This year, tourism entered intoxicated by the success of the previous one; some stumbled over their own greed by unrealistically raising prices, but more or less everyone filled their wallets, so the next year begins without a major hangover, but more soberly. This roughly summarizes the atmosphere in the tourism sector, which is preparing for another extended summer.
The next tourist season will be defined by several circumstances that need to be considered in planning and pricing policy. It seems that it will not be as bold as 2023, not only due to slowing inflation but also due to the announcement of an economic crisis in the most important markets from which our guests come, primarily Germany. If there are no major surprises, judging by last year’s results, and especially this year’s, tourism companies could expect a financially stable year, and even further extension of the season due to climate change.
Labor costs have risen the fastest
Global estimates suggest that the southern European region, which performed much better during the pandemic than the rest of Europe, will record the lowest growth in tourist traffic next year, at around 8.4 percent. Most of this growth should be distributed to large markets that have not yet returned to pre-pandemic levels, such as Italy, which is finishing this year with an 11 percent decrease in arrivals compared to 2019. Additionally, the largest tourism companies report that despite this year’s market recovery, conditions for the next major investment wave in the hotel sector have not yet been met, not without significant incentives.
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—Consultant Sanja Čižmar analyzed for Lider the cumulative results for the first nine months of 2023 in eighteen tourism companies whose shares are listed on the Zagreb Stock Exchange, stating that they confirm the market success of this year’s season and the complete market recovery after the pandemic.
– Despite the increase in operating costs, profitability has been successfully maintained at last year’s level. Business revenues in the first nine months of 2023 increased by 16 percent compared to the same period last year, mainly as a result of price increases, along with a slight to moderate increase in capacity occupancy, depending on the type of accommodation. At the same time, operating expenses increased by 14.2 percent. Labor costs increased the most, by 18.1 percent, mainly due to wage increases, and less due to a larger number of workers this year compared to last – emphasizes Čižmar.
Inflation relativizes revenue growth
Furthermore, the share of EBITDA (earnings before interest, taxes, depreciation, and amortization) in total revenue is slightly lower compared to last year: in the first nine months of 2023, it amounts to 40.8 percent compared to 42.7 percent last year. Čižmar notes that due to the predominantly seasonal nature of business, companies expect a period of significantly higher costs than revenue realization in the last quarter, which is why the profitability rate will be lower than that achieved in the nine months (25.0 percent in the first nine months of 2023 compared to 24.9 percent in the same period of 2022).
– In interpreting the growth rates of revenues and expenses, it is important to highlight the high inflation rate during the analyzed period. From January 2022 to September 2023, the inflation rate in Croatia is 18.1 percent, which relativizes assessments of real revenue growth. Given Croatia’s attractiveness as a tourist destination, high demand interest can still be expected next year. A moderate increase in the average price level is expected, slightly higher than the anticipated inflation, and a slightly larger price increase in those facilities where investments have been made in repositioning, quality improvement, or new content. The risks of recession in the most important emitting markets will be more associated with groups of tourists with lower to medium purchasing power, who are focused on accommodation facilities with average lower prices – believes the consultant.
Regarding costs, further growth in material operating costs is expected at the level of the inflation rate, but also a more intense increase in labor costs reflecting the increasing complexity of the labor market and increased efforts in worker acquisition.
Prices are not set in stone
Everyone agrees that next year should be more stable in the price increase of services in Croatian hotels than the previous one, with the exception of those undergoing reconstruction and quality service enhancement, for which they can realize higher prices. However, more than ever, hotels will need the help of sales tools that will manage prices daily.
An analysis of hotel accommodation prices from 2023 compared to the previous year, presented by Leo Urlić from Edmond Revenue Management, showed that despite significant price increases for services this year, prices were lowered at the peak of the season and in some places returned to those of 2022. The director of the Croatian Tourism Association, Veljko Ostojić, emphasizes that in the future, the decline in inflation rates should also be taken into account when making pricing decisions.
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—– We witnessed a greater decrease in prices this year during the peak season, which should not be repeated. My message is to focus on quality, and if it results in adequate value for money, no one should be afraid to raise prices. We have seen that the largest systems are seriously working on the pricing policy approach of revenue management, and others should be encouraged to respond to supply and demand, to certain events. There is no longer the case where prices are agreed upon with tour operators in August and remain set in stone; there are tools that allow us to manage prices daily according to demand. And in that, one must be brave; mistakes can be made, and everything can be corrected. However, it is always worth noting that some price increases can be expected in facilities that are invested in and are well-positioned in the market from previous investments and have performed well this year’s season without major price interventions, especially during the peak season – explains Ostojić, noting that tourism is an industry that is part of the market economy and it is natural for it to want to achieve the best possible business results.
Climate change is changing the season
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—Davor Brenko, Vice President of Sales and Marketing at Valamar Riviera, believes that 2024 will also be a stable year in terms of prices at Valamar.
– We are preparing for a return to a stable environment, where products that have improved quality will be able to afford price increases, while those that are not in that segment must be more cautious with corrections – notes Brenko.
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—Jadranka Gojtanić from Maistra considers it important to listen to guests.
– In the premium segment, there is no fear; guests are less sensitive to price increases, but in other segments, opinions and behaviors of guests need to be analyzed, and the gain from price increases should be qualitatively assessed against potential volume loss – believes Gojtanić.
An example of a hotel that will certainly raise prices by 25 percent compared to this year is Villa Dubrovnik, a luxury hotel that has just begun reconstruction, revealed Ivan Rudolf Gajić, the hotel’s sales and marketing director, who already had an ADR (average daily rate) of 800 euros this year. Regarding the past season, Villa Dubrovnik noticed a reduced interest from guests at the peak of the season compared to before, which they attribute to climate change.
– Guests are increasingly interested in vacations during months when it is not so hot and when there are not so many crowds. Our off-season traffic has increased, and if we had not closed on October 2 due to reconstruction, we would have had a lot of guests until November – emphasizes Gajić.
Although it is difficult to predict in tourism, as we have seen in recent years what unforeseen circumstances can occur, our interlocutors who gathered last week at the Hoteliers Congress say that the first announcements for 2024 are encouraging and believe that somewhat better financial results can be expected. It is almost ironic that we are finally witnessing an extension of the season, but not as a result of strategies and alleged investments, but as a consequence of climate change that has extended the swimming season into late autumn. The number and structure of capacities certainly affect the results: Croatia gained 80,000 new beds in 2023, benefiting apartments, which further reduced the share of hotel accommodation. In less than twenty years, it has doubled the number of tourist beds to nearly two million, while infrastructure has progressed minimally. Meanwhile, the share of hotel beds has fallen to 9.5 percent of total accommodation capacities, which is the most unfavorable structure in the Mediterranean.
Strategies do not help
Experts and leading figures in tourism have been warning about this for years. Attempts to combat overtourism or the decline in quality through writing strategies have so far yielded little result. The latest attempt is the tourism law, which is in the process of being adopted, giving cities and municipalities tools for sustainable tourism and the authority to develop management plans to regulate or limit the growth of the number of facilities. It remains to be seen how implementation will proceed once the law comes into force.
