+13%) saw substantial growth from British visitors based on data to August.

However, many of these travellers would have planned their trip before the

decision to leave the EU and it is still too early to untangle the likely impact of

this decision on outbound travel from the UK.

Tourist flows from Russia continue to recover following a long period of

weakness. Top destinations rebounding from previous years’ poor performance

are Cyprus, Iceland and Slovakia up 45%, 22% and 21% respectively. Russia’s

travel ban to Turkey was cancelled at the end of June this year, however a

slowing economy and a devalued rouble continue to weigh on outbound travel

from this market. While year-to-date data points to a 4.5% decline in travel from

Russia, in the longer run an estimated 8% increase is forecasted over the next

four-year period.

A number of European destinations saw encouraging visitor arrivals form the

US. Travellers from this market continue to take advantage of a stronger

currency and competitive air fares. Despite security concerns and travel alerts

issued by the US Government, the flow of US holidaymakers to Europe

continues to grow. Compared to the same period last year it is estimated that

US arrivals to Europe has increased by 7% so far in 2016. Despite its economic

Inbound travel from Russia by destination

Russian share of total arrivals, 2015

Source: ETC, TourMIS

European Tourism in 2016: Trends & Prospects (Q3/2016)

6

slowdown, the Chinese market is showing signs of growth as many

destinations reported double-digit growth in arrivals during the first six months

of the year. Chinese arrivals to Europe has been growing at a moderate pace

(+13% a year on average 2005-2015) and growth is so far estimated at 6%.

Prospects remain positive, helped by the rapid growth of China’s middle class.

Nevertheless, there are fears in terms of safety and security concerns

dissuading Chinese travel to Europe.

INDUSTRY-WIDE COLLABORATION TOWARDS A SUSTAINABLE

PROMOTION OF EUROPE

Entering the final part of the year, European tourism continues to grow strongly

showing great resilience to economic woes, geopolitical tensions and threats of

terrorism. ETC’s Outlook for the coming year remains positive with growth in

arrivals forecasted to be 3% among ETC members. “To foster Europe’s

competitiveness and achieve a better promotion of the region as a tourism

destination, European authorities should capitalise on attracting investment

from public and private stakeholders in order to increase flows of tourist to

Europe, especially from third markets” said Eduardo Santander, Executive

Director of the European Travel Commission.

Jennifer Iduh (ETC Executive Unit)

With the contribution of the ETC Market Intelligence Group

European Tourism in 2016: Trends & Prospects (Q3/2016)

7

1. TOURISM PERFORMANCE

SUMMARY 2016 The overwhelming majority of European destinations report continued growth in

tourism demand through the summer months. 33 destinations have now

submitted 2016 year-to-date data in some capacity, with most reporting data for

the peak months of July and August. 28 of these destinations have recorded

either positive arrivals or overnights growth so far in 2016. In most cases it is

both. By contrast Turkey, Belgium, Switzerland, Monaco, and Greece have all

reported a fall in either arrivals, overnights, or both so far in 2016.

Many of the very high growth rates observed in some destinations earlier in the

year have now moderated, which is typical as data now include the more

important and less volatile summer months. This will likely continue over the

remainder of 2016, including further peak season months. Nonetheless, some

impressive growth rates remain.

Iceland remains the top growth destination in Europe, based on data to

September, keeping it on an impressive growth trajectory which it has

maintained since 2012. This growth is supported by a wide array of both short

and long haul markets and this has perhaps been key to Iceland’s longevity as

the top performing Europe destination market since its exposure to risks and

economic shocks is well-spread. Ongoing growth in air capacity on transatlantic

routes using Iceland as a hub continues to benefit the destination and suggests

that arrivals growth is not yet ready to abate, although there are some

suggestions that accommodation capacity constraints may start to bite.

Slovakia’s strong start to the year helped it retain position as Europe’s second

fastest growth market in the year-to-date. Growth has moderated from earlier in

the year when arrivals and overnights growth both exceeded 20%. Based on

data to August arrivals growth was 19.1% and overnights growth was 17.5%

and this should secure its status as a top performing destination in 2016. This

-35

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Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Foreign visits and overnights to select destinations

28 The number of

European destinations

reporting growth in 2016 to

date

33 destinations have

reported on tourism

performance in 2016

European Tourism in 2016: Trends & Prospects (Q3/2016)

8

growth is a continuation of the rebound in 2015 following on from a poor 2014

growth performance, and some slowdown is still likely later in 2016.

Cyprus enjoyed both strong arrivals and overnights growth of 18.8% and 8.6%

respectively based on data to September. This may involve some gain in

market share at the expense of Turkey given the threat of terrorism and its

tumultuous political landscape of late. Russia was a notable contributor to this

growth with arrivals up 44.5% and overnights 28.2% higher, more than

offsetting the falls in 2015.

The Czech Republic, Serbia, Bulgaria, and Romania all appear to be faring

well, each making strong gains in both arrivals and overnights. As relatively

lower cost markets growth this perhaps reflects some continued bargain-

hunting in the market. With the exception of Bulgaria, these markets have all

enjoyed double digit growth from the UK, and while post-Brexit data is limited at

this stage, growth from the UK to these markets may accelerate as British

holiday makers look to stretch a relatively weak pound.

Following the UK’s vote to leave the EU, the outlook for outbound travel

demand has been downgraded. This is in line with weaker near-term growth

prospects amid significant uncertainty as well as a fall in the value of the

pound. But weaker sterling means the UK is now a more price-attractive

destination and inbound travel should continue to thrive. This will mostly be

supported by leisure travel growth, while domestic UK travel should also benefit

due to these pricing effects.

Arrivals growth has been strong in Ireland, with growth reported as 12.3%

based on data to August. However, it shoulders a particularly large exposure to

Brexit fallout since the UK is its biggest European source market, albeit with

limited impact in 2016 to date. Since a holiday within the Eurozone became

approximately 10% more expensive when paid for in sterling following the

outcome of the referendum, Ireland will have lost some its appeal from a UK

standpoint. Additionally, a weaker pound will inevitably encourage some

displacement in travel from other source markets away from Ireland and

towards the UK.

The relative strength of the Swiss franc continues weighed on Switzerland’s

performance in 2016 to date. Both arrivals and nights to Switzerland have fallen

by 2.1% and 2.5% respectively based on data to August. This marks an

acceleration in the rate of decline compared to arrivals growth to April and

compounds similar falls endured in 2015.

Turkey reported lower arrivals from all monitored source markets based on

data to data to August as it continues to suffer from a combination of political

unrest, weakened relations with the large source market of Russia, and the

threat of terrorism.

Attacks in Turkeys came after threats by the same group which claimed

responsibility for attacks carried out in tourist resorts in Tunisia and Egypt and

in excess of 100 people have been killed as a result of these attacks in 2016

alone. This will only continue to discourage some tourists from visiting Turkey

and travel to Turkey for 2016 as a whole is looking likely to fall further following

a more modest drop in 2015. Russia’s temporary ban on travel to Turkey

following the shooting down of a Russian bomber will have had a large impact

Travel from the UK to other

European destinations may

fall following the Brexit vote,

primarily due to weaker

sterling.

UK should benefit as a

destination from the currency

movement

31.8% Drop in tourist arrivals in

Turkey in the first eight

months of 2016.

Arrivals in Turkey fell 1.6% in

2015 as a whole and a larger

drop is likely this year.

European Tourism in 2016: Trends & Prospects (Q3/2016)

9

given that Russia typically accounts for over 10% of arrivals to Turkey. Russian

arrivals accounted for around 75% of the fall in European travel to Turkey in

2015, with larger falls seen so far this year. But with the ban now lifted and the

restoration of relations between the two underway, this negative trend may be

reverse in 2017. However, international travel to Turkey in 2016 as a whole is

likely to be lower than in 2015 before recovery fully begins next year.

Tourism Performance, 2016 Year-to-Date

Country % ytd to month % ytd to month

Austria 5.1 Jan-Sep 4.9 Jan-Sep

Belgium -13.9 Jan-Aug -12.3 Jan-Aug

Bulgaria 13.2 Jan-Aug

Croatia 7.3 Jan-Aug 8.8 Jan-Aug

Cyprus 18.8 Jan-Sep 8.6 Jan-Jul

Czech Rep 6.5 Jan-Jun 4.1 Jan-Jun

Denmark 4.9 Jan-Aug

Estonia 6.5 Jan-Aug 6.4 Jan-Aug

Finland 3.8 Jan-Aug 1.7 Jan-Aug

Germany 1.3 Jan-Aug 1.3 Jan-Aug

Greece -1.6 Jan-Jun

Hungary 4.6 Jan-Aug 4.0 Jan-Aug

Iceland 33.9 Jan-Sep

Ireland Rep 12.0 Jan-Sep

Latvia 4.1 Jan-Jun 5.7 Jan-Jun

Lithuania 9.5 Jan-Jun

Luxembourg 1.0 Jan-Aug

Malta 8.3 Jan-Aug 5.7 Jan-Aug

Monaco -1.9 Jan-Sep

Montenegro 5.6 Jan-Aug -2.6 Jan-Aug

Netherlands 5.5 Jan-Jul 5.6 Jan-Jul

Norw ay 11.7 Jan-Sep

Poland 6.8 Jan-Aug 9.2 Jan-Aug

Portugal 12.3 Jan-Aug 10.9 Jan-Aug

Romania 9.9 Jan-Aug

Serbia 11.1 Jan-Sep 11.7 Jan-Sep

Slovakia 19.1 Jan-Aug 17.5 Jan-Aug

Slovenia 9.7 Jan-Aug 8.3 Jan-Aug

Spain 10.1 Jan-Aug 10.1 Jan-Aug

Sw eden 5.1 Jan-Sep

Sw itzerland -2.1 Jan-Aug -2.6 Jan-Aug

Turkey -31.8 Jan-Aug

UK 3.0 Jan-Aug

Source: TourMIS, http://w w w .tourmis.info; available data as of 7.11.16

Measures used for nights and arrivals vary by country

See TourMIS for further data including absolute values

International Arrivals International Nights

European Tourism in 2016: Trends & Prospects (Q3/2016)

10

2. GLOBAL TOURISM FORECAST

SUMMARY Tourism Economics’ global travel forecasts are shown on an inbound and outbound basis in the

following table. These are the results of the Tourism Decision Metrics (TDM) model, which is updated

in detail three times per year. Forecasts are consistent with Oxford Economics’ macroeconomic

outlook according to estimated relationships between tourism and the wider economy. Full origin-

destination country detail is available online to subscribers.

