Thomas White Global Investing
Italy
Italy Stamp
August 14, 2009
A Postcard from Europe
Italy: Tourist arrivals drop, mirroring European trend

Italy

A slump in tourism in Italy is expected to cause job losses of around 150,000 according to private estimates.

Italy’s tourism minister Michela Brambilla has her hands full. Even as Italy, a global magnet for tourism, struggles with a crippling economic downturn and the impact of the swine flu pandemic, the former television star turned political leader finds herself grappling with ill-timed negative publicity that has cast Italy into an international diplomatic row. After a Japanese couple complained about a €700 ($989) meal at Il Passetto, a heritage restaurant that once hosted actors like Leonardo DiCaprio and Grace Kelly, Brambilla was forced to issue an apology on behalf of the Italian government for the rip-off, and offer the couple a free-all-expenses-paid return trip to Italy. The Japanese declined the offer. The issue, which grabbed headlines the world over, highlights what is a worrisome summer for Italy and indeed for Europe as tourism arrivals recede.

Brambilla’s immediate remedy was to create a commission that would monitor prices and services across Italy. The country’s tourism sector is a vital part of its economy, contributing around 10% to the gross domestic product. But the industry declined 5% last year and 2009 is expected to be worse. Italy’s problems are also mirrored across Europe. A recent study by the World Tourism Organization (UNWTO) shows that except for Africa, all regions have recorded declines in arrivals from January through April, with Europe among the worst hit, dropping as much as 10% over a year earlier.

Not only is the uncertainty of the global recession curtailing people’s desires to travel, the strength of the euro against the pound, dollar or the Russian ruble has made travel to Mediterranean countries such as Italy, Greece and Portugal more cost-prohibitive. That perhaps explains why countries such as Tunisia, Morocco and Kenya are seeing an upsurge in tourism, offering visitors literally more bang for their buck. What is interesting too is that Italians are now using this cutback in spending as an opportunity to travel more within their country, and it is this home-grown tourism that is holding up the struggling industry in Italy. Around 18.3 million Italians go on summer vacation in Italy. Places like Sicily, and Tiny Montenegro are attracting Italians who normally would have sought the sun-kissed beaches of Spain. Again, the rest of Europe also mirrors Italy, with Europeans increasingly choosing to spend their vacations closer home in Europe than travel to more expensive destinations in America or Asia.

The UNWTO expects arrivals in Europe to decline 8% to 5% for the full year of 2009, with the situation remaining uncertain given prevailing economic conditions and the added travel stresses of swine flu. Even France, the world’s number one tourist destination has struggled with foreign visitors dropping 4% in July, and the number is only expected to rise further in the August-September period. Italy’s case remains grim. Brambilla has failed to impress in her short stint as tourism minister, and although she may have appeased Japanese tourists, who account for a huge chunk of Italy’s tourism revenue, a good deal more needs to be done if Rome, Venice, Milan or Florence are to survive well the major hurdles of this year.

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