12 Nov 2016 Clouds over next year’s Cyprus tourism season

In 2016 Cyprus enjoyed a bumper tourism season, with arrivals rising by 18.8% in January-September and reaching a record 2.6 million.

This week, the Minister of Commerce, Energy, Industry and Tourism, Yiorgos Lakkotrypis tweeted: “Cautiously optimistic for another strong year of #UK visitation to #BeautifulCyprus”.

I hope he is right. But there are a few reasons to suggest that next year will be rather tougher than this year. Let’s take a look at the numbers to see why.

In absolute terms, total arrivals rose by more than 400,000 over the year earlier in January-September. Three-quarters of that increase (just over 300,000) came from two markets: Russia, with an increase of a little over 200,000, and the UK, with an increase of just under 100,000.

If we are to keep the same numbers next year, therefore, we need those markets to stay strong.

Unfortunately, they are unlikely to do so. One of the key reasons for the surge in Russian arrivals in Cyprus was the row between Turkey and Russia. Prior to that, Russian visitors to Cyprus had collapsed. However, the row between Turkey and Russia led to the cancellation of charter flights. News reports suggest that this has led to a 90% drop in visitors from Russia to Turkey this year. Tour operators sought other destinations and Cyprus benefited as a result.

Charter flights resumed between Russia and Turkey on August 29. According to Daily Sabah, within just 12 days, 239 charter flights brought 30,850 Russian tourists to Turkey. The President of the Turkish Travel Agencies Union, Basharan Ulusoy, hopes to attract 5 million Russians to Turkey in 2017.

The resumption of flights to Turkey does not seem to have had an immediate impact on Russian arrivals in Cyprus, which leapt by 51.8% year on year in September. However, in the next tourism season, competition from Turkey will matter. After the slide in the rouble in recent years, middle-class Russians are becoming more price-sensitive.

Already one hears anecdotal complaints that they come to Cyprus only on all-package deals and do not go out to spend money in the local community.

At the time of writing, the Russian rouble was fairly stable against the euro compared with November 2015, but more than 30% weaker against the euro than two years ago. This sharp drop in the value of the rouble in 2015 explains why Russian visitors to Cyprus fell by 17.6% in 2015.

Against the Turkish lira, however, the rouble was 11% stronger on November 9 than a year ago and about 1.7% stronger than two years ago. Cypriot hoteliers will find it difficult to compete on price under these circumstances.
Cyprus will, instead, have to promote its credentials as being more politically and economically stable relative to Turkey and other rival destinations.

UK arrivals weaker

Turning to the UK, we see that British sterling is more than 20% weaker against the euro than a year ago, though more or less stable relative to two years ago. Most of sterling’s decline has come since the Brexit referendum in June.

There are already signs that the weakness of sterling is having an impact on British tourists. While growth in UK arrivals bounded along at an average 12.7% in June to August, they rose by just 3% in July.

Moreover, for those who are coming, their per-capita daily expenditure seems to have dropped sharply. According to the latest available data for August, Britons spent €76.36 per day in August 2016, compared with €92.48 in August 2015, marking a decline of 17.4%. While one month is not sufficient to establish a trend, it is notable that spending rose by 5.6% year on year in May, then slowed to growth of 1.6% in June and 0.5% in July, before the abovementioned 17.4% drop in August.

By contrast, Russian spending rose by 7.2% year on year in August and by 15.9% in July. Clearly, exchange rates are having an impact on how much people are prepared to spend.

Next year, therefore, Cyprus looks likely to be hit by a double whammy: softer demand from both the UK and Russia, combined with Britons being far more careful about how much they spend.