European Travel & Tourism:

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1 European Travel & Tourism: Where are the greatest current and future investment needs? April 0 April 0

2 European Travel & Tourism: Where are the greatest current and future investment needs? A report prepared by Oxford Economics for the World Travel & Tourism Council

3 Restoration of the Parthenon on Acropolis Athens, Greece Foreword The World Travel & Tourism Council (WTTC) is the global authority on the economic and social contribution of Travel & Tourism. It promotes sustainable growth for the sector, working with governments and international institutions to create jobs, to drive exports and to generate prosperity. Members are the Chairs, Presidents and Chief Executives of the world s leading, private sector Travel & Tourism businesses. These Members bring specialist knowledge to guide government policy and decision-making, raising awareness of the importance of the sector as an economic generator of wealth. Understanding and addressing the challenges inhibiting the sustainable growth of our sector is paramount for all industry stakeholders. Together with our research partner, Oxford Economics, and to coincide with the th annual WTTC Global Summit in Madrid, Spain in April 0, WTTC is pleased to have produced this report on Travel & Tourism investment in Europe. The report draws on data from WTTC s annual Travel & Tourism Economic Impact Research 0 and the World Economic Forum s Travel & Tourism Competitiveness Report 0, and seeks to understand whether and where the region s and investment will constrain or support future industry growth. WTTC has forecast that there will be. trillion worth of Travel & Tourism investment made in Europe over the next decade. However, with the sector forecast to grow as fast, or faster, than the economies overall in every major European region, and the lagging state of much today, baseline growth forecasts for both investment and Travel & Tourism s overall contribution to GDP may only be met with sufficient and effective investment to support this demand. Given the diversity of Europe, there are disparities in the relative contributions of Travel & Tourism to economies as well as to the state of Travel & Tourism in the region. As a result, some countries are much better placed than others to capitalise on forecasted demand. While a positive relationship exists between Travel & Tourism and the contribution the sector makes to GDP, this report gives heed to the fact that government deficits, fiscal austerity and high competition for foreign direct investment requires future investments to be smart and well-targeted. This need for smarter investments gives even more importance not only to opportunities for greater collaboration between public and private actors, but also to seeking crossborder cooperation and creative funding options. Breaking down barriers to development through the right business, political and regulatory frameworks will help to ensure that Travel & Tourism in Europe maintains a strong and competitive position. David Scowsill President & CEO World Travel & Tourism Council

4 European Regional Groupings Contents For the purposes of this report, Europe is defined according to the UN regional classifications * listed below. Countries and sub-classifications of countries in Europe. Executive summary 0 How investment and support Europe s Travel & Tourism sector Belarus Albania Austria. The economic contribution of the Travel & Tourism sector to Europe s economy Bulgaria Czech Republic Estonia Bosnia and Herzegovina Croatia Cyprus Belgium Denmark Finland. Defining the role of investment and in supporting the Travel & Tourism sector. The importance of investment to success in the Travel & Tourism sector Hungary Greece France. Infrastructure quality and capacity today are strongly related to historical investment spending Latvia Italy Germany Lithuania Moldova Poland Macedonia Malta Montenegro Iceland Ireland Luxembourg Which European countries have the greatest need for current and future investment?. Assessing the quality and capacity of Europe s Travel & Tourism Romania Russia Slovakia Portugal Serbia Slovenia Netherlands Norway Sweden. Assessing objective subcomponents of the three major WEF pillars. Which countries have the greatest needs between 0 and 0? Ukraine Spain Switzerland Turkey United Kingdom The outlook for European Travel & Tourism investment spending. A regional comparison of forecasted investment spending. Sectoral composition of investment spend * Cyprus and Turkey reclassified as for purposes of this report. In addition, Western European and Northern European countries have been grouped together, as they frequently represent a common narrative. Conclusion putting Travel & Tourism investment on European governments agendas European Travel & Tourism: Where are the greatest current and future investment needs? April 0

5 Executive summary Askøy Bridge Bergen and Askøy, Norway The Travel & Tourism sector makes a substantial contribution to European economies. In 0, including its direct, indirect, and induced impacts, Travel & Tourism supported. million jobs and made nearly. trillion in contribution to gross domestic product (GDP), or.% of total European GDP. By 0, the Travel & Tourism sector s total economic contribution is expected to grow to million jobs and. trillion in contributions to GDP (.% of total European GDP). In addition, Travel & Tourism will be a key to recovery for countries hit hardest by recession and the Eurozone crisis, including Greece, Spain, and Portugal. The sector s growing GDP and jobs contribution depends on supportive and investment. While investment must be smart, there is a strong historical link between the magnitude of Travel & Tourism investment spending and the quality and capacity of European countries Travel & Tourism. The success and size of the economic contribution from Travel & Tourism is directly linked to the amount of investment in the sector. Travel & Tourism is forecast to grow as fast, if not faster, than the economy overall in every major European region, putting pressure on capabilities and increasing the need for additional investment. For example, Western and Northern European countries are expected to experience average annual growth in their Travel & Tourism sectors of.%, compared to whole economy growth of.% per year. In, Travel & Tourism growth of.% is expected to marginally outpace economy-wide growth of.%, while s Travel & Tourism sector growth of.% per year will outpace economy-wide growth of.%. Compared to baseline forecasts, however, poor existing quality and capacity or inadequate future investment could slow growth in Travel & Tourism GDP and jobs contributions between 0 and 0. This report shows that several countries could fail to achieve baseline forecasts for Travel & Tourism GDP and jobs, and fall behind in global competitiveness terms, due to limited and underinvestment relative to Travel & Tourism demand. This report uses three categories to identify country typologies, ranging from those that are at risk of losing Travel & Tourism competitiveness over the next decade, to those that are well-placed to benefit from forecasted investment spend between 0 and 0 (Figure 0.): Well-placed: This group of countries, exemplified by Austria, Germany and the United Kingdom, has high existing quality and capacity of Travel & Tourism which they are expected to maintain and improve between 0 and 0. With investment growth expected to outpace demand over that period, these countries are well-placed to capture the full benefits of forecasted Travel & Tourism demand. At medium or high risk: This category includes countries like Albania, Bosnia and Herzegovina, and Moldova, which are considered to be at high risk because they have the poorest existing quality and capacity of the countries analysed in this report. Croatia, Serbia, and Slovakia are also considered at risk, because Travel & Tourism investment growth is expected to lag behind demand growth over the next decade, and their starting quality and capacity today is average in the case of Croatia or low in the case of Serbia and Slovakia. Portugal, having relatively strong existing capabilities, is a special case: because demand growth is expected to outpace investment growth by such a wide margin, the country faces a risk that its current quality and capacity will degrade over the next decade. Unlike Spain, Portugal did not have the same high level of Travel & Tourism investment in the period before the global recession. Few countries can claim a high ranking across all three major Travel & Tourism pillars analysed in this report, comprising tourism, air transport and ground transport. Southern and an countries tend to have weaker air transport capabilities, while a number of Western and Northern European countries including the UK, Germany and Denmark need to improve their tourism before being ranked best in class for that pillar. Several Southern and an countries, including Albania, Poland, Romania, and Serbia, fall short on all three pillars. The European countries analysed in this report are expected to invest. trillion in Travel & Tourism between 0 and 0. That is % of all forecasted European investment over the period. The Western and Northern European countries analysed in this report will contribute the largest amount, at. trillion, or % of the European total and 0 per foreign visitor and domestic resident. The an countries analysed in this report will contribute 0 billion, or % of the European total and 00 per foreign visitor and domestic resident. And the an countries analysed in this report will contribute nearly 0 billion, which is % of the European total and equivalent to a little over 0 per foreign visitor and domestic resident. Future investment in the European Travel & Tourism sector must be smart. Government deficits, strained corporate balance sheets, and strong competition among major world regions for foreign direct investment mean that future investment spend must be welltargeted. A recent report by the European Court of Auditors highlighted the dangers of poorly targeted spending: of 0 million in Cohesion policy funds spent on 0 airport Well-placed, but with key risks: France, Italy, Switzerland, Ireland, and Greece are one set of countries included in this category. Each of them has existing Travel projects in Estonia, Italy, Greece, Poland, and Spain, % was deemed to have & Tourism quality and capacity that is greater than the European average. Yet their gone to projects that were not needed at all. Seven of the 0 airports which received funding strong positions are likely to deteriorate somewhat over the next decade, since Travel & for expansion projects are unprofitable, and will likely be closed in the absence of permanent Tourism demand growth is forecast to outstrip Travel & Tourism investment growth over public funding. Indicatively, only half of the airports analysed had more passengers postexpansion, suggesting significant underutilization of the newly built. the period. Similarly, Denmark and Finland have better than average Travel & Tourism quality and capacity; however, weak historical investment growth Government and financial sector constraints on funding suggests that European countries presents risks to the forecast that investment growth will exceed demand growth in the should seek opportunities for cross-border collaboration and creative funding options. next decade. Slovenia and Latvia are also well placed, with risks. Their key strength is Europe s relatively small geographic size and existing integration means cross border that they are expected to see investment growth that is stronger than demand growth Travel & Tourism collaboration can be uniquely effective. For Europe, smart over the next decade; their key risk is their existing quality and capacity, investment, especially in periods of fiscal austerity, may come in the form of creative funding which is below the European average. options like public private partnerships or even crowdfunding. EU-funded airport s: poor value for money, (0), European Court of Auditors, December. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

