A firm commitment to quality tourism
Growth in the number of international tourists was contained in 2019 due to the global economic situation and the recovery of rival markets in the Mediterranean. However, the tourism sector looks resilient, supported by the consumption of domestic tourism and the drive towards higher quality tourism.
In 2019, the movement of international tourists continued to grow globally, albeit at a more moderate rate than in previous years. According to estimates by the World Tourism Organization (UNWTO), international tourist arrivals grew by 3.5% in 2019, 1.9 pp less than in 2018. This trend can be seen in all regions of the world with the sole exception of the Middle East, which continues to recover after its slump in 2016.
As far as the Old Continent is concerned, the slowdown in tourism growth is estimated to be significant. Specifically, the number of international tourists choosing Europe as a destination in 2019 grew by 3.7%, in sharp contrast to the 8.6% rise observed just two years ago. The recent environment of slower global economic growth, greater uncertainty generated by Brexit and trade tensions between the US and China have been identified as the main causes of this moderation.
Looking ahead, CaixaBank Research's macroeconomic scenario does not expect the global economic slowdown to worsen. Similarly, the positive news of the past few weeks regarding developments in the main sources of uncertainty (Brexit and the trade war) suggest that international tourism in the region will continue growing at a similar pace to 2019, a considerable rate although lower than the historical average (3.8% annual growth).
International tourists globally by destination zone
Annual change (%)
Spain is no exception in terms of the growth in inbound tourism slowing down. Between January and October 2019, the number of international tourists visiting Spain totalled 74.7 million, 1.1% more than in the same period in 2018, a similar rate to the growth recorded in 2018. However, the trend throughout 2019 has been downwards: while the number of international tourists grew by 2.8% year-on-year in the first half of the year, between July and October (the latest data available) it fell by 0.7% year-on-year. Nevertheless, despite the slowdown in the second semester, we estimate the number of international tourists visiting Spain in 2019 as a whole reached 83.7 million, up by 1.1% compared to 2018.1
- 1. Historically, the months of November and December account for only 10% of the year's inbound tourism.
Despite the global slowdown in tourism, the number of international tourists visiting Spain continued to grow in 2019: up by 1.1% compared to 2018, totalling 83.7 million people
This lower growth was caused mainly by fewer tourist arriving from the United Kingdom, Germany and France, three countries that, together, produce nearly 50% of Spain's inbound tourism. According to our estimates for 2019 as a whole, the number of British tourists fell by 1.7%, while German and French tourism were down by 1.8% and 1.6% respectively. Increased competition from Turkey and Egypt, instability arising from Brexit, the collapse of the tour operator Thomas Cook at the end of September (which we will analyse at the end of this article), the slowdown in German industrial activity and the disruptions caused by protests in France all seem to lie behind this trend.
The sector diversified into less traditional markets. Tourist arrivals increased from Eastern Europe and the Americas, helping to sustain growth
Given this context, it was the tourist industry's diversification towards less traditional source markets that sustained growth. This was particularly the case of Eastern Europe, with the number of Russian tourists up by 7.4% annually, as well as the Americas, where growth in the number of US tourists reached 12.1%.
The slowdown is more noticeable when we look at the trend in overnight stays for tourism (hotel and non-hotel). Specifically, overnight stays by foreign tourists between January and October fell by 0.6% compared with the same period last year. These negative figures are partly due to the downward trend in the average duration of the trips, a phenomenon that is very widespread in Spain and a result of the shift by foreign tourists towards urban tourism, to the detriment of the traditional sun, sea and sand holidays. Urban tourism tends to have average stays close to a weekend (2.2 days, according to INE data), as opposed to the longer average stay for sun, sea and sand tourism (5.1 days)2 .
- 2. See the article «The fight for international tourism in the Mediterranean» in this report.
The drive towards higher quality supply and growth in urban tourism have helped to maintain this positive trend in tourist expenditure
Despite the fact that all the data show a marked slowdown in the growth of inbound tourism for Spain, the clear commitment by the Spanish tourism industry to increase the quality of its supply and boost urban tourism, which is much more intensive in consumption terms, are helping to maintain the positive trend in tourist expenditure. Furthermore, the fact that international tourist expenditure is growing more than the volume of tourists is very important, since it points to higher productivity by the tourism industry. Specifically, at the end of Q3 2019, the revenue generated by international tourism totalled 70.9 billion euros in cumulative terms over 12 months, 3.9% more than the same period the previous year3 . Compared with the trend in the number of international tourists (2.1% more) and overnight stays (0.2% less) during the same period, this confirms the significant gains made in productivity, as can be seen in the following chart.
