Make a list with industries on which Greece can rely to generate growth, and tourism will inevitably rank near the top. Yet tourism has been a massive disappointment in recent years. A recovery in the Greek economy will require a recovery in tourism – and a recovery in tourism will require changes in the way that the industry operates today.
The first few lines in the table above show the number of tourists visiting Greece, as reported by the Bank of Greece. This number grew by 2.2% on average between 2005 and 2011. Interestingly, the composition of those visitors changed in that time period. In 2005, 50% of the visitors came from the Eurozone; by 2011, that share had dropped to 40%. There was also a (more modest) decline in visitors from EU counties outside the Eurozone. These declines, however, were more than offset by a big increase (10% a year) in arrivals from other countries (chiefly, Russia, Israel, Turkey, and the Balkans).
This number shows that Greece does not have a problem attracting tourists – more people visited Greece in 2011 than in 2005. It also seems to contradict the idea that an appreciation in the Euro made Greece less attractive as a destination – in fact, tourism from Eurozone countries fell while tourism from other countries increased. More worryingly, Greece’s market share is declining. In 2005, Greece’s global market share was 1.8%, and that declined to 1.7% in 2011. Its market share in Southern Europe also declined from 9.4% in 2005 to 9% in 2011. So while Greece is receiving more tourists, it is not keeping up with the growth in global tourism or with its neighbors. And so the country is losing market share.
This is a problem, but it is not the major problem. The next line in the table shows receipts as reported by the Bank of Greece. Overall, Greece earned as much from tourism in 2011 as it did in 2005 (modest decline). So while tourism made up 21% of exports in 2005, it made up just 18.6% in 2011 (continuing a steady decline from 25% in 2000). What is more, a euro in 2011 buys less than a euro in 2005: when controlling for inflation, Greece’s 2011 receipts were 20% lower than in 2005.
Given that Greece is receiving more tourists, lower revenues are a result of value (how much tourists spend) rather than volume (how many come). Here again, there are two trends. First, tourists in 2011 spent 14% less time in Greece than in 2005. Second, tourists spend as much per night as they did in the past – but again, only on a nominal basis. On a real basis, spending per night fell by 18% relative to 2005.
The numbers suggest that Greece has been able to receive more tourists, although its market share is declining, both globally as well as regionally. The problem is an inability to keep tourists longer or to charge them more. In fact, Greece is unable to keep raising prices at the pace of overall inflation. Insofar as goods and services cost more, the result is that tourists buy less – on a nominal basis, they spend the same amount of money per night as they did in 2005.
Therefore, the problem is one of “race-to-bottom” competition based chiefly on price. Tourists spend as much money per night as they did in 2005 – but on a real basis, that money yields much less in terms of goods and services for the tourists and for the Greeks receiving this money. Greece is unable to extract more from tourists either by offering them higher value services or by providing them with more things to do, which would make them spend more time in Greece.
What these numbers underscore is a real need to upgrade the offering of tourism in Greece. The growth of tourists has been good but slower than the growth in the overall market. Strikes and fears of violence obviously do not help, but these do not seem to have held the number of arrivals down. Instead the problem is one of offering: the challenge is for Greece to provide more activities and options so that people stay longer while also attracting higher-value tourists that will spend more money on any given night. As long as Greece is merely offering the same thing at the same price (or cheaper due to inflation), the decline of Greek tourism will continue.