6 Figure 0.: Defining the problem with country typologies Higher current Travel & Tourism quality and capacity Switzerland Spain France United Kingdom Austria Germany Italy Iceland Cyprus Malta Ireland Greece Norway Denmark Portugal Netherlands Belgium Finland Sweden Croatia Slovenia Estonia Czech Republic Turkey Latvia Bulgaria Russia Hungary Lithuania Poland Slovakia Romania Serbia T&T investment to demand ratio* (00 0 avg to 0) Less favourable ratio Balance More favourable ratio Macedonia. 0 Albania Bosnia and. Herzegovina Moldova Western & Lower current Northern Europe Travel & Tourism. Legend: Well-placed Well-placed, At medium risk At high risk quality and but key risks capacity * The T&T investment to demand ratio is the ratio of forecasted average annual Travel & Tourism investment growth over the next decade divided by forecasted average annual Travel & Tourism demand over the same period. Note: Four countries are excluded from this diagram. Belarus lacks WEF data, forecasts for the Ukraine at the time of publication are vastly more uncertain than is typical due to the country s ongoing conflict, and Luxembourg and Montenegro are outliers that obscure trends among the other countries in the diagram. chapter How investment and support Europe s Travel & Tourism sector Figure.: Direct, indirect, and induced Travel & Tourism contribution to GDP in 0 (%) Direct Indirect Sources: WTTC, Oxford Economics European Travel & Tourism: Where are the greatest current and future investment needs? April 0 World 0. The economic contribution of the Travel & Tourism sector to Europe s economy The Travel & Tourism sector continues to grow in value and importance in the global economy. Recent economic impact research by the WTTC and Oxford Economics estimates that Travel & Tourism supported. trillion,, in gross domestic product (GDP) in 0, amounting to.% of global GDP for the year. The sector also supported nearly 0 million jobs worldwide. The European Travel & Tourism sector is an important part of the global picture. In 0, it supported nearly. trillion in GDP, or % of global Travel & Tourism GDP and.% of total European GDP. Furthermore, the European Travel & Tourism sector supported a total of. million jobs, more than is supported (individually) by the European ICT, mining, or banking sector. There is, however, significant variation in the relative contribution of Travel & Tourism between Europe s regional economies. In the Travel & Tourism sector supports an average of.% of GDP (Figure.). That is a full. percentage points more than the world average of.%. an economies, several of which have struggled economically in recent years and continue to face significant challenges, can therefore be characterised as being highly reliant on Travel & Tourism. Western and Northern European countries (.%) and an countries (.%) are less reliant on the sector than the global average. 0 % Whole Economy GDP Induced. Including direct, indirect (supply chain), and induced (consumer spending) impacts. A standard economic impact analysis considers all three impacts: Direct impacts arise from the sector s operational activities providing services to its customers; indirect impacts arise as the sector makes purchases from other sectors in the economy, precipitating supply chain ripple effects; induced impacts flow from consumer spending in retail and leisure outlets initiated by employees working in the sector or in the sector s supply chain. All currency values in this report are measured in Euros at 0 prices and exchange rates unless otherwise specified. See Page for the countries that make up each regional grouping.

