Measuring and improving the socio-economic impact of an all-inclusive hotel in Turkey

Transcription

1 Measuring and improving the socio-economic impact of an all-inclusive hotel in Turkey A report by the Overseas Development Institute May

2 Executive Summary We go on holiday to enjoy ourselves but, lying by the pool, have you ever wondered what is your impact on the destination economy? Over the last few years, there have been a small but increasing number of international donorfunded studies assessing the effects of tourism on the economies of developing countries. However, most studies have focused on niche tourism, such as cultural or eco-tourism, in exotic locations in Africa, Asia or the Caribbean. This project is different. It is funded by the tourist industry and focuses on a very large All-Inclusive hotel in Turkey which is used exclusively by First Choice, the major UK holiday brand that is part of the largest tour operator in Europe TUI Travel PLC. This type of resort gives us a more representative picture of the effects of mainstream outbound leisure tourism from Europe. All Inclusive hotels are also controversial. Many people believe that they dilute the positive effects of tourism on the local economy. We estimate the total economic activity associated with the hotel at 47m in This includes the cost of selling holiday packages to tourists in the UK, flights to the destination, renting and operating the hotel as well as out-of-pocket spending on shopping and excursions by tourists. Each of these items of expenditure is examined to measure the linkages between this large hotel and the local economy. Of the total, 44% relates to expenditure taking place outside Turkey mainly the outbound tour operator marketing and flight costs. Of the 26m of total expenditure which is spent in Turkey, only about 7% is represented by imports. This reflects Turkey s sophisticated economy and relatively protected domestic market. Although Turkey captures over half of the total tourist value chain, the local economy benefitted relatively little from the hotel economic activity. Only about 10% of tourist spending benefitted the regional economy in 2009 and the benefits to the immediate area around the hotel were limited. On the basis of these findings, a series of recommendations were made in 2010 with the aim of doubling the positive local impact of the hotel. These included the localisation of expatriate staff posts and accommodation; improving labour conditions for hotel staff; and, local sourcing of food and services. After the first six months of implementation, the impact of the hotel on the regional economy was increased by over 0.8m (or 16%) whilst also improving the quality of tourist experience and financial performance of the hotel. A message from Johan Lundgren, MD, Northern Region, TUI Travel PLC For almost as long as the concept of All Inclusive holidays has existed, there has been debate surrounding the impacts that this holiday type may have on destinations. To date, however, there has been limited robust research conducted. With the concept clearly here to stay, we therefore initiated this comprehensive study in 2009, as part of our ongoing commitment to understand and take action to improve the socio-economic impacts of All Inclusive holidays. We wish to express our appreciation to the Overseas Development Institute for their professionalism and expertise throughout the project. All Inclusive plays a fundamentally important part in our total offer across TUI UK & Ireland, with the First Choice brand itself moving exclusively to All Inclusive from the summer of We plan to replicate this study at other hotels in 2011, in order to further both our knowledge and the benefits of all our holidays to destination stakeholders. A message from Sue Hurdle, Chief Executive, The Travel Foundation The role that All-Inclusive hotels may play in sustainable tourism is a subject of sometimes heated debate. All the more need therefore to look closely at the reality of the situation, on the ground, for particular hotels and their local communities and environments. This has been the intention of this work, commissioned by the Travel Foundation on behalf of TUI UK & Ireland and carried out by the Overseas Development Institute. I hope this ground-breaking report will make a useful contribution to the evolving debate and that every stakeholder will find something of interest. 2

