How Europe
Came Back
from the Brink

Skift Forum Europe 2018

Our second Skift Forum Europe, held this year in Berlin, focused on the trends that are shaping travel in Europe and the rest of the world.

In conjunction with the event, we released a magazine exploring how Europe roared back from the precipice after a difficult 2016. Despite it all — terror attacks, Brexit-related uncertainty, and nationalist political rhetoric across the continent — Europe saw tourism arrivals jump 8 percent in 2017.

Read on for insight into how Europe is moving forward, what that means to various sectors of travel, and which destinations are making the biggest gains.

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Executives Weigh In on European Performance

From new design concepts to booking trends, CEOs and CFOs point to the upsides and challenges in their European operations.

Keith Barr, CEO, InterContinental Hotels Group
February 20, 2017

“Our high-impact public space design, Open Lobby, is in 70 European [Holiday Inn] hotels with almost 80 percent of the [real] estate across the region already committed to the upgrade. And the response from guests has been very positive, with a 7 point uplift in guest load and a 15 percent increase in food and beverage profit in pilot hotels.”

David Bernstein, CFO, Carnival Corp.
December 19, 2017

“Remember that our Costa brand, their focus is on Southern Europe: Italy, France and Spain. We don’t go into details by brand. But a number of times, we’ve talked about seeing an improving economy in the southern part of Europe. For a long time, we had talked about it bouncing along the bottom, but we have started to see some improvement.”

Jason Liberty, CFO, Royal Caribbean Cruises
January 24, 2018

“I’ll finish with a few comments on booking trends for the upcoming European season. Demand for both Mediterranean and Northern Europe sailings has consistently surpassed our expectations, with all key source markets booked nicely ahead of last year in both rate and volume.”

Mark Okerstrom, CEO, Expedia Group
February 8, 2018

“International growth is faster than domestic growth. Europe has generally started to be a bright spot for us; [we have] particular strength in Greece and Turkey, which had gone through some tough times, and they are back to full strength.”

Chris Nassetta, CEO, Hilton Worldwide
February 14, 2018

“Our estimation is there — between Europe and APAC, well, they will be both better than what we think the U.S. will deliver. They won’t be quite as robust. They’re still going to be really good.”

Daniel Finnegan, Then-CFO, Booking Holdings
February 27, 2018

“The ADRs [Average Daily Rates] and occupancy rates continue to be strong. We feel like the travel market is in good shape. [On] currencies, I think the euro strengthening could help us with European travel to the U.S. And it certainly creates a nice positive impact on our results expressed in dollars.”

European Tourism Takes a Step Forward (and back from the brink)

Europe shocked the tourism world with an 8 percent increase in tourism arrivals during 2017

The top line growth is extra impressive when you consider just how difficult a year Europe had. Terrorist attacks, the continued fallout from the UK’s Brexit vote, and a series of key elections all had the power to destabilize a tourism industry that had suffered a lackluster performance during the previous year.

Indeed, in our 2017 list of Megatrends, we said Europe faced a year of reckoning and while the last 12 months were indeed challenging, the continent seems to have come through relatively unscathed.

The UK’s impending departure from the European Union is likely to dominate discussions but we should remember that it is one of 28 member states.

Although it might be the second biggest economy behind Germany, it only represents 16 percent of total GDP. Moreover, the UK economy is expected to grow at a slower rate than the rest of the EU.

And while the UK’s departure is certainly a blow, it does give the rest of the bloc an opportunity to remodel and refocus.

Smaller Nations Step Up

Some of the spotlight may fall on the smaller nations of Eastern Europe, which are starting to outshine the traditional powerhouses of Germany and France.

Nine central and eastern European countries — including Romania, Slovenia, and Poland — are among the 12 fastest growing countries in the EU. Things are going great economically but a number of these countries are proving politically problematic. Hungary’s strongman Viktor Orbán has clashed with politicians in the west over immigration and Poland is also testing the EU’s patience on the subject of judicial independence. Whether the EU can deal with such a challenge will be a test of its mandate.

It is not just the economies in these countries that are growing; visitor numbers are continuing to improve. In 2003, according to Euromonitor, Croatia, Poland, and Romania had less than 25 million inbound arrivals; by 2022 the number will be more than 45 million.

