Tourism impulse Q4: Profitability of leading tourism companies fell by over 10 percent this year, which jeopardizes investment and tourism development

Despite the growth of physical turnover and revenue this season, leading tourism companies are recording a decline in profitability with a significant reduction in profitability, according to a new quarterly publication of the Croatian Tourism Association, ...

Despite the growth in physical turnover and revenue this season, leading tourism companies are recording a decline in profitability with a significant reduction in profitability, according to a new quarterly publication of the Croatian Tourism Association, Tourist Impulse Q4.

A survey conducted among the leading tourism companies in Croatia on key business indicators for the first nine months of this year compared to the same period last year showed that companies achieved revenue growth of 5,3 percent, but with higher growth in operating expenses, so that gross operating profit lower than in the same period last year. The decrease in profitability was mostly due to the growth of labor costs.

Tourist companies set aside an average of more than 10,5 percent for employees this year, and some companies almost 18 percent compared to the previous year. The rate of return, which shows the profit for the period in relation to the total engaged assets, decreased by over 10 percent, to an extremely low 7,9 percent. The profitability indicator is one of the decisive factors in making investment decisions, and in competing Mediterranean countries this indicator ranges from 10 to 12 percent.

"The decline in profitability in the operations of the largest tourism companies this season, which brought a record number of tourists, threatens to further reduce investment in tourism because serious investors can not justify investing in a country where profitability is half as low as the environment. Therefore, HUT welcomes the Government's decision to reduce VAT in tourism as a firefighting measure for the sector, but at the same time we emphasize that this is only the first step in ensuring at least the same business conditions as the competition in the Mediterranean. Tourism is one of the few domestic sectors that has the potential for significant growth in investment, employment and wages, but we must unleash that potential by changing the business environment", said Veljko Ostojic, director of HUT. 

Turkey is the leader in this season's tourist growth in the Mediterranean

The review of key trends of this tourist season highlighted by the Tourist Impulse Q4 highlights the new large growth of tourist arrivals in Turkey, which with a growth rate of international tourist arrivals of 14,5 percent in the first ten months of 2019 took the lead in the Mediterranean. At the same time, Spain, with minus 0,2 percent, is the biggest market loser. 

With the latest data from the e-Visitor system (as of December 2), Croatia achieved a growth rate of foreign tourist arrivals of 4,4 percent, with a growth rate of foreign overnight stays of 1,7 percent, which with all the challenges of this season can be considered very good the result. However, despite the growth of physical indicators, the weaknesses of Croatian tourism are further emphasized.

First of all, it is low capacity utilization, the lowest in the Mediterranean, which was further reduced in the first 11 months of this year as a result of the continuation of extremely high growth in the supply of accommodation facilities. The average occupancy of commercial accommodation in that period in Croatia dropped to 22,6 percent. At the same time, the occupancy rate of hotel accommodation was almost twice as high - 42,6 percent.

Economic trends in 2020 favor destinations with a high value for money ratio

Uncertainty and the expectation of a recession in our main emitting markets become the most significant in the forecasts for next year. Research shows that the population of our emitting markets, in anticipation of a recession, is choosing destinations that provide a better value for money ratio, which means that competition in the Mediterranean circle next season will be even more pronounced. Such a situation is again mostly in the hands of eastern Mediterranean destinations, especially Greece and Turkey. 

In such an uncertain economic and market environment, the quality of the offer is the only guarantee of success, which is why it is necessary to continue to improve the business framework in tourism.

If we fail to do so, HUT warns that Croatian tourism is losing the race to the competition in the medium term, which would cause significant negative consequences for the entire domestic economy due to the fact that tourism generates about 20 percent of GDP.

Read the full report in the attachment.

Attachment: HUT / Tourist impulse Q4

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