Not only Georgia is facing problems in this field. 21st century can be named without hesitation as the era of challenges for tourism.
There are several reasons for this – increased dangers of terrorism, such as act of terrorism on 11 of September in 2001, natural disasters, rampantly increased prices on oil. Experts reckon, the main strike for tourism is global economic crisis. However, tourism is growing anyway and it represents important source of income, especially for the country such as Georgia.
It is clear for everybody that during economic growth population’s income is increasing and therefore the tourism field growth pace is high either. According to the calculations made by experts if the world economy increases by 4 percents then the tourism field increases by 6.5 percents. And vice versa, slowdown of economic growth causes similar chain reaction for tourism field. Tourism is significant element of world economy. According to the data of UNWTO (world tourism organization) the aggregate number of tourists in the world made up 924 million people. Despite the fact that in the second half of 2008, the flows of tourist has considerably decreased, the rate is by 2 percents higher compared with the 2007. According to the data of World Travel and Tourism Committee (WTTC), tourism and travel segment is 9.9 % of global GDP, 10.9% of export and 9.4% of world investments.
UNWTO has published annual research – The Travel and Tourism Competitiveness Report (TTCR), where general tendencies in tourism segment are being discussed. The report offers recommendations, for the development of the mentioned field, to various international organizations and the governments of the countries.
Oil prices and international tourism
One of essential factors influencing tourism development is oil and its price. In summer 2008, the price of a barrel of oil made up $147. A high price of oil automatically increases the prices of touristic services. The global financial crisis had its affect on the price of oil. The price decreased gradually and in the fourth quarter of 2008 it made up $45. However, part of the experts forecast that as soon as world economy starts to overcome recession the oil prices will increase and it will be two-figured again. IEA (International Energy Agency) representatives agree with this prognosis. The main reason for this is gradually growing demand on oil of developing countries of China and India. However, $100 per barrel of oil is quite challenging fro airline companies. This might delay development of airline business.
In 1950-2007 years, average annual growth of the number of airline passengers was 7.8%. At the end of seventies and in the beginning of eighties, high price of oil products delayed international flights, but after eighties up to 2004, when world economy was in a stable condition, the growth has been observed. Appearing of economic class tickets considerably increased the flows of passengers after nineties. Stable development of airline filed had positive influence on tourism itself. However, nowadays the situation is different. World’s leading airline companies forecast that the number of passengers will decrease gradually due to high prices on airline tickets. The main reason of this is high prices on oil products. Of course, the oil prices have significantly decreased after summer 2008, but it is higher than average historical oil price. In 2000-2007 years, when the prices on oil products were rather stable, the oil price made up only 18% of airline ticket price. At the time when oil prices were more than one hundred US dollars, they made up one third of airline tickets price. While for cheap airline tickets the oil prices amounts 50 percent of their actual selling price. 10 percent increase of airline ticket prices causes 17 percent decrease in the demand of touristic services. The airline ticket prices from USA to most of European countries increased from $150 to $350. Due to high prices on tickets, many tourists refused to spend their vacations on international resorts. According to the information published by US Travel Association, 80 percent of touristic expenses are spent in domestic tourism. In EU countries, population prefer to spend vacation either in their home country or in neighbouring countries, as the travel expenses are lower due to short distance. Moreover, in order to avoid price increase of overall service for passengers, airline companies are induced to lower prices on various services. This is connected with huge losses. As a result, the loss in airline industry in 2008 amounted $5.2 billion. Experts forecast $4.1 billion loss in 2009.
An airline ticket price is a notorious theme in Georgia either. Many tour operators and tourists note that high travel expenses are serious obstacles for the development of tourism business in Georgia. We have mentioned high prices on airline tickets from USA to Europe. However, in the same period the prices were much higher on Georgia airline market.