7 Madrid Atocha Railway Station Madrid, Spain. Defining the role of investment and in supporting the Travel & Tourism sector 0 The Travel & Tourism sector is forecast to grow as fast or faster than the economy overall in every major European region, putting pressure on capabilities and increasing the need for additional investment (Figure.). Western and Northern European countries, for example are expected to experience average annual growth in their Travel & Tourism sectors of.%, compared to whole economy growth of.% per year. In overall, Travel & Tourism growth of.% is expected to modestly outpace economy-wide growth of.%. Excluding Russia, however, the an Travel & Tourism sector is forecast to grow by an average of % per year, outpacing economy-wide growth of.% per year. Meanwhile, in, Travel & Tourism sector growth of.% per year will outpace economy-wide growth of.%. The gap is relatively modest in any individual year, but grows more important in cumulative terms over a decade. Figure.: Whole economy GDP and Travel & Tourism direct GDP growth forecast from 0 Growth from 0 0 (%) By 0 the European Travel & Tourism sector will Expanding capacity: In order to support higher demand and a greater volume of be worth an estimated. trillion (a % increase tourists, investment is required to build more visitor accommodation, from 0, or.% average annual growth) and will increase airport capacity and expand tourist facilities. Insufficient capacity can lead support million jobs. These magnitudes highlight to supply-side bottlenecks and a limit on growth, as well as put upward pressure on the economic importance of supporting the sector s prices, such as hotel room rates, which affects competitiveness. growth. This report will explore one of the key enablers of the sector and will seek to answer the following questions: Is present day European Travel & Tourism adequate? Is future sector investment going to be sufficient to build the required or will capacity constraints prevent baseline forecasts for the sector from being realised? Are particular countries more at risk than others? If the European Travel & Tourism sector is to support future demand and achieve the baseline forecast of a 00 billion increase in direct contributions to GDP the continent must focus on its supporting, as well as supply side issues such as talent. Both the public and private sectors will need to devote resources to maintaining the current stock of Travel & Tourism, improving it and building new and better. The quality and capacity of is a key competitiveness factor, and other regions the Middle East and Asia, in particular have made (and are expected to continue to make) large gains in this arena. What is and investment? Infrastructure comprises the buildings, structures and equipment which are essential to providing goods and services to society, yet are not immediately used up in the process of producing and delivering them. Infrastructure can be provided publicly as governments do regularly as well as privately. Travel & Tourism investment often includes: accommodation development and major maintenance, including provision of new building structures and furniture and equipment to fit-out or refurbish existing hotels and holiday homes; passenger transport, such as aircraft and cruise ships for specific tourism use; capital projects and refurbishments designed to attract visitors; information technology (ICT) projects; and green and other sustainability-oriented investments within the industry, such as solar and retrofit schemes, designed to enhance energy efficiency. Government investment spending is often directed toward the construction of visitor centres, tourist information offices, publicly funded airports, and utilities (including, e.g., water supply and ICT-based ), but can also include contributions to large resort-based investments. Government Travel & Tourism investment does not include government investment in multi-use such as roads or public transport, even though this may be used, in part, for Travel & Tourism as well as for other uses. Private investment expenditure is often for residential structures such as vacation houses and non-residential structures such as hotels, convention centres and privately funded airports. It also includes Travel & Tourism equipment such as airplanes, cruise ships, and rental cars. Both government and privately funded investment are essential to support the growth and development of the Travel & Tourism industry within Europe, as elsewhere. Whether initiated by government or by the private sector, it can play the following roles: Western & Northern Europe Whole Economy Travel & Tourism Sector Sources: WTTC, Oxford Economics European Travel & Tourism: Where are the greatest current and future investment needs? April 0

8 Maintaining and enhancing current : Continued investment in existing plays a central role in maintaining and improving its functionality and quality through major refurbishment and upgrading. Capital expenditure on existing is essential for adapting to account for the evolution in consumer tastes over time, such as growing visitor demand for WiFi services, while refurbishments extend the life of existing assets. Stimulating demand: Capital expenditure on new visitor attractions can generate additional demand and help gain or retain market share in the face of competition. These projects aim to enhance the appeal of a destination through improving its offering. For example, a hub airport can put a location like Dubai on the Travel & Tourism map, which stimulates demand for Travel & Tourism services well beyond the airport itself. Figure.: WEF composite Travel & Tourism score and Travel & Tourism direct GDP contribution in 0 Direct Travel & Tourism GDP (% total GDP) Serbia Macedonia Hungary Russia Turkey Czech Republic Greece Cyprus Portugal Italy Denmark Iceland Spain Austria France United Kingdom Switzerland 0 WEF composite score Street Renewal Project Brussels, Belgium Sources: World Economic Forum, WTTC, Oxford Economics Note: Albania, Croatia, Malta and Montenegro are excluded from this analysis due to their distorting effect. These nations benefit from exceptionally high direct Travel and Tourism GDP contributions despite having relatively poor.. The importance of investment to success in the Travel & Tourism sector Whether travelling for business, visiting friends and family, or leisure purposes, at home or abroad, travellers directly and indirectly rely on a wide range of. Visitors travel by rail, road, air or sea; communicate by phone, , or instant message; sleep in hotels and other forms of accommodation; attend meetings and enjoy entertainment options that would be impossible without supporting, whether it be a robust electrical grid and water supply or a well-maintained road and airport network. Historically, there has been a strong link between the quality and capacity of a country s and the success of its Travel & Tourism sector, as measured by the sector s economic contribution. This link can be measured statistically by comparing the measured quality of related to Travel & Tourism and the estimated economic contribution It is too much to expect that Travel & Tourism quality and capacity could of the sector across countries. That relationship is shown in Figure. for European explain all of the variation shown in Figure.. Much of the cross-country variability is countries in 0. It uses the World Economic Forum s (WEF) Travel and Tourism due to differences in climate, geography, the number of tourist attractions, and the size Competitiveness Report results as the independent variables measuring, of competing industries. For example, all else equal, Spain s natural climate advantages while the WTTC s estimates of direct Travel & Tourism GDP are the dependent variables measuring the association with economic activity. Figure. provides a line of best fit between these two variables. It shows the correlation between and the magnitude of the direct contribution that Travel & Tourism makes to a country s GDP. At the top right of the chart is Spain, which relies on the Travel & Tourism sector directly for.% of its GDP (compared to.% for Europe overall) and has very good capabilities, represented by a WEF composite score of out of. In the middle of the graph lies a country like the Czech Republic, which has a composite score of. out of and directly relies on the Travel & Tourism sector for.% of its GDP. And at the bottom left are countries like Serbia which has poor quality and capacity (its composite score is. out of ) and does not have a significantly developed Travel & Tourism sector (Serbia directly relies on the sector for.% of its GDP). Serbia will require a host of improvements to support a larger Travel & Tourism sector. For example, the country could improve its rural roads, overhaul an outdated rail network that is not up to the standards of most international tourists, and increase air accessibility within the regions, which it could do by allowing commercial flights at military bases. relative to Switzerland increase the likelihood that Spain will have a persistent comparative advantage in satisfying Travel & Tourism demand relative to Switzerland. Unsurprisingly, Switzerland s economy is more reliant on sectors that depend less on the weather, like finance (% of GDP in 0) and manufacturing (% of GDP). Finance and manufacturing are more likely to hold longstanding comparative advantages for Switzerland than Travel & Tourism, and improving Switzerland s already good Travel & Tourism quality and capacity will not change that. Four countries Albania, Croatia, Malta, and Montenegro have been removed from the figure. They are unique in that they are small economies with relatively undeveloped, yet tourism impacts comprise exceptionally large shares of their GDP. They have been removed to avoid obscuring the relationship observed between capability and Travel & Tourism impacts in the majority of European countries. These four countries comprise just 0.% of the gross domestic product of the countries comprising Europe in this report World Economic Forum, (0), Travel and Tourism Competitiveness Report 0. The WEF produces a Travel and Tourism competitiveness report every two years. The WEF composite score is computed as the simple average of three key pillars within the Travel and Tourism Competitiveness Report, including Tourism Infrastructure, Air Transport Infrastructure, and Ground Transport Infrastructure. Scores are ranked from - and are based on a WEF executive opinion survey. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