All three of these countries have joined the European Union since the turn of the millennium and all three are experiencing the benefits of being part of a larger economic and political union.

The Old Guard Adapts

It is not just this “new Europe” that is booming — at least regarding tourism. Parts of the old guard are showing there is still room for improvement.

In 2017 Spain broke records again and enjoyed its fifth successive year of tourism growth. A rise of 8.9 percent took the total number of arrivals to 82 million, taking it above the U.S. into second place in the global league table just behind France.

What is remarkable is that this rise came despite a number of challenges. The terrorist attacks in and around Barcelona in August as well as the Catalan secession may still dampen demand this year but tourists are still happy to travel to Spain. Of course, the country has been one of the main beneficiaries of the geopolitical issues in previously popular Middle East and North African destinations, most of which appear to be turning a corner. Might this slow down growth in the future? Perhaps.

One other thing to consider is the growing impact of overtourism in places such as Barcelona and the Balearic Islands. While it may only be a small number of people at this stage, the issue isn’t going away and was a prominent part of the program at this year’s ITB-Berlin gathering. The issue isn’t really about locals versus tourists; it’s about cities and the need to better manage the flow of people.

Overtourism and Innovation

The situation isn’t obviously helped by Airbnb and the phenomenal rise of alternative accommodation. One in six EU citizens used online peer-to-peer accommodation services in 2017. Cities like Paris, Barcelona, and London are among the most popular on Airbnb and all three have employed some form of regulation to control the market.

It won’t be the only issue keeping Airbnb executives up at night. The European Commission, the executive branch of the EU, said last year it would look into the tax issues surrounding the sharing economy. France might be Airbnb’s second largest market but in 2016 it paid just $123,000 in tax.

The European Commission has a history of going after multi-nationals, which it believes are not paying enough tax or indulging in anticompetitive practices. Swashbuckling Competition Commissioner Margrethe Vestager has taken on the likes of Google and Amazon in the past few years, putting the EU at the forefront of the battle between authorities and tech companies.

This position looks unshakeable. The EU has always seen itself as a consumer champion; its policies over the years have greatly benefited the traveling public. Chief among those is probably the liberalization of the European airline industry. Tearing down borders and creating one big market led to the rise of low-cost carriers such as EasyJet and Ryanair, both of which have helped to drive down the cost of tickets.

The Aviation Challenge

Of course, the legacy flag carriers stayed in denial for a very long time and were slow to adapt. Their costs were generally much higher and the only way to bring them down has been through a series of mergers. The three carrier groups — Air France-KLM, Lufthansa, and British Airways and Iberia owner IAG — are now in a much stronger position then they were a decade ago. For some airline CEOs, like IAG’s Willie Walsh, there are still too many airlines and last year we saw the collapse of three. Monarch and Air Berlin are no longer flying, while Alitalia remains on life support. We should expect further consolidation over the coming year especially if the price of fuel rises.

The airline industry and access to the European market is still one of the biggest unresolved issues of Brexit. The two sides will probably thrash out a deal between now and 2019 when the UK formally leaves but it is unlikely to be as attractive as it is now — and that is one of the saddest things about the whole situation.

For years UK politicians blamed all manner of ills (some admittedly justif iably) on EU bureaucrats, resulting in a huge disconnect between perception and reality. Far from being a rule taker, the UK was an active participant in the organization and helped spearhead many of the consumer-friendly changes.

Prime Minister Theresa May is keen to talk up the UK’s global ambitions post-Brexit but the world is a very different place to when the UK joined in 1973. The U.S. under a nationalist like Donald Trump is unlikely to act as a savior.

Instead the UK will find itself alone and isolated with only itself to blame. Meanwhile, the EU should use the UK’s departure to trigger much needed reforms to help create a new Europe.

European Meetings Destinations Capitalize on Travel Boom
Business travel has surged across Europe in recent years, leading to innovation and competition among the continent’s destinations for meeting and events business.

Paris, Vienna, Barcelona, Berlin, and London are the most popular destinations for European association events, and the combined whole of Europe completely outpaces the United States when it comes to the total number of meetings held each year.