The CEO of Georgian Express Travel Nino Mjavanadze noted during the conversation with us: “The demand on touristic products have decreased significantly in Georgia. People are more reserved, they have small savings for recreation. This has become more evident during the crisis. However, there are other challenges besides crisis such as airline ticket prices for instance. We offer services for travelling in foreign countries and thus of course we are connected with airline companies. For instance, the flight to Turkey is quite expensive. The bus ticket price is relatively cheaper – 160-170 US dollars, but it takes a lot of time to travel this way and of course everybody cannot stand travelling on such a long distances by bus. The airline tickets are very expensive; for instance during hot season, the price even was $500-600 and charters cost up to $700.
So, high prices of airline tickets are a serious obstacle in Georgia and in whole world. However, tour operators are noting at artificial increase of ticket prices and they are blaming airlines in this. We contacted one of the major airlines in Georgia for the comment.
Austrian airlines manager’s assistant Tamriko Vardiashvili declared: “Touristic companies are saying this from their point of view. However, I want to admit that the prices are created by market, this is an axiom and it doesn’t need to be proved. The prices are established coming out from the market situation. Of course, regular prices are a little bit expensive, but there are special discounts on various flights and for touristic groups. To my mind there are other things more expensive than ticket prices in Georgia. For example even these touristic services. Everything has it own price and somehow touristic agencies think that the ticket price with full service should cost the same as so called Low Budget airline tickets, with no food or any other service”.
However, airline ticket prices are not the only obstacle for the tourism development. Þ The authors of abovementioned global research TTCR point that tourism development faces many difficulties at the local level. Governments should deal with these challenges. In order to lower negative influence of oil prices on tourism development, the authors of the research recommend world governments to balance the prices on various touristic services, such as hotels and restaurants.
Many people claim that together with high prices on hotels in Georgian resorts, there is quite low quality service. Minister of Economic Development of Georgia Lasha Jvania emphasized this problem either. Minister Lasha Jvania in his statement made at the opening of international touristic exhibition in Expo Georgia noted that one of the main obstacles for tourism development is expensive touristic packages. Minister also added that in comparison with neighbouring countries, the hotels in Georgia are rather expensive.
The director of Georgian Express Travel – Nino Mjavanadze emphasized high prices of Georgian hotels either: “Many Georgian holidaymakers desire to spend vacation in Turkey, because hotels are very cheap and the meals are included in the price together with high quality service. Georgian hotels are offering only breakfast to the consumers. The hotels with full meals are rare. Therefore consumer has to spent three times more. The situation is different in foreign countries, as one can rest 10 days in a hotel for $300 without spending any additional cent. In Georgia one cannot predetermine the expenses, as you can spend three times more for other things. At the same time, the service quality is very low in Georgian hotels.
Another obstacle is increased interest rate on bank instalments. Ordinary people were having a vacation by taking credits from banks and afterwards they were gradually paying the sum. Now banks have increased interest rate and it makes no sense to take a credit from a bank. If interest rate in the past was approximately 10-20%, last summer it has increased up to 30-40%. This fact of course had its influence on the number of holidaymakers and this happened before the war.
Moreover, some of touristic agencies do not exclude worsening of the situation due to instable political state in the country. After August war the image of Georgia has weakened on the world arena and if the political situation in the country doesn’t get better this will have baneful influence on the next touristic season.
Growth of foreign tourist flows is not expected in Adjara. Adjara Tourism Department declared that it would be good if they reach 2007 rate in 2009. That is 350 thousand tourists approximately. 200 thousand holidaymakers are expected during the peak of the season. Usually tourists were spending a week in Adjara. Now if considering economic crisis, it is expected that part of them will only spend 2-3 days there. Of course, this will decrease the income.
We interviewed Malkhaz Malakhmadze, head of marketing and advertising department of Tourism and Resorts Office of Adjara autonomous republic:
– After August events, tourists factually stopped arriving in Adjara. 350 thousand tourists arrived in Adjara in 2007. We were expecting 450 thousand in 2008. 247 thousand tourists arrived before August and then everything stopped. Any military action and instable situation first of all influences tourism. We are optimistic despite world economic crisis. If the stable situation remains in the region, even more tourists will arrive than that of 2007.