9 . Infrastructure quality and capacity today are strongly related to historical investment spending If capacity is to be improved, it is important to determine what drives it. Figure. shows that, for most European regions there is a strong relationship between the last decade and a half of investment spending measured per foreign visitor and domestic resident and WEF composite scores in 0 (although it is also important to recognise that investments made more than a decade and a half ago also play a role 0 ). The relationship is strongest in. Greece, which hosted the Olympics just ten years ago and spent an average of 00 per foreign visitor and domestic resident annually between 000 and 0, lies at the top right of the graph. Spain (which spent an average of 0 per foreign visitor and domestic resident over the period) and Portugal ( 0) have also made considerable investments over the last years. These countries tend to have better WEF composite scores than countries like Albania ( ), Serbia ( ) and Macedonia ( ) that have devoted fewer resources to Travel & Tourism development over the past years. Similarly, investment in the Travel & Tourism sector in an countries over the past years is strongly related to their present day WEF composite scores. Within, Estonia ( 0 in investment per foreign visitor and domestic resident per year), the Czech Republic ( 0) and Bulgaria ( 0) are better placed to support burgeoning tourism sectors with their capabilities than are countries like the Ukraine ( ) and Moldova ( ). Figure.: Travel & Tourism investment spending per foreign visitor and domestic resident versus WEF composite score WEF composite score (0) Travel & Tourism investment per foreign visitor/domestic resident WEF composite WEF composite score (0) chapter Which European countries have the greatest need for current and future investment? The previous chapter highlighted how important the quality and capacity of are to capturing Travel & Tourism s economic benefits. This should be put in the context of forecasted demand growth for the coming decade. The baseline forecast is for Travel & Tourism s total impact (including direct impacts, supply chain impacts, and employee spending impacts) on the European countries analysed in this report to increase from.% of GDP in 0 to.% by 0. However, if that baseline forecast is to be met, appropriate levels of investment must be undertaken. If that does not happen, the sector runs the risk of failing to achieve the baseline forecast and losing competitiveness against other world regions. This chapter begins with a detailed assessment of European Travel & Tourism today. It then draws attention to economies and regions where potential growth bottlenecks require attention.. Assessing the quality and capacity of Europe s Travel & Tourism Travel & Tourism score Travel & Tourism score To assess the quality and capacity of Europe s Travel & Tourism, this section makes extensive use of the World Economic Forum s (WEF) Travel and Tourism Travel & Tourism investment per foreign visitor/domestic Travel & Tourism investment per foreign visitor/domestic residentand WEF composite Travel & Tourism score resident and WEF composite Travel & Tourism score Competitiveness Report. The report features detailed scores for three key Travel & Tourism pillars across 0 countries, including 0 of the European countries R² = 0. Spain R² = 0. analysed in this report. These pillars are Tourism Infrastructure (which includes, for Turkey Italy Czech example, accommodation and car hire), Air Transport Infrastructure, and Ground Transport Bulgaria Cyprus Republic Portugal Greece Russia Infrastructure. The scores are based on a combination of executive opinion surveys, which Malta Hungary Estonia Ukraine allow for a measure of quality, and objective secondary data, which allow for a measure of Macedonia Croatia Lithuania Poland capacity and quantity. The scores are imperfect certain quantitative-only variables may Slovakia Romania skew scores that could benefit from a more qualitative perspective; per capita measures Albania Moldova can be distorting; and executive opinions do not necessarily encompass all travellers views but nevertheless provide insight into Europe s existing capabilities. As of the date of publication, the Travel and Tourism competitiveness report remains the most comprehensive source available for Travel & Tourism data Table. shows that compared to other regions of the world, Europe, as a whole, ranks Travel & Tourism investment spending (Euros per person, average Travel & Tourism investment spending (Euros per person, average Travel & Tourism investment spending Travel & Tourism investment spending 000-0) Sources: WTTC, Oxford Economics 000-0) Sources: WTTC, Oxford Economics (Euros per person, average 00-0) (Euros per person, average 00-0) Sources: WTTC, Oxford Economics Travel & Tourism investment per foreign visitor/domestic resident WEF composite Sources: WTTC, Oxford Economics relatively well in terms of its current Travel & Tourism capabilities. Its composite Travel & Tourism score is. out of, which places Europe second only to North America on all measures. Currently, then, European overall should be considered of good quality and capacity but with room for improvement if Europe aspires to have world-leading Travel & Tourism. The optimal denominator would be foreign and domestic visitors. Number of domestic residents is used here as a proxy for domestic visitors, because data for the number of domestic visitors is unavailable. In addition, because investment unit costs vary by country wages especially a euro invested in one country can result in different investment output than a euro invested in another country. 0 While countries like the UAE and Qatar have shown that it is possible to build world class Travel & Tourism with critical mass in a very short amount of time, the typical pattern for most countries is a sustained build-up over time. World Economic Forum, (0), Travel and Tourism Competitiveness Report 0 The World Economic Forum is in the process of adjusting the composition of its Travel & Tourism scoring system for its 0 report, but the results were not yet available at the time of publishing this report. This report defines North America as the United States and Canada, while Mexico is included in Latin America. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

10 Table.: WEF ratings by world region and type in 0 Table.: WEF ratings by world region and type in 0 WEF Infrastructure ratings by world region by type (0) WEF Infrastructure ratings by world region by type (0) Composite rank Composite score (0-) Tourism rank Air transport rank Ground transport rank Composite rank Composite score (0-) Tourism rank Air transport rank Ground transport rank North America.0 North America.0 Europe Middle East Asia-Pacific... Western & Northern Europe Southern Europe.. Latin & Central America Africa.. Middle East Asia-Pacific..0. Sources: World Economic Forum, WTTC, Oxford Economics A more nuanced picture emerges from a detailed regional analysis as in Table.. It is clear that and face a number of Travel & Tourism challenges. s greatest weakness is its air transport capabilities. With an air score of. out of, it ranks th out of nine regions in the world, behind the Middle East and Asia Pacific. faces an even greater threat from poor air transport. Its score of out of indicates urgent need for improvement, ranking only above Africa (which has a WEF air transport score of.) for this pillar. s air challenges are compounded by poor road and rail. The region s score for ground transport is. out of, which is the lowest of any of the European regions and indicates significant room for improvement. Western Europe and Northern Europe have a composite score of.. On average, then, the countries in those regions have good quality and capacity, although there remains room for improvement if compared to North America, which can be treated as a benchmark for Travel & Tourism. Airport Runway Gibraltar, UK Latin & Central America Sources: World Economic Forum, WTTC, Oxford Economics For example, while Switzerland ranks the highest in aggregate among the countries shown, that is largely a function of its tourism and ground transportation scores; the country s air transportation score is good but not outstanding, at. out of. Switzerland s air transportation score places it th out of the countries in the table, suggesting there is some room for improvement before it can compete with best in class countries in this regard. While excellent road and rail networks connect Switzerland internally and to its neighbours, the country s air could be made more attractive to the third of its visitors who arrive from the Americas and Asia. Africa.. Within the European regions, it is possible to identify individual countries that have particular needs. Table. presents the WEF Travel & Tourism scores for 0 of the countries included as part of this report s definition of Europe (it excludes Belarus due to a lack of data). It also includes comparator countries, from the high ranking United States to the lower ranking Kenya, to provide a global context to the discussion. At the top of the composite rankings are Switzerland, Spain and France with scores of.,.0 and. out of, respectively. At the bottom are countries like Albania, Bosnia and Herzegovina, and Moldova with composite scores of.,., and. out of, respectively. Countries falling somewhere in-between include Croatia (.), Estonia (.) and Turkey (.). It is notable that few countries are high-ranking across all three major tourism pillars. In some cases, this suggests that complementarity between two of the capabilities and/or a country s geographical position make development of a third component less urgent; in other cases, there is a risk that a country will miss opportunities for growth by failing to develop the third, weaker component. The composite score is calculated as a weighted average of the separate scores. Ranks and ratings are shaded using a colour scale, where green signifies strong performance and red signifies weak performance. North America is defined as the United States and Canada. Where WEF region aggregates don t exist, they are created using simple averages. The composite score is calculated as a weighted average of the three separate scores. Ranks and ratings are shaded using a colour scale, where green signifies strong performance and red signifies weak performance. North America is defined as the United States and Canada. Where WEF aggregates don t exist, they are created using simple averages. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