TDM Visitor Growth Forecasts, % change year

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

d e f f f d e f f f

World 4.1% 4.5% 3.8% 3.8% 4.6% 3.2% 4.7% 4.0% 4.0% 4.8%

Americas 8.5% 6.1% 4.2% 3.8% 4.0% 6.9% 5.1% 3.7% 4.6% 4.0%

North America 9.7% 5.6% 3.6% 3.8% 4.0% 8.3% 4.4% 4.8% 5.3% 4.2%

Caribbean 5.3% 8.1% 3.6% 4.3% 3.7% 9.6% 16.1% 3.8% 2.8% 3.9%

Central & South America 6.8% 6.5% 6.4% 3.7% 4.2% 1.7% 6.8% -0.7% 2.1% 3.1%

Europe 2.1% 4.7% 1.9% 3.0% 4.4% -0.2% 3.3% 1.8% 2.8% 4.6%

ETC+4 4.4% 4.9% 1.9% 2.6% 4.1% 2.4% 5.5% 2.8% 2.5% 4.4%

EU 4.4% 5.5% 3.9% 2.1% 3.8% 2.0% 5.4% 2.8% 2.6% 4.5%

Non-EU -6.2% 1.5% -6.4% 7.1% 6.9% -8.9% -5.8% -2.8% 3.7% 5.2%

Northern 5.2% 6.5% 5.1% 3.5% 4.4% 5.2% 7.4% 4.3% -0.6% 4.2%

Western 2.2% 3.9% -0.5% 1.9% 3.8% -1.2% 3.3% 1.2% 3.7% 4.7%

Southern/Mediterranean 7.1% 4.7% 0.9% 2.7% 4.4% 5.9% 7.5% 2.8% 3.1% 4.2%

Central/Eastern -7.9% 5.2% 5.2% 4.5% 5.0% -4.8% -3.8% -0.3% 5.0% 5.1%

- Central & Baltic 1.9% 7.2% 8.4% 2.4% 3.4% 6.4% 7.7% 5.8% 4.9% 3.7%

Asia & the Pacific 5.2% 5.8% 8.8% 4.6% 4.9% 6.7% 7.8% 8.8% 5.4% 5.3%

North East 7.3% 4.3% 8.6% 4.2% 5.0% 8.0% 8.9% 10.2% 5.3% 5.4%

South East 2.8% 8.1% 9.2% 5.2% 4.8% 4.5% 6.4% 7.2% 6.0% 5.9%

South 9.7% 3.5% 9.2% 4.3% 5.3% 13.8% 9.0% 5.4% 6.7% 6.2%

Oceania 6.1% 7.2% 9.0% 5.3% 4.3% 3.9% 4.0% 4.6% 4.7% 2.6%

Africa 2.1% -4.7% -2.6% 5.7% 6.2% 3.9% 1.8% -0.2% 4.0% 4.1%

Mid East 8.0% 1.9% 3.6% 5.6% 6.1% 8.7% 1.4% 4.2% 7.3% 8.0%

* Inbound is based on the sum of the country overnight tourist arrivals and includes intra-regional flows

** Outbound is based on the sum of visits to all destinations

The geographies of Europe are defined as follows:

Northern Europe is Denmark, Finland, Iceland, Ireland, Norway, Sweden, and the UK;

Western Europe is Austria, Belgium, France, Germany, Luxembourg, Netherlands, and Switzerland;

ETC+4 is all ETC members plus France, the Netherlands, Sweden, and the United Kingdom

Source: Tourism Economics

Central & Baltic Europe is Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania,

and Slovakia;

Southern/Mediterranean Europe is Albania, Bosnia-Herzegovina, Croatia, Cyprus, FYR Macedonia, Greece,

Italy, Malta, Montenegro, Portugal, Serbia, Slovenia, Spain, and Turkey;

Central/Eastern Europe is Armenia, Azerbaijan, Bulgaria, Czech Republic, Estonia, Hungary, Kazakhstan,

Kyrgyzstan, Latvia, Lithuania, Poland, Romania, Russian Federation, Slovakia, and Ukraine;

data/estimate/forecast ***

Outbound**Inbound*

European Tourism in 2016: Trends & Prospects (Q3/2016)

11

3. RECENT INDUSTRY PERFORMANCE

INDUSTRY PERFORMANCE STRONG

Passenger growth in 2016 to date has continued in line with the strong expansion

seen in 2015 worldwide.

European passenger growth has been maintained and the deterrent of further terror

attacks in Europe has eased but still weighs on growth from Asia.

A strong dollar helps bring travel growth from the Americas to Europe.

European hotel industry is exercising pricing power but tourists remain price

conscious.

3.1 AIR TRANSPORT

In the year to August, World Revenue Passenger Kilometre (RPK) growth was

5.8%, slightly slower than earlier 2016 year-to-date growth but still comfortably

above the average annual growth rate over the past 10 years (5.2%). Growth

has been helped by low oil prices continuing to feed into reduced air fares.

RPK growth was strongest in the Middle East based on 2016 year-to-date data,

with many of its hubs benefitting as gateways between Asia, Europe, and the

Americas. Growth has exceeded that for 2015 as a whole and is despite some

weaker regional traffic related to the oil industry. However, capacity growth has

continued to outstrip that of demand and passenger load factors (PLF) have

declined in the year to August on some transcontinental routes via the Middle

East and some routes to and from the Middle East itself. As these hubs

continue to jostle for market share, by adding new routes, PLF may suffer

further.

Africa Asia/Pacific Europe LatinAmerica

Mid. East N. America World

0

2

4

6

8

10

12

14

2014

2015

2016 ytd

Source: IATA

% year, RPK

Annual International Air Passenger Growth

5.8% The rate of World RPK

growth in 2016 to date

YTD growth based on data

to August

European Tourism in 2016: Trends & Prospects (Q3/2016)

12

Air passenger demand to and from Asia/Pacific has grown by 8.6% so far in

2016 based on data to August. The reported rate of RPK growth marks 2016 as

the fastest growth year of the past decade, excluding the post-recession

rebound in 2010 of 9%. Fears of slowing economic growth in China have eased

in recent months, with indicators from the services side of the economy

indicating that it is still expanding strongly. Household wealth and spending

continues to rise and is supporting international travel demand.

In Latin America year-to-date RPK growth has slowed to its lowest rate since

2009. Recessions in Venezuela and Argentina, coupled with the particular deep

recession in Brazil offset demand growth elsewhere in the Latin America region

and total regional growth will remain sluggish in 2016. Both business and

leisure-related travel are suffering and RPK growth is unlikely to surpass that of

2015 at any point this year. In the case of Brazil, the summer’s Olympic Games

in Rio de Janeiro may have provided temporary respite, while recoveries in

Venezuela and Argentina are currently a distant prospect.

In Europe, year-to-date RPK growth is also at its slowest since 2009 but growth

is still robust and has grown in all months of 2016 so far. Fear of further terrorist

attacks such as those seen Paris and Brussels are a likely cause of this as

some European destinations are perhaps being substituted for destinations

elsewhere.

Africa Asia/Pacific Europe LatinAmerica

Mid. East N. America World

0

2

4

6

8

10

12

14

May-16

Jun-16

Jul-16

Aug-16

Source: IATA

% year, RPK

Monthly International Air Passenger Growth

European Tourism in 2016: Trends & Prospects (Q3/2016)

13

Data from the Association of European Airlines (AEA) confirmed that strong

growth in European airline capacity continued throughout the first quarter of

2016. Growth has averaged 4.5% so far in 2016 compared to 4.2% for the

same period in 2015. This remains in line with the trend in recent years and

continued capacity expansion at this rate is supportive of further demand

growth.

Airline load factors have eased a little in recent months but remain high despite

this capacity growth. Oil prices have risen recently, but remain historically low

and continue to feed into lower air fares, in line with the usual lag period due to

price hedging, providing a further boost to demand. Average load factor for the

year-to-date is only marginally lower than for the same period in previous years

(78% compared to 80.9% in 2015 and 80.5% in 2014).

-15

-10

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5

10

15

20

aoû

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6

jan

v.-

07

juin

-07

nov.-

07

avr.

-08

sep

t.-0

8

févr.

-09

juil.

-09

déc.-

09

ma

i-1

0

oct.

-10

ma

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1

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1

jan

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12

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nov.-

12

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-13

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5

oct.

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6

Total

3mth mav

Source: IATA

% year, RPK

International Air Passenger Traffic Growth

-2

0

2

4

6

8

10

12

14

Q1 Q2 Q3 Q4

2014

2015

2016

Source: AEA

ASK, 4 week moving average, % change year ago

European Airlines Capacity

European Tourism in 2016: Trends & Prospects (Q3/2016)

14

In 2016 total European airline passenger growth has significantly outpaced

demand on European-Asian routes. This may be related to fears regarding

recent terrorist attacks, as well as some slowdown in emerging markets. This is

particularly true in the case of travel to France where nearly 40% fewer

Japanese and 23% fewer Chinese arrivals are reported in year-to-date data to

October (not available through TourMIS). Passenger demand growth for Asian

routes has diverged from total European passenger demand to an

unprecedented extent in 2016: the average percentage point (pp) difference

has widened further to 3.4pp (compared to 2.8pp as of Q2 2016). This follows a

period in 2014 and 2015 when travel between Europe and Asia increased at a

faster rate than total European airline passenger growth.

Air passenger flows between Europe and the Americas continued to grow at a

faster rate than total scheduled travel to and from Europe in 2016. The two

flows have also diverged to an unprecedented degree. The average difference

between them was 5.3pp for 2016 to date. This is a substantial premium

compared to the average difference in 2015 of 1.7pp. The greatest percentage

point difference observed in 2016 was 9.7. United States outbound travel to

Europe has been particularly strong due to the relative strength of the dollar

70

72

74

76

78

80

82

84

86

88

90

Q1 Q2 Q3 Q4

2014

2015

2016

Source: AEA

Weekly load factor, %

European Airlines Passenger Load Factor

-10

-5

0

5

10

15

20

Asia

Total

Source: AEA

RPK, 4 week moving average, % change year ago

European Airline Passenger Traffic: Asia

87% Peak of European airline

passenger load factor in

2016 to date

Based on data to Q3

European Tourism in 2016: Trends & Prospects (Q3/2016)

15

against key European currencies as well as favourable economic conditions in

the United States. Even with some slightly softer US demand implied by this

data in recent months it will remain an important long-haul growth market in

2016, especially with some weakening demand from Asia.

3.2 ACCOMMODATION

Global accommodation sector performance remained mixed in the first nine

months of 2016. The worst performing region was the Middle East & Africa; all

three measures of Occupancy, ADR and revenue per available room (RevPAR)

showed a downturn compared to the first nine months of 2015. Meanwhile all

other regions boasted at least one positive performance measure – although in

Europe’s case this was just occupancy.

