“An unforeseen crisis.” Other headwinds intensify too.
By Nick Corbishley, for WOLF STREET:
Less than a month after the collapse of Thomas Cook, the global travel & vacation-giant and airline operator, the Spanish government has unveiled an €800 million taxpayer-funded bailout of its all-important tourism industry. During the presentation of the new 13-point royal decree, Spain’s vice-president Carmen Calvo described the measures as a “reasonable response to an unforeseen crisis” — though the term “unforeseen” is ironic because in February we warned about the precarious condition of Thomas Cook and in May we warned that it “verges on collapse.”
Initially, the rescue package was worth €300 million. It included €200 million of cheap credit lines and was intended to help the two regions most affected by Thomas Cook’s demise, the Canary Islands and the Balearic Islands. But as soon as it was announced, accusations of preferential treatment came flooding in from hoteliers and other tourism-related businesses in other parts of the country. Within a week the government had almost tripled the package, throwing in an additional €500 million of cheap loans to help boost “competitiveness in the sector”, which could cover just about anything.
Following years of robust year-on-year growth, tourism has played a central role in Spain’s economic recovery, accounting for around a quarter of the new jobs created since 2013. The industry has also played a big part in the resurgence of the housing and construction industry. Popular tourist destinations like Barcelona, Palma de Mallorca, Ibiza and Malaga are also among the hottest property markets, where prices have rebounded the most since the collapse of the last bubble.
A recent report in the financial daily Cinco Dias suggested there are now more than a million tourist apartments and homes in Spain, most of them operated by Airbnb, Booking and Vrbo. The breakneck growth of this market has sharply reduced local housing stocks, leading to a surge in property prices and rents, much to the delight of local landlords and the consternation of local tenants. These sky high rents are one of the many externalities of mass tourism (overcrowding, noise, environmental degradation, overstretched public services and infrastructure, etc.) that have fulled the growth of so-called “tourism phobia” in recent years.
Yet the industry continues to bring in buckets of money. In 2018, international tourists alone spent €90 billion in Spain. According to a recent study jointly published by American Express and the World Travel & Tourism Council (WTTC), the tourist industry, both international and domestic, directly and indirectly contributed €190 billion to the economy — the equivalent of 15% of GDP, more than any other sector and three times more than the automotive industry.
It also provides more than 2.5 million jobs, though many of them are of the casual, low-paid variety. Some of those jobs were with Thomas Cook-affiliated hotels or hotels that depended on the tour operator for most of their reservations. Many are now closed. In the Balearic Islands alone, 3,400 direct staff have lost their jobs.
The economic destruction does not end there. Before its collapse, Thomas Cook had arranged some 700,000 hotel reservations in Spain for the winter months, none of which will now take place. It also left a vast trail of unpaid invoices, not only to hoteliers but also to the bus companies, car rental firms, and tour guides that delivered many of the services Thomas Cook offered.
The Canary Islands alone was scheduled to receive almost four million tourists this year via Thomas Cook. Many of those trips have already taken place. Some haven’t and now won’t. For the islands’ tourist industry, the timing of the vacation giant’s demise could not have been worse, coming just before high season (winter) kicks off and just after suffering its worst summer in years, due in large part to the arrival of fewer Scandinavian and German visitors.
In August, the month before Thomas Cook’s collapse, 1.03 million tourists visited the islands, 7.2% fewer than in the same month of 2018. In the first eight months of 2019, the total number of foreign tourists visiting the archipelago fell by close to 4%. And now, to top it off, one of the biggest providers of visitors to the islands collapsed.
Across Spain as a whole, the total number of foreign visitors was up by 1.5% in the first eight months of 2019. But in the two biggest months, July and August, the number fell by 1.3% and 0.5% respectively.
The number of visitors from the two most important countries, the UK and Germany, which between them account for 35% of Spain’s total influx of foreign tourists, declined in both months. In August, the number of Germans visiting Spain plunged 10.7% year-on-year to 1.12 million, after a prior drop of 3.3% in July, stoking fears that the inhabitants of Europe’s biggest (but struggling) economy may be opting to travel less or to visit cheaper destinations like Turkey, Tunisia and Egypt.
In the case of British visitors, many of whose pockets are feeling the pinch of the devalued pound, their numbers fell 2.2% in July and 3.1% in August. And that was before the impact of Thomas Cook’s demise, whose effects will begin to show in the data for September and October. And then there’s the possibility of a no-deal Brexit, which could decimate visitor numbers from the UK.
It is against this backdrop and almost exactly a month before a new general election that the Spanish government has decided to launch its first bailout of the country’s tourism industry. The amount of the bailout is still relatively small, compared to the bailouts the banks received, but the precedent it sets is huge. When it comes to using public funds to help out non-financial companies in distress, such as well-connected ones in the construction industry, the Spanish government has plenty of form. If the recent downturn in the tourism industry deepens, the amount of funds used to support companies in the tourism industry could mushroom very quickly. By Nick Corbishley, for WOLF STREET.
The rescue deal fell through at the last moment. China’s Fosun and other shareholders are toast. Creditors get to fight over the debris. Read… Thomas Cook Collapses, up to 600,000 Travelers Stranded in Hotel & Airline Chaos, Triggers “Biggest Peacetime Repatriation in UK History”
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