3 Introduction In August 2009 the Travel Foundation, in coordination with TUI UK & Ireland, commissioned the Overseas Development Institute (ODI) to conduct a study to measure the linkages between a large all-inclusive hotel and the local economy, and to propose and implement interventions to strengthen these linkages. The flagship Holiday Village Turkey (HVT), in Dalaman on the south-western coast of Turkey, is the subject of the study. This summary presents the hotel linkages measured, recommendations proposed and a report on actions implemented. The aim of this document is to inform the travel industry, stakeholders within the destination, researchers, policy makers and the travelling public about the project. Through sharing the key findings and recommendations, the intention is to encourage informed public debate and positive change in the tourism industry around the issues raised. The all-inclusive (AI) model 1 commands a large and rapidly-growing share of the UK out-bound leisure tourism market. Although popular with tourists, AI hotels are often criticized for their negative impact on local people and the environment, especially in developing country destinations. The proliferation of AI hotels in destinations such as Turkey is also controversial, due to the perception of reduced benefits to the local economy compared with other types of board basis provided by hotels. There has been little rigorous analysis of the local socio-economic impacts of AI hotels. This project is part of a wider effort by the Travel Foundation to understand the impacts of contemporary tourism products so that impacts can be improved and the lessons learned can be applied in other hotels and destinations. The focus of this project is a very large, four-star AI hotel, Holiday Village Turkey (HVT), located in the village of Sarigerme on the south-west coast of Turkey. The hotel is used almost exclusively by TUI UK & Ireland customers under the First Choice brand. It is the largest hotel used by one of the largest outbound tour operators in the World. Holiday Village Turkey statistics (2009) Opened: 2005 Season: 01 May-31 Sep Number of rooms: 1,000 Number of guests: 49,239 Number of beds: 2,652 Average stay: 9.8 days Owner: Ozyer Group Package price: 450-1,300 Management company: Joy Group UK nationals as % >95% The current linkages between the Holiday Village Turkey and the local economy presented below are based upon a value chain analysis of the hotel undertaken in October 2009 by ODI. Information for the tourism value chain analysis of the Holiday Village Turkey was gathered from the tour operator, the hotel management company, and from interviews with the hotel owner, tourists, hotel staff, and local retailers and suppliers. An action-research approach was taken to this project, so whilst some data are very accurate (i.e. data from the tour operator and the hotel management company) other information is based on small samples and is indicative only. For this study, regional was defined as being within a 200km radius of the hotel; expenditure accruing directly to Sarigerme Village was also estimated to understand the impact of the hotel on the immediate local area. Holiday Village Turkey location Holiday Village Turkey 1 All-Inclusive is a type of holiday package which includes flights, accommodation, transfers and the majority of hotel expenses (including most or all food and drink) in advance. 3

4 Current linkages between the Holiday Village Turkey and the national economy The Figure below illustrates how the package revenues collected by TUI UK & Ireland for HVT were broken down in There are two principal cost centres: accommodation and flights. Other costs are accounted for by agents fees, and a range of ancillary payments such as transfers and resort entertainment. TUI UK & Ireland receives some further revenues from in-resort operations (such as the Kids Club) but these are largely offset by in-resort costs and so do not have a material net effect. TUI UK & Ireland expenditure In addition to the package revenue generated by the hotel (and paid prior to arrival), discretionary expenditure by tourists at the destination contributed an estimated 5.7m 2 to the Holiday Village Turkey value chain in The hotel management company which was running HVT in 2009 (a Turkish company, the Joy Group), went into liquidation in early 2010.This function was taken over for the 2010 season by TTOHL. Flight expenditure In the 2009 season, all of the TUI UK & Ireland guests accommodated in HVT arrived at Dalaman airport. Flights were provided by Thomson Airways, a subsidiary of the company. Although some flight expenditure benefits the domestic economy (the passenger handling and flight charges incurred at Dalaman airport) this is rather limited. This analysis assumes all flight expenditures accrue outside Turkey. Rental expenditure The rent for 2009 was paid to the hotel owner on a passenger night basis for the 484,000 bed nights occupied by First Choice guests in the hotel during the six month season. In addition to renting the hotel, TUI UK & Ireland was also responsible for paying the Turkish Government half the land rental. It is assumed that all this expenditure accrues in Turkey but, as the owner and Central Government are based in Ankara this revenue does not accrue in the regional economy. Operational expenditure The total operational expenditure incurred by the hotel management company in providing the all-inclusive product includes all the costs of running the hotel, except the rental payments to the owner and the in-resort entertainments and activities programme, which is provided by TUI UK & Ireland. The primary components of this operational expenditure are illustrated below. 2 The exchange rates used in this report are 1.00 = 2.37 Turkish Lira =