The proliferation of lost-cost airline options, along with the ability of European citizens to travel freely between member states of the Eurozone, has brought into focus a new era for the European meetings industry. Secondary cities, like Hamburg or Manchester, are holding giant meetings drawing visitors f rom across Europe and the world. Lower costs in Eastern Europe, as well, are making countries like Croatia more attractive for conferences that would usually hit Berlin or Paris.

A wide resurgence of economic growth in the areas of construction, pharmaceutical industry, and information technology spending has touched off extreme growth in the number of events across the continent, even in countries whose growth had been slowed by years of austerity policies.

Cities across Europe are working to improve their convention centers and meetings spaces in order to stand out among increased competition. As businesspeople from China and other Asian nations travel outward, as well, Europe is a more likely landing spot for meetings than the U.S. due to shorter flight times and proximity to the Middle East and Africa.

There’s also the reality that concerns about travel to the U.S. have helped fuel increased meetings activity in Europe over the last year; while international meetings attendees in the U.S. haven’t decreased precipitously, more high-spending Europeans are likely attending events in the Eurozone instead.

In a boom time for European events, destinations are doing everything they can to stand out.

The Blockchain Buzzword
Travel is full of intermediaries. Expedia, Sabre, Ctrip, and Skyscanner all connect one type of business — think airlines or hotels — with the consumer. But what if they were no longer needed? What if a technological development rendered them redundant? Blockchain technology has the potential to be that game changer.

Potential is the key thing to remember. Despite the hype surrounding bitcoin and other cryptocurrencies — all of which utilize blockchain — its use is still limited and the problem at the moment is charlatans and snake-oil salesmen have hijacked the term, prompting something of a backlash.

The idea behind blockchain is fairly simple: moving from a centralized system to a decentralized one where there are no information gatekeepers and all computers participating in the shared network can access the database. Plenty of people think the travel industry is ripe for this new type of disruption.

One of the big debates within the blockchain community is about the value of private versus public. There is a strand of libertarianism that underpins blockchain, the need to free information from the power of governments or corporations. The problem is big businesses have decided they can harness the power of blockchain for themselves, and in travel, there have been a number of early movers.

Tourism company TUI Group, which includes airlines, cruise companies, and tour operators, has dipped its toe in the water with a private blockchain for its hotel portfolio.

Meanwhile, B2B player travel technology provider Amadeus is doing its own exploratory work. Decius Valmorbida, the firm’s senior vice president of travel channels, sees blockchain as “more a technology that we can use rather than something that will replace what we do.”

This is where the tension is going to rise over the coming years between established players who want to use blockchain for their own needs, while maintaining control, and purists who see blockchain as the beginning of a new era.

North American Cruisers Make an Enthusiastic Return to Europe
The news about Europe, at least from the world’s largest cruise operators, was glum in 2016. After terror attacks in Paris, Brussels, Nice, and Istanbul, North Americans didn’t have the same appetite to fly across the ocean and cruise around the Mediterranean.

“A lot of people who were planning to go to Europe are going to the Caribbean and Alaska,” Michael Bayley, president and CEO of Royal Caribbean International, said that May.

Plenty of people were still cruising in Europe. But many of those passengers were from Europe, and operators based in the U.S. complained that they didn't pay top dollar for their trips or spend as much on board. While travelers weren’t necessarily canceling trips already scheduled, new bookings for future trips in the region were more difficult to lock down.

“There’s been no healing process in this environment because it’s one after the other after the other after the other,” said Norwegian Cruise Line Holdings President and CEO Frank Del Rio in August 2016. “When will it stop? Anyone’s guess. We’re assuming that whatever environment we have today continues into the booking period into 2017.”

Cruise lines trimmed their capacity for the Mediterranean, driving down the total number of passengers who could take a cruise there in 2017. But North Americans were eager to take the voyages that were available — especially in Northern Europe — and to start booking future trips again, with cruise executives reporting higher occupancy, prices, and future demand. Improving economies, stable air travel prices, fewer security incidents, and pent-up demand were all factors driving the improvement in Europe.

The desire for European cruises was still robust as 2018 kicked off. As Bayley said recently: "It came back last year; it's looking good this year."

