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Grexit or Not: The Future of the Greek Travel Industry, In or Out of the Eurozone

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Greece’s future in the Eurozone is on a knife-edge. Recent developments seem to secure Greece’s position in the Eurozone, but the future remains extremely uncertain. This uncertainty, combined with other volatility like the tragic events in Tunisia, greatly impacts the travel industry. According to the World Travel and Tourism Council (WTTC), the wider tourism industry in Greece accounted for 17.3% of GDP in 2014, meaning that any impact on the tourism industry will have a significant impact on the wider economy of Greece.

Here, I will discuss two scenarios for the short to mid-term future of tourism in Greece, taking into account the correlation between GDP and arrivals performance, and the benefits of the “should I stay or should I go now” options. Future scenarios of the Greek economic outlook by Euromonitor International’s Economies team provides a useful framework to assess the different possible outcomes for tourism demand.

History repeats itself

Greece has been in a similar situation before. The global economic crisis which started in 2008, and the Eurozone crisis in 2011/2012, when the country was close to defaulting on its repayments and an exit from the Eurozone, provide an insight into the possible future impact of the current Greek situation on the travel industry.  Italy and Spain had similar problems in 2008 and 2012, and inbound arrivals suffered in all three countries.

As the economic crisis first hit in 2008, Greece registered a decline in inbound arrivals of 5% in 2009. After a few years of growth and recovery, the uncertainty in 2012 again resulted in a 5% inbound decline. The reason for this is mainly found in the simultaneous weak economic performance of key source markets to Greece, including Germany, the UK, France, and Italy.

In between the strong declines, Greece also showed some strong increases in inbound arrivals. The Arab Spring, which started at the end of 2010 and took place in key holiday destinations like Tunisia and Egypt, resulted in strong growth of arrivals to Greece. This shows that while tourism is impacted significantly by GDP declines, political unrest and geopolitical forces, tourists are also increasingly resilient, so one country’s loss could mean another country’s gain.

Inbound Arrivals: Growth for Key Eurozone Crisis Countries 2008-2014


Source: Euromonitor International

Best and worst case scenario for Greek tourism

At present, Greece is set to remain a member of the Eurozone following intense negotiations with its creditors that went down to the wire, which is expected to be the best case scenario for Greece’s travel industry. In this case it is expected that GDP contraction will be limited in the coming years, but also that further austerity measures will be demanded from other Eurozone members. Support from the EU is expected to result in slow but controlled GDP growth after a few years of decline.

A worst case scenario would be if Greece were to exit the Eurozone after all. In this case, the country is expected to revert back to the drachma, but this would be a slow process. It is expected to throw the country into a deep recession as the drachma devalues by up to 50%. GDP would contract sharply and a complete collapse of the banking system would probably follow. Political unrest, protests and monetary worries would put Greece in a negative spotlight, even if most tourist islands were to remain free of the protests likely to characterise mainland Greece. With a successful and total conversion to the drachma expected to take up to two or three years, uncertainty may keep GDP growth negative until as late as 2018.

Greece % GDP Growth: Best and Worst Case Scenarios 2014-2019


Source: Euromonitor International

Demand suffers from instability

In the best case scenario, arrivals would fall short of the impressive growth of 22% registered in 2014, but are expected to show some slight growth, as the country stands to benefit from a travel warning for Tunisia, and from travellers looking to benefit from travel deals to Greece due to increased price competition. Increased stability will benefit the other Eurozone countries’ economies as well, which in turn will benefit inbound arrivals to Greece, with Germany the main source market for the country. From 2016, the situation will remain uncertain, but demand will start an upward trend which is expected to continue.

In the worst case scenario, the decline in arrivals is expected to be 12% in 2015 and 4% in 2016, meaning the country needs to re-establish its competitive positioning once the unrest and extreme deflation ease. It is expected that countries in Europe, like Spain, Italy, Turkey, Croatia and Bulgaria, could benefit from Greece’s situation in the short term. A vastly deflated currency under the drachma, however, would make Greece a very competitive destination. This will result in strong growth in 2017 and 2018. The weak economy is also expected to lead to a decline in service standards and the quality of accommodation offered. It is therefore expected that growth would be unsustainable at a 15%+ level, and start to decline in 2019.