5 Hotel management company cost structure in Overall, it was found that a high percentage of food and beverage supplies were sourced from Turkey estimated at between 80-85% of total procurement by value, based on interviews with the hotel management company and local suppliers, an examination of hotel and supplier records and desk-based research. This high Turkish content reflects of two key factors. First, Turkey is largely selfsufficient in agricultural terms, with a well-developed agro-industrial base serving a large domestic market and substantial export sector. Second, Turkey maintains relatively high tariff rates and other barriers to imports across a range of agricultural and other products. 4 Although the Turkish content within the hotel s supply chain is high by both volume and value, the study found that the majority of these goods were produced and purchased outside of the local region. Staff Food & beverages Food and beverages represented the largest single element of the hotel s operational cost structure in Breakdown of food and beverage expenditure in 2009 Staff employed directly by the management company represented the second largest element of the Holiday Village Turkey s operational expenditure in 2009, totalling 30% of operational expenditure. Staff numbers fluctuated throughout the season, totalling 670 during the August peak period and 550 in October. All staff employed by the management company were Turkish citizens and more than twothirds of the hotel s workforce was drawn from within the regional workforce. Three-quarters of hotel staff are men. The average net wage for non-management staff at the Holiday Village Turkey was 325 per month in 2009, with the lowest paid staff receiving 240 per month. Although these net wages are lower than the Turkish net living wage of 346 per month, as determined by the Turkish Statistics Institute (TÜİK), they exceed the minimum wage of 262 per month. The net wages exclude accommodation, food, travel and social insurance benefits, all provided by the management company. Those staff not from the local area were being housed in shared accommodation in Sarigerme. 3 Totals do not add up to 100% due to rounding up of laundry and chemical expenditure (both 2.5% of total hotel operating costs) 4 It should be noted that these estimates relate to direct origin only, and therefore do not capture non-domestic inputs to domestically processed goods. The methodology also does not capture the distribution of value between local, government and international actors within value chains involving overseas parties 5

6 Expenditure on expatriate in-resort staff (one-third of whom were employed by TUI UK & Ireland and two-thirds of whom were employed by third party organizations contracted by TUI UK & Ireland) totaled 0.8m in Expatriate staff were accommodated in an apartment block in Sarigerme owned by the hotel owner. Expatriate staff completed a five day induction course covering all aspects of their roles, and began the season with varying knowledge levels of the local area and of Turkey in general. Discretionary expenditure breakdown 6 Staffing is an important linkage between the Holiday Village Turkey and the regional economy. The region benefits from employing local residents, the spending of non-local staff and the accommodation of migrant staff in locallyowned housing in Sarigerme. Staff surveys suggested that about one-third of hotel management company spending on staff accrued to the regional economy. An estimated 0.3m of TUI UK & Ireland expenditure on staff benefitted the local economy, with expatriate staff spending a high proportion of their salaries in Sarigerme on food and beverages. Other expenditure Expenditure on utilities, including electricity, water and waste water, liquefied natural gas and solid waste, represented the third largest element of the hotel s operational cost structure during the 2009 season. Other operational costs identified by the hotel management company include laundry, chemical products including pool chemicals and renovations. Discretionary expenditure Tourist surveys suggest an average discretionary expenditure (out-of-pocket expenditure over and above the holiday package) of about 119 per guest per stay, or approximately 12 per guest per day 5. Extrapolating the spending preferences recorded in the survey to the entire season (using exact figures for in-resort excursion expenditure supplied by TUI UK & Ireland), this data generates an estimate of about 5.7m as total customer discretionary spending per season tourist surveys were undertaken in mid-october Shopping The permanent shops within the Holiday Village Turkey (33 occupied in October 2009) were the largest beneficiary of customer discretionary expenditure, capturing an estimated 37% in Most supplies were sourced from Istanbul, Izmir and Ankara, with little evidence of local supply chains in place. The majority of shop leasees were from outside the local area. However wages to locally-employed staff and local expenditure by national staff on accommodation and living expenses, resulted in about one-quarter of expenditure benefiting the local economy, with the remainder accruing elsewhere in the Turkish economy. The failure of many of the permanent shops in neighbouring Sarigerme Village (49 occupied in October 2009) to benefit directly from Holiday Village Turkey guest discretionary expenditure, as evidenced by the estimated average guest spend in the village of just over 1 per guest per day, was surprising. Although hotel guests spend an estimated 2.6m on shopping outside the permanent shops in the Holiday Village Turkey, approximately three-quarters of this total was spent at weekly 6 Note that this breakdown does not include visa payments or spending on resort services provided directly by TUI Travel, e.g. Kids Clubs, wedding services, etc. 6