In February, Del Rio, whose company owns Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises, called the shift in demand for Europe trips "unprecedented."

"The strength and speed of this turnaround was faster than anticipated, taking only one year for European itinerary pricing to recover and surpass 2015 prior peak levels," he said during a call with analysts.

A Travel Leaders Group survey released in March showed that 41 percent of respondents who book Mediterranean cruises said they had seen an increase in those itineraries compared to the previous year.

Conversation during recent earnings calls has turned to higher-yielding parts of the Eastern Mediterranean that cruise lines have avoided in recent years, including Turkey.

"We would love to have them back," said Arnold Donald, president and CEO of Carnival Corp., which owns nine North American and European cruise brands. "At this point in time, we just have to monitor and see what happens. The world is a volatile and ever-changing place, and in the end we take guests where they are willing to go and they want to go. We are cautiously optimistic, but don’t feel comfortable predicting at this point."

Spain’s Tourism Success Continues Despite Roadblocks
Spain overtook the United States at the second-most visited destination in 2017, coming in behind only France, despite one of the most tumultuous sociopolitical years that has touched the country since the fall of Franco’s regime.

It was the fifth straight year that international arrivals — which rose 8.9 percent year-over-year to reach 82 million — broke all previously standing records.

Catalonia remains Spain’s most-visited region despite a late August 2017 terrorist attack that left 16 dead and 100 injured at Barcelona’s most famous tourist destination, the sprawling and perpetually crowded Las Ramblas. This was followed in October with weeks of traffic-stopping protest, police violence, and cacophonous cassoladas as Catalan separatists (illegally) declared independence from Spain.

As the city’s largest banks and businesses began relocating to Madrid, the economy marched on in Catalonia and beyond with tourist spend growing 12.4 percent year-on-year to reach another new record.

Tourists arriving in search of vino tinto and sunshine made Spain the second most profitable destination in terms of total foreign tourist spend in 2016 with a total contribution of 158.9 billion euros and 862,000 jobs — both of which were expected to continue growing in 2017. Tourism accounts for 11 percent of the economy in Spain.

Proof of Spain’s growing appeal with a new generation of travelers can be found on social media. Barcelona is the third most photographed European city on Instagram with 34.9 million images, coming in behind only London and Paris, according to recent analysis by Hertz.

The Catalans’ combat for independence has become fodder for interesting dinner conversation but has not (yet) impacted tourists’ idyllic perception of Spain.

The country is proving that sociopolitical and economic troubles won’t necessarily deter visitors as long as the destination’s reputation for perennial sunshine, world- renowned culture, delicious food — and most importantly safety — remains.

European Airlines and the New Normal
Ideally, European airlines might have preferred Emirates Airline, Etihad Airways, and Qatar Airways never encroached on their airports. The big legacy airlines could have continued to generate big profits transporting passengers from Europe to the Middle East, India, Asia, and Africa.

The market has shifted, though, and barring a complete failure of the Gulf trio, the major European airline companies — International Airlines Group, Air France-KLM, and Lufthansa Group — probably won’t regain that traffic. But for the most part, they have accepted the new normal. And unlike their U.S. counterparts, European airlines have learned to coexist with Emirates, Etihad, and Qatar.

Part of the reason is financial. Qatar Airways owns 20 percent of IAG, and British Airways and Qatar have a joint business agreement, sharing revenue and cooperating on schedules and pricing on many long-haul routes. U.S. airlines have no similar ties with Gulf carriers, and recently American Airlines executives reacted angrily after learning Qatar wanted to buy some of its stock. Eventually, Qatar decided not to buy a stake.

The other European airlines don’t have such close connections with Gulf carriers. But last year, Lufthansa and Etihad agreed to a $100 million global catering agreement and a memorandum of understanding to cooperate on aircraft maintenance, repair, and overhaul.

There are other factors, too. The Gulf carriers are strong in Europe, but they have sometimes failed when straying from their core business. Etihad had a massive flop when it invested in Air Berlin and Alitalia, pumping cash into both airlines until walking away in 2017. Indirectly, Etihad’s struggles helped Europe’s leading airlines, allowing them to compete against weakened competitors in Berlin and Rome, rather than EasyJet or Ryanair.