In Asia/Pacific occupancy was up 1.8% compared to the first nine months of

2015. However, this growth was likely aided by lower average daily rates (ADR)

in the region which fell 3.2% in euro terms over the same period. As a result,

-5

0

5

10

15

20

Americas

Total

Source: AEA

RPK, 4 week moving average, % change year ago

European Airline Passenger Traffic: Americas

-10

-8

-6

-4

-2

0

2

4

Asia/Pacific Americas Europe Middle East/Africa

Occ

ADR (€)

RevPAR (€)

Source: STR Global

Jan-Sep year to date, % change year ago

Global Hotel Performance

9.7pp The gap between Europe-

Americas and total European

airline passenger growth in

2016

This is the biggest observed

pp difference in 2016

European Tourism in 2016: Trends & Prospects (Q3/2016)

16

RevPAR also fell – the only global region for which this was the case. This

modest demand and price cutting is consistent with some weakening

economies and softer travel demand from Asian markets.

In the Americas, room rates continued to rise in US dollar terms (2.3%) but this

continued to be entirely buoyed by North American performance; ADR in other

regions of the Americas fell over the same period. North American hotel

occupancy was unchanged from 2015 levels, allowing hotels to continue to

exercise pricing power and raise rates, indicating a degree of optimism

regarding future growth. However, across the rest of the Americas occupancy

rates were down with large falls in the Caribbean and South America. South

America’s accommodation sector in particular continued to feel the pinch of

recessions.

In Europe as a whole, accommodation sector performance was exceptionally

lacklustre with occupancy growing by just 0.2% alongside a 2.3% reduction in

ADR over the same period. This led to RevPAR contraction of 2.1%. However,

the regional growth trend includes ADR priced in euros while in local currency

terms a majority of destinations were able to raise room rates. Notably, the UK

and Russia have been able to raise rates in local currency terms – in Russia’s

case by 12% in rouble terms – but, because of weaker currencies in 2016 to

date, ADR is lower than a year ago in euro terms. Recent depreciation of

sterling will exacerbate this trend for the UK.

0.2% The rate of occupancy

growth in Europe in 2016

Based on 2016 year-to-date

data to September

European Tourism in 2016: Trends & Prospects (Q3/2016)

17

4. SPECIAL FEATURE

THE IMPACTS OF BREXIT ON EUROPEAN TOURISM

The UK voted to leave the EU in the referendum held on 23rd June with

significant and far-reaching implications for a wide range of business activities,

including tourism. A previous special feature (in the Q1/2016 report) considered

the potential impacts of a UK vote to leave on economic growth. This feature

updates that prior analysis and describes potential impacts on tourism across

Europe.

Since the so-called ‘Brexit’ vote, the economic outlook for the UK has

deteriorated, although recession still appears unlikely. Following some initial

gloomy data releases and surveys, the UK economy has enjoyed some good

news with continued growth reported in output and spending. But this growth is

slower than the trend earlier in the year and Oxford Economics’ current

baseline expectation of 1.4% GDP growth in 2017 is consistent with prior

scenarios of Brexit.

Business investment is set to drop over the next year and will be the largest

drag on the economy in coming years. Large businesses are unwilling to spend

due to the uncertainty surrounding the UK’s future relationship with the EU.

Political announcements had removed some of the uncertainty surrounding the

timing of the UK’s formal exit from the EU and the future relationship, but the

high court ruling that this is subject to parliamentary approval adds further

confusion. A deadline of the end of March 2017 has been set by the

Government for triggering Article 50 of the Lisbon Treaty which begins the

formal process of leaving the EU and the start of official negotiations. This

would begin a two-year negotiating period and the UK will therefore no longer

be part of the EU by early 2019. But greater parliamentary approval and input

may affect this timing and also the goals of negotiations.

Government statements have clarified that a key point for the UK in any future

relationship will be control over immigration. This stance is incompatible with

1.0

1.1

1.1

1.2

1.2

1.3

1.3

1.4

1.4

1.5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New baseline

Pre-Brexit baseline

£1 = €

Source: Tourism Economics

Exchange Rate: Sterling vs Euro

1.4% UK GDP growth in 2017 as

recession should be avoided

Slower growth is due to

weaker investment with

heightened uncertainty

European Tourism in 2016: Trends & Prospects (Q3/2016)

18

the UK remaining within the European Economic Area. The UK government’s

current preferred option appears to be to negotiate a free trade agreement with

the EU; involving complex negotiations within a relatively short timeframe. The

alternative would be a reversion to trading under WTO rules. Both options

would likely involve lower trade volumes and long-run GDP lower than under a

pre-Brexit baseline outlook.

There has been a strong reaction in currency markets to the clarifications of the

UK’s future status outside of the EU. Sterling fell further against the euro and

the US dollar in October and is likely to remain relatively weak for the duration

of the negotiation period. Oxford Economics’ forecasts suggest an average rate

€1.15 for 2017; only a modest improvement from the current low rates. This

expected rate is 15% weaker than the rate of €1.35 which was anticipated for

2017 prior to the vote.

The value of sterling, and this large swing in value, is an important factor in

understanding the impact on tourism demand. A fall in the value of sterling

typically results in a narrowing of the tourism balance. The UK typically runs a

negative tourism balance as tourism exports (inbound spending) are smaller

than tourism imports (outbound spending) and this is expected to become

smaller in 2017 and 2018 as a result of the falls in sterling. The weaker

currency means that UK is a more affordable destination resulting in an

increase in visits. At the same time, foreign travel has become more expensive

and UK departures are set to fall.

The benefit to UK inbound travel may be partly offset by a possible fall in

business travel related to the lower investment. Weaker business activity in the

UK and less inward investment will act as a drag on related travel demand.

Draft headline UK arrivals data have been published for the year to August and

show some modest improvement in the two months following the referendum

vote (more detailed data, including the split by source market is only available

for months to June fully consistent with that sourced through TourMIS in the

source market performance section).

UK outbound travel has also not been immediately affected in total for 2016 to

date according to both UK departures data and data reported by other

70

80

90

100

110-25

-20

-15

-10

-5

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Tourism balance (lhs)

Exchange rate index (rhs)

Tourism exports minus imports, £ bn

Source: Tourism Economics

UK tourism balance and exchange rate index

Exchange rate index, inverted

€1.15 Expected value of sterling for

2017 on average

15% weaker value than pre-

Brexit vote expectations

European Tourism in 2016: Trends & Prospects (Q3/2016)

19

European destinations through TourMIS. A majority of European destinations

are reporting slower growth from the UK than earlier in the year, but this is also

part of the wider trend of more moderate growth being evident as less volatile

peak summer months are included in year-to-date calculations.

Larger impacts on UK outbound and inbound travel demand are likely to be

evident in 2017 given the more recent movements in the currency and typical

lags between this and tourism behaviour due to pre-bookings.

UK outbound travel is set to fall by around 2.5% in 2017, taking into account

the slower economic growth and weaker value of sterling. This contrasts with

an expectation of around 3.5% growth prior to the Brexit vote. This 6% point

swing in expected growth will vary considerably by destination.

Typical relationships between exchange rates and travel demand show that

long-haul travel demand is more price sensitive than short-haul travel. Hence,

UK travel to longer-haul destinations will see more of an impact. In fact some

UK travellers may switch away from more expensive long-haul trips with a

relative benefit to less expensive alternative destinations within the region.

The overall impact for European impacts is likely to be for slower growth from

the UK and potential declines at least in the short-term. Exposure to the UK

market will determine the extent to which this will affect the market as a whole.

Many short-haul destinations are more heavily reliant on the UK as a source

market, in which case the overall impact on performance will be larger.

However, looking at a city destination level, there are some large long-haul

market with high exposure to the UK market.

All impacts, are of course, uncertain given the ongoing developments in the

political relationships. As well as the economic uncertainty the precise outcome

of the negotiated relationship between UK and the EU will be important in

several areas. For example, UK currently benefits from high air access as all

-4.6%

-4.6%

-4.8%

-4.8%

-4.8%

-4.9%

-5.5%

-5.9%

-6.1%

-6.2%

-6.5%

-6.5%

-7.0%

-7.3%

-7.7%

-7.8%

-7.8%

-7.9%

-8.1%

-9% -8% -7% -6% -5% -4% -3% -2% -1% 0%

Portugal

France

Belgium

Sweden

UAE

Italy

Spain

Greece

Czech Republic

Poland

Egypt

Ireland

Canada

Cyprus

United States

China

Thailand

India

Australia

Source: Tourism Economics

UK visitor arrivals by top 20 destinations, pp change in growth, 2017

Note: Destinations in Europe shaded as light blue.

European Tourism in 2016: Trends & Prospects (Q3/2016)

20

EU carriers can freely operate across borders. Any reduction in air capacity

from a new agreement could directly increase travel costs2.

2 http://www.oxera.com/Latest-Thinking/Publications/Reports/2016/How-could-Brexit-affect-the-transport-sector.aspx

30%

9%

10%

18%

16%

8%

7%

18%

12%

10%

23%

5%

8%

3%

11%

0 200 400 600 800 1,000 1,200 1,400

Dublin

New York, NY

Paris

Amsterdam

Orlando, FL

Dubai

Antalya

Warsaw

Las Vegas, NV

Barcelona

Cracow

Istanbul

Rome

Bangkok

Berlin

000s arrivals

Source: Tourism Economics

City arrivals from the UK, 2015 % share of international

arrivals

European Tourism in 2016: Trends & Prospects (Q3/2016)

21

5. KEY SOURCE MARKET

PERFORMANCE

2016 MAINTAINS ITS MOMENTUM

European travel demand continues to grow across the majority of markets.

Intra-European travel remains crucial for future growth while US travel demand

continues to grow – helped by a strong dollar.

Economic slowdown and a weaker pound in the UK as a result of the Brexit

referendum is a concern for outbound travel demand but UK inbound will benefit.

Trends discussed in this section in some cases relate to the first nine months of the year although

actual coverage varies by destination. For the majority of countries July or August will be the latest

available data point. Further detailed monthly data for origin and destination, including absolute

values, can be obtained from TourMIS, http://tourmis.info.

5.1 KEY INTRA-EUROPEAN MARKETS

The vast majority of European destination markets have reported growth from

Germany so far in 2016 compared to the same period of 2015. Iceland boasted

the strongest growth in arrivals from Germany: 22.7% higher based on data to

September compared to the same period in 2015. Bulgaria has also enjoyed

strong growth from Germany (+19.2%). German tourists typically comprise over

10% of all arrivals to Bulgaria, hence growth of this magnitude represents a

substantial number of new arrivals. Travel to Belgium and Turkey has fallen

sharply as travellers are deterred from both destinations in the aftermath of

terror attacks.

