Survey of Greek SMEs: Hotels (August 2017)
The hotel infrastructure upgrade is crucial to continue as it has already benefited the fundamentals of hotels and tourism in general
The accommodation sector has been a steady growth pillar for the Greek economy during the recent economic crisis, increasing its contribution to the national GDP up to 3.5% in 2016 from 2.5% in 2008 (compared with 1.6% on average within the main competitors). The new survey of the NBG Economic Analysis Department focuses on the identification of the main driving forces that have been put into place (mainly by the dynamism of foreign tourist inflows and the upgrading of the hotels’ infrastructure), as well as the factors that raise obstacles to the further growth of the Greek hotels (mainly the high seasonality and the tourists’ quality). The analysis focuses on the gap between Greek tourism sector and its main competitors, which could be bridged through (i) the restoration of investment to its pre-crisis level and (ii) the implementation of a strategic plan towards the creation of a high value added tourism product. These reforms could increase tourism receipts in Greece by 40% (circa ½ could be directed at hotels).
During the course of the crisis, the Greek accommodation sector enhanced its extroversion and thereby more than compensated for the fall in domestic demand. Spearheading this upward trend were individual foreign tourist bookings (who boosted their share of foreign hotel demand to 45% in 2016 versus 25% in 2008, thus bringing about a decline in the contribution of foreign travel agents). This development is noteworthy, since individual bookings are more profitable, the gap between the two being close to 20% in 2016. Another notable feature of the crisis period has been the upgrade in hotels’ quality (which was accompanied by a 10% increase in beds in the period 2008-2016), with more than 80% of new beds being in 4-5-star hotels, thereby bringing their total share to 43% of beds in 2016, versus 37% in 2008. As a result of these developments, sales by Greek hotels grew by 18% in the period 2008-2015 and the operating profit margin returned over the last four years to pre-crisis levels (24% in 2015 versus 20% in 2010).
We have to mention that the positive macroeconomic view of the accommodation sector is not uniform across all hotels. More specifically based on the results of the NB survey of 200 SMEs hotels, a dynamic segment of hotels is distinguished (covering the ½ of sales) that seems to be the motivation power of the Greek tourist sector. This segment is characterized by the following competitive advantages:
- High quality of building,
- More outward oriented and
- Higher share of high income clients
Despite the high dynamism of the tourist sector during the recent years, the gap between the domestic tourism industry and its competitors remains remarkable, therefore there is a potential for furthermore development. More specifically we recognize two points of the Greek tourism that could be benefited from the implementation of improvement strategies: (i) tourist mix and (ii) high seasonality.
More important than short-term fluctuations in daily tourist expenditure on accommodation, food and other services/goods (circa ½ is directed at hotels) is the fact that such expenditure over the past decade has remained close to €70 - a level significantly lower than the average in competitor countries (by about 15%). A possible explanation for this development is the tourist quality mix, as the share of arrivals from SE Europe increased to 11% in 2016 from 4% in 2005 (partly due to the gradual improvement of the relevant road infrastructure, such as the Egnatia Odos and the new border posts, as well as the increase in per capita income in these countries). As a result, the share of high-income tourists has declined – a development confirmed by NB survey of 200 SMEs hotels for the period 2008-2016 (down from 27% to 23% of their foreign visitors). The results of the above mentioned NB survey confirms this evolution, as the share of high income tourists has declined for the period 2008-2016 from 27% to 23% of the foreign visitors.
The second structural problem of Greek tourism is high seasonality, with over 3/4 of overnight stays being in the period June-September (versus 60% for competitor destinations), thus leading to lower than optimum performance reflected in:
- Annual room occupancy rates (standing at 27% versus 40% for competitors), and
- Return on accommodation infrastructure (which is 8% lower than competitors in terms of operating profitability per unit of fixed assets, despite the injection of profitability from the higher priced summer months).
Consequently, in the medium term, (i) the expansion of the tourist season to the levels of directly comparable competitor destinations combined with (ii) closer alignment of the tourist quality mix in Greece with that of competitor destinations could increase tourism receipts by €5 billion per year – over ½ of which would, according to estimations, be channeled to hotels. The additional investment required to implement this strategy is cumulatively €6 billion in hotels and €16 billion in other tourism infrastructures – with upgraded infrastructures attracting higher income tourists which would thereby serve to increase hotel prices as well as the consumption of goods and services. The aforementioned infrastructures could be completed within five years if annual tourism investment returns to roughly its pre-crisis level.
In addition, the problem of marked seasonality can be addressed by promoting city destinations - with hotels stressing that special forms of tourism (conference, medical, sports etc.) could serve as key potential drivers of growth.