UniCredit Bank Austria industry report on the tourism sector:
Tourism cools in autumn 2022
- Tourism industry seeing slowdown since July following strong revival in H1 2022
- Sector will not offset record decline of last two years before 2023; revenue for 2021 sat 45% below 2019 levels at EUR 16.4 billion
- Positive trend: Austria becoming more competitive as tourist destination following good recovery in domestic tourism and strong focus on environmental factors from holidaymakers
- Tourism in Austria also seeing above-average growth in accommodation prices compared to rest of Europe due to improved quality of facilities
Tourism was one of the hardest-hit industries during the pandemic. Revenue has fallen to 45% below pre-crisis levels in Austria over the past two years. The losses were recouped by midway through 2022 thanks firstly to significant pent-up demand for holidays and secondly to the competitive strength of domestic tourism. Since July, however, growth in demand for tourism has been tailing off again. "We don't expect domestic tourism to fully counteract the slump caused by the pandemic until 2023. The sharp rise in food and energy prices has increased travel and living costs for potential visitors, which has affected the feasibility of travel", says Bank Austria Economist Günter Wolf.
Tourism crisis largely overcome in 2022; recovery expected in 2023
Demand for tourism has recovered rapidly since February 2022 as COVID-19-related travel restrictions have been gradually lifted. In the winter season just gone, the number of visitors arriving in Austria returned to two-thirds of the level seen in the 2019 season, with revenue reaching 82% of the pre-pandemic figure. At the start of the summer season it seemed clear that there was still a strong desire to travel, especially among Austrians. In the first three months of summer from May to July 2022, the number of overnight stays was only 4% below that seen in the same period in 2019. Overnight stays of visitors from Austria and Germany have already exceeded pre-crisis levels by 5% and 2% respectively.
However, the growth in demand for tourism had already slowed significantly by July due to the increasingly worsening economic conditions, with overnight stays by Austrian visitors even falling again by 9.6% year on year. In addition, many travellers from overseas markets have yet to return. Compared to the 2019 figures, overnight stays in Austria for the first three months of the 2022 summer season were down 22% for North American visitors and 96% for those from China.
The performance of the tourism industry for the remainder of 2022 is expected to be significantly affected by the war in Ukraine and high inflation. The rising costs of energy and food are putting the brakes not only on long-distance travel but also on demand from nearby markets, primarily because high fuel prices are making car travel more expensive. Furthermore, the higher cost of living is reducing people's disposable income and consequently the feasibility of travel, especially among visitors in the lower-income brackets. In July and August, assessments of the financial situation of consumers over the next 12 months fell to their lowest level since the survey began in the mid-1990s, both in Austria and in Western Europe as a whole.
The business expectations of companies in the Austrian hospitality and catering industries have also become much more pessimistic since July, likewise indicating that the tourism sector will see a cooldown in the coming months. In the most recent survey in August, companies reported that they expect demand over the next few months to be weaker on balance than it was during the partial lockdown at the beginning of the year.
Revenue from travel, which at EUR 16.4 billion in 2021 was 45% below the figure for 2019, should increase considerably for 2022 as a whole. However, as growth in H2 is weakening, even against the backdrop of the above-average success of the 2021 summer season, revenue from tourism will not return to pre-crisis levels until 2023.
Competitive advantages for Austria as a tourist destination
The restrictions that potential travellers experienced during the pandemic have given Austria extra competitive advantages as a tourist destination. Around the world, tourism is recovering from pandemic-induced losses increasingly through domestic travel and the trend towards travelling to areas that are close to nature. Austria is no exception: Overnights stays in destinations outside the big cities had already returned to pre-crisis levels by the first half of the summer season, while overnight stays in cities were still 14% lower.
The long-term growth of the tourism sector is becoming increasingly dependent on a destination's ability to manage environmental threats. According to the latest Global Risk Report from the World Economic Forum (WEF), five of the ten most critical threats to the world are environmental. These focus mainly on climate action failure, extreme weather events and the loss of a region's biodiversity. In this context, the high quality of Austria's natural resources makes the country more competitive than most, with its environmental conditions having long been among the best in Europe. This is a significant factor in Austria's excellent ranking as 11th out of 117 global destinations on the WEF Travel & Tourism Development Index.
Higher-quality facilities drive above-average price increases in accommodation sector
Austria's impressive ranking in the WEF Travel & Tourism Development Index is based not only on its excellent healthcare and good environmental conditions but also on the high quality of its tourist infrastructure. This is the result of extensive restructuring of the country's tourism facilities, which in turn has ensured a continuous increase in revenue. The number of accommodation establishments has fallen by one third since the peak achieved in the 1970s. This equates to 34,000 units, most of which were private lodgings. In the commercial segment, over the long term it has been primarily one-, two- and three-star establishments that have closed, been upgraded to meet the requirements for a higher category or converted into holiday apartments. This improvement in the quality of the facilities on offer has resulted in more guests and greater bed occupancy. Furthermore, beds have been sold at higher prices, which is reflected in the fact that the nominal revenue per night has increased more or less exponentially over the last four decades (up to EUR 206 in 2021).
Nonetheless, revenue growth has lost momentum compared to overnight stays since 2008 as demand for tourism has shifted increasingly towards cheaper deals, especially for holiday apartments. In nominal terms, Austria's tourism revenue has risen by an average of 1.3% per night since 2008, compared with 2.9% in the ten years before. The crucial point for individual establishments, however, is that guests have spent less on average and have been being more frugal while on holiday: Revenue per guest fell by 0.3% between 2008 and 2019. The results from 2020 and 2021, when revenue per guest rose sharply, are distorted owing to how the demand for tourism changed dramatically.
The shift in demand towards simpler accommodation is ultimately also reflected in the figures for establishments with higher star ratings. The rise in the cost of accommodation in Austria has been above average by comparison with the rest of Europe: Between 2008 and 2021 consumer prices for accommodation services rose by an average of 2.6% per year in Austria, but by only 1.7% in the eurozone as a whole. Despite this background, the profit margins of three-, four- and five-star establishments in the Austrian hotel and tourism businesses that were included in the sample bank did not improve significantly until 2019. "The weak financial performance of higher-rated establishments despite rising occupancy rates suggests that accommodation in higher-end segments in Austria has been sold too cheaply in some cases. This is also indicated by the WEF Travel & Tourism Development Index, which shows that hotel prices in Austria were the cheapest in Western Europe in 2019", concludes Wolf.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;
Email: guenter.wolf@unicreditgroup.at