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Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

German visits and overnights to select destinations

Turkey, -27.6% (A)

26 out of 32 destinations

reported growth from

Germany pointing to

continued intra-regional

growth in 2016

European Tourism in 2016: Trends & Prospects (Q3/2016)

22

Montenegro has enjoyed strong arrivals growth of 55.7% from the Netherlands

in 2016 to date as well as strong overnights growth (+34.3%), both based on

data to August. Iceland has also reported robust growth from the Netherlands

based on data to September which showed the number of Dutch arrivals to be

up 24.5% compared to the same period in 2015.

Arrivals from the Netherlands to the UK have grown strongly based on data to

June, and this growth will potentially be bolstered by the weaker pound in the

second half of 2016.

Some of the caution that existed at the beginning of the year appears to have

dissipated and the majority of destinations are now reporting some growth from

France, returning to more normal trends. Lithuania, Iceland, and Norway in

particular have reported strong growth from France. The UK is one of the few

destinations which reported falling arrivals from France based on data to June,

6% lower than the same period in 2015. As data relevant to the weaker pound

becomes available we would expect to see a return to growth.

-25

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-5

5

15

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Mo

nte

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gro

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Norw

ay

Esto

nia

Bu

lga

ria

Lith

uan

ia

Slo

va

kia

Po

rtug

al

Sp

ain

Ma

lta

UK

Den

ma

rk

Fin

land

Czech

Rep

Au

str

ia

Slo

ve

nia

Gre

ece

Cro

atia

Rom

an

ia

Hun

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Se

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Luxe

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Ge

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Sw

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Mo

na

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Cypru

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Be

lgiu

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Latv

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Tu

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Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Dutch visits and overnights to select destinations

Montenegro, 34.3% (N) & 55.7% (A)

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0

5

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15

20

25

30

35

Lith

uan

iaIc

ela

nd

Norw

ay

Cypru

sS

lova

kia

Bu

lga

ria

Po

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al

Esto

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Den

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Sp

ain

Fin

land

Slo

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lan

d R

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Ma

lta

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om

an

iaM

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ten

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erl

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ds

Latv

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witze

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Rep

Au

str

iaH

un

ga

ryS

wed

en

UK

Be

lgiu

mG

ree

ce

Tu

rke

y

Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

French visits and overnights to select destinations

Belgium, -14.2% (N) & -15.2% (A)Greece, -20.6% (A)Turkey, -33.5% (A)

French travel behaviour has

seemingly ‘normalised’

following the disruption

earlier in the year related to

terror attacks.

European Tourism in 2016: Trends & Prospects (Q3/2016)

23

Iceland was the favoured destination of Italians in arrivals growth terms based

on data to September, closely followed by Denmark and Slovakia based on

data to August. The UK and Estonia also reported strong growth from Italy

based on data to June and August respectively. The UK could see this growth

accelerate in the second half of the year thanks to a weaker pound. However, a

large minority of destinations report some falling demand from Italy in the year

to date, and growth prospects remain subdued.

Thirteen reporting destinations have enjoyed double-digit arrivals growth from

the UK so far in 2016. Three of these destinations (Latvia, Iceland, and Croatia)

have enjoyed arrivals growth in excess of 20%. The large destinations of Spain,

Portugal, and Ireland each reported handsome double-digit growth in arrivals

and overnights based on data to August. Since arrivals from the UK equate to

around 50% of total arrivals to Ireland, 25% of total arrivals to Spain, and 16%

of total arrivals to Portugal, such growth is a substantial driver of total growth

for all three destinations.

But following the UK’s referendum vote to leave the EU the near-term growth

prospects have been downgraded amid significant uncertainty. UK outbound

travel demand expectations have been downgraded due to the weaker growth

outlook for the UK economy, coupled with a fall in the value of the pound.

Notably, the pound has lost in excess of 10% of its value against the euro in

2016. And whilst Britons will continue to travel, some destinations will shoulder

a greater proportion of the Brexit burden than others in the short-term, namely

Ireland, Spain, and Portugal given their high share of British arrivals.

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Ma

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itze

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wed

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Rep

Ge

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ny

Lith

uan

iaB

elg

ium

Tu

rke

y

Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Italian visits and overnights to select destinations

Belgium, -31.4% (N) & -31.5% (A)Turkey, -57.7% (A)

Weaker sterling is likely to

weigh on UK outbound in the

short term.

European Tourism in 2016: Trends & Prospects (Q3/2016)

24

Turkey has endured the largest decline in Russian arrivals so far in 2016, down

87.9% based on data to August, even weaker than the 67.7% decline reported

earlier in the year based on data to April. Relations between the two have been

fragile since the Turkish Air Force shot down a Russian fighter jet on the

Syrian-Turkey border in November 2015. Russia had imposed (but has since

lifted) travel restrictions on Russian tourists visiting Turkey, and, notable efforts

have been made to restore relations between the two countries. Some

improvement in tourism performance may follow in 2017, but Russians will still

share the same safety concerns of other European markets regarding travel to

Turkey and any growth is unlikely to immediately offset these falls.

Cyprus, Iceland, and Slovakia all reported strong arrivals growth from Russia.

In Cyprus, arrivals growth was in double-digit territory (+44.5%) based on data

to September. But this includes some rebound from falls in prior years and

potentially some substitution from travel which would ordinarily have been

bound for Turkey.

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ela

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Cro

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kia

Mo

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ne

gro

De

nm

ark

Sp

ain

Po

rtug

al

Ire

lan

d R

ep

Gre

ece

Slo

ve

nia

Sw

ed

en

Ro

ma

nia

Cypru

sP

ola

nd

Se

rbia

Ne

the

rlan

ds

Czech

Rep

Hu

nga

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ay

Lith

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alta

Au

str

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rlan

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mb

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Bu

lga

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Fin

land

Mo

na

co

Be

lgiu

mT

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ey

Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

UK visits and overnights to select destinations

Turkey, -30.9% (A)

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30

Cypru

sIc

ela

nd

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lga

ria

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Sp

ain

Mo

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Fin

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Ge

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Neth

erl

an

ds

Au

str

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wed

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Be

lgiu

mM

alta

Tu

rke

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Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Russian visits and overnights to select destinations

Cyprus, 44.5% (A)Malta, -31.4% (N)Turkey, -87.9% (A)

20 out of 32 destinations

reported falling arrivals or

overnights from Russia. The

most sizeable falls were

observed in Turkey.

European Tourism in 2016: Trends & Prospects (Q3/2016)

25

5.2 NON-EUROPEAN MARKETS

All but six destinations have reported some growth from the US so far in 2016.

Iceland was the most popular US growth destination, up 63.5% based on data

to September. This growth is aided by Iceland’s growing importance as a hub

for trans-Atlantic travel. Both Europeans and North Americans have been

increasingly breaking up trans-Atlantic trips with some nights in Iceland. In

addition, continued growth in scheduled seats on flights between Iceland and

the US, and also to European destinations will allow continued growth.

Latvia and Portugal also fared well; each reporting respective US arrivals

increases of 41.1% and 20.1% with almost equal overnights to match based on

data to June and August respectively.

Turkey and Belgium have seen notably lower arrivals from the US, each down

in excess of 25%, due to a combination of political unrest and terror threats.

The US government issued a travel alert to US citizens regarding the risk of

potential terrorist attacks throughout Europe in 2016. Perceived high-risk

destinations included France due to Euro 2016, Poland, which hosted World

Youth Day (which attracted around 2 million visitors) and Turkey. This travel

alert expired at the end of August 2016 and is therefore reflected in much of the

reported data.

Arrivals growth was reported in just over half of reporting European

destinations, although Japan remains a large source market for many

destinations despite this relative stagnation. Some strengthening of the yen in

2016, and notably following the Brexit vote, has aided affordability for Japanese

travellers, but does not fully offset prior currency depreciation. Japan’s

economy has been in and out of recession over the past few years and this has

been evident in reported outbound tourism performance. Growth has been

notable in Montenegro, where arrivals from Japan in excess of 50% (albeit from

a relatively low base). Japanese arrivals growth was also strong in Iceland and

Poland where volumes increased in excess of 25% based on data to

September and August respectively. Turkey and Belgium were amongst the

least popular destination markets due to a combination of political unrest and

the threat of terrorism.

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Rom

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Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

US visits and overnights to select destinations

Iceland, 63.5% (A)Belgium, -25.7% (N) & -25.5% (A)Turkey, -37.2% (A)

European Tourism in 2016: Trends & Prospects (Q3/2016)

26

China continues to be a source of huge arrivals growth for many European

destinations, albeit from some lower volumes than for more established

markets. Half a dozen countries reported arrivals growth from China in excess

of 30%. The UK reported a 16% fall in the number of Chinese arrivals it

received based on data to June but a weaker pound may help to soften this fall

in the latter half of the year.

Turkey and Belgium were again amongst the least popular Chinese destination

markets due to the perceived threat of terror attacks and security issues which

will likely continue to undermine some Chinese growth to Europe for the

remainder of 2016. This is further evidenced in some reported French year-to-

date data to October (not available through TourMIS) which reports large falls

in Chinese visitors in 2016 compared to 2015.

All but six reporting destinations enjoyed arrivals growth from India. Three of

these are familiar in the form of Turkey, Belgium, and the UK. Croatia was the

most popular Indian growth destination with arrivals 78.6% higher and

overnights 68.8% higher in 2016 than 2015 based on data to August. This

growth across the majority of destinations has been aided by a strong

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d

Po

lan

d

Slo

va

kia

Bu

lga

ria

UK

Po

rtug

al

Latv

ia

No

rwa

y

Lith

uan

ia

Sw

ed

en

Esto

nia

De

nm

ark

Fin

land

Cypru

s

Se

rbia

Sp

ain

Mo

na

co

Sw

itze

rlan

d

Au

str

ia

Czech

Rep

Hu

nga

ry

Ge

rma

ny

Slo

ve

nia

Cro

atia

Luxe

mb

ourg

Ne

the

rlan

ds

Ro

ma

nia

Be

lgiu

m

Tu

rke

y

Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Japanese visits and overnights to select destinations

Montenegro, 50.9% (A)Belgium, -41.5% (N) & -46.2% (A)Turkey, -56.8% (A)

-20

-10

0

10

20

30

40

50

Slo

va

kia

Norw

ay

Hun

ga

ry

Se

rbia

Latv

ia

Ice

lan

d

Po

lan

d

Sw

ed

en

Fin

land

Sp

ain

Slo

ve

nia

Bu

lga

ria

Po

rtug

al

Czech

Rep

Rom

an

ia

Esto

nia

Cro

atia

Lith

uan

ia

Au

str

ia

Den

ma

rk

Ge

rma

ny

Cypru

s

Mo

nte

ne

gro

Neth

erl

an

ds

UK

Luxe

mb

ourg

Sw

itze

rlan

d

Mo

na

co

Be

lgiu

m

Gre

ece

Tu

rke

y

Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Chinese visits and overnights to select destinations

Switzerland, -21.8% (A)Belgium, -23.8% (N) & -26.9% (A)Greece, -27.6% (A)Turkey, -50.8% (A)

European Tourism in 2016: Trends & Prospects (Q3/2016)

27

economic backdrop in India (led by strong GDP growth, a positive consumer

spending outlook, and a rising number of middle-income households). And,

although current arrivals numbers from India are low in absolute terms, India

will become increasingly more important as a source market for European

destinations in the coming years.

