Don Quijones: Multiyear, Job-Creating, Mass-Tourist Boom in Spain Runs Out of Steam

By Don Quijones of Spain, the UK,and Mexico, and editor at Wolf Street. Originally published at Wolf Street

One of the main motors behind Spain’s recent economic recovery, foreign tourism, is beginning to splutter. After years of two-figure year-on-year growth, the number of foreign visitors to Spain in the first five months of 2018 grew by a paltry 2% (to 28.6 million tourists). During the same period last year, the year-on-year increase was 12%. More ominous still, the country’s two biggest tourist markets, Catalonia and the Canary Islands, actually saw visitor numbers fall from January to May for the first time since Spain’s tourist boom began.

This could spell trouble for Spain’s broader economy. The tourist industry provides around 13% of economic output. That’s two-and-a-half percentage points larger than the contribution of Spain’s construction sector at the peak of Spain’s mind boggling housing boom in 2007.

Tourism has played a vital role in Spain’s economic recovery, accounting for around a quarter of the new jobs created since 2013. The impact on Spain’s biggest tourist regions such as Catalonia, the Canary Islands, and the Balearic Islands has been even more pronounced, with over a third of the new jobs created there since 2013 depending on tourism.

Spain’s spectacular tourism boom is largely the result of a trend that is both externally driven and transitory in nature: The surge a few years ago in geopolitical risks affecting rival tourist destinations like Turkey, Egypt, and Tunisia. According to research by UBS, more than half of the growth of Spain’s tourist industry can be attributed to the drop-off in tourism in places like Tunisia, Turkey, and Egypt.

Now, that trend is beginning to reverse. Tourists are gradually returning to destinations in North Africa and the Middle East, many of which have the added advantage that they are considerably cheaper than Spain.

Last year was the best year for Tunisia’s tourist industry since 2014, with some seven million visitors. Turkey welcomed 11.8 million tourists in the first five months of 2018, a new all-time high, according to Culture and Tourism Minister Numan Kurtulmuş. “Tourist numbers are up over 30 percent compared to the same period of 2017… At the end of 2018, we will hopefully break a new record by hosting 40 million tourists and earning $32 billion,” Kurtulmuş said.

Between 2014 and 2016 tourist numbers to Turkey crashed by 25% as a result of instability in the region as well as a decision by Moscow to ban Russians from visiting the country following the downing of a Russian warplane over Turkey. That ban was lifted in June 2016. In 2017, Turkey’s tourist industry registered 39.9 million arrivals, its best year ever.

One of the UK’s biggest tour operators, Thomas Cook, recently reported that its Turkish holiday bookings are up 84% year on year. The tour operator also revealed that bookings to Egypt are up 89% while Tunisia is attracting more and more visitors after the company’s flights to the North African country resumed in February — three years after the region was hit by a terror attack that left 38 dead, including 30 Britons.

British holidaymakers are a vital segment for Spain’s tourist industry, accounting for over 1-in-5 visitors. But their number is beginning to drop. Brits made 2.3% fewer visits to Spain in the first five months of 2018 than they did during the same period of 2017. As we warned eleven months ago, if the sterling continues to fall sharply against the euro as fears of a hard or no-deal Brexit rise, Spain will probably receive fewer British tourists, and that is likely to have a major impact on the overall number of visitors.

Another factor that is hurting Spanish tourism is the continued growth of so-called “tourism phobia.” Last year Barcelona, Valencia, and parts of the Balearic Islands witnessed a rash of coordinated attacks against tourist targets led by Arran, the youth wing of the radical separatist CUP (Popular Unity Candidacy) party. At least seven hotels in Barcelona were vandalized by protesters. Graffiti telling tourists to go home has become a ubiquitous part of the urban landscape on Spain’s eastern Mediterranean cost.

Arran began this summer’s campaign by chaining a large sign to one of the emblematic dragons in Antoni Gaudi’s Park Güell demanding an end to mass tourism. It also stationed protesters outside the departures gate of Mallorca’s Son Sant Joan airport with placards bearing welcoming messages (in Spanish and English) such as “Tourism is Killing Mallorca”, “Mass Tourism=Precarious Jobs”, and “100,000 Visitors Per Day Is Unsustainable” (on a day that 185,000 visitors were scheduled to land on the island, which has a permanent population of just 869,000).

Many local citizens, while wary of supporting Arran’s extreme methods, are sympathetic to many of the group’s misgivings about today’s model of unfettered mass tourism. Last year local residents of Barcelona identified tourism as the biggest problem the city faces: worse than poverty, crime, and even unemployment. In Mallorca’s capital, Palma, the City Council has even banned all tourist apartments after a 50% surge in the number of unlicensed apartments in just two years.