- 3. Exports of tourism services contained in the Balance of Payments. Tourist expenditure with no impact on agents carrying out their economic activity in Spain is not included (expenditure at origin is excluded).
Revenue from international tourism and number of travellers
If we broaden our perspective to include resident tourists in our analysis, we can see that tourist overnight stays remained positive at the end of October 2019, growing by 0.5% year-on-year. This is due to the excellent performance by domestic demand for tourism, growing by 2.7% year-on-year up to October. In turn, expenditure by resident tourists, accounting for about 25% of the national total, has also enjoyed a positive trend. Much of 2019's growth in the tourism sector was supported by domestic tourism, reflecting its resilience to a more adverse external environment. According to our estimates, based on CaixaBank data, domestic tourism expenditure between January and October 2019 grew by a vigorous 10.6% yearon- year4 . This achievement is even more remarkable considering that all provinces recorded growth in resident tourist expenditure, as shown in the table below. The Autonomous Community contributing most to the growth in expenditure in Spain, thanks both to its positive trend and size, was Andalusia, coincidentally the region with the least positive trend in international tourism expenditure (–1.7% year-on-year between January and October 2019).
- 4. The figures for total tourist consumption by Spanish residents are obtained from data on card payments at CaixaBank POS terminals outside the usual place of expenditure for each card.
Much of 2019's growth in the tourism sector was supported by domestic tourism's excellent performance, whose tourist expenditure grew in all provinces. This demonstrates the sector's resilience to a more adverse external environment
Looking ahead to 2020, we expect Spain's inbound tourism to continue to stabilise, although more stable growth in Europe's economic activity should boost the rate of advance posted in 2019. CaixaBank Research therefore predicts inbound tourism to increase by 1.6% annually in 2020, breaking through the threshold of 85 million tourists. Visitors from outside Europe, and especially US citizens with 3.5 million tourists, are expected to be the main contributors to Spain's growth in inbound tourism. On the negative side, according to our forecasts the downward trend in the number of German tourists will continue, although its rate of decline will be less than that estimated for 2019. This would make France the second largest source of tourists visiting Spain with 13.3% of the total, ahead of Germany (13.1%).
CaixaBank Research expects Spain's inbound tourism to grow by 1.6% annually in 2020, breaking through the threshold of 85 million tourists and creating 66,000 new jobs in the sector
Spain's inbound tourism by country of origin
Thousands of tourists
This positive trend in the tourism sector is also boosting the labour market. Specifically, the tourism industry generated 1 out of every 6 jobs created between January and October 2019, growing at a rate of 3.5% year-on-year and totalling a workforce of 2.5 million employees in the sector. Nevertheless, the trend in tourism employment is slowing down slightly, in line with the more moderate growth of the Spanish economy. We expect the sector to create 66,000 new jobs in 2020 (20.7% of the job creation in Spain), implying a significant growth rate of around 2.8%, although this is slightly slower than the rate observed in previous years.
The industry continues to transform its supply towards higher quality tourism. As can be seen in the following chart, since the beginning of the millennium the supply of hotels has increased considerably with almost all this growth coming from higher category establishments (5 and 4 stars), which now account for over half the total supply (52.8%). The industry's strong focus on this transformation, resulting from significant corporate investment, has led to tourist expenditure rising faster than the number of tourists per se, with the consequent higher expenditure per visitor. It is crucial to continue this transition and improve the sector's profitability given the stabilisation in international tourist arrivals.
The sector's drive towards quality tourism has ensured that tourist expenditure will rise faster than the number of tourists
Hotel places by category
Thousands of places
It is not only supply that is shifting towards higher quality but also demand. In October 2019, the occupancy rate of higher category hotels remained above the sector average, reaching 66.1%, compared with the 54.4% registered by the remaining categories.
The main implication of this transformation is the sector's improved profitability. One of the key profitability indicators, revenue per available room (RevPAR), reached 61.7 euros in September, 3.8% more than in the same period the previous year, thanks to the larger share of higher category rooms (RevPAR of 81.2 euros) to the detriment of hotel rooms in the rest of the categories (RevPAR of 40.0 euros).
The 23rd of September saw the announcement that one of the world's largest tour operators, the British company Thomas Cook, had gone bankrupt. Its large debt and inability to significantly increase its revenue due to increasing competition, as well as its overly broad and rigid structure, all led to the definitive collapse of the company after several years of problems.