Many destinations have reported sizeable arrivals and overnights growth from

Canada so far in 2016. Travel to Iceland was strong to September (+62.1%),

aided by its hub status on transatlantic flights. Continued growth in scheduled

seats on flights between Iceland and Canada and onward to European

destinations will facilitate further growth. Strong growth to Finland is skewed by

substantial flows in January when Finland hosted the Ice Hockey World Junior

Championships with reported arrivals growth of 175% and overnights growth of

701% compared to January 2015. This has since abated to more typical rates.

Spain was also the recipient of some very strong arrivals growth from Canada

(45.9% based on data to August), albeit from a very small base. It is possible

that along with Spain is benefitting from some displaced travel which may have

otherwise been bound for France if not for recent terrorist activity.

-10

0

10

20

30

40

50C

roa

tia

Latv

ia

Ne

the

rlan

ds

Slo

va

kia

Rom

an

ia

Po

lan

d

Bu

lga

ria

Au

str

ia

Hun

ga

ry

De

nm

ark

Czech

Rep

Fin

land

Ge

rma

ny

Sw

ed

en

Mo

nte

ne

gro

Sw

itze

rlan

d

Mo

na

co

UK

Be

lgiu

m

Tu

rke

y

Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Indian visits and overnights to select destinations

Croatia, 68.8% (N) & 78.6% (A)Belgium, -21.8% (N) & -31.8% (A)Turkey, -35.6% (A)

-20

-10

0

10

20

30

40

50

Ice

lan

d

Fin

land

Sp

ain

Slo

va

kia

Po

lan

d

Cro

atia

Po

rtug

al

Rom

an

ia

Se

rbia

Slo

ve

nia

Mo

nte

ne

gro

Lith

uan

ia

Den

ma

rk

Sw

ed

en

Hun

ga

ry

Mo

na

co

Neth

erl

an

ds

Czech

Rep

Au

str

ia

Sw

itze

rlan

d

Ge

rma

ny

Gre

ece

Bu

lga

ria

Latv

ia

Cypru

s

Be

lgiu

m

Tu

rke

y

Arrivals

Nights

Source: TourMIS *date varies (Jan-Sep) by destination

2016 year-to-date*, % change year ago

Canadian visits and overnights to select destinations

Iceland, 62.1% (A)Belgium, -22.0% (N) & -21.3% (A)Turkey, -37.6% (A)

European Tourism in 2016: Trends & Prospects (Q3/2016)

28

6. ORIGIN MARKET SHARE ANALYSIS

METHODOLOGY

Based on the Tourism Decision Metrics (TDM) model, the following charts and analysis show

Europe’s evolving market position – in absolute and percentage terms – for selected source

markets. 2015 values are, in most cases, year-to-date estimates based on the latest available

data and are not final reported numbers.

Data in these charts and tables relate to reported arrivals in all destinations as a comparable

measure of outbound travel for calculation of market share.

For example, US outbound figures featured in the analysis are larger than reported departures

in national statistics as long haul trips often involve travel to multiple destinations. In 2014 US

data reporting shows 11.9m departures to Europe while the sum of European arrivals from the

US was 23.4m. Thus each US trip to Europe involved a visit to two destinations on average.

The geographies of Europe are defined as follows:

Northern Europe is Denmark, Finland, Iceland, Ireland, Norway, Sweden, and the UK;

Western Europe is Austria, Belgium, France, Germany, Luxembourg, Netherlands, and

Switzerland;

Southern/Mediterranean Europe is Albania, Bosnia-Herzegovina, Croatia, Cyprus, FYR

Macedonia, Greece, Italy, Malta, Montenegro, Portugal, Serbia, Slovenia, Spain, and Turkey;

Central/Eastern Europe is Armenia, Azerbaijan, Bulgaria, Czech Republic, Estonia, Hungary,

Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Poland, Romania, Russian Federation, Slovakia,

and Ukraine.

European Tourism in 2016: Trends & Prospects (Q3/2016)

29

6.1 UNITED STATES

US Market Share Summary

2016

Total outbound travel (000s) 105,002 - 4.5% 24.6% - 36.1% -

Long haul (000s) 62,358 59.4% 5.3% 29.4% 61.7% 32.4% 61.0%

Short haul (000s) 42,644 40.6% 3.3% 17.6% 38.3% 41.9% 39.0%

Travel to Europe (000s) 27,446 26.1% 5.5% 30.4% 27.4% 32.9% 26.8%

Northern Europe (000s) 6,648 6.3% 5.8% 32.6% 6.7% 34.8% 6.4%

Western Europe (000s) 9,368 8.9% 4.3% 23.2% 8.8% 19.5% 10.2%

Southern Europe (000s) 7,786 7.4% 5.4% 29.9% 7.7% 44.7% 7.0%

Central/Eastern Europe (000s) 3,645 3.5% 7.9% 46.4% 4.1% 45.7% 3.2%

*Shows cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long HaulCentral/Eastern EuropeSouthern EuropeWestern EuropeNorthern Europe

*Long haul defined as tourist arrivals to destinations outside North America

Source: Tourism Economics

Visits, 000s

US Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Northern EuropeWestern EuropeSouthern Europe

*Long haul defined as tourist arrivals to destinations outside North America

Source: Tourism Economics

% share of long haul* market

Europe's Share of US Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

30

6.2 CANADA

Canada Market Share Summary

2016

Total outbound travel (000s) 32,609 - 4.1% 22.2% - -0.8% -

Long haul (000s) 12,588 38.6% 3.2% 17.0% 37.0% 16.9% 32.8%

Short haul (000s) 20,021 61.4% 4.6% 25.4% 63.0% -9.4% 67.2%

Travel to Europe (000s) 4,866 14.9% 2.6% 13.6% 13.9% 17.5% 12.6%

Northern Europe (000s) 1,136 3.5% 5.9% 33.4% 3.8% 12.7% 3.1%

Western Europe (000s) 1,656 5.1% 2.4% 12.8% 4.7% 7.9% 4.7%

Southern Europe (000s) 1,778 5.5% 0.8% 4.0% 4.6% 31.8% 4.1%

Central/Eastern Europe (000s) 296 0.9% -0.2% -1.2% 0.7% 17.7% 0.8%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long Haul Central/Eastern Europe

Southern Europe Western Europe

Northern Europe

*Long haul defined as tourist arrivals to destinations outside North America

Source: Tourism Economics

Visits, 000s

Canada Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside North America

Source: Tourism Economics

% share of long haul* market

Europe's Share of Canadian Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

31

6.3 MEXICO

Mexico Market Share Summary

2016

Total outbound travel (000s) 21,696 - 3.4% 18.0% - 37.9% -

Long haul (000s) 2,776 12.8% 4.1% 22.0% 13.2% 38.9% 12.7%

Short haul (000s) 18,920 87.2% 3.3% 17.4% 86.8% 37.8% 87.3%

Travel to Europe (000s) 1,423 6.6% 3.4% 18.1% 6.6% 20.1% 7.5%

Northern Europe (000s) 105 0.5% 2.5% 13.2% 0.5% 27.8% 0.5%

Western Europe (000s) 601 2.8% 4.8% 26.5% 3.0% -2.8% 3.9%

Southern Europe (000s) 557 2.6% 2.2% 11.4% 2.4% 43.3% 2.5%

Central/Eastern Europe (000s) 160 0.7% 2.5% 13.0% 0.7% 66.4% 0.6%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

500

1.000

1.500

2.000

2.500

3.000

3.500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long HaulCentral/Eastern EuropeSouthern EuropeWestern EuropeNorthern Europe

*Long haul defined as tourist arrivals to destinations outside North America

Source: Tourism Economics

Visits, 000s

Mexico Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

5%

10%

15%

20%

25%

30%

35%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside North America

Source: Tourism Economics

% share of long haul* market

Europe's Share of Mexican Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

32

6.4 ARGENTINA

Argentina Market Share Summary

2016

Total outbound travel (000s) 10,517 - 3.0% 16.1% - 52.5% -

Long haul (000s) 2,971 28.3% 5.4% 30.2% 31.7% 54.9% 27.8%

Short haul (000s) 7,545 71.7% 2.0% 10.6% 68.3% 51.6% 72.2%

Travel to Europe (000s) 1,165 11.1% 5.1% 28.3% 12.2% 78.0% 9.5%

Northern Europe (000s) 138 1.3% 9.4% 56.6% 1.8% 80.3% 1.1%

Western Europe (000s) 58 0.5% 6.8% 39.0% 0.7% 54.6% 0.5%

Southern Europe (000s) 841 8.0% 3.1% 16.2% 8.0% 79.5% 6.8%

Central/Eastern Europe (000s) 129 1.2% 11.4% 71.8% 1.8% 77.6% 1.1%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

500

1.000

1.500

2.000

2.500

3.000

3.500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long Haul

Central/Eastern Europe

Southern Europe

Western Europe

Northern Europe

*Long haul defined as tourist arrivals to destinations outside South America

Source: Tourism Economics

Visits, 000s

Argentina Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

5%

10%

15%

20%

25%

30%

35%

40%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside South America

Source: Tourism Economics

% share of long haul* market

Europe's Share of Argentinian Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

33

6.5 BRAZIL

Brazil Market Share Summary

2016

Total outbound travel (000s) 8,006 - 4.2% 22.9% - -2.8% -

Long haul (000s) 5,691 71.1% 4.6% 25.0% 72.3% -0.1% 69.1%

Short haul (000s) 2,316 28.9% 3.3% 17.6% 27.7% -9.0% 30.9%

Travel to Europe (000s) 2,747 34.3% 2.0% 10.2% 30.8% -11.9% 37.8%

Northern Europe (000s) 233 2.9% 7.8% 45.8% 3.5% -15.5% 3.3%

Western Europe (000s) 1,119 14.0% 3.3% 17.9% 13.4% -18.8% 16.7%

Southern Europe (000s) 1,158 14.5% -1.5% -7.2% 10.9% -3.3% 14.5%

Central/Eastern Europe (000s) 238 3.0% 4.3% 23.6% 3.0% -11.2% 3.2%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long Haul