Greece: Forecast Arrivals 2014-2019


Source: Euromonitor International

Low cost carriers set to benefit from uncertainty

The performance of airlines is closely linked to international arrivals, and expected to recover in a similar fashion to arrivals. In the best case scenario, it can be expected that airlines continue to register growth to destinations in Greece. Furthermore, stability in the Eurozone will benefit air travel throughout the monetary zone and it can be expected to register growth of 3%-5%, continuing the largely upward trend registered since 2009.

A recent report by the IATA forecasts a fall in Eurozone air passenger numbers from 6%-12% in the first year if Greece leaves the Eurozone. After 2016, however, growth is expected to be strong as Europe’s economy gets back to good health. For flights to Greece, scheduled airlines are set to suffer hardest, particularly as these airlines will be hardest hit by a drop in business travel. If Greece leaves the Eurozone, business travel is expected to plummet in 2015 and 2016, before recovering in 2017. Low cost carriers like easyJet and Ryanair are in a better position as they are able to swiftly change their routes to cut and add capacity. While 2015 will be a difficult year for low cost carriers, they will be able to add more routes to beach holiday destinations once demand improves.

SMEs suffer while private rentals boom

The hotel industry trails the economy and transport industry by at least six months, making for a very challenging two or three years for hotel owners and operators. In the best case scenario, there will be a decline of 2%-5%, with growth static by 2016; after this, growth will be positive. Due to continued austerity measures, however, experts believe that taxes will be increased. At the moment VAT rates on accommodation are 6.5%, but this is expected to go up to 13%. Particularly Small and Medium Enterprises (SMEs) will struggle to cope with this increase, putting pressure on the livelihood of small hotel owners.

In both scenarios, tourists are expected to trade down to less expensive budget hotel options as well as resorting to camping and self-catering. Occupancy rates and revenue per available room (RevPAR) will suffer heavily in the worst case scenario. While occupancy rates are expected to recover within five years, a full recovery of the RevPAR could take up to a decade. While larger players are able to survive by offering discounted rates and flash sales to increase occupancy, SMEs again are set to suffer hardest.

Dr. Ioannis S. Pantelidis, Principal Lecturer in Hospitality at the University of Brighton, UK, believes that reverting back to the Drachma could be disastrous for hospitality workers. With a rapidly deflating currency the prices of imported goods would eat away from profit margins and coupled with the possibility of decreased arrivals, hotel owners would likely enforce further pay cuts to their employees.

Both scenarios offer a major opportunity for peer-to-peer lodging to flourish. Greece’s private rental sector grew by a CAGR of 114% between 2009 and 2014, at constant 2009 prices, and with the population desperate to find alternative income, and tourists looking for cheap alternatives to hotels and resorts, private rentals are expected to grow strongly, with expected annual growth rates of 15%-35% over the coming five years.

Greek tourists opt for staycations

Greek travel intermediaries are expected to recover last in both scenarios. Greek intermediaries cater for outbound and domestic tourists and therefore country residents, who will be affected by possible austerity measures in the best case scenario and by a devaluation of the local currency in the worst case scenario.

As a result, Greek intermediaries’ sales are expected to record a decline following the trend of the country’s GDP. In the best case scenario, Greek consumers are expected to remain conservative in their spending on tourism, resulting in a modest decline (1%-2%) in value sales in 2015 and 2016. If Greece leaves the Eurozone, the weak national currency will especially hit outbound trips, resulting in a significant fall, while it will favour domestic trips. In this scenario, outbound trips are expected to see negative growth (down 5%-15% until 2017), while domestic trips could see a yearly increase between 3%-8% over the same period. As the situation stabilises after 2017, outbound trips are expected to increase, resulting in lower spending on domestic trips.

An unpredictable future

In the past year, the Greek National Tourist Office has been taking steps to become less dependent on high season travellers and to diversify away from package holidays, to encompass other types of travel, such as golf, mountaineering, and health and wellness tourism. How these efforts will impact arrivals, and whether these efforts will be successful at all with all the current developments, remains uncertain and an interesting development to be followed in the coming years.

As it stands now, the situation in Greece is changing on a minute-by-minute basis, and therefore the future is extremely unpredictable. While the two scenarios set out here are based on similar historic cases, it remains impossible to predict the exact impact of Greece staying in, or exiting, the Eurozone. These scenarios should therefore be used as indicators of future possibilities.

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