11 Similarly, the data suggest that Spain s air transportation may benefit from well-targeted improvements. The country s WEF score for air transportation is., placing it th among the countries listed. Germany and the UK have strong scores overall, but their tourism could be improved relative to the highest-ranked countries. The UK currently ranks 0 th out of for this variable (. out of ), while Germany ranks st (. out of ). Greece, which is heavily dependent on tourism (% of its GDP in 0), is considered to Spain.0... have excellent tourism, ranking rd for this pillar out of the countries listed United States.0...0, in Table.. Yet, the country has an urgent need to improve its road and rail networks: its France.... ground transportation pillar has a score of.0 out of, placing it th in the United Arab table. The same can be said of Bulgaria (for which % of its GDP depends in some way on Emirates....0 the Travel & Tourism sector), although in addition to ground transportation, the country s air United Kingdom.... transportation is also in need of attention. Austria Germany.... A number of Southern and an countries are candidates for urgent Australia...., improvements in all three major pillars. For example, Albania, Bosnia and Herzegovina, Macedonia, Moldova, Poland, Romania, Serbia, and Ukraine each have Italy composite scores of. out of or below, and rank in the bottom th Iceland percentile of the countries in Table.. Cyprus.... Malta Ireland.... Greece....0 Norway Artistic impression of a construction site Singapore..0.. Denmark.... Portugal.... Netherlands.... Belgium Finland Sweden Japan.... Luxembourg Croatia...0. Thailand.... Slovenia Estonia.... Czech Republic.... Turkey Latvia..0.. Bulgaria Montenegro..0.. Russia...., South Africa...0., Hungary Lithuania.... Brazil...., Poland Slovakia Ukraine.... Romania India...., China...., Serbia.... Macedonia.... Egypt.... Albania Bosnia and Herzegovina.... Kenya.... Moldova.... Country Switzerland Composite score (0-). WEF ratings by country in 0 Tourism score. Air transport score *Belarus is not included in the WEF Travel and Tourism Infrastructure rankings. Sources: World Economic Forum. Ground transport score. Population density (people per sq km of land) 0 Land mass (000 sq km of land) 0 This may not always mean additional capacity. The case study in Box. later in this report highlights the dangers of unnecessary capacity expansion. The composite score is calculated as a weighted average of the separate scores. Ranks and ratings are shaded using a colour scale, where green signifies strong performance and red signifies weak performance. North America is defined as the United States and Canada. Where WEF aggregates don t exist, they are created using simple averages. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

12 Box.: Case study: The importance of smart investment Not all investment expenditure results in improved. Investment expenditure can be poorly targeted, subject to political corruption, or otherwise misspent. In such cases, the resulting is likely to be poor value for money. A recent analysis by the European Court of Auditors suggests that poorly targeted investment in air transport is an important issue for a number of European countries. The report, published in December 0, analysed 0 million in Cohesion policy funds (such as the European Regional Development Fund) that were spent on 0 airport projects in Estonia, Italy, Greece, Poland, and Spain. It found that the funding, which was spent between 000 and 0, was poor value for money overall. Overbuilding was a key reason for this. Just half of the airports analysed increased passenger numbers after project completion, suggesting significant underutilization of the newly built. A high rate of failure to achieve financial sustainability was another reason for the report s conclusion. Seven out of the 0 airports analysed are unprofitable and will likely be closed if they are not supported by ongoing public funding. The European Court of Auditors report concluded that % of the EU funding analysed, or million, went towards projects that were not needed at all. Smart investments, then, must be based on a realistic possibility of increasing user numbers and profitability. Examples of misplaced investment in the European Court of Auditors report often neglected both. One such example is Kastoria National Airport in Greece. An example of cost-ineffective capacity expansion: Kastoria National Airport in Greece. Kastoria National Airport, with,00 in passenger traffic in 0, is one of the smallest airports analysed by the European Court of Auditors report. The potential for air bottlenecks in the region are limited because virtually all residents within the Kastoria Airport s catchment area have access to a nearby competing airport within 0 minutes by road, and two other competing airports can be accessed within two hours drive. Restoration of the Colosseum Rome, Italy Within this context, the report assesses whether a runway expansion project, costing. million (% of which was EU funded), was good value for money. The assessment notes that the expanded runway has never been used by the type of aircraft it was built for and the airport operated at a loss between 00 and 0. Having lost for every passenger using the airport over this period, the report concludes that the expanded runway cannot be considered as an effective use of public funds 0. Table.: Objective pillar subcomponents Major Infrastructure Pillar Ground transportation Air transportation Tourism. Assessing objective subcomponents of the three major WEF pillars Within WEF s major pillars tourism, air transportation, and ground transportation are a number of subcomponents. A selection of those subcomponents, comprised of those that contain objective data rather than survey/opinion questions, are shown in Table.. The ground transportation pillar has one objective subcomponent underpinning it, which is the kilometres of road per 00 square kilometres of land by country. There are four objective subcomponents supporting the air transport pillar, including airports per capita and the number of international and domestic seat kilometres originated by country. And there are three objective subcomponents underpinning the tourism pillar, including the number of major car rental companies in the country, the number of automated teller machines accepting Visa per capita, and the number of hotel rooms per capita. Each of these subcomponents sheds some light on how easy or difficult it is for visitors to experience the best of what a country has to offer. Km of road per 00 Km of land Capacity Pillar Subcomponent Airports per capita International seat Km originated Domestic seat Km originated Number of departures per capita Presence of major car rental companies ATMs accepting Visa per capita Hotel rooms per capita Sources: World Economic Forum EU-funded airport s: poor value for money, (0), European Court of Auditors, December. Quotes are from pages and. Ibid. Page. 0 Ibid. Page. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

13 Table.: Objective subcomponent ranks Country UN Classification * WEF composite (scoreout of ) WEF composite rank Direct Travel & Tourism contribution to GDP (%) KMs of road per 00sq. KMs land (rank) KMs of road per vehicle (rank) Airports per capita (rank) Capacity: International seat KMs originated (rank) Capacity: Domestic seat KMs originated (rank) Number of departures per capita (rank) Presence of major car rental companies (n o out of ) ATMs accepting Visa per capita (rank) Hotel Rooms per capita adjusted for visitors (rank) Switzerland Spain France United Kingdom Austria Germany Italy Iceland Cyprus Malta Ireland Greece Norway Denmark Portugal Netherlands Belgium Finland Sweden Luxembourg Croatia Slovenia Estonia Czech Republic Turkey Latvia Bulgaria Montenegro Russia Hungary Lithuania Poland. Slovakia. Ukraine. 0 Romania. 0 Serbia Macedonia. 0 0 Albania. 0 Bosnia and Herzegovina. 0 0 Moldova Sources: World Economic Forum European Travel & Tourism: Where are the greatest current and future investment needs? April 0