Central/Eastern Europe

Southern Europe

Western Europe

Northern Europe

*Long haul defined as tourist arrivals to destinations outside South America

Source: Tourism Economics

Visits, 000s

Brazil Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

5%

10%

15%

20%

25%

30%

35%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside South America

Source: Tourism Economics

% share of long haul* market

Europe's Share of Brazilian Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

34

6.6 INDIA

India Market Share Summary

2016

Total outbound travel (000s) 15,648 - 7.2% 41.8% - 46.5% -

Long haul (000s) 15,023 96.0% 7.2% 41.5% 95.8% 48.2% 94.9%

Short haul (000s) 624 4.0% 8.4% 49.9% 4.2% 13.8% 5.1%

Travel to Europe (000s) 2,385 15.2% 9.0% 53.9% 16.5% 41.7% 15.7%

Northern Europe (000s) 446 2.8% 8.3% 48.7% 3.0% 18.1% 3.5%

Western Europe (000s) 811 5.2% 8.2% 48.5% 5.4% 31.7% 5.8%

Southern Europe (000s) 325 2.1% 9.6% 58.4% 2.3% 27.8% 2.4%

Central/Eastern Europe (000s) 803 5.1% 9.9% 60.5% 5.8% 84.7% 4.1%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long Haul Central/Eastern Europe

Southern Europe Western Europe

Northern Europe

*Long haul defined as tourist arrivals to destinations outside South Asia

Source: Tourism Economics

Visits, 000s

India Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

1%

2%

3%

4%

5%

6%

7%

8%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside South Asia

Source: Tourism Economics

% share of long haul* market

Europe's Share of Indian Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

35

6.7 CHINA

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long Haul

Central/Eastern Europe

Southern Europe

Western Europe

Northern Europe

*Long haul defined as tourist arrivals to destinations outside Northeast Asia

Source: Tourism Economics

Visits, 000s

China Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

5%

10%

15%

20%

25%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside Northeast Asia

Source: Tourism Economics

% share of long haul* market

Europe's Share of Chinese Market

China Market Share Summary

2016

Total outbound travel (000s) 86,940 - 5.7% 31.9% - 113.6% -

Long haul (000s) 39,862 45.8% 7.0% 40.1% 48.7% 179.8% 35.0%

Short haul (000s) 47,079 54.2% 4.5% 24.9% 51.3% 78.0% 65.0%

Travel to Europe (000s) 10,552 12.1% 9.4% 56.7% 14.4% 109.5% 12.4%

Northern Europe (000s) 881 1.0% 7.9% 46.1% 1.1% 127.0% 1.0%

Western Europe (000s) 5,308 6.1% 10.7% 66.3% 7.7% 112.3% 6.1%

Southern Europe (000s) 688 0.8% 8.6% 50.9% 0.9% 90.9% 0.9%

Central/Eastern Europe (000s) 3,675 4.2% 7.9% 46.5% 4.7% 105.4% 4.4%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

European Tourism in 2016: Trends & Prospects (Q3/2016)

36

6.8 JAPAN

Japan Market Share Summary

2016

Total outbound travel (000s) 22,600 - 5.7% 31.7% - 2.6% -

Long haul (000s) 14,825 65.6% 6.2% 35.1% 67.3% 18.2% 56.9%

Short haul (000s) 7,776 34.4% 4.6% 25.2% 32.7% -18.1% 43.1%

Travel to Europe (000s) 4,595 20.3% 6.8% 38.7% 21.4% 11.5% 18.7%

Northern Europe (000s) 573 2.5% 3.8% 20.8% 2.3% 12.7% 2.3%

Western Europe (000s) 1,934 8.6% 8.8% 52.4% 9.9% -1.8% 8.9%

Southern Europe (000s) 1,419 6.3% 5.7% 31.9% 6.3% 29.5% 5.0%

Central/Eastern Europe (000s) 669 3.0% 5.3% 29.2% 2.9% 21.9% 2.5%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long Haul Central/Eastern Europe

Southern Europe Western Europe

Northern Europe

*Long haul defined as tourist arrivals to destinations outside Northeast Asia

Source: Tourism Economics

Visits, 000s

Japan Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside Northeast Asia

Source: Tourism Economics

% share of long haul* market

Europe's Share of Japanese Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

37

6.9 AUSTRALIA

Australia Market Share Summary

2016

Total outbound travel (000s) 16,740 - 3.9% 21.0% - 19.0% -

Long haul (000s) 16,081 96.1% 3.9% 20.9% 96.0% 18.1% 96.8%

Short haul (000s) 659 3.9% 4.2% 22.7% 4.0% 47.8% 3.2%

Travel to Europe (000s) 5,371 32.1% 4.0% 21.7% 32.3% 16.2% 32.8%

Northern Europe (000s) 1,463 8.7% 6.7% 38.5% 10.0% 11.0% 9.4%

Western Europe (000s) 1,714 10.2% 0.4% 2.2% 8.6% 0.6% 12.1%

Southern Europe (000s) 1,701 10.2% 4.8% 26.2% 10.6% 35.5% 8.9%

Central/Eastern Europe (000s) 494 2.9% 4.4% 23.9% 3.0% 43.3% 2.4%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long Haul Central/Eastern Europe

Southern Europe Western Europe

Northern Europe

*Long haul defined as tourist arrivals to destinations outside Oceania

Source: Tourism Economics

Visits, 000s

Australia Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

2%

4%

6%

8%

10%

12%

14%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside Oceania

Source: Tourism Economics

% share of long haul* market

Europe's Share of Australian Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

38

6.10 UNITED ARAB EMIRATES

United Arab Emirates Market Share Summary

2016

Total outbound travel (000s) 3,700 - 4.7% 25.9% - 28.9% -

Long haul (000s) 1,770 47.8% 1.1% 5.7% 40.2% 52.8% 40.4%

Short haul (000s) 1,930 52.2% 7.6% 44.3% 59.8% 12.8% 59.6%

Travel to Europe (000s) 1,067 28.8% 1.0% 5.0% 24.1% 61.1% 23.1%

Northern Europe (000s) 375 10.1% 1.5% 7.6% 8.7% 56.1% 8.4%

Western Europe (000s) 430 11.6% -0.9% -4.4% 8.8% 51.6% 9.9%

Southern Europe (000s) 197 5.3% 1.1% 5.9% 4.5% 79.9% 3.8%

Central/Eastern Europe (000s) 65 1.8% 8.3% 49.3% 2.1% 125.5% 1.0%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of Long HaulCentral/Eastern EuropeSouthern EuropeWestern EuropeNorthern Europe

*Long haul defined as tourist arrivals to destinations outside Middle East

Source: Tourism Economics

Visits, 000s

UAE Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

5%

10%

15%

20%

25%

30%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to destinations outside Middle East

Source: Tourism Economics

% share of long haul* market

Europe's Share of Emirati Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

39

6.11 RUSSIA

Russia Market Share Summary

2016

Total outbound travel (000s) 18,975 - 9.7% 58.6% - -38.4% -

Long haul (000s) 5,022 26.5% 8.0% 46.8% 24.5% -17.6% 19.8%

Short haul (000s) 13,953 73.5% 10.2% 62.8% 75.5% -43.5% 80.2%

Travel to Europe (000s) 13,953 73.5% 10.2% 62.8% 75.5% -43.5% 80.2%

Northern Europe (000s) 1,047 5.5% 8.9% 53.5% 5.3% -35.6% 5.3%

Western Europe (000s) 1,345 7.1% 7.3% 42.0% 6.3% -19.1% 5.4%

Southern Europe (000s) 4,296 22.6% 10.1% 61.6% 23.1% -35.5% 21.6%

Central/Eastern Europe (000s) 7,265 38.3% 11.0% 68.7% 40.7% -50.8% 47.9%

*Show s cumulative change over the relevant time period indicated

**Shares are expressed as % of total outbound travel

Source: Tourism Economics

Growth (2016-21) Growth (2011-16)

Level Share**Annual

average

Cumulative

growth*Share 2021**

Cumulative

growth*Share 2011**

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of World

Central/Eastern Europe

Southern Europe

Western Europe

Northern Europe

*Long haul defined as tourist arrivals to all destinations

Source: Tourism Economics

Visits, 000s

Russia Long Haul* Outbound Travel

2006 2008 2010 2012 2014 2016 2018 2020

0%

10%

20%

30%

40%

50%

60%

70%

Northern EuropeWestern EuropeSouthern EuropeCentral/Eastern Europe

*Long haul defined as tourist arrivals to all destinations

Source: Tourism Economics

% share of long haul* market

Europe's Share of Russian Market

European Tourism in 2016: Trends & Prospects (Q3/2016)

40

7. ECONOMIC OUTLOOK

Assessing recent tourism data and industry performance is a useful way of directly monitoring

the key trends for travel demand across Europe. This can be complemented by looking at key

trends and relationships in macroeconomic performance in Europe’s key source markets

which can provide further useful insight into likely tourism developments throughout the year.

The linkages between macro and tourism performance can be very informative. For example,

strong GDP or consumer spending growth is an indication of rising prosperity with people more

likely to avail of international travel. It is also an indication of rising business activity and

therefore stronger business travel. Movements in exchange rates against the euro can be

equally important as it can influence choice of destination. For example, if the euro appreciated

(gained value) against the US dollar, the Eurozone would become a more expensive

destination and therefore potentially less attractive for US visitors. Conversely, depreciation of

the euro against the US dollar would make the Eurozone a relatively cheaper destination and

therefore more attractive to US travellers.

7.1 OVERVIEW

GLOBAL REVISIONS TO POTENTIAL GROWTH

Oxford Economics’ world GDP growth forecasts are currently at 2.2% for 2016,

which would be the lowest since 2009, and 2.6% in 2017.

Short-term activity indicators have been mixed. The global PMI rose to an

eight-month high in September, but growth remains subdued compared with its

long-term average. In addition, other high-frequency data such as the Citigroup

economic surprise indices have been trending down since August.

Indicators of international trade continue to show signs of weakness: the

volume of world trade fell 1.1% on the year in July and was flat in the seven

months to July. That said, the latest data for some countries show a pick-up in

trade volumes in August, particularly in Asia.

-60

-40

-20

0

20

40

60

80

100

Jan-16 Mar-16 May-16 Jul-16 Sep-16

G10 Emerging markets UK

Source : Oxford Economics/Haver Analytics/Citigroup

World: Economic surprise indices%

European Tourism in 2016: Trends & Prospects (Q3/2016)

41

The forecast for GDP growth in the US in 2017 as been lowered from 2.3% to

2% given weaker momentum in the private sector, particularly consumption and

investment.