– What makes you to feel optimistic?
– Financial crisis had some influence on Adjara. While it is raging in Baltic countries, in Russia, Ukraine, Croatia, Slovenia and even in Turkey. However, we cannot boast with the touristic infrastructure like them. It should be noted that before financial crisis, tourists were mainly spending their vacation for two weeks and on relatively expensive resorts. Now they are induced to have rather economy vacation, with fewer expenses and Georgia resorts are suitable for this. Our neighbouring countries, I mean Turkey and Armenia – are leading holidaymakers in Adjara. The number of tourists from Turkey has increased seven times in comparison with previous years. They are arriving for weekends in Batumi. The reasons for this are several. First of all transportation is quite comfortable. There are daily flights for Batumi-Istanbul direction and the ticket price is cheaper than for Tbilisi-Istanbul flight. Another important role is played by casinos, as they are prohibited in Turkey. Therefore many Turkish people arrive in Batumi. Besides Turkey has made many investments in Georgia, including investments in Tourism business.
– Due to the war in last year, factually there were no holidaymakers from Armenia. Now there is huge interest from neighbouring countries. This has been proved by Armenian companies that participated in Expo Georgia’s tourism exhibition.
Besides we are conducting exhibition in Batumi. International touristic companies from various countries will be presented at the exhibition. We have already received approval from Armenia, Azerbaijan, Ukraine, Belorussia, Baltic Sea countries and Turkey. Georgia regularly participates in three international exhibitions held in Baltic Sea countries. These are: Riga, Vilnius and Tallinn exhibitions. We conduct informative-advertising tours for foreign journalists. We reckon that all these complex measures will be fruitful. Peace and stability are most important factors.
– What can you say about airline tickets and hotel prices? Many tour operators are noting that there are high prices on them in Georgia.
– Logically if the oil prices decrease the airline ticket prices should be lowered consequently. However, despite significantly decreased demand on flights due to financial crisis, the airline ticket prices remain the same. The state should balance this somehow. Of course airline ticket prices are quite high and this increases the aggregate price of touristic package. Hotel prices are high either, but the service quality is very low. However, it is possible to balance the prices. Our main aim is to ensure that the prices correspond to the quality of the service.
Tourist number increase is not expected in Tourism and Resorts Department of Georgia either. As we already mentioned the department representatives declared that after August war the number of tourists in Georgia decreased by 80 percents. At the current stage, the main aim is to reach 2007 year’s number of incoming foreign tourists. The situation gets complicated by the fact that international tour operators have listed Georgia in their announcements only from year 2010.
Despite hard situation in Touristic sector, on 3-5 April, elevenths international touristic exhibition has been held at exhibition centre Expo Georgia in Tbilisi. Approximately ninety companies presented their products at the exhibition. Together with Georgian touristic companies, Azerbaijani, Armenian, Turkish and Austrian companies were presented at the exhibition.
However, this exhibition is another proof of serious and deep crisis in this field. Only few tour operators were presented at the exhibition, while such kind of event should be main arena for establishing business relations for them. Stands were mainly occupied by various state departments and regional offices from Georgia, Azerbaijan and Armenia as well. Supposedly that is why the emphasis was made on domestic tourism and regions. Various Georgian regions have been presented at the exhibition, with their touristic infrastructure – sanatoriums, boarding houses, and health and fitness centers.
Various products made in national style were presented at the exhibition. Instead of business relations and negotiations, scanty visitors were amusing themselves by seeing toys dressed in national clothes and various accessories.
The situation in Georgian tourism field leaves much to be desired and supposedly it is impossible to make positive prognosis at this stage. Together with world economic crisis, there are many other obstacles for Georgian tourism development. Ministry of Economic Development reckons that the main reason of this is expensiveness of touristic service and they blame Touristic agencies and hotels in this. On their part touristic agencies blame airline companies and point at high airline ticket prices. At the same time, if strained political situation and constant warlike state remains, the desire to visit Georgia will have only extreme tourism fanciers.