Thomas Cook's bankruptcy has led to doubts regarding the sector's future. The first is whether the business model of traditional tour operators have still room in the tourism commercialization market. While it is true that digitalisation is encouraging internet-based start-ups with lighter, more flexible cost structures, traditional companies still have a large number of customers. In the UK market alone, the two main tour operators (TUI and Jet2holidays) profitably served 9.4 million customers between January and October 20195 . Consequently, it does not look like Thomas Cook's bankruptcy points to the traditional tour operator business model becoming obsolete but rather that the company's particular growth strategy was far from ideal.
- 5. Data from the «Top 250 Air Travel Organisers' Licensing Holders Report» showing the number of passengers protected by ATOL's financial protection system.
Although inbound tourism has been affected, the damage has been contained because the situation of tourist accommodation is solid. In the medium term, the rest of the tour operators in the market should pick up the demand released by Thomas Cook
The next question to be considered is how the disappearance of Thomas Cook may affect the Spanish market. In 2018, 3.6 million tourists, mainly British and German, arrived in Spain on the British company's package holidays, which means that 4.6% of the tourist demand in Spain depended, in one way or another, on Thomas Cook. It should be noted that the Canary Islands, Balearic Islands, Almeria and Malaga (Costa del Sol) made up the bulk of this exposure.
The most immediate consequence of Thomas Cook's bankruptcy has been the nonpayment of its debt with hotels and other tourist accommodation for the months of June, July and August. Some of this debt is expected to be paid off, although when is still very uncertain. This situation could cause some difficulties for smaller hotels or those with tighter balance sheets but the damage has been limited because the situation of tourist accommodation companies is quite solid on the whole.
In the medium term, Thomas Cook's disappearance will not prevent the tourists brought by the company to Spain year after year from continuing to visit, given that the rest of the tour operators in the market have a clear incentive to try to pick up the demand released by the British company. In the short term, however, we do expect inbound tourism, mainly British, to be affected by the bankruptcy as the gap left by Thomas Cook will be difficult to «fill up» with new tourists over the next few months.
Taking advantage of the granularity of our tourism expenditure indicator based on foreign card payments at CaixaBank POS terminals, we can observe the trend in British tourist expenditure in areas with the greatest exposure to Thomas Cook. We can therefore detect whether there has been a significant change in the level of expenditure by British tourists (on leisure, culture, restaurants, etc.) after the tour operator left the market6 .
However, as any decline in British tourist expenditure in these regions could be the result of factors unrelated to the disappearance of Thomas Cook (such as the volatility of the pound due to Brexit), to broaden the perspective we have also looked at other regions where there is no exposure but where British tourism is also very important.
Our analysis has shown that the Canary Islands are the only region where there is a significantly more negative trend. As can be seen in the following chart, expenditure by British tourists in the Canary Islands went from 0.8% year-on-year growth up to August to a 19.7% year-on-year decline in September and October, a decrease of 20.5 pp. Tourism expenditure in other regions exposed to Thomas Cook, such as the Balearic Islands, Málaga and Almería, has also suffered although a significantly different pattern has not been observed in similar but less exposed regions, such as the provinces of Valencia and Alicante.
- 6. Changes in accommodation expenditure by British tourists through foreign card payments cannot be detected because the accommodation expenditure for tourists coming to Spain through Thomas Cook was made by the company itself.
Trend in British tourism expenditure
Year-on-year change (%)
We can therefore conclude that the Thomas Cook bankruptcy has had a very limited effect on the most exposed destinations except in the case of the Canary Islands. The greater weakness of the Canaries is even more relevant since the tour operator went out of business at the start of the islands' high season. The capacity of the Canary Islands' tourism industry to access the market and attract new demand during the months immediately following the bankruptcy, probably at the expense of hefty price cuts, will largely determine how much it will be affected by the gap left by Thomas Cook.
As we have seen, the Spanish tourism industry is facing a more complex situation than a few years ago. Some of the factors that will significantly limit the growth potential of the number of international tourists visiting Spain in the near future are the slowdown in world economic growth, the uncertainty generated by Brexit and greater competition from other countries in the Mediterranean basin. In spite of these factors, however, the tourism industry will continue to grow at an appreciable rate, more moderate but more sustainable, supported by important structural factors such as its competitiveness and the higher quality tourism it can attract. If tourism agents adjust their growth expectations in line with this new scenario and continue to invest in transforming their supply, with a focus on quality, the sector's prospects will continue to be very positive and tourism will remain key for the Spanish economy.