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.