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 Despite Decline in Visitor Arrivals, Italy as a Whole Has Seen
Hotel Occupancy Grow 2.6% Year-to-October 2005
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December 21, 2005 - Latest results from the HotelBenchmark™ Survey by Deloitte show that the sluggish performance of the Italian economy has not cast a shadow on hotel performance. Italian hoteliers have managed to grow revenue per available room (revPAR) by 2.8% year-to-October 2005 - the second year of revPAR growth following two years of decline. This result is especially encouraging considering Italy’s poor economic conditions, where Gross Domestic Product (GDP) is estimated to have increased by just 0.2% during the year, compared to the European average GDP growth of 1.6%. 

Still a popular tourist destination?

The United Nations World Tourism Organization (UNWTO) expects the number of tourism arrivals worldwide to increase by 5-6% this year. However, unfortunately Italy is bucking this trend as visitor arrivals have fallen 7.2% year-to-July 2005 compared to the same period in 2004. The situation is further exacerbated by the fact that international visitor arrivals to Italy also fell in 2004, down 6%, at a time when globally international tourism was up 11%. 

So why is Italy no longer attracting its fair share of international visitor arrivals? Firstly there is stiff competition from other traditional destinations such as France, Spain and Turkey, which can appear more price competitive. Secondly, demand is being displaced to emerging markets in Eastern Europe which offer attractive prices and have become more accessible since accession to the European Union due to the expansion of the low-cost airline network. However encouragingly the Economist Intelligence Unit (EIU) predicts that visitor arrivals will recover between 2006 and 2009, growing at 1% per annum. 

With visitor arrivals declining Italy has been falling down the ranks of the world’s top tourism destinations. In 2004 China knocked it off the coveted fourth place, however Italy is expected to remain a popular destination for the foreseeable future and the UNWTO believe the country will still feature in the top ten tourist destinations in 2020. One reason for this is that Rome continues to win accolades and was recently voted the favourite travel destination by readers of US travel magazine Travel and Leisure, with Florence taking second place. 

The Italian State Tourist Board (ENIT) remains under pressure to continue to actively market Italy to build and increase awareness. Recent activities have included a presence at ‘Sydney International Ski Spectacular’, where ENIT promoted the Winter Olympics 2006 in Turin, the ‘Italy in motion’ event held in New York, a press conference in Zurich and a promotional event in Munich. 

Embracing the Chinese traveller

Italy was one of the 26 European countries which were granted Approved Destination Status by China’s National Tourism Administration on 1 September 2004. It is hoped this will eventually lead to an influx of Chinese tourists, as Italian attractions and culture put the country high on destination wish-lists of these travellers. 

As a result, major hotel chains such as InterContinental Hotels Group, Accor and Best Western International have increased their marketing and promotional activities in China. Italy is getting prepared for the expected wave of tourists and plans to post Chinese signs in airports and make Mandarin speaking staff available in restaurants. However, the experience of other European markets is that the Chinese traveller is very rate conscious and so the challenge for hoteliers will be balancing increased demand with softer average room rates. 

All roads lead to Rome

Despite the decline in visitor arrivals, Italy as a whole has seen occupancy grow 2.6% year-to-October 2005. Performance of the key cities has been quite varied with both Bologna and Florence experiencing occupancy declines whilst Rome and Venice are the only markets to have reported any increase in average room rates. The table below shows that whilst Milan, Rome and Venice reported revPAR improvements; Florence, Bologna and Turin all reported revPAR declines compared to the prior year. 

It is not surprising that hotels in Rome have seen the strongest growth of any market in Italy so far this year with revPAR increasing by 10.3%. The city has benefited from the extensive coverage received in April 2005 due to funeral of Pope John Paul II and the following inauguration of Pope Benedict XVI. 

