Turkish tourism and economy struggle due to bombings, Russia chill

ANKARA — Suicide bombings in Istanbul, a row with the Kremlin and hard times for the Russian middle class — all these factors spell trouble for Turkey's tourist industry and its wider economy.

Nowhere is the mood gloomier than among shopkeepers in Istanbul, Turkey's cultural gem and scene last weekend of the second suicide attack on tourists in the city this year.

"There's zero business now," said one clerk at a clothing store near the mediaeval Galata Tower, a top destination for foreign visitors.

"Everyone is nervous," chimed in his friend a few hours after the attack which killed three Israelis and an Iranian in Istanbul's most popular shopping district.

Their feeling that business, already bad, can only get worse is understandable. In January, a militant blew himself up near the fabled Blue Mosque, killing 12 people from Germany, which traditionally accounts for the largest number of visitors to Turkey.

Economists forecast that tourism revenue will tumble by a quarter this year, costing the country around $8 billion.

The risk is that better off tourists such as Germans will choose to take their holidays elsewhere while Russians, Turkish tourism's number two market, will be forced to stay away due to an economic crisis at home and political tensions following Turkey's shooting down of a Russian warplane in November.

Overall visitor numbers to Turkey fell a relatively modest 1.6 per cent last year, according to tourism ministry data.

But the signs are not good before the May to October peak season, when Turkey usually earns around 70 per cent of its tourism revenues.

Big spenders

Unfortunately for Turkey, tourists from the richest countries, who tend to be the biggest spenders, are also the most easily spooked by security worries.

"Security concerns have the biggest impact on high-income tourist groups, who are most likely to change their plans to visit," said Mehmet Besimoglu, an economist at Oyak Investment.

German travel group TUI has reported a 40 per cent drop in summer bookings for holidays in Turkey and the picture for Britain, the number three market, is uncertain.

British holiday company Thomas Cook said more of its customers were opting to holiday in Spain, as well as the United States and Cuba. Fewer wanted to go to Turkey, it added.

Altogether Turkey has suffered four suicide bombings this year, bringing the death toll to more than 80. The other two, claimed by an offshoot of the Kurdistan Workers Party (PKK), struck the capital, Ankara, which relatively few tourists visit.

The violence is not new. Daesh has also been blamed for bomb attacks last year that killed more than 130 people.

While these were in Ankara and near the Syrian border, the effect on tourism, which accounts for about 4.5 per cent of the $800 billion economy and provides more than 1 million jobs, has already been felt.

Last year, for instance, the number of Italians visiting Turkey decreased by 27 per cent while Japanese dropped off by nearly 40 per cent.

Now, economists say, the drop-off in tourism is so pronounced it could have a broad economic impact. They estimate an $8 billion fall in revenue would knock more than half a percentage point off economic growth, which the government is targeting at 4.5 per cent for this year.

With tourism accounting for more than half of Turkey's current account earnings last year, this would also spell trouble for the central bank's hopes that the deficit can be brought down from a yawning 4.5 per cent of the gross domestic product in 2015.

Some economists believe tourism could prove an even bigger drag on the economy. "If terrorist attacks continue and things get worse, the impact could be as high as one percentage point being deducted from economic growth," said Muammer Komurcuoglu, economist at Is Invest.

That would be unwelcome news for President Tayyip Erdogan and the ruling AK Party, which is keen to show the economy is on track despite the insecurity.

Russian chill

Prime Minister Ahmet Davutoglu has announced a plan to offer emergency support to the tourism sector, including a 255 million lira ($87 million) grant and a facility to allow firms to restructure their debt. It is unclear whether that will help.

Turkey is no longer able to rely on Russians seeking sunshine and southern beaches as a back-up due to the combined effects of economics and politics.

Middle-class Russians have been hit hard by an economic crisis caused by the weak price of oil, the country's main export earner, and Western sanctions imposed over the Ukraine crisis.

One result has been a dive in the Russian currency which has made foreign holidays, including in Turkey, much more expensive. Two years ago, Russians needed just over 15 rubles to buy a Turkish lira; now they need almost 24.

On top of that has come the chill in relations between Ankara and Moscow. President Vladimir Putin signed a series of punitive economic sanctions against Turkey, including a ban on charter flights, in retaliation for its shooting down of the Russian warplane near the border with Syria.

The biggest impact from the sanctions would be to tourism, the European Bank for Reconstruction and Development has said.

Numbers of Russian tourists declined by nearly a million last year, to 3.6 million. That could get even worse this year, said Ercan Erguzel, an economist at Morgan Stanley.

"Based on our talks with sector representatives, we have the impression that the number of Russian tourists may even fall to below 1 million in 2016 in the most extreme scenario," he added.

Security fears are on everybody's lips at the ITB travel trade fair in Berlin this year as a battered tourist industry seeks to reassure travellers and tour operators that they need not shy away from booking summer holidays for this year.

Attacks in tourist hot spots like a Tunisian beach resort and the city of Paris over the past year have rattled travellers' confidence, sending bookings for Tunisia, Turkey and Egypt plummeting and heralding a slowdown in demand for international travel.

"People have money to spend, but there's a strong negative impact from the geopolitical situation. People fear attacks," Roy Scheerder, commercial director at low cost Dutch airline Transavia, told Reuters at ITB.

Airlines, tour operators, hoteliers and travel search companies at the fair said they had seen more caution than usual in bookings at the start of the year, often a popular time for people to book trips.

A survey by consultancy IPK International projected that growth in the number of international trips taken would slow to 3 per cent this year, down from 4.6 per cent in 2015.

Rolf Freitag, founder of IPK, said security fears had knocked off about 1.5 percentage points from the expected growth this year. Of 50,000 people in 42 countries surveyed at the start of February, 15 per cent said they would either not travel or holiday in their home country this year.

Hotel groups like Marriott International and Best Western expressed concern over tourist bookings for Paris after November's attacks on the French capital, which may have a knock-on effect on other destinations.

"It has a ripple effect. If you think about someone travelling from the United States to Paris, Paris was not the only city they would visit, they would also go to other parts of France or Europe, and that has been curtailed," said Best Western Chief Executive Officer David Kong.

The beneficiaries are destinations perceived to carry a smaller risk of becoming the target of attacks.

"The really hot markets are anywhere that's safe. Spain is on fire for this summer. Italy is very strong," indicated Darren Huston, chief executive of Priceline Group and its subsidiary Booking.com.

Spanish low-cost carrier Vueling, for instance, has added more capacity to Spanish destinations from Germany, the Netherlands and Switzerland to keep up with demand, though it highlighted that hotel space was running out.

Destinations in North America and the Caribbean are seeing increased demand, while search firm Kayak said Germans were more interested in hotels in their own country this year.

Some in the industry are clinging to hope that tourists will still travel this summer but are holding off on firm bookings longer than usual due to the uncertain security outlook.

"Past experience has shown us that a country that is serious about tourism and has built an infrastructure always bounces back," Taleb Rifai, the head of the United Nations World Tourism Organisation, told Reuters in an interview.

"Look at Egypt. It has been up and down for the last 10 years. Every time it comes back stronger than before," he said.