How investment and infrastructure support Europe’s Travel and Tourism sector

How investment and infrastructure support Europe’s Travel and Tourism sector

The economic contribution of the Travel & Tourism sector to Europe’s economy

The Travel and Tourism sector continues to grow in value and importance in the global economy. Recent economic impact research by the WTTC and Oxford Economics estimates that Travel and Tourism supported €5.7 trillion3,4, in gross domestic product (GDP) in 2014, amounting to 9.8% of global GDP for the year. The sector also supported nearly 280 million jobs worldwide.

The European Travel and Tourism sector is an important part of the global picture. In 2014, it supported nearly €1.6 trillion in GDP, or 28% of global Travel and Tourism GDP and 9.3% of total European GDP. Furthermore, the European Travel and Tourism sector supported a total of 33.5 million jobs, more than is supported (individually) by the European ICT, mining, or banking sector.

There is, however, significant variation in the relative contribution of Travel and Tourism between Europe’s regional economies5. In Southern Europe the Travel and Tourism sector supports an average of 12.7% of GDP. That is a full 2.9 percentage points more than the world average of 9.8%.

Direct, indirect, and induced Travel World News Blogs

Southern European economies, several of which have struggled economically in recent years and continue to face significant challenges, can therefore be characterised as being highly reliant on Travel and Tourism. Western and Northern European countries (8.8%) and Eastern European countries (6.2%) are less reliant on the sector than the global average.

Defining the role of investment and infrastructure in supporting the Travel & Tourism sector

If the European Travel and Tourism sector is to support future demand – and achieve the baseline forecast of a €400 billion increase in direct contributions to GDP – the continent must focus on its supporting infrastructure, as well as supply–side issues such as talent. Both the public and private sectors will need to devote resources to maintaining the current stock of Travel and Tourism infrastructure, improving it and building new and better infrastructure.

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The quality and capacity of infrastructure is a key competitiveness factor, and other regions – the Middle East and Asia, in particular – have made (and are expected to continue to make) large gains in this arena

What is infrastructure and investment?

Infrastructure comprises the buildings, structures and equipment which are essential to providing goods and services to society, yet are not immediately used up in the process of producing and delivering them. Infrastructure can be provided publicly – as governments do regularly – as well as privately.

What do Travel and Tourism investment often include?

• Accommodation development and major maintenance, including provision of new building structures and furniture and equipment to fit-out or refurbish existing hotels and holiday homes;
• Passenger transport, such as aircraft and cruise ships for specific tourism use; • capital projects and refurbishments designed to attract visitors;
• Information technology (ICT) projects; and

• ‘green’ and other sustainability-oriented investments within the industry, such as solar and retrofit schemes, designed to enhance energy efficiency. Government investment spending is often directed toward the construction of visitor centres, tourist information offices, publicly funded airports, and utilities (including, e.g., water supply and ICT-based infrastructure), but can also include contributions to large resort-based investments.

Government investment spending is often directed toward the construction of visitor centres, tourist information offices, publicly funded airports, and utilities (including, e.g., water supply and ICT-based infrastructure), but can also include contributions to large resort-based investments. Government Travel and Tourism investment does not include government investment in multi-use infrastructure such as roads or public transport, even though this may be used, in part, for Travel & Tourism as well as for other uses.

Private investment expenditure is often for residential structures such as vacation houses and non-residential structures such as hotels, convention centres and privately funded airports. It also includes Travel & Tourism equipment such as airplanes, cruise ships, and rental cars.

Both government and privately funded infrastructure investment are essential to support the growth and development of the Travel & Tourism industry within Europe, as elsewhere. Whether initiated by government or by the private sector, it can play the following roles:

Expanding capacity: In order to support higher demand and a greater volume of tourists, infrastructure investment is required to build more visitor accommodation, increase airport capacity and expand tourist facilities. Insufficient capacity can lead to supply-side bottlenecks and a limit on growth, as well as put upward pressure on prices, such as hotel room rates, which affects competitiveness.

Maintaining and enhancing current infrastructure: Continued investment in existing infrastructure plays a central role in maintaining and improving its functionality and quality through major refurbishment and upgrading. Capital expenditure on existing infrastructure is essential for adapting infrastructure to account for the evolution in consumer tastes over time, such as growing visitor demand for WiFi services, while refurbishments extend the life of existing infrastructure assets

Stimulating demand: Capital expenditure on new visitor attractions can generate additional demand and help gain or retain market share in the face of competition. These projects aim to enhance the appeal of a destination through improving its
offering. For example, a hub airport can put a location – like Dubai – on the Travel & Tourism map, which stimulates demand for Travel & Tourism services well beyond the airport itself

The importance of investment to success in the Travel and Tourism sector

Whether travelling for business, visiting friends and family, or leisure purposes, at home or abroad, travellers directly and indirectly rely on a wide range of infrastructure. Visitors travel by rail, road, air or sea; communicate by phone, email, or instant message; sleep in hotels and other forms of accommodation; attend meetings and enjoy entertainment options that would be impossible without supporting infrastructure, whether it be a robust electrical grid and water supply or a well-maintained road and airport network.

Historically, there has been a strong link between the quality and capacity of a country’s infrastructure and the success of its Travel & Tourism sector, as measured by the sector’s economic contribution. This link can be measured statistically by comparing the measured quality of infrastructure related to Travel & Tourism and the estimated economic contribution of the sector across countries. That relationship is shown in diagram below for 37 European countries in 20146. It uses the World Economic Forum’s (WEF) ‘Travel and Tourism Competitiveness Report’7 results as the ‘independent variables’ measuring infrastructure,While the WTTC’s estimates of direct Travel & Tourism GDP are the ‘dependent variables’ measuring the association with economic activity

.WEF composite Travel And Tourism infrastructure World News Blogs

Infrastructure quality and capacity today are strongly related to historical investment spending

If infrastructure capacity is to be improved, it is important to determine what drives it. Figure below shows that, for most European regions there is a strong relationship between the last decade and a half of investment spending – measured per foreign visitor and domestic resident – and WEF composite infrastructure scores in 2013 (although it is also important to recognise that investments made more than a decade and a half ago also play a role10).

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The relationship is strongest in Southern Europe. Greece, which hosted the Olympics just ten years ago and spent an average of €200 per foreign visitor and domestic resident annually between 2000 and 2014, lies at the top right of the graph. Spain (which spent an average of €160 per foreign visitor and domestic resident over the period) and Portugal (€140) have also made considerable investments over the last 14 years. These countries tend to have better WEF composite infrastructure scores than countries like Albania (€34), Serbia (€17) and Macedonia (€15) that have devoted fewer resources to Travel & Tourism
infrastructure development over the past 14 years.

Similarly, investment in the Travel & Tourism sector in Eastern European countries over the past 14 years is strongly related to their present day WEF composite infrastructure scores. Within Eastern Europe, Estonia (€90 in investment per foreign visitor and domestic resident per year), the Czech Republic (€80) and Bulgaria (€50) are better placed to support burgeoning tourism sectors with their infrastructure capabilities than are countries like the Ukraine (€7) and Moldova (€6).

Source: European Investment Report

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