14 Table. shows objective subcomponent ranks for each of the 0 countries for which WEF data are available. A number of interesting patterns are apparent within the table. First, there is room for improvement even for countries with high averages among the three major pillars. For example, France and Austria, which both rank highly overall for Travel & Tourism quality and capacity, could stand to increase the number of available hotels. The United Kingdom, the Netherlands, Luxembourg, and Germany are among the countries that would benefit from increased road capacity. Each has at least 0% more cars per kilometre of road capacity than the European average. This causes congestion, both in urban areas and on inter-urban links. A recent European Commission report found that these countries have a disproportionate number of inter-urban links where delays of over ten seconds per kilometre are common. Second, even among countries with poor scores overall, there are rays of hope. Russia perhaps not surprising for such a large country shows an impressive ability to shuttle people around domestically, and has greater ATM saturation than the United Kingdom. The Czech Republic s road network is more extensive than that in Italy or Ireland if measured relative to land mass. And visitors to Bulgaria and Montenegro are unlikely to complain of a shortage of hotel rooms, which are adequate to service their domestic and visiting populations. Such countries can build on these successes to improve their overall capabilities. A sustained focus on the weaker points of over the next decade (and beyond) is imperative if they are to meet the baseline forecasts for Travel & Tourism s economic impacts discussed earlier in this report.. Which countries have the greatest needs between 0 and 0? On an individual country level, will poor quality and capacity and a lack of investment constrain the Travel & Tourism sector s growth? This section puts a spotlight on the countries that face the greatest risk of failing to meet baseline forecasts of economic benefits due to insufficient and investment. Three indicators are used to form this assessment: Has historic Travel & Tourism investment growth been relatively high or low? This is assessed in the decade to 00, which is representative of a normalised macroeconomic environment. What is the current quality and capacity of Travel & Tourism, as assessed using WEF composite scores? According to WTTC and Oxford Economics forecasts, is it expected that Travel & Tourism demand growth will outpace investment growth in the sector over the next decade? Figure. presents the results of this assessment. It groups countries into three categories, ranging from those that are at risk of losing Travel & Tourism competitiveness over the next decade, to those that are well-placed to benefit from forecasted demand between 0 and 0. The groups include those that are: Well-placed: This group of countries, exemplified by Austria, Germany and the United Kingdom, has high existing quality and capacity of Travel & Tourism which they are expected to maintain and improve between 0 and 0. With investment growth expected to outpace demand over that period, these countries are well-placed to capture the full benefits of forecasted Travel & Tourism demand. Well-placed, but with key risks: France, Italy, Switzerland, Ireland, and Greece are one set of countries included in this category. Each of them has existing Travel & Tourism quality and capacity that is greater than the European average. Yet their strong positions are likely to deteriorate somewhat over the next decade, since Travel & Tourism demand growth is forecast to outstrip Travel & Tourism investment growth over the period. Similarly, Denmark and Finland have better than average Travel & Tourism quality and capacity; however, weak historical investment growth presents risks to the forecast that investment growth will exceed demand growth in the next decade. Slovenia and Latvia are also well placed, with risks. Their key strength is that they are expected to see investment growth that is stronger than demand growth over the next decade; their key risk is their existing quality and capacity, which is below the European average. At medium or high risk: This category includes countries like Albania, Bosnia, and Moldova, which are considered to be at high risk because they have the poorest existing quality and capacity out of the 0 countries for which data are available. Croatia, Serbia, and Slovakia are also considered at risk, because Travel & Tourism investment growth is expected to lag behind demand growth over the next decade. Portugal, having relatively strong existing capabilities, is a special case: because demand growth is expected to outpace investment growth by such a wide margin, the country faces a risk that its current quality and capacity will degrade over the next decade. Construction of the Kalinin-Solntsevo Subway Moscow, Russia European Commission, (0), Measuring road congestion. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

15 Figure.: Country typologies: will current quality and capacity and lack of investment constrain Travel & Tourism sector growth? Higher current Travel & Tourism quality and capacity Switzerland Spain France United Kingdom Austria Germany Italy Iceland Cyprus Malta Ireland Greece Norway Denmark Portugal Netherlands Belgium Finland Sweden Croatia Slovenia Estonia Czech Republic Turkey Latvia Bulgaria Russia Hungary Lithuania Poland Slovakia Romania T&T investment to demand ratio* (00 0 avg to 0) Less favourable ratio Balance More favourable ratio chapter The outlook for European Travel & Tourism investment spending. A regional comparison of forecasted investment spending Worldwide, nearly trillion is expected to be spent on Travel & Tourism investment between 0 and 0. Asian countries particularly China and Japan will be the biggest source of this future investment. They are expected to account for 0% of the global total, or nearly. trillion (Figure.). The United States and Canada will contribute a further % of the global total (. trillion), while Latin America, the Middle East, and Africa will initiate a combined % (. trillion). Meanwhile, European countries are expected to make Travel & Tourism investments equal to nearly a quarter of the global total between 0 and 0. Figure.: Sources of future global and European Travel & Tourism investment spending from 0 ( billion) Serbia Macedonia Africa Africa, Albania Source: WTTC, Oxford Economics Bosnia and Sources: WTTC, Oxford Economics Herzegovina Middle East 00 Middle East, 00 North America,, Asia,,0 North America, Asia,0 Europe Europe Latin America Latin America, 0 0 Western & Northern, Western & Northern,, Eastern Eastern, Southern Southern, Lower current Travel & Tourism quality and capacity Legend: Well-placed Well-placed, At medium risk but key risks At high risk * The T&T investment to demand ratio is the ratio of forecasted average annual Travel & Tourism investment growth over the next decade divided by forecasted average annual Travel & Tourism demand over the same period. Note: Four countries are excluded from this diagram. Belarus lacks WEF data, forecasts for the Ukraine at the time of publication are vastly more uncertain than is typical due to the country s ongoing conflict, and Luxembourg and Montenegro are outliers that obscure trends among the other countries in the diagram. Travel & Tourism investment trends have varied considerably over the last decade among the three major European regions analysed in this report (Figure.). However, some key growth patterns that were evident between 000 and 00 are likely to re-emerge. Eastern European countries, which tend to need the greatest improvement in Travel & Tourism among all European countries, are expected to see investment growth of.% per year between 0 and 0. The forecast reflects expectations that the region will recover from a stagnation in investment since the recession. an countries experienced a significant drop in Travel & Tourism investment expenditure post-recession, but on average are expected to see investment growth of.% per year between 0 and 0. Western and Northern European countries, which can to some extent rely on historic and investment, will have moderately slower growth in Travel & Tourism expenditure over the next decade, at just % per year on average. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