Today’s brand of mass tourism may provide buckets of money for some businesses and local authorities, but it brings with it a toxic mix of externalities, including sky-high prices and rents, overcrowding, noise, environmental degradation, overstretched public services and infrastructure, and the gradual formation of a mono-dimensional economy. Also, many of the jobs it creates are of the casual, low-paid variety.

But without Spain’s recent massive boom in tourism those jobs would not exist at all. And without those jobs, the total number of unemployed in Spain would quickly surge back toward the 20% mark. If the latest visitor numbers are any indication, Spain tourist boom is already running out of steam. If visitors to the country’s saturated resorts receive a hostile reception this summer, they’re likely to travel elsewhere next time. Resorts in places like Turkey and Tunisia will no doubt be happy to oblige.

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11 comments

  1. Clive

    A little-known directive (the Package Travel Directive) closed a regulatory arbitrage opportunity which travel booking websites exploited to finesse consumer protection. Prior to the directive coming into force, a travel services aggregator could put together what was in effect a package deal (flights, accommodation, car rental, excursions etc.) as single purchases even though what they sold was in effect a package. This meant they carried no liability for a failure of any of these individual components of the deal.

    Consumers paid less, but they got pretty much zilch by way of consumer protection and the travel services aggregator would simply throw their hands up with a “it is nuffin’ to do wid me” liability shield for any rubbish their website carried. They didn’t even have to verify that the services they showed consumers really existed.

    It was nice for the aggregators while it lasted but the directive killed off all that fun. They now have to meet regulatory obligations, do due diligence on the travel services suppliers they list, source bonding in the insurance market, pay into the Air Travel Trust Fund and hedge risk exposure. It (the directive) has cleaned up the sector (somewhat) but it has increased apparent consumer costs because they get sticker shock when they see the true, unadulterated, cost of their travel and now have the right of redress against risks which they’d previously run but didn’t realise they were running.

    This has hit the bottom end of the market where a lot of the real rogues used to hide (short city breaks to very small sub-scale hotel chains or owner-operators of single establishments who used to engage in a lot of churn of ownership) — the aggregators are starting to look for an established track record and evidence of satisfactory trading performance.

    In short, quality of product and service is up, but so is price. As travel is very price sensitive at the volume end of the market, a long-term trend to short breaks is likely to be being reversed to fewer but longer duration travel. It will take Spain’s tourism industry a while to adjust to this. As the Wolf Street piece rightly noted, Spain ended up with an overdevelopment in tourism at the grot end of the market (especially with regard to inappropriately located accommodation in substandard buildings which were crudely repurposed to lodging) much of the sales of which came from these get-out-of-liabilities-free aggregator websites. A good housecleaning was well overdue, but it won’t be without its dislocations.

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  2. PlutoniumKun

    Its one of the things that surprised me about Brexit is that the Spanish government hasn’t been more actively involved – just looking at the tourism figures alone shows that a significant drop in sterling and even quite light restrictions on travel could hit some parts of Spain very hard. Its difficult to exaggerate sometimes just how much the super cheap airlines like Ryanair have changed travel for many people – the last time I was in a small Spanish airport I was pretty surprised to see the number of British people with no baggage whatever – literally, not even a tiny travel bag. Presumably they have holiday homes/apartments in Spain and they travel between them so often they don’t feel any need to bring even a change of underwear, they have everything they need already there. This will surely end soon.

    As for tourism and Spain, the obvious thing to note (and living in a touristy area of Dublin I’ve seen the effects here all to quickly) is that the real problem is mass tourism and city breaks. What might be called ‘regular’ tourism is very valuable for remote areas. I was in the uplands of Andalusia last year and it was nice to see so many small villages which work hard to bring hikers to places off the beaten track – you could see from the small newly opened guesthouses and restaurants, usually with Germans or English in hiking boots and so on, that this type of tourism was bringing jobs to places that needed it, without doing any obvious harm.

    If you go to another part of the world, you can see how different models can work. In the Himalaya, you have Nepal with its cheap and cheerful anything goes approach to tourism, and the strictly regulated (and very expensive) Bhutan model, which insists on an upper limit (100,000 visitors a year), and that all tourists must pay a heft visa fee and use only local guides, hotels, etc. The Bhutan model clearly works extremely well for the country, preventing over crowding and ensuring that the money goes to the people who need it. It does however mean that holidays in Bhutan are really only for the fairly well-heeled.

    My own favoured approach would be a hefty flight tax within Europe, which is refundable for one trip a year. In other words, set a tax that reflect the real environmental/social damage of too-easy and cheap flying, but allow people to claim it back for one trip, so foreign holidays don’t become the preserve of the well-off (Ryanair and other mass tourism enablers love to claim – with some justification – that they are only allowing working class people do do what the upper middle classes have loved to claim as their own prerogative – having a nice time sipping wine on a terrace overlooking the Med).