Activity in the UK continues to surprise to the upside, therefore supporting our

above-consensus call on UK growth (1.9% this year and 1.2% in 2017). But

sterling is bearing the brunt of the adjustment, falling to new lows against most

major currencies. This has led us to revise our end-year GBP forecasts to 1.25

to the US$ and 1.12 to the euro (from 1.28 and 1.19 last month).

Long-term forecasts have been reviewed and a weaker outlook for capital

accumulation and productivity growth means the Eurozone and the UK have

seen their potential growth cut by 0.2% a year over the next decade.

Lower growth in the Eurozone and the UK has consequences for interest rates

as well. We now do not expect the ECB to start raising the refinancing rate

until early-2020, and see it peaking at 2.75% in 2028 (versus 3% in 2025

previously). In the UK, the BoE terminal rate has been cut to 3.5% (from

3.75%). Also, our expected path for 10-year bond yields has flattened

significantly in most Eurozone countries.

In Japan, Abe’s policies should alleviate the worst of the demographics

slowdown, but this still results in potential growth of only 0.4% a year. This shift

away from monetary policy means that we now see yields on 10-year Japanese

bonds capped at 0% until 2020.

European Tourism in 2016: Trends & Prospects (Q3/2016)

42

Summary of economic outlook, % change year ago*

UK 2.1% 2.8% -0.1% -11.6% 0.7% 1.4% 1.2% 0.2% -5.9% 2.7%

France 1.3% 1.6% -0.3% 0.0% 0.2% 1.5% 1.5% -0.2% 0.0% 1.3%

Germany 1.8% 1.4% -0.3% 0.0% 0.5% 1.5% 1.2% -0.2% 0.0% 1.8%

Netherlands 1.6% 1.3% -1.2% 0.0% 0.4% 1.5% 1.3% -0.3% 0.0% 1.6%

Italy 0.8% 1.2% -0.5% 0.0% 0.1% 0.9% 0.7% -0.1% 0.0% 1.5%

Russia -0.7% -3.8% 0.0% -9.6% 7.2% 1.2% -0.3% 0.2% 11.1% 5.4%

US 1.5% 2.7% -0.4% -0.5% 1.1% 2.0% 2.5% -0.2% 2.3% 2.0%

Canada 1.2% 2.2% 0.2% -3.8% 1.5% 1.8% 1.7% 0.1% 2.7% 1.8%

Brazil -3.2% -4.4% 3.2% -4.8% 8.9% 1.0% 0.2% 1.1% 6.8% 5.4%

China 6.7% 7.5% 0.0% -5.7% 1.9% 6.4% 6.9% 0.0% -1.9% 2.1%

Japan 0.6% 0.5% -0.3% 12.6% -0.2% 0.6% 1.1% -0.3% 3.3% 0.2%

India 7.5% 7.8% -0.1% -4.9% 5.3% 7.2% 7.5% 0.0% 2.2% 5.3%

Source: Tourism Economics

* Unless otherw ise specif ied

** Percentage point change

2016 2017

Country

*** Exchange rates measured against the euro. A positive change indicates stronger local currency against the euro and therefore a positive impact on

outbound tourism demand. A negative change indicates w eaker local currency against the euro and therefore a negative impact on outbound tourism

demand.

GDPConsumer

expenditure

Unemploy-

ment **

Exchange

rate***Inflation

Consumer

expenditure

Unemploy-

ment *

Exchange

rate***InflationGDP

European Tourism in 2016: Trends & Prospects (Q3/2016)

43

7.2 EUROZONE

We continue to think that the Eurozone economy will fare pretty well in H2 this

year and is on track to perform better than the consensus in 2017.

Recent data has been something of a mixed bag for the region. Strikingly, the

composite PMI fell in September to its lowest level since the onset of QE, but it

still does not point to a marked slowdown in GDP growth in Q3. We also think

that the recent weakness may be caused by some volatility in the German data

and may thus overstate the degree to which service sector growth has

weakened. By contrast, the EC’s Economic Sentiment Indicator has picked up

and on balance the hard data suggests that GDP growth probably improved a

touch in Q3.

For now, then, there is little reason to alter our above-consensus growth

assessment for the near term. We still expect GDP growth to slow only slightly,

from 1.6% this year to 1.5% in 2017. But looking ahead, we have become more

pessimistic about the growth outlook, reflecting the expectation that total factor

productivity growth will remain subdued. We now think that Eurozone potential

GDP growth is probably only around 1%. As a result, we forecast growth will be

about 1.4% in 2018-19 and then tail off thereafter.

We expect weaker potential growth to result in a slower normalization of official

interest rates and government bond yields. We now do not expect the policy

rate to be raised until 2020. Even so, in the shorter term we think the ECB will

be forced to raise its inflation forecasts in December. We expect this revision,

plus the reasonably solid growth outlook, to result in the ECB announcing a

tapering of QE monthly asset purchases from March 2017, rather than a

continuation of monthly purchases of €80bn, which would be consistent with

recent comments from ECB insiders.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

30

35

40

45

50

55

60

65

70

2004 2006 2008 2010 2012 2014 2016

GDP (RHS)

Composite PMI (LHS)

Eurozone Composite PMI & GDP% change q/q

Source : Oxford Economics/Haver Analytics/Markit

Index

European Tourism in 2016: Trends & Prospects (Q3/2016)

44

7.3 UNITED KINGDOM

The Quarterly National Accounts contained some good news, with Q2 GDP

growth upgraded from 0.6% to 0.7%. And the data for Q3 has continued to

surprise on the upside, indicating that the economy has weathered the shock of

the EU referendum result better than many had feared. In particular, the official

measure of services output showed a strong 0.4% monthly increase in July,

while the CIPS surveys and Gfk consumer confidence barometer all rebounded

strongly in August and September, after plunging in the aftermath of the

referendum. Our short-term model, which uses business survey results to fill

gaps in the official data, suggests that quarterly GDP growth will be around

0.3% in Q3.

Though the economic data has held up better than the MPC had expected, the

minutes of the September policy meeting suggested that this had not altered its

bigger-picture view of the economy post-referendum. As such, the majority of

members still expect to vote for another rate cut before the end of the year.

Typically, the MPC would move in a month in which there was an Inflation

Report, which would point to a rate cut in November, but it may wait until the

mid-December meeting to see whether the Chancellor implements a loosening

of fiscal policy in the Autumn Statement due late November.

At the Conservative Party conference, Prime Minister Theresa May confirmed

that she plans to trigger Article 50 of the Lisbon Treaty before the end of March

2017. This will start a two-year period of negotiations with the EU, with Brexit

finally occurring during Q1 2019. Commentary from the government suggests

that it is very likely that the UK will leave the customs union in order to be able

to negotiate free trade agreements (FTAs) with third countries and to regain

control over immigration policy. This would mean that the government would

either attempt to agree an FTA with the EU or – marginally more likely in our

opinion – it would revert to trading with the EU according to WTO rules.

-20

-15

-10

-5

0

5

10

15

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

% year

UK: Business investment and GDP

GDP

Businessinvestment

Source: Oxford Economics

Forecast

European Tourism in 2016: Trends & Prospects (Q3/2016)

45

7.4 UNITED STATES

Real GDP growth was revised up to 1.4% in Q2 2016 on stronger

nonresidential investment, net exports and inventories. Final sales rose 2.6%

while inventories subtracted 1.2pp from GDP growth.

Despite a 0.1% monthly uptick in real disposable income, personal

consumption expenditures contracted 0.1% in August – the first decline since

February. However, while momentum may have slowed, real disposable

income growth of 2.4% y/y remains supportive of solid consumer outlays

growth. We see consumer spending growing by 2.7% in 2016 and 2.5% next

year.

September payrolls were up 156,000 while the 12-month moving average stood

above 200,000 jobs for the 30th consecutive month. The unemployment rate

rose a tick to 5% on higher labor force participation while wage growth firmed to

2.6% y/y. A maturing labour market will mean slower employment growth next

year, but reduced labor market slack should support stronger wage growth.

Residential activity has cooled despite pent-up demand, rising wages and low

interest rates. Low inventories and reduced construction activity point to

lingering supply constraints and elevated home price inflation. Residential

investment should add 0.2 percentage points (pp) to growth in 2016.

Business activity remains very weak, constrained by a strong dollar, sluggish

global demand and depressed energy activity. While a rebound in the oil-rig

count is encouraging, the weakness goes beyond energy. The business

response to soft final demand, domestically and abroad, may be the main

reason behind the lack of ‘animal spirits’.

Despite a surprising mid-year bounce, exports will remain constrained. Imports

will also grow at a moderate pace so that net trade represents a modest 0.2pp

drag on GDP growth in 2016-17.

Real GDP should grow 1.5% in 2016 – the weakest reading since 2009 – and

we expect it to firm to 2.0% next year (down from 2.3% previously) – albeit

above our estimate of long-term potential output (1.6%).

European Tourism in 2016: Trends & Prospects (Q3/2016)

46

7.5 JAPAN

At September’s highly anticipated monetary policy meeting the Bank of Japan

(BoJ) announced that it was abandoning its monetary base target and replacing

it with targets for government bond yields. It also announced a commitment to

overshoot the 2% inflation target to boost inflation expectations.

However, at least in the short term, the latest announcements held little in the

way of new stimulus. The BoJ maintained its negative interest rate of -0.1% on

bank reserves held at the BoJ while stating that it will conduct asset purchases

broadly in line with the current pace of ¥80 trillion per year, albeit with some

flexibility based on the target of keeping the 10-year JGB yield around 0%. For

now, the BoJ can focus on changing the composition of the maturity of JGBs

without changing the average level of assets purchased. But in the future we

expect the BoJ will increase its average JGB holdings from around 65% of

GDP currently to above 80% next year to achieve its targets.

Despite further action expected by the BoJ, the yen is likely to stay relatively

close to current levels during the rest of this year and is forecast to weaken to

only 110 by mid-2018. The relatively strong yen further clouds the outlook for

exports and overall growth.

Indeed, while the final estimate for Q2 GDP growth was raised to 0.2% q/q from

the initial estimate of zero, export volumes still fell 1.5% on the quarter and

private non-residential investment also contracted, highlighting how the recent

strength in the yen is already affecting exporters and businesses in general.

However, while exports and business investment are expected to contract both

this year and in 2017, the recently approved fiscal stimulus package will

provide a boost to overall economic growth through a mixture of infrastructure

spending and cash handouts.

The impact of the fiscal stimulus will partly offset the relatively strong yen profile

and coupled with the stronger Q2 outcome, GDP is now forecast to grow by

0.6% pa in both 2016 and 2017, up marginally from September, followed by a

pick-up to 0.8% in 2018.

70

80

90

100

110

120

130

140

2005 2007 2009 2011 2013 2015 2017 2019

Source: Oxford Economics / Haver Analytics

Japan: Exchange rate per US$

F'cast

per US$

European Tourism in 2016: Trends & Prospects (Q3/2016)

47

7.6 EMERGING MARKETS

SLIGHTLY IMPROVED GROWTH OUTLOOK IN CHINA

Policymakers in China successfully stabilised the economy with fixed asset

investment growth rebounding in August driven by a recovery in corporate and

real estate FAI growth and infrastructure investment growth remaining relatively

strong. Enthusiasm has returned to the property market, in particular in terms of

housing sales growth amid fast gains in house prices in many large cities.

Meanwhile, goods export volumes are also rising strongly, benefitting from a

weaker currency and slowly strengthening global demand momentum, while

consumption remains robust.

Overall, the August data suggest a slight improvement in the outlook and we

now expect GDP growth to average 6.6% this year, up from 6.5% in

September. But meeting the overly ambitious targets for GDP growth will

remain reliant on continued fiscal and monetary easing to shore up domestic

demand. While China may not be on the cusp of a financial crisis, the current

pace of credit growth is clearly unsustainable and will have to be reined in at

some point.

The wider region has also seen more reassuring data. Most emerging Asian

PMIs continued to benefit from rising new orders in September, suggesting that

manufacturing activity in most countries is beginning to turn around. Export

growth also continued to pick up across the region, suggesting a fairly broad-

based underlying improvement in trade. However, while the recovery in trade is

in line with our expectations, we remain cautious about its vigour, given our

view of a very gradual pick-up in global trade.

INDIA – “NEW” RBI BATS FOR GROWTH

The newly constituted monetary policy committee of the Reserve Bank of India

(RBI) unexpectedly cut the repo rate by 25bp to 6.25% in early October, taking

advantage of the dip in August inflation amid downward momentum in food

prices.

0

2

4

6

8

10

12

14

16

18

Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16

Retail sales

Value added industry

Fixed Asset investment (FAI)

China: Key cyclical indicators% year, real

Source: Oxford Economics/Markit/Caixin

European Tourism in 2016: Trends & Prospects (Q3/2016)

48

We agree with the RBI that India is in the midst of a consumption-driven

recovery and expect headline growth to bounce back to 7.5% over the next

couple of quarters. But we are less sanguine about the inflation trajectory. Our

baseline view is for a shallow correction in food prices that is likely to keep

inflation above the RBI’s 5% inflation target on average over the coming

months.

That said, the MPC’s approach to policy setting appears to be more tactical and

data-dependent than the ‘big picture’ approach taken by former Governor

Rajan. Hence, it is possible that the committee is less fixated on the 5% CPI

target for early 2017, and anchoring real rates around 2%, as long as inflation

is fairly close to the target. Thus, further easing cannot be ruled out even if

inflation averages 5.35% in Q1 2017, which is our baseline case.

CAUTIOUS EASING IN RUSSIA AND CEE

The Central Bank of Russia resumed its policy easing in September after a

three-month pause, cutting its main rate by 50bp due to falling inflation and

inflation expectations. But it sent strong signals of its intention to fight inflation,

indicating no further cuts to rates this year. We have adjusted our baseline

accordingly, and now expect the main policy rate to be 10% at end-2016,

though the bank’s calculations could change if inflation expectations fall further.

6.0

6.5

7.0

7.5

8.0

8.5

9.0

0

2

4

6

8

10

12

14

16

18

2012 2013 2014 2015 2016

% year

Food CPI

Source: Oxford Economics/Haver Analytics

India: Consumer prices

CPI

RBI's inflation target

Repo rate (RHS)

%

0

2

4

6

8

10

12

14

16

18

2006 2008 2010 2012 2014 2016 2018

Source: Oxford Economics

Russia: Central bank policy rate and inflation

Forecast

%

Policy rate

CPI inflation

Inflation target

European Tourism in 2016: Trends & Prospects (Q3/2016)

49

Further west in the CEE region, we have pushed back the beginning of policy

normalisation to late 2019-early 2020 in Hungary and the Czech Republic to

reflect a change in view on the timing of ECB policy normalisation. Moreover, in

Hungary, the surge in the forint following S&P’s recent rating upgrade will likely

lead to policy easing. Meanwhile, the Polish and Romanian central banks are

expected to tighten policy in H2 2018 and early 2017 respectively over fears

that fiscal easing will put upward pressure on inflation.

DIVERGING POLICY OUTLOOK IN LATAM

In Latin America, we have left our short-term growth forecasts unchanged from

September, but have made important adjustments to our monetary policy

assumptions. In Brazil, falling inflation and a stable exchange rate will likely

give the central bank the ‘green light’ to cut rates as early as October

(previously we forecast a January move). We now see the Selic policy rate at

13.25% by end-2016, but the rush to cut rates means a less aggressive easing

cycle in 2017, with rates closing next year at 11.25% (10% previously). In

Mexico, we no longer expect the central bank to raise rates in December (after

hiking in September), but it is likely to keep a hawkish bias next year, raising

the target rate to 5.5% by H2 2017.

SLIGHTLY WEAKER GROWTH IN TURKEY

We expect Turkish growth to slow to below 3% in H2 2016, and have nudged

down our growth forecast for this year as a whole to 3.1% from 3.3%.

Thereafter, the economy is forecast to ‘muddle through’, with GDP growth of

3.2% in 2017 (in September we forecast 3.4%). Meanwhile, the central bank

lowered its overnight lending rate for the seventh consecutive month last

month, taking advantage of Fed inaction to maintain its dovish stance.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2010 2011 2012 2013 2014 2015 2016 2017

Brazil Mexico

Latin America: Policy rates%

Source : Haver Analytics

Forecast

European Tourism in 2016: Trends & Prospects (Q3/2016)

50

2

4

6

8

10

12

14

2013 2014 2015 2016

One-week repo (policy rate)

Overnight borrowing rate

Overnight lending rate

Overnight interbank rate (TRLIBOR)

Weighted average cost of CBRT funding

Source : Oxford Economics/Haver Analytics

Turkey: CBRT monetary policy framework

%

European Tourism in 2016: Trends & Prospects (Q3/2016)

51

8. APPENDIX 1

GLOSSARY OF COMMONLY USED TERMS AND ABBREVIATIONS

Airline industry indicators

ASK – Available Seat Kilometers. Indicator of airline supply, available seats x kilometers flown;

PLF – Passenger Load Factor. Indicator of airline capacity. Equal to revenue passenger

kilometers (RPK) / available seat kilometers (ASK);

RPK – Revenue Passenger Kilometers. Indicator of airline demand, paying passenger x

kilometers flown;

3mth mav – Three month moving average.

Hotel industry indicators

ADR – Average Daily Rate. Indicator of hotel room pricing, equal to hotel room revenue /

rooms sold in a given period;

Occ – Occupancy Rate. Indicator of hotel performance, equal to the number of hotel rooms

sold / room supply;

RevPAR – Revenue per Available Room. Indicator of hotel performance, equal to hotel room

revenue / rooms available in a given period.

Central Banks

BoE – Bank of England;

MPC – Monetary Policy Committee of BoE;

BoJ – Bank of Japan;

ECB – European Central Bank;

Fed – Federal Reserve (US);

RBI – Reserve Bank of India;

OBR – Office for Budget Responsibility;

PBoC – People’s Bank of China.

Economic indicators and terms

BP – Basis Point. A unit equal to one hundredth of a percentage point;

Broad money – Key indicator of money supply and liquidity including currency holdings as

well as bank deposits that can easily be converted to cash;

European Tourism in 2016: Trends & Prospects (Q3/2016)

52

CPI – Consumer Price Index. Measure of price inflation for consumer goods;

FDI – Foreign Direct Investment. Investment form one country into another, usually by

companies rather than governments;

GDP – Gross Domestic Product. The value of goods and services produced in a given

economy;

LCU – Local Currency Unit. The national unit of currency of a given country, e.g., pound, euro,

etc.;

PMI – Purchasing Managers’ Index. Indicator of producers’ sentiment and the direction of the

economy;

PPI – Purchase Price Index. Measure of inflation of input prices to producers of goods and

services;

PPP – Purchasing Power Parity. An implicit exchange rate which equalises the price of

identical goods and services in different countries so they can be expressed with a common

price;

QE – Quantitative Easing. Expansionary monetary policy pursued by central banks involving

asset purchases to reduce bond yields and increase liquidity in capital markets;

G7 – Group of seven industrialised countries comprising the United States, the United

Kingdom, France, Germany, Italy, Canada, and Japan.

European Tourism in 2016: Trends & Prospects (Q3/2016)

53

9. APPENDIX 2

ETC MEMBER ORGANISATIONS

Austria – Austrian National Tourist Office (ANTO)

Belgium: Flanders – Tourism Flanders

Wallonia – Wallonie-Bruxelles Tourisme (WBT)

Bulgaria – Bulgarian Ministry of Tourism

Croatia – Croatian National Tourist Board (CNTB)

Cyprus – Cyprus Tourism Organisation (CTO)

Czech Republic – CzechTourism

Denmark – VisitDenmark

Estonia – Estonian Tourist Board - Enterprise Estonia

Finland – Visit Finland – Finpro ry

Germany – German National Tourist Board (GNTB)

Greece – Greek National Tourism Organisation (GNTO)

Hungary – Hungarian Tourism Agency

Iceland – Icelandic Tourist Board

Ireland – Fáilte Ireland and Tourism Ireland Ltd.

Italy – Italian Government Tourist Board

Latvia – Latvian Tourism Development Agency (TAVA)

Lithuania – Lithuanian State Department of Tourism

Luxembourg – Luxembourg for Tourism (LFT)

Malta – Malta Tourism Authority (MTA)

Monaco – Monaco Government Tourist and Convention Office (DTC)

Montenegro – National Tourism Organisation of Montenegro

Norway – Innovation Norway

Poland – Polish Tourist Organisation (PTO)

Portugal – Turismo de Portugal, I.P.

Romania – Romanian National Authority for Tourism

San Marino – State Office for Tourism

Serbia – National Tourism Organisation of Serbia (NTOS)

Slovakia – Slovak Tourist Board

Slovenia – Slovenian Tourist Board

Spain – Turespaña - Instituto de Turismo de España

Switzerland – Switzerland Tourism

Turkey – Ministry of Culture and Tourism