16 Figure.: European Travel & Tourism investment spending growth between 000 and 0 (000 = 00) 0 Index: 000 = 00 decline in private funding combined with a modest increase in government funding. Since 00, the government funded share of total economy investment has fallen back to %, and a recovery in private funding meant the private share was % in 0. Overall, the available evidence suggests that government funding has grown in importance in recent years, despite austerity measures. However, it is important to recognise that private funding still comprises the vast majority of total fixed investment. 00 Figure.: Source of economy-wide investment expenditure between 000 and 0 in six European countries Government expenditure Private expenditure Forecast Private Government Sources: OECD Includes Belgium, Finland, France, Netherlands, Norway, and the UK Sources: WTTC, Oxford Economics Box.: Who will invest if austerity dominates fiscal choices over the next five to ten years? Is government becoming a more important source for funding? The share of government investment expenditure, as opposed to private investment expenditure, that makes up total economy investment has shifted slightly over the last decade and a half. In 000, the government funded share was %, but that rose to % in 00, immediately following the onset of the global financial crisis in 00 and before government austerity became commonplace. This was primarily a function of a steep Public Private Partnerships Infrastructure investments can be funded from multiple sources Public Private Partnerships (PPPs) are an example of such an investment strategy. While not all projects are suitable for PPPs, a recent Brookings publication notes that successful PPPs offer chances for risk-sharing and specialisation in roles that can ultimately deliver good value to taxpayer. For that reason, and because at least in some countries sources of private funding have diminished relative to public funding sources, PPPs may increasingly be seen as an attractive funding model. Crowdfunding Crowdfunding is a relatively new form of finance, enabled by widespread internet use, Over the next five to ten years, fiscal deficits, austerity, and corporate sector credit which could grow to have implications for Travel & Tourism. Crowdfunding companies constraints may act individually or in tandem to prevent greater investment in the Travel & 0 provide online platforms for enthusiasts and small-scale investors to band together to Tourism sector. If that is the case, who will invest? fund projects that may not be suitable for traditional financing. TravelStarter is an example Who is currently investing? of crowdfunding for the Travel & Tourism sector, offering travelers with an interest in investing the opportunity to invest small amounts (as little as $0, or.0 ) to fund While a detailed breakdown of investors by type for Travel & Tourism is not hostels and lodges in places like the United Kingdom, Croatia, and Slovenia. Benefits available, it is possible to look at the origins of whole economy investment for several range from recognition to free accommodation if the venture succeeds. WiSEED, a French countries, shedding some light on overarching funding trends for investment. crowdfunding platform recently took pledges to privatise the Toulouse-Blagnac Airport Between 000 and 0, France, the United Kingdom, the Netherlands, Belgium, Norway, Company in France, suggesting that crowdfunding platforms could be applied to larger and Finland invested a total of. trillion in fixed capital (Figure.). On average over projects, too. that time period, % of this amount was funded by governments, while the remaining % was funded privately. Private Capital, Public Good: Drivers of Successful Infrastructure Public-Private Partnerships, (0), Brookings Institute. December. Measured at 0 prices and exchange rates. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

17 . Sectoral composition of investment spend Since 000, Travel & Tourism investment in Europe as a whole has made up around % of economy-wide investment. Table. shows some of the variation in that share among countries between 000 and 0. The share is especially high in countries that are highly reliant on the Travel & Tourism sector: % in Greece (which directly relies on Travel & Tourism for % of its GDP) and % in Malta (direct Travel & Tourism is % of GDP). Countries that rely less on Travel & Tourism also tend to invest less in the sector. The Netherlands and Slovakia rely on Travel & Tourism for just % and %, respectively, of their GDP; investment in the sector is similarly low relative to overall economy investment just % for both the Netherlands and Slovakia between 000 and 0. Across all countries in Table., Travel & Tourism investment tends to make up a larger proportion of total economy investment than does mining and quarrying and the utilities sector, but less than the manufacturing sector, which tends to be both large and capital intensive. Table.: Investment relative to sectoral GDP, average For Europe as a whole, the Travel & Tourism investment rate in the last decade and a half tended to be higher than service sectors like wholesale and retail trade, professional services, and education, likely because Travel & Tourism is more capital intensive on average (for example, hotels, roads, rail, and airports all require significant capital investments). On the other hand, the Travel & Tourism investment rate tended to be lower than for mining and quarrying and utilities, which are far more capital-intensive than the Travel & Tourism sector per unit of output. Table.: Sectoral investment share of economy-wide investment between 000 and 0 Country Austria Czech Republic Denmark Estonia France Germany Greece Hungary Italy Luxembourg Malta Netherlands Norway Whole Economy 00% 00% 00% 00% 00% 00% 00% 00% 00% 00% 00% 00% 00% Travel & Tourism % % % % % % % % % % % % % % % % % % % % % % % % 0% % Manufacturing Transportation and Storage % 0% 0% 0% % % % % % % % % % % % % % % % % % % % % % % Slovakia 00% % % % % % % % % How will investment in the Travel & Tourism sector compare to investment in other sectors Slovenia 00% % % 0% % % % % % between 0 and 0? Oxford Economics has previously conducted detailed research for PricewaterhouseCoopers on investment by sector across more than 0 Spain 00% % % % % 0% % % 0% countries worldwide which can shed light on how Travel & Tourism investment is likely to fare relative to other sectors between 0 and 0. Figure. below shows the expected Source: Eurostat average annual growth between 0 and 0 of investment in sectors across European countries as well as for the average of the countries analysed in the rest of this report for Travel & Tourism. Across Europe and in two of the three major regions analysed in this report, the Travel & Tourism sector has historically made investments relative to its direct GDP contribution that are very similar to the investment rate for the economy overall (Table.). Between 000 and 0, Travel & Tourism investments amounted to % of the sector s contribution to European GDP; at the same time, investment in the whole economy amounted to % of total GDP. Similarly, in (0%) and Western and Northern Europe (%), the Travel & Tourism investment rates were close to investment rates economy-wide (% and %, respectively)., however, had higher Travel & Tourism investment rates, at % compared to economy-wide investment rates of %. % % % % % % % % % % % % % Electricity, Gas and Utilities % % % % % % % % % % 0% % % Information and Communication Construction Accommodation and Food Services % % % % % % % % % % % % 0% Mining and quarrying 0% % % % 0% 0% 0% 0% % 0% 0% % % Sector Europe Eastern Europe Travel & Tourism Whole Economy Construction Electricity, Gas and Utilities Information and Communication Land Transport Manufacturing Mining and Quarrying Transportation and Storage Accommodation and Food Service Activities Wholesale and Retail Trade Air Transport Information and Communication Telecommunications Professional, Scientific and Technical Activities Among the countries analysed, investment in railroad networks is expected to grow the fastest, at an average annual rate of.%. That is followed by investment in power generation and sea ports, each forecast to grow at.% per year. Meanwhile, investment spending targeted at the Travel & Tourism sector in particular (although this is not perfectly mutually exclusive of other investment categories presented in the chart) is forecast to grow by.% per year, faster than investment in electricity transmission (.%) and telecommunications (.%). Europe in the context of non Travel & Tourism sectoral analysis is comprised of the Czech Republic, France, Germany, Hungary, Italy, Netherlands, Poland, Romania, Russia, Spain, Sweden, Ukraine and the United Kingdom; for Travel & Tourism, the figures for Europe represent all countries analysed in the main report. European Travel & Tourism: Where are the greatest current and future investment needs? April 0 Education Source: Eurostat % % 0% 0% % % % % 0% % % % % % % % 0% % % % 0% 0% % % % % % % % % % % Western & Northern Europe % % % % % % % % % % % 0% % % % % Southern Europe % % % % % % % % % % % % % % % %