    Reply
    1. Jim Haygood

      Costlier crude oil (and by extension, jet fuel) is itself a hefty flight tax.

      Economics cannot tell us what the equilibrium price of oil should be. Overnight wonders such as the US shale oil boom make a shambles of trying to determine the marginal cost of production, as does the secrecy of Saudi Arabia and other OPEC members.

      But July 2008’s spike into the $140s (during a global recession, no less) was a warning that it could happen again, leaving Benidorm bereft and Nerja knackered.

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      1. PlutoniumKun

        In the short term, flight users (at least in Europe) seem surprisingly unresponsive to price hikes. Ryanair continued to grow and be profitable right through the recession despite being about the only major airline not to have hedged its fuel purchases. To an extent I think they pushed the pain onto Boeing by postponing aircraft purchases. But even Ryanair now hedge at least a year in advance, so I don’t think even a $150 a barrel spike would make a big short to medium term difference. For Spain, I think a big drop in sterling relative to the Euro would have a much more immediate impact.

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    2. vlade

      I used to commute between London and Europe weekly (i.e. Monday to London, Friday back). The cost of doing so was less than the cost of annual train ticket between London and south Suffolk I used to live before (and, the overall time spent on travel to/from work was less too).

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    3. John B

      That is an excellent suggestion. Rationing per person instead of strictly per wealth needs to be done more often, but it’s so contrary to neoliberal ideology I can’t imagine it happening. Proposals for a carbon tax need similar mechanisms.

      I was in Tenerife recently. For an American, it is an exotic destination, a strange combination of Spain, England (on the beaches), and Germany (in the mountains). They are implementing legislation to prohibit AirBnB, though details are unclear, and are stopping new hotels other than five star. I have mixed feelings about that, but can’t blame them.

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  3. Alex

    This doesn’t look too hard to solve – just impose a tax on flying to/staying in Barcelona, Balearic and Canary islands until the numbers become acceptable there. The overall revenues may even increase as a result of such policy.

    Also, having travelled all over Spain I can say that there are so many places that could use a little bit of tourists without any harm. So a carrot and stick policy would go a long way to solving this issue.

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  4. Mattski

    I’m in Valencia, where my wife and I both teach, for the third time in six years. After spending time in Barcelona (where I lived in the 80s, dreadfully overrun) and Madrid, we were delighted by this city, which despite lying in Spain’s most corrupt province, has a tiny and very beautiful centro that our 13-year-old was able to learn and negotiate, on a little push scooter, all by herself.

    Valencia has really been degraded by the tourist push, however, even in this short time. So many of the tiny shops that gave the place its flavor–selling work clothes, or sewing supplies, or hardware–have given way to tsotchke in this very short time. So much more of the real estate is in the hands of timeshare companies.

    We are part of the problem, since the university we work for lets such places short-term for faculty, but I am quite in the corner of the anti-mass-tourism protestors. As a former resident of San Francisco, I think affordable housing has to be the cornerstone of local economic efforts, everywhere. But I don’t see the protests or anti-tourism graffiti as a threat; I think most middle-class Europeans understand the problem quite well. The groundswell of anti-tourism organizing can, in fact, comprise part of a larger awakening, may be one of the few place where a economic engine that keeps all its machinery in Brussels can be prized open a little. By god, it has to start somewhere.

    *Just think I should add that the timeshare/rental business that is pushing so many working and older people out of city centers may need to be distinguished from the mass tourism on the coasts, the class dimensions considered. I remember Ireland in the 80s, how everyone combed the catalogs winterlong looking for sweet deals (once did Rimini and Florence in 6 days myself); I’m not sure these people are the problem, though. It’s the better-off hollowing out our cities–tourists and non-tourists alike–who might be the greater issue.

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  5. Jean

    People are sick of cigarette smoke, petty street crime and beggars, two things that tainted Barcelona for us as tourists.

    One cannot sit outside and eat or have a drink without being harranged by beggars, pickpockets or Africans selling Chinese made plastic crap. Did a informal survey in Madrid, one hustler every 45 seconds at the Puerta del Sol on a weekday.

    Plus, it’s no longer affordable, except for the incredibly overcapitalized and cheap high speed trains that are better than anything in France.

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  6. Ignacio

    Mass tourism degrades the environment (urban & countryside) although the extent of degradation depends not only on the number of tourists. Tourism in Spain, with its 13% share of the economy is, as commented, overdeveloped, as it was construction (13% in its peak 2007). Tourism goes with temporary (very short term) and cheap job positions.
    Yes, we need to find an alternative fast.
    Low carbon economy is my favourite alternative.

    Reply

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