European airlines also have less concern about Gulf carriers for another reason — they’re not as irritated about f ifth-f reedom flights. U.S. carriers have been annoyed when Emirates begins new U.S.-European nonstops, such as Athens to Newark, which they’re permitted to fly under Open Skies agreements.

European carriers may not love the routes either, but they’re a bigger threat to U.S. airlines, who usually defend hubs, such as United’s in Newark, at all costs. The Gulf carriers haven’t launched transatlantic flights f rom London, Paris, Amsterdam, Munich, or Frankfurt, and they probably won’t, insulating European airlines from some of this drama.

European Tourism Growth Moves East
The geographic locus of tourism in Europe continues to move eastward. Research conducted by European Cities Marketing, a nonprofit of tourist boards and city-marketing groups across Europe, shows both Prague and Budapest are now among the top 10 cities in Europe in terms of total bed nights by international visitors. Indeed, by this measure, the Czech capital, which first appeared on international tourism surveys only a generation ago, has leapt to being the continent’s fourth-most-visited destination (behind London, Paris, and Rome).

There are a number of factors that account for the growing popularity of places like Prague and Budapest, but probably one that doesn’t get its due is membership in the European Union. It’s hard to quantify all the ways that EU membership has juiced visitor numbers, but one need look no further than opening up borders, smoothing out international airline, booking, and banking transactions, and stabilizing currencies.

It’s perhaps ironic, then, that some of the countries that have benef itted the most f rom the growing tourism numbers – including Hungary, Poland, and the Czech Republic – in recent years have also become the most xenophobic in their own domestic politics. Regional leaders, such as Hungarian Prime Minister Viktor Orbán or Czech President Miloš Zeman, regularly rail against the EU and demonize what they consider to be the many negative outside influences EU membership has brought – though they normally stop short of criticizing the tourism industry directly.

It’s unlikely the recent political direction these countries have taken will have a direct impact on tourism numbers – at least in the short term. Visitors continue to stumble through the “old towns” of Prague and Krakow, or sail through Budapest on the Danube, with nary a thought for the countries’ governments. But that could change. Poland’s decision in February to, in effect, censor discussion of the Holocaust generated heaps of bad publicity.

And there’s now a lot more at stake. Tourism in cities like Prague, for example, now accounts for at least one in 10 jobs in the city.

Total Nights Spent At Tourist Accommodations

European Tourism Had One of Its Best Years While U.S. Had One of Its Worst

Europe’s 2017 tourism story is nearly the opposite of its 2016 downward twists and turns. It wasn’t a perfect year and some destinations on the continent are still struggling, but it’s also a sign that many Europeans are choosing to travel closer to home to stick to their budgets.

Homesharing European-Style

Residents of the Czech Republic (1 percent) and the United Kingdom (34 percent) were polar opposites when it came to their homesharing habits in 2017. Here’s the country-by-country breakdown.

European Travel Startup Funding Leaders by Country 2017

The Foreign Exchange Tourism Bump

Exchange rates are notoriously difficult to forecast but always top-of-mind for travel. Over the last two years, as much as two-thirds of the 18 percent growth in U.S. arrivals to the UK could have been due to foreign exchange (FX). In Germany, 30 percent of the change in UK inbound arrivals may have been FX-related.

FX can meddle with corporates as well. Trivago, headquartered in Germany, books its profits in euros but makes 38 percent of its sales in dollars. When the dollar weakened in late 2017, those sales were suddenly worth less in euro terms. We estimate that FX was a 6 percent headwind to Trivago’s sales in the fourth quarter of 2017.

Meanwhile, is headquartered in the Netherlands with a parent, Booking Holdings, incorporated in the U.S. It makes sales in euros that it books in dollars, and so the same FX swing worked in reverse, boosting fourth-quarter sales growth by 5 percent.

Think about that: The two companies are practically neighbors, and saw a similar percentage point impact from FX, but in exact opposite directions. The euro fell to a decade–low in recent years but has since been climbing back to average levels. Further strength could create a headwind to both European tourist arrivals and corporates.