TBC Capital published a special edition on tourism. According to the report,as the war unfolds in the region, measuring its possible negative impact on Georgian tourism industry becomes extremely important. The war poses various risks for Georgian tourism industry, ranging from economic hurdles to region becoming unsafe destination for the visitors. The impact is inevitable; however, it will differ across source markets. No doubt, Ukrainian and Russian markets are directly affected. The impact on other source countries will be mostly determined by their ties with Russian and Ukrainian economies.
In 2019, before the start of pandemic, Russia was a dominant source market for Georgian tourism with 19% in international visitor trips and even higher 25% share in travel receipts. Ukraine, on the other hand, was a comparably small player with 3% in international visitor trips and 6% in travel receipts. However, the pandemic has reversed the picture: In 2021 Ukraine generated slightly higher volume of travel receipts for Georgia than Russia with less share in international visitor trips.
Ukrainian market has been growing steadily since 2019 and shows a high rate of recovery to 2019 levels. In 2021, The Ukrainian market recovered to 70% of 2019 level in terms of visitor trips and to 88% - in terms of travel receipts.
In January 2022, Ukraine even entered growth territory, with 21% growth of trips and 52% increase in receipts, compared to Jan 2019. The latest trends positioned Ukraine as a promising market for Georgian tourism.
Russia, remaining one of the important markets, still lags behind in terms of recovery. In 2021 trips from Russia recovered to 14% of its 2019 level and receipts - to 20%. January 22 shows higher recovery of trips and receipts, 33% and 38% respectively. The indicators were expected to further recover with Covid-19 effect fading away.
Besides these two countries, Belarus (due to its involvement) and Armenia (due to its strong dependence on Russian economy) are among the
most vulnerable source markets. Their total contribution to international visitor trips amounted to 13% in 2021. Due to their low spending, their contribution to tourism receipts is relatively insignificant, 2.4% - Armenia, 3.9% – Belarus.
Had the 2022 continued in peace, TBC Capital expected a strong recovery of tourism industry. International travel trips were expected to recover around to 62% of its 2019 level translating into 85% recovery of travel receipts. The horizon for accommodation related indicators were also clear – occupancy was expected to reach 54% in 2022 (96% recovery) and ADR – USD 100, only 3% lower than in 2019.
"We have identified the extent of impact of these factors on source markets that are important to Georgia. Economic factors include the impact of war on GDP growth, currency depreciation, and difficulties with payments. The safety concerns visitors’ perception of Georgia as unsafe destination due to the war. It is not surprising that the economic repercussions of war disrupt Ukrainian and Russian source markets the most. Economic spillover is strong for Armenia and Belarus as well. We do not expect a dramatic economic impact on the rest of the source markets. As it concerns the safety, we estimate that Georgia will be perceived as moderately risky destination for most of the markets except neighboring countries. Migration of Ukrainian, Russian and Belarusian citizens causes ambiguity with no clear understanding of its share in total visitors, period of the inflow and length of stay in Georgia. Although not related to tourism, migration cannot be fully omitted from tourism analysis.
For this reason we performed an assessment of migration impact on three key tourism indicators: travel receipts, average occupancy and ADR for both scenarios. Our assessment did not cover visitor trips as they indicate a trip that has ended with the departure from the country. In timely resolution scenario, we assume that migration only continues for a short period of time. In such a scenario, migration increases annual travel receipts by around USD 60m and slightly pushes up its recovery. Occupancy and ADR also move upwards. As war continues and sanctions become heavier, migration is expected to increase and last longer. In delayed resolution scenario, travel receipts increase by around USD 110m and recovery stands at 55%. Similar to previous scenario, occupancy and ADR are less affected as migrants decide on rentals rather than on hotels. Migration is still very recent and assessment are based on short data. TBC Capital will update the expectations as more data become available. Migration is expected to have larger impact on short and long-term rental market rather than on hotels. Detailed analysis will be covered in our upcoming publication dedicated to real estate", - the report reads.
According to the publication,in the timely resolution scenario the four major indicators worsen in 2022. Recovery of visitor trips to its 2019 level is 47%. Migration contributes around USD 60 million to travel receipts and it also slightly pushes up occupancy and ADR. Travel receipts recover to to 68% of its 2019 level with migration contributing by 1.5pp to this recovery. Occupancy level constitutes 45% and ADR stands at USD 89 in the timely resolution scenarios. In 2022, under this scenario, visitor trips from Russia will recover to 18% of 2019 level, receipts - to 21%.
The estimated drop in Ukraine is dramatic, visitor trips are expected to recover to only 28% of its 2019 level with receipts recovering to 27%, whereas in January 2022, trips and receipts from Ukraine exceeded 2019 level by more than 20%. The markets that stay in the growth territory despite the regional circumstances are Israel and Middle East. The trips and receipts from these markets grow by more than 30% compared to 2019 levels.
In case of delayed resolution, visitor trips recover to 40% of their 2019 level. With migration contributing additional USD100 million to travel receipts, the latter is expected to stand at 55% of its 2019 level (3.5 pp recovery contributed by migration). In this scenario, occupancy is 37%, 8pp less than in the timely scenario. ADR stands at USD 79 compared to USD 89 in timely scenario. Even in the worst-case scenario all indicators still recover stronger than they did in 2020 and 2021. The effect of pandemic was heavier for the industry as it almost completely closed all source markets for destinations, whereas the war will have varied effect.
Under this scenario Russia and Ukraine barely contribute to Georgian economy. Russia registers 9% of recovery in both international visitor trips and receipts. Ukraine, once one of the fastest growing source countries, recovers only by 12% and 11% in international visitor trips and receipts, respectively. Israel and Middle east still stay in growth territory with just a small negative effect due to safety related factors.
