KEY PLAYERS from the tourism industry say they have good reason to feel bullish about a successful summer season, but some industry watchers say it is not the magic bullet it once was and cannot save the island like it did after 1974.
Proposed upgrades have boosted confidence, with both the government and international lenders suggesting that investment in tourism has the best shot of plugging the gap left by the near demise of the financial services industry.
If forecasts are to be believed, the financial sector will likely be halved, with brutal consequences for related industries such as wealth management, trusts, foreign exchange trading, fund administration and insurance.
Now, after playing second fiddle to finance for two decades, hopes again rest on the holiday trade, which was once the mainstay of the economy but are these hopes really justified?
On paper the prospects for growth look promising - last year nearly 2.5 million people visited the island, boosting revenue from tourism up 10.2 per cent, with revenues of €1.927 million - which equates to about 10 per cent of GDP. At the end of the nineties however that figure was closer to 20 per cent.
However, few deny that since the bailout agreement a concerted effort is needed to tackle a whole raft of new headaches faced by tour operators, hoteliers and other related services.
One major concern is that many foreign travel companies have already paid hotels to reserve rooms, but the haircut on those uninsured deposits sitting in the Bank of Cyprus and Laiki raises serious questions about how hotels will function with a highly reduced cash-flow.
“It is a real concern,” says Zacharias Ioannides, the Chairman of the Cyprus Hoteliers Association. “It is something that we are working on and we are confident that there will be an amicable result to this.”
With government assurances that steps are being taken to address the issue, Ioannides anticipates that the banks and tourism sector will work closely to overcome any obstacles.
Not everyone is so confident. Unburdened from the shackles of high office, former finance minister Michalis Sarris said he understood the frustration expressed by tourism officials, but offered a blunt message that everyone must share the pain of the savings raid.
“I think with the tourism sector there will be problems, but they are manageable. I think the tourism sector has done well - it will do well in the coming year,” he told CyBC radio this week.
“It’s not perfect, but I think under the circumstances, they also are paying something of their fair share of this problem,” he added.
Industry players say clarifications on the haircut on deposits need to come sooner rather than later, with Zacharias Manitaras from the Cyprus Chamber of Commerce and Industry insisting that tourism be insulated from the worst effects of crisis.
“Obviously the government should reimburse those in the tourism sector. As this is the biggest business we have - hotels and other related businesses cannot work without cash flow,” he added.
The Memorandum of Understanding (MoU) with the international lenders focuses on tourism as a cornerstone for future economic growth, now that the financial services sector has been destroyed.
“Since tourism is one of Cyprus` largest sectors and an important potential driver of future growth, a reinvigoration of the competitiveness of this sector is warranted,” The MoU document states.
Yet critics say that the MoU’s suggestions as to how growth in tourism could be achieved are simply rehashed ideas that were first touted decades ago.
The ‘massive improvements’ to the current tourism sector business model the MoU suggests include lengthening the tourist season, increasing occupancy rates of hotels and promoting domestic vacations, especially during the winter months.
Other ideas tout upgrading the island’s image by convincing discerning and affluent tourists that Cyprus has much more to offer than just sun, sea and nightlife and taking another crack at tapping into thematic niches such as sport, cultural, medical tourism and individual tourism. All of these measures have been promoted by the Cyprus Tourism Organisation (CTO) many times over the years with varying degrees of success.
Best-practices on upgrading the quality of services provided and improving the role of tourism-related infrastructure investment were also suggested, all of which will require diversification, large scale investment - and ultimately may take years