April 14, 2011 / 1:19 PM / in 7 years

Tourism boost could lift Spain economy

MADRID (Reuters) - Holidaymakers unnerved by turmoil in the Middle East are giving Spain’s tourist industry a welcome boost, but for the sector to hold its gains and help drive economic growth, it must become more competitive.

<p>A Japanese tourist takes pictures under a windmill in Consuegra, central Spain, October 28, 2010. REUTERS/Sergio Perez</p>

That may require politically and fiscally difficult cuts in wages and taxes as Spain -- like other southern European states whose historic sites and sunny beaches make visitors a key economic resource -- struggles with high debt and unemployment.

Around one million more tourists are expected to visit Spain this year, many of them northern Europeans re-routing trips from regions that have become natural or political disaster zones: good news for an industry emerging from a long downturn.

But Spain -- the world’s third largest tourist destination behind France and the United States -- has seen past windfalls from crises in other regions prove temporary, and experts say quality must rise and prices fall for growth to be sustained.

“Spain has a lot to offer ... but we fall short in terms of price-to-quality and legislative control,” Josep Francesc Valls, a tourism expert at the ESADE business school in Barcelona said.

Valls expects foreign arrivals to grow between 2 and 2.5 percent in 2011, after rising 1.4 percent to 53 million in 2010 after two years of declines. That could help the tourism sector recover between 7,000 and 10,000 jobs of 180,000 shed since the financial crisis began three years ago.

Tourism accounts for about 11 percent of Spain’s gross domestic product, despite the impact of lower travel spending as the country crawls out of recession and battles the highest unemployment in the euro zone at more than 20 percent.

COMPETITION

It has struggled to compete with cheaper destinations such as Turkey, however, while the euro’s rise against sterling has weighed on travel from Britain, home to some of Spain’s most faithful tourists.

The website of Europe’s second-biggest travel firm Thomas Cook (TCG.L) currently shows an all-inclusive seven-day beach holiday package to a 4-star hotel in Spain or Turkey over Easter costs an average 600 pounds per person, compared to about 450 pounds for a similar trip to Tunisia.

Analysts said prices in Spain are likely to remain stable this year -- reflected in the performance of listed hoteliers like NH Hoteles and Sol Melia SOL.MC -- despite cuts in competing markets such as Greece, where tourism brings in nearly one-fifth of GDP and is also seen as key to recovery for the debt-choked economy.

Aware of tourism’s economic potential as global travel grows, the Spanish government has pumped over 3.6 billion euros into the sector in the past three years, despite cutting overall spending to avoid a Greek-style bailout.

Industry lobby Exceltur believes its forecasts for an average 1.5 percent growth in tourism each year between 2011 and 2015 could double if the government gave the sector priority treatment, boosting growth for the wider economy.

But experts say lower airport taxes and better legislation to protect infrastructure from the kind of wildcat strikes that paralysed Spanish airports in December, costing the sector millions of euros, could be as important as marketing campaigns.

Last month, airport unions called off 22 days of strikes to protest the privatisation of airport operator AENA, averting disruption over peak holiday periods between April and August.

NEW STRATEGIES

From the 14th century Alhambra Moorish palace in southern Granada to the modern Guggenheim Museum in northern Bilbao, the mountainous Spanish peninsula offers a range of cultural, gastronomical and leisure options beyond its beaches.

And with 900 million people crossing international borders each year, according to data from the World Tourism Organisation, experts say more could be done to promote the country as an all-seasons destination.

“The challenge is coordinated public-private efforts for creative and competitive new packages across the country so that one city isn’t competing with another’s uniqueness,” Jose Ramon Pin, professor at business school IESE said.

One suggestion is the creation of a tourism minister to coordinate policy among the regions and sectors affected by travel, from infrastructure to the environment.

Spain has never had a single tourism chief, unlike rivals such as Tunisia, which has launched fresh campaigns to lure back tourists after political upheaval early this year.

Tunisia’s tourism minister said last month that 2011 arrivals there were expected to fall by up to 40 percent, while Egypt has predicted a 25 percent drop in tourism revenues.

Another strategy is for Spain to upgrade accommodation and facilities to distinguish itself as a quality destination for higher-spending visitors. Tourists spent about 49 billion euros in Spain in 2010, according to government data, with the same expected this year -- well below boom-year figures of about 52 billion euros.

The government has already pledged to promote Spain as a destination in major emerging markets like China and India through aggressive campaigns and moves to facilitate visas.

Another step would be to tear down the apartment blocks that flourished on the country’s coasts during a long property boom and rebuild with boardwalks and parks, Valls of ESADE said -- although funds for such large-scale investment are unlikely to be found until Europe’s debt crisis comes to an end. (Editing by Fiona Ortiz and Catherine Evans)

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