18 Figure.: Forecasted growth in investment by sector in Europe between 0 and 0 Growth in Investment by Sector in Europe from 0 to 0 Railroad Network (including Stations and Terminals) Source: Oxford Economics Power Sea Ports Travel & Tourism Airports Electricity Transmission Road Network (including Bridges and Tunnels) Telecommunications Gas Distribution Hospitals Primary Metals Chemicals Water Supply and Treatment Petroleum Refining Extraction of other Minerals Colleges and Schools Petroleum and Natural Gas Extraction Average Annual Growth (%) Expected Travel & Tourism investments between 0 and 0 are high relative to that for other sectors. If expectations are met, and the money is well spent (see Box. for examples to the contrary), Europe s Travel & Tourism sector may find it is well-placed to continue to compete strongly for global visitor flows; if expectations are not met, there is a danger that the sector s will fall behind. In both scenarios, there will be pockets of inadequacy, where sustained efforts at improvement should be kept up. Box.: Case study: What does the European Fund for Strategic Investments (EFSI) mean for Travel & Tourism investment? Amount of additional investment expected In November 0, the European Union s legislative body, the European Commission, proposed the creation of a billion fund to spur investment in the areas of, education, research, innovation, renewable energy and energy efficiency. The stated aim is that the initial investment of billion, made up of billion in EU funding and another billion from the European Investment Bank, will encourage private sector funding between 0 and 0 that will multiply the amount invested by a factor of. Thus, in total, the European Commission hopes that the EFSI will result in billion of additional investment spending between 0 and 0. Whether the full billion of investment will materialise is unknown. If the full amount does occur which may be a best-case scenario it would amount to a.% boost to total economy fixed investment spending scheduled to occur between 0 and 0. In the worst-case scenario, where none of the additional private funding materialises, the plan would amount to a 0.% boost to currently forecasted total fixed investment spending. The eventual outcome is likely to lie somewhere between those two possibilities. The impact on Travel & Tourism investment The European Commission s announcement for the EFSI fund does not explicitly mention the targeting of Travel & Tourism needs. However, in general is one of the primary targets for the fund, and there may be some elements that redound to the Travel & Tourism sector. In 0, an estimated.% of total fixed investment in the European Union was made up of Travel & Tourism investment. In the absence of concrete details of the spending breakdown, it could be assumed that the same share of the European Commission s initiative may ultimately filter through to Travel & Tourism-related. That would mean new Travel & Tourism investment of between billion and billion, depending on how much the EFSI fund stimulates additional private funding. For context, those scenarios represent an additional for every of Travel & Tourism investment already expected to occur (least optimistic scenario materialising) or an additional for every already expected to occur (most optimistic scenario materialising). Given the uncertainty, the lesson for would-be beneficiaries is to submit bids early, submit strong bids, and demonstrate learning from bad past investments when applying. An ability to collaborate and tie-in with other countries capabilities may also be a boon. Road Network Paris, France European Commission, (0), The European Fund for Strategic Investments (EFSI): Questions and Answers. Page. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

19 conclusion Putting Travel & Tourism investment on European governments agendas The European Travel & Tourism sector is forecast to grow in importance over the next decade, according to the WTTC s latest annual economic impact research In 0, the Travel & Tourism sector supported. million direct, indirect, and induced jobs (.% of the European total) and nearly. trillion in GDP (.% of European GDP). The Travel & Tourism sector s total economic contribution is expected to grow to million jobs (0.% of European employment) and. trillion in GDP by 0 (.% of European GDP). This assumes that supply-side capacity, in areas like and talent, does not act as a constraint tot the sector s growth. Both industry and governments should therefore place Travel & Tourism investment high on their agendas, or risk failing to achieve the baseline forecast and resulting economic benefits A focus on targeted, smart-investment will be critical to success A recent report by the European Court of Auditors shows that additional capacity is not always be beneficial. To avoid overbuilding and ensure high returns and value-for-money investment, investment strategies must realistically plan to increase the relevant user base after completion and then achieve financial sustainability. Well-targeted investments may involve additional capacity, but they can also maintain and expand existing capacity, and encourage improvements in quality, competitiveness, productivity and sustainability. Travel & Tourism investment should be ongoing rather than one-off Travel & Tourism markets are dynamic, and tastes evolve over time along with individual definitions of home versus luxury comforts. This calls for a consistent and sustained focus on Travel & Tourism investment across time in order to keep up with changing market demand characteristics. In periods of government and financial sector funding constraints, investors in the Travel & Tourism sector should seek cross-border collaboration and creative funding options Cross-border Travel & Tourism collaboration can be uniquely effective on the continent because of Europe s relatively small geographic size and existing integration. And, particularly in periods of fiscal austerity, those engaged in Travel & Tourism investment may wish to consider creative funding options like public private partnerships or crowdfunding. Cruise Ships in the Aegean Sea Santorini, Greece The strong statistical relationship between Travel & Tourism capabilities and the sector s economic impact means the issue warrants attention from both private and public investors and policy-makers. It also highlights the need for businessfriendly policies and legislation in the Travel & Tourism sector to support and encourage development. But any new must represent the right sort of investment to meet specific demand requirements and address gaps, and not be investment for the sake of investment, given the more constrained financial environment and lessons from past bad investments. Travel & Tourism investment strategies must be evidence-based This report provides forecasts for Travel & Tourism investment and demand growth, providing an evidence-base for industry and government investment strategy, as well as national-level tourism development plans and overall tourism strategy. This report highlights unique opportunities and challenges for three country typologies Well-placed: Austria, Germany and the United Kingdom should focus on maintaining and improving their existing, high-quality. A key strength is that Travel & Tourism investment growth is forecast to outpace Travel & Tourism demand growth over the next decade. Well-placed but with key risks: Denmark, Finland, France, Greece, Ireland, Italy, Latvia, Slovenia, and Switzerland should be wary of complacency and relying on existing capabilities. Several of these countries risk Travel & Tourism investment growth in the next decade being overwhelmed by growth in Travel & Tourism demand. Others have a recent history (in the decade from to 00) of declining investment growth, presenting a risk of returning to pre-recession investment patterns rather than meeting baseline forecasts of investment to 0. At medium or high risk: Albania, Bosnia and Herzegovina, and Moldova need to address urgent existing quality and capacity issues. Croatia, Portugal, Serbia, and Slovakia are likely to see Travel & Tourism demand growth that significantly outpaces investment in the sector over the next decade. Each of these countries is at risk of failing to fully benefit from forecasted demand. European Travel & Tourism: Where are the greatest current and future investment needs? April 0

20 Sewage Treatment Plant Wroclaw, Poland European Travel & Tourism: Where are the greatest current and future investment needs?