UniCredit Bank Austria analysis:
Growth in tourism sector slows in 2023
- Revenue for 2023 is set to nominally exceed the pre-crisis level of EUR 30 billion due to significant price increases
- Adjusted for price, however, the tourism sector is no longer able to keep pace with the record demand of previous years
- Demand for tourism has shifted to lower-revenue segments, and in particular holiday homes; this segment already accounts for 25% of overnight stays
- Pricing in the domestic tourism sector was just 6% above the EU average in 2022, but the sector is still losing market share
The number of overnight stays by guests from Austria and other countries during the first eight months of 2023 was down 1.5% on the 2019 figure. By contrast, revenue in the tourism sector in the first half of the year was actually back at pre-crisis levels in nominal terms, at EUR 16.2 billion – driven primarily by significant price increases. By August 2023, the prices charged by Austrian restaurants and accommodation establishments for their services were up 12.6% on the previous year.
"Through to the end of the year, consumers will be less willing to travel and less willing to spend on travel in the wake of the high cost of living and a further economic slowdown in key target markets. The sector is expected to match the 2019 record of 153 million overnight stays and even exceed the 2019 revenue of some EUR 30 billion – but once adjusted for prices, tourism revenue will be significantly below the pre-crisis level", says UniCredit Bank Austria Economist Günter Wolf.
Adjusted for price increases, tourism revenue falls below record demand
The 2023 results continue a fifteen-year trend that has seen Austria's tourism sector enjoying record demand almost continuously, with the exception of the pandemic years. Price-adjusted revenue growth has not been able to keep pace with this trend, with revenue per overnight stay actually decreasing since 2008. In nominal terms, too, tourism revenue per overnight stay rose by an average of 1.1% between 2008 and 2022, which is significantly slower than the 2.9% per year seen in the previous ten years.
What this trend shows is that the sector's efforts to offset weaker revenue growth (due primarily to shorter stays and stronger demand for holiday homes) by targeting new, less price-aware guest segments and charging higher prices have been successful only in the short term in recent years. Until 2008, revenue per overnight stay had remained more or less stable even taking into account adjustments for pricing, indicating that demand was at that point being successfully diverted to more expensive supply segments.
Demand for tourism shifts to holiday homes
The strong demand for cheaper tourism is due in part to increasingly price-aware guests who are able to access a transparent global offering online. Overall, price pressure in the sector has increased and this has fuelled the repurposing of many low-category private and commercial properties as holiday homes. Capacity during the summer season was increased by 5% to 1.1 million beds between 2008 and 2022; within this figure, there was an increase of 28% in the 4/5* segment, taking the number of beds to 282,000, and the number of beds in the holiday home segment was up 35% to 352,000. During the same period, the number of beds in private accommodation and 1/3* accommodation has fallen by 21% to 365,000.
The above-average increase in overnight stays in the holiday home segment demonstrates that supply has been successfully adapted to changing demand. Overall, overnight stays by guests in Austria rose by 0.6% per year between 2008 and 2022; the figure for 4/5* establishments was 0.9% and for holiday homes it was 3%. Extrapolated to account for the increase of 15.2% up to August, the segment will account for around 39 million or 25% of all overnight stays in 2023 as a whole.
The trend towards holiday homes is apparent in all federal states, but it was the use of platforms such as Airbnb to rent out apartments to tourists in city destinations that triggered a real boom in demand. In Vienna, where there was no significant availability of holiday home properties in 2008, some 13% of beds and 11% of overnight stays fell into this segment by 2022. Results up to July 2023 suggest that this trend is continuing and that the share of overnight stays in this segment in Vienna has risen to 13%.
Austria's tourism sector losing market share in Europe
Austria as a tourist location has lost market share both in Europe and worldwide. The proportion of international guest arrivals in the eurozone has fallen from 8.7% in 2008 to 7.7% in 2022, and the proportion of nominal revenue has fallen from 6.5% to 5.9%. The loss of market share is certainly due in part to the increase in the cost of tourism in Austria – which means that Austria has become less competitive as a destination and cannot offset that difference with improvements to quality. Tourists deciding where and how to travel are ultimately still influenced significantly by the price of the various options.
Between 2008 and 2022, the prices charged by Austrian restaurants and accommodation establishments for their services rose by an average of 3.2%; in the eurozone as a whole they rose by 2.1% per year. Despite the sharp increase in the cost of supply, pricing for domestic tourism in 2022 was still in the midrange for Europe as a whole, at just 6% above the EU average. Of all the major destinations reporting more overnight stays than Austria, tourism services last year were less expensive than in Austria only in Spain (around 20%), Greece (around 20%) and Türkiye (almost 60%).
The analysis of price trends shows that a significant portion of the price increase in the tourism sector comes from hospitality, which contributes 75% to the overall sector price level; hospitality prices have risen more rapidly than accommodation prices between 2008 and 2022, averaging 3.4% per year. Given this context and looking at the sector on average, accommodation establishments probably still have scope to implement price increases without harming their competitiveness in the longer term.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0) 5 05 05-41954
Email: guenter.wolf@unicreditgroup.at