The crisis and Turkish tourism

A friend recently pointed me towards an article about the the effect of the global recession on the Turkish tourism.

It is true that the lira's recent depreciation against the euro and especially the dollar has made Turkey relatively cheaper and boosted profits for the industry (hotels and travel agencies/ tour operators), where contracts are usually made in in these two currencies but the costs are in lira. So far is more or less obvious, but the article goes further than that. Quoting the contracts manager of a Swedish tour operator, it claims boldly that the Turkey may see a boom in tourist arrivals in 2009:

“The middle class in Europe has been hit by the crisis. The demand for expensive countries has fallen. People have started canceling tours to Italy, Spain and Greece. Turkey is the cheapest country for tourism. Then comes Bulgaria and Egypt. The U.S. and the Far East are distant dreams for Europe's middle class,” he said. “Tourists will now go to inexpensive countries,” Gunes said. “I really think we will bring in 100,000 tourists. Miami, Italy, the Canary Islands and Greece will take a hard hit. In order to keep up with the tourism boom, we are going to invest in Cesme, Foca and Gumuldur. If this crisis had hit in the summer season, we would have hit the jackpot,” he said. “Let's be cautious of overbooking because there will be a boom. Germans, Scandinavians and English will flock to cheap countries."

The same frugalizing I have mentioned earlier for US shoppers or New York women hunting for lipstick might also turn out to be the case for European vacationers hunting for sea, sun and fun. While I did not manage to find a study looking at income elasticities for Turkey tourism exports (there are studies that estimate import demand and export supply functions, and I had referred to one of those in an earlier post, but not for tourism), I doubt that Turkish tourism is an inferior good to begin with. Moreover, even if the contacts manager turns out to be right, there are bound to be regional differences. For example, Marmaris has transformed into a major Russian destination recently, while Antalya is more diversified, with Germans in addition to Russians. Further depreciation in the ruble and a severe depression in Russia are likely to be felt in Marmaris even if the noted substitution effect materializes. The article, while having failed to account for intra-tourist differences in Turkey's destinations , it does point to a potential decoupling between destinations catering to domestics residents and foreigners.

The crisis will, however, affect regions that cater to domestic tourists, said Gunes. "In this respect, Cesme will be hit the hardest. After that it might be Bodrum. Alanya, Side and Marmaris will have a really good season. Cesme will be hit in two ways. It appeals to domestic tourists for two months. And domestic tourists will avoid high prices,” said Gunes. “Cesme should turn to foreign tourists and make 80 percent of its agreements with foreigners. Aside from Cesme, Turkish tourism will experience a boom.”

But what does the data actually say? TURKSTAT recently released quarterly tourist arrivals/departures figures for 3Q08. Revenues are up 14.4% yoy and the number of tourists visiting Turkey has increased 12.5% yoy (these data are from the departing visitors survey). While there is no similar data for Turks vacationing in Turkey, Returning Resident Visitors survey points to a small (2%) cutback in spending. So a first look in the data seems to support the claims of the article.

But there is a catch: The effects of the global recession would not alter many people's travel plans until into 2009, as travel plans and more importantly reservations (and payments) are well made well in advance. This goes for both consumers and tour operators that work (and sign contracts months in advance) with Turkish hotels and tourism agencies. Moreover, most of Turkey's tourism revenues come in the summer months, so statistics and the condition of the world economy now do not tell us much. We'll just need to wait and see if new contracts for the summer are being signed.

However, the part of the industry catering to Turkish tourists, traveling abroad as well as domestically, has started suffer from the great Turkish slowdown. Conversations with a friends in the outgoing departments (sending Turks abroad) of tour operators point to a slowdown in the order of 10% yoy, much more than the reported 2%. Of course, it could be argued that this year there was a major religious holiday at the end of September, which was at the beginning of October last year- this might have boosted the official yoy numbers, but most Turks returned around on October 4th or 5th and would show up in the 4Q survey, so it is hard to resolve the discrepancy- maybe the dismal numbers will come starting October, as the Turkish economy started to turn exponentially more sour in the last couple of months. Regardless , and perhaps more importantly, reservations for the second religious holiday, at the beginning of December, have been going awfully slow, the same sources tell me. Because of the lag effect I mentioned above, I see the second bayram as a much better indicator of what's to come, so I have all the reason to worry for tourism.

So, while it is too early to declare that foreigners will flock to Turkey this summer, it is safe to say that more Turks will stay at their homes at the bayram and beyond...