Tourism in the Baltic region – friend or foe in an economic crisis?
Wednesday, 23 Apr, 2009
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TravelMole guest comment by Nadejda Popova, industry analyst for travel and tourism at Euromonitor International
The global financial crisis triggered slowing consumer spending and declining consumption, high inflation and a meltdown in the property markets in Latvia, Lithuania and Estonia.
In such a volatile environment, it remains to be seen how these countries will overcome the impact of this economic turbulence where one of the hardest hit sectors is travel and tourism due to falling consumers’ disposable income and consumers postponing the purchase of travel and tourism services.
A lack of differentiating tourism niches, seasonality and the poor quality of service and accommodation due to its post-Soviet infrastructure create further serious setbacks.
Increasingly budget-conscious holidaymakers in the region are changing their preferences from long to short-haul holidays and a further decrease from short-haul holidays abroad to domestic holidays. This in turn has had a significant positive effect on domestic tourism.
Despite efforts to promote Latvia, Lithuania and Estonia in new markets such as Russia, Finland and Germany, targeting diasporas and empty nesters (couples whose children have left home), demand from these segments has yet to compensate for tourism declines from key source markets.
For the past five years, tourism was a growth sector in the Baltic region. Estonia has remained the top outbound destination for Finland since 1999 and reached more than 810,000 departures in 2008 with same day visits amounting to 450,000. Moreover, easy reach by ferry, around 90 minutes, facilitates the flow of travellers from Helsinki to the capital of Estonia, Tallinn.
However in February Estonia registered a decline of 14% in the number of foreign tourists staying in accommodation establishments in Tallinn.
Falling levels of tourism flows in comparison with the same month of 2008 were also recorded from countries such as Finland, Russia, Latvia, and Germany. In times of crisis, even high income source countries such as Finland are reining in travel spend.
Neighbouring country Latvia also identified a drop in the number of visitors in hotels in Q4 2008, down 9% of which 60% were foreign tourists.
To combat this, more needs to be done in terms of targeted marketing to encourage key consumer segments from source markets to travel to support neighbouring countries.
Prospects
Development projects to upgrade the region’s transportation system are underway such as the expansion of the port in Tallinn, while in Latvia the international airport in the capital has been allocated 300 million euros, although the current recession is expected to delay the project.
Low cost airlines actively operate in the region, for example Air Baltic operates 155 weekly departures to 20 destinations including Moscow, St Petersburg, Kaliningrad and Tampere. In 2008 the airline, which is based in Latvia, carried 2.7 million passengers.
Moreover, the lack of financial resources in the Baltic region, slowing foreign investments, increasing unemployment rates and political tension will all have a negative impact on the tourism growth throughout 2009.
Tourism sector in the Baltic region will be able to adjust to the challenges of the economic crisis (e.g. decline in spending, number of international passenger flows and occupancy rates and increased price competition) if low-priced travel packages are offered, more online travel retail websites are made available through strong advertising and marketing as well as availability of direct internet bookings and improved customers services.
If these approaches are not adopted and given its current status, travel and tourism in the region is more a foe than a friend in this economic downturn.
Phil Davies
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