7 markets held within the Holiday Village Turkey and in Sarigerme and the nearby towns of Fethiye and Marmaris. The permanent shops in Sarigerme captured only about 0.5m or 8% of total discretionary expenditure. The majority of the shopkeepers in Sarigerrme village were from the local area or employed members of staff from the local area and this, combined with the rent paid to local landlords, resulted in an estimated 46% of expenditure accruing to the regional economy, with the remainder benefiting the Turkish economy. In total, shopping expenditure in 2009 contributed 2.2m to the regional economy, and an additional 2.4m to the rest of the Turkish economy. The sale of imported goods was negligible, only about 1% of retail sales. Pattern of retail spending Excursions After shopping, excursions from the Holiday Village Turkey were the next largest category of discretionary expenditure, capturing approximately 0.5m in The excursions market from the Holiday Village Turkey is small relative to the size of the hotel. By the end of September 2009 only 35,429 excursions had been booked by Holiday Village Turkey guests during the season (less than one excursion per guest per stay). The majority of excursions are provided by three companies: Tantour, which is owned by TUI Travel PLC and provides excursions sold by First Choice staff within the Holiday Village Turkey, and two independent excursion providers located in Sarigerme. Tantour excursion sales constituted approximately 75% of the total. It is estimated that excursions expenditure in 2009 contributed 0.3m to the regional economy, and an additional 0.1m to the Turkish economy and 0.1m leaking outside Turkey. Although excursions are a small proportion of the Holiday Village Turkey value chain, they are an important linkage with the local area because they take place outside the resort and so offer the opportunity to spread the benefits of discretionary expenditure more widely into the local economy. 12 island cruise excursion Main street, Sarigerme Photo credit: Fickr *aliza* 7

8 Other discretionary expenditure in 2009 was estimated to contribute 0.4m to the local economy. While little discretionary expenditure on food and beverages outside the HVT benefitted the local economy, due to the sourcing of most beverages from outside of the local area, all discretionary expenditure on transport benefitted the local economy. The main forms of transport used by guests were locally-operated taxis and the dolmus (a minibus service and run by a local cooperative which links local villages and towns). At a macro-economic level, Turkey benefited significantly from the operation of the Holiday Village Turkey in Of the 26m spent within Turkey, only 1.8m is represented by imports. This low level of direct leakage (estimated at less than 7% of in-country spend) reflects Turkey s sophisticated economy and the relatively high level of protection from import. Holiday Village Turkey value chain Analysis of the linkages between the Holiday Village Turkey and the local economy Our estimate of the global economic activity generated by Holiday Village Turkey (including selling packages overseas, flights to and from Turkey, the hotel operation, rents and tourist discretionary spending) is 47m in the 2009 season. Of this total, 45% relates to expenditure taking place outside Turkey principally activities coordinated by the outbound tour operator, such as selling holiday packages to tourists and transporting tourists from their origin to Turkey. The remainder, approximately 55%, is spent within Turkey. Holiday Village Turkey distribution of benefits The study estimates that 5.4m (11%) of the total Holiday Village Turkey value chain expenditure in 2009 benefited the regional economy. This regional spending was comprised mainly (over 3m) from discretionary spending, with most of the remainder from hotel staff and utilities. This indicates both the power of discretionary spending to create linkages with the local area, and the opportunity for TUI UK & Ireland and the management company to further improve the economic linkages between the operation of the Holiday Village Turkey and the region. Although most staff employed directly by the management company are from the region, and migrant staff spend a proportion of their income locally, the modest wage levels and the effect of high social security payments result in a relatively low benefit to the local area. Supplying food and beverages for the Holiday Village Turkey could potentially provide a significant market for local agricultural producers, however the hotel management company s centralised procurement in 8