Year-to-date occupancy has improved 8.1% fuelled by a growth in passenger numbers at the city’s two main airports Fiumcino and Ciampino. Together the airports have reported more than 25m passengers year-to September, a 7.8% increase compared to the same period last year. Ciampino has been performing particularly well, as it is home to several low-cost carriers. Ryanair alone has launched new daily connections from London Luton, Niederrhein (Germany), Durham Tees Valleys (UK) and East Midlands (UK). easyJet has launched new daily connections between Ciampino and Belfast and Basel.
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Hotel performance for selected Italian cities – 
year-to-October 2005 vs. 2004
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Occupancy 
(%)
Average Room
Rate (€)
RevPAR 
(€)
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2005 
2004 
%
change
2005
2004
%
change
2005
2004
%
change
All Italy  64.2  62.5  2.6%  151  151 0.2%  97  94 2.8%
Bologna 55.4 57.1 -2.8% 109 110 -0.4% 61 63 -3.2%
Florence 66.5 66.8 -0.5% 153 164 -6.7% 102 109 -7.1%
Milan 64.1 63.3 1.3% 151 150 -0.3% 97 96 1.0%
Rome 74.0 68.4 8.1% 154 151 2.0% 114 104 10.3%
Turin 56.0 55.9 0.2% 95 96 -1.7% 53 54 -1.5%
Venice 67.9 65.3 4.1% 253 251 0.9% 172 164 5.0%
Source: HotelBenchmark™ Survey by Deloitte
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Less positive results in other parts of Italy

In contrast to Rome, Turin’s hotel performance has seen revPAR decline 1.5% for the first ten months of the year. However, hotel performance is expected to excel in the first quarter of 2006, when Turin will host the Winter Olympics from 10-26 February. Turin hopes by hosting this world recognised event, it will be able to position itself as an ‘alpine city’ by focussing on its close proximity to the mountains, which are ideal for winter sports. The city has been busy improving its infrastructure and increasing its hotel supply – adding approximately 1500 new beds to the market. These include the recently opened 113-room Campanile Turin Rivoli, the 200-room Golden Palace and the 128-room NH Santo Stefano which are both due to open in January before the Winter Olympics commence. 

Outside of the main cities Italy’s regional and resort areas have been suffering from a combination of bad weather and relative uncompetitive pricing. The summer was one of the worst in the last 40 years, with ten days of rain in August alone. Despite overnight stays by foreign tourists declining by 6% compared to the previous summer, occupancy has held up improving by 2.3%, as hoteliers discounted average room rates 1.1% to stimulate demand. Consequently, year-to-October 2005, Italy’s regions and resorts reported a marginal growth in revPAR up 1.1%. 

Battling the challenges

Despite nominal GDP growth, low business and consumer confidence and falling domestic demand Italian hotel performance is expected to grow moderately this year, with revPAR improving 2%. This will ensure the country enjoys revPAR growth for the second year running after two years of decline. 

Going forward, hotel performance should get a welcome boost from the Winter Olympics next year and the expected influx of Chinese tourists in the long term as they embark on tours across Europe. The EIU expects Italy’s GDP to increase by 1.1% during 2006 and 1.2% in 2007. Although, this remains below the European Union average of 1.9% and 2.2% respectively, it is an improvement compared to the marginal growth experienced this year. What impact increased competition from emerging tourism destinations will have on Italy’s long-term performance remains to be seen but for the foreseeable future at least, Italy will remain within the top ten tourism destinations in the world.
Note: All analysis in Euros. 

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Contact:

Nina Bruun
HotelBenchmark
+44 (0) 20 7007 6138
Email: nbruun@deloitte.co.uk
 

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Also See: After Two Years of Declines, Hoteliers in Florence, Rome, Milan, Bologna and Turin All / Deloitte Experienced RevPAR Growth During the First Eight Months of 2004 / October 2004
Venice, Rome, Florence and Milan Manage to Achieve Some of the Highest RevPARs in the World; the Italian hotel market / Deloitte / April 2004


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