Europe is at the epicentre of many external shocks and aftershocks, and the region dominates global media headlines, with a long list of crises, including economic, financial, geopolitical, social and humanitarian, or a combination of the above.

Economically, the EU is still underperforming after the Great Recession, with GDP growth revised downwards to 1.4% for 2016, according to Euromonitor International’s Global Economic Forecasts, exhibiting a lacklustre performance, except in a few bright spots, such as Spain and Ireland.

Terrorism is active on Europe’s shores, with major atrocities in Paris and Brussels in the last several months and the European transport and tourism infrastructure a key target for bombings and attacks, including the targeting of planes, airports and trains. Such attacks have an immediate impact on tourism, with short, sharp declines felt in the aftermath, with France, for example, witnessing a countrywide decline of 8% in arrivals in January 2016 following the 13 November attacks in the city, according to UNWTO.

Europe is no stranger to terrorism, having experienced national terrorist groups, such as the IRA and ETA over the decades; however, the Paris attacks perpetrated by IS revealed the indiscriminate nature of this new form of terrorism that aims to destroy the very heart of European values, such as freedom and culture.

Adding to the sense of uncertainty and political confusion is the migrant and refugee crisis, where Southern Europe is the first port of call for those seeking to flee war and economic hardship from North Africa and the Middle East. The exodus from south to north has prompted the selective closure of some country borders within the Schengen zone in response to the strain faced in processing and dealing with the safe passage of migrants.

With the Schengen zone – held up as the bastion of free trade and borderless travel – under pressure due to heightened concerns about safety and security, the foundations that the European Union is built on are beginning to crumble. With the UK on the cusp of a ‘remain or leave’ vote to the stay in the EU and what a potential Brexit could unleash for Europe, the stakes for the region have never appeared higher.

Crisis, What Crisis?

Yet, when you take a close look at tourism statistics for Europe, the travel industry just keeps on growing and growing; arrivals are up, tourists are spending more, and most destinations and travel operators are content in their growth mind-set, thanks to continuous tourism demand, with destinations like Barcelona even struggling with excessive demand. We may ask if we are living in a parallel universe to those landing on Europe’s shores seeking refuge.

According to the latest UNWTO Barometer, arrivals to Europe (including all sub-regions) have grown by 4.2% year-to-date in 2016, which is marginally slower than the 4.6% increase seen in the previous year, with receipts tracking volumes at 4.7% in 2015. Europe is the world’s largest region for international tourism demand, a highly mature market where there is strong price pressure, exacerbated by sluggish economic fundamentals and stifled income levels for its 500 million inhabitants that make up the majority of the region’s inbound arrivals.

Research from Euromonitor International into travel product categories in Western Europe reveals that the strongest performing areas are short-term rentals (no surprises there), bus transport and low-cost carriers, which is a strong indication that value for money continues to be paramount. All offline categories exhibited negative or negligible growth over 2011-2015, whilst online performed well, with double-digit growth of 18% for mobile sales and in-destination activities, with 14% growth forecast for 2015-2020 in constant U.S.$ terms.

Such resilience stems from Europe’s intra-regional market, strong demand from key markets like the U.S. and a rise from emerging markets like China, although growth in China outbound is expected to tail off from 10% in 2015 to a forecast 6% in 2016.

Forecast Key Categories Performance in Western Europe: % CAGR 2015-2020 in Constant US$

CategoryValue % CAGR 2015-2020
Short-term rentals4.6
Bus4.4
Low-cost carriers4.2
Cruise4.1
Spas2.5
Medical tourism2.2
Museums2.1
Luxury hotels1.9
Airlines1.8
Other transport1.7

Source: Euromonitor International
Note: Provisional data subject to revision before publication of Travel 2016

Playing out in Destination

It cannot be said that tourism is a zero-sum game, but it is true, to an extent, that when one destination suffers, whether at the hands of pandemics, terrorism or natural disaster, other competing countries will pick up the slack, along with domestic tourism benefiting from the shift.

Turkey, as a destination, is experiencing a sustained decline in demand, with year-to-date 2016 negative growth of 10%, following increased frequency of terrorist attacks in Istanbul and other cities/resorts, as well as it sharing a border with Syria, housing thousands of refugees and being one of the key exit points for refugees sailing into Europe. While Greece survived its first Grexit scare, it is now suffering from increased media attention on the migrant and refugee crisis, which is primarily affecting its islands, with growth dropping from double digits in 2014, 7% in 2015, falling into a decline in 2016. When demand falls, capacity follows suit.