9 2009, introduced primarily to reduce food and beverages costs, results in little primary produce currently sourced from the local area. Components of regional economic linkages Following the in-resort study, ODI designed a number of interventions to improve the number and value of economic linkages between the the Holiday Village Turkey and the local area. Each intervention had a detailed business case underlying it, to demonstrate that the intervention could generate significant benefits to Turkey (with a focus on the locality around the hotel), while also either saving money or being at least cost-neutral for the tour operator or hotel management company. The package of interventions developed, if implemented, would allow TUI UK & Ireland to further improve various aspects of the HVT operation while substantially increasing the positive economic impact of Holiday Village Turkey to the locality. Our target was for Holiday Village Turkey to double its impact from 1m to 2m in the Sarigerme area while reducing negative local impacts to the minimum. The key recommendations are listed below. An assessment of progress was made at the end of the 2010 season, one season after the recommendations had been generated. In the 2010 season, therefore, the implementation of several recommended interventions was a classic win-win-win for tourists, the tour operator and the local economy: Of the approximate 5.4m that HVT contributes to the region, about 1m accrued in and around Sarigerme Village. Although this represents a positive impact on the immediate vicinity of the hotel, there is debate regarding how these benefits compare with the associated wider costs. This study demonstrates that the local socio-economic impact of the hotel can be further improved by implementing a number of recommended interventions. Improving the linkages between the Holiday Village Turkey and the local economy Accommodation costs for TUI UK & Ireland were reduced; labour conditions for the hotel workforce were improved; 23% of expatriate staff positions were localised and this helped increase customer satisfaction scores by tourists; and three changes to the supply chain (localisation of expatriate jobs and local purchase of fresh fruit vegetables and laundry) and increased the impact of Holiday Village Turkey on the regional economy by about 0.8m a year. Not all the improvements were a direct result of the ODI study. Some were a response to changes in the operational environment and a result of the broader process of organisational change within the tour operator. However, the achievement of these improvements in just six months following the agreement of the recommendations illustrates how real is the scope for hotels to improve their positive impact on the destination economy, the staff and customers. 9

10 Recommendation What had happened by Nov 2010? Localise TUI UK & Ireland staff where possible (including all Transfer Representatives, half of the Holiday Advisors and at least half of the Third Party staff; 22 Turkish staff joined the entertainment team as animators in Customer satisfaction scores have increased as a result. Plan for half Holiday Advisors to be localized so a 30% localization of expatriate staff by May 2011 ( 300,000 gain for Turkey, with approximately 100,000 induced impact in local area) Accommodate all expatriate staff in locally-owned accommodation in Sarigerme; Positively encourage guests to spend time outside of the Holiday Village Turkey and in Sarigerme in particular, through publicising the local dolmus service, distributing promotional material for Sarigerme and the local area to guests, and work constructively with local retailers to build a relationship between Holiday Village Turkey staff and the local community; Ensure that the management company employs an adequate number of staff and improves the standard of accommodation for migrant staff Explore the scope for increasing the local procurement of goods. Produce guidelines for the sustainable development of new allinclusive resorts in the future. Develop operational sustainability indicators for all TUI Travel all-inclusive resorts, to allow their operations to be more closely and accurately monitored. Contractual commitment to existing accommodation, however 5-10 apartments will be used for TUI UK and Ireland staff in Sarigerme Village in 2011 Some progress has been made on improving links with Sarigerme Village, with a more positive approach taken at tourist Welcome Meetings in HVT and a walking tour of the village developed (for implementation in 2011). Improving local relations is a priority for the TUI UK & Ireland Holiday Village Manager in 2011 Change in hotel management company has resulted in improved terms and conditions for staff and wages are now paid on time; some migrant staff now in accommodation previously used by TUI UK and Ireland staff Some evidence of localization of local supply chains from the usual outlets in Antalya: FFV now purchased from close-by Ortaca; all dry goods (all now from local outlets although sourced from all over Turkey); and a laundry in Marmaris is used (this has increased impact in local area by some 725,000 a year) ODI provided input to the socio-economic section of the TUI Travel PLC Guidelines for Environmental Sustainability in Hotels (launched in November 2010), which will be distributed in 2011 during contracting for the 2012 season. An audit of baseline performance of all flagships, development of 5 year plans, and assistance to hotels to achieve all standards is planned to commence in All future TUI UK and Ireland investments now incorporate sustainability considerations into the brief. Hotel contract specification documents now incorporate flagship standards for all Holiday Villages, which include minimum mandatory criteria which must be achieved. TUI Travel PLC created a Sustainable Development Executive role, whose primary remit is data management and reporting for TUI Travel PLC hotels, including TUI UK differentiated All inclusive hotels (e.g. Holiday Villages). 10