Fear Factor

In response to falling demand for Turkey, Greece and further afield, with Egypt and Tunisia being out of bounds because of the fear factor, European tour operators have refocused their attention and capacity on destinations like Spain. Arrivals to the country have grown by 14% so far in 2016 which has been a stand-out winner of capacity shifts towards sun and sea.

The substitution effect is noticeable for perceived safer destinations around the Med, including Croatia, Cyprus, Portugal and Malta, which are all experiencing double-digit growth, with Germany and the Netherlands also performing above average. Not to mention the rise of long-haul destinations that rank high in terms of perceived safety such as the Caribbean.

Winners and Losers – Select European Destinations vs Competitors: % Growth in Arrivals Over 2015-2016

% Volume Growth 2015% Volume 2016 YTD
Winners
Spain513.9
Croatia917
Portugal9.715
Losers
France0.9-8
Turkey3.4-9.9
Greece7-11
Egypt-5-46
Tunisia-25-18.7

Source: Euromonitor International from UNWTO

Security Front of Mind

Safety and security are very much front of mind and dominate many a travel conference. The World Economic Forum reports that security is a critical factor in a country’s attractiveness and competitive positioning. The Global Peace Index is a useful indicator of peace and stability, with Iceland, Denmark and Austria ranked top in 2015, while the WEF listed Switzerland, Austria, Luxembourg and Portugal amongst the highest in Europe for safety and security, based on an assessment of levels of crime, violence and terrorism, along with police response times. We may see destinations increasingly promote their “safety record” in the future.

Turkey on Tap

In every crisis, there is an opportunity. Following the deal between Turkey and the EU to help curb the migration crisis, Turkish residents are on the verge of receiving visa-free travel to the EU. This visa liberalisation opens up a huge new source market, waiting to be targeted by travel brands with Turkey outbound representing almost nine million trips in 2015, and the EU already accounting for almost half of all Turkish outbound trips. Popular outbound destinations include Greece, Bulgaria and Germany.

Turkey is not becoming an EU member, despite the scaremongering by right wing press; however, it is useful to look at the uplift that countries like Romania and Bulgaria enjoyed when their visa restrictions were eased during EU enlargement in 2003/2004, before their official membership in 2007. Average outbound growth for both nations was 18% following the easing of travel restrictions and citizens were able to explore Europe more freely. It is likely that Turkey outbound travel will experience a similar boost of over 10% in the year following visa-free travel being implemented.

With a new source of demand on tap, the next step is for European destinations to understand Turkish travellers better in terms of preferences and spending patterns, where domestic spending is higher than international spend by Turkish residents. Online sales are already established and continuing to grow well; however, mobile travel sales are still in their infancy.

According to Euromonitor International’s Digital Consumer research, smartphone penetration is marginally higher in Turkey than the European average, at 69% vs 66% respectively in 2015 in terms of smartphone possession by residents. Clearly, with a strong smartphone base, mobile travel sales will quickly reach a breakthrough point over the next few years.

Turkey Select Travel Categories: Value Sales 2015 and % Growth 2010/2015

Categories2015% Value Growth 2010/2015
Domestic expenditure10,20815
Outbound expenditure5,2879
Airlines10,3340
Online travel sales to residents7,22942
Mobile travel sales to residents321n/a

Bumpy Ride Ahead

The short-term future for the Euro Zone looks fairly tumultuous, with the UK’s Brexit vote merely a month away, which is stoking uncertainty. Euromonitor International forecasts a 3-6% probability of a sovereign debt crisis in Spain and Italy and a 6-10% probability of a full-blown European recession (again) over the coming year, with both scenarios involving the exit of Greece from the Euro Zone. The biggest downside risk is a stagnation scenario, where output stagnates and the zone falls into recession in 2017.

Euromonitor International is a leading provider of global strategic intelligence on consumer markets, with offices in London, Chicago, Singapore, Shanghai, Vilnius, Santiago, Dubai, Cape Town, Sao Paulo, Tokyo, Sydney and Bangalore and a network of 800 in-country analysts worldwide. Euromonitor International’s analysis of the global travel industry covers a wide range of categories, including tourist flows and expenditure, lodging, transportation, car rental, cruise, tourist activities, travel intermediaries, online and mobile travel.

Photo Credit: Two sets of tourists using selfie sticks at the Acropolis in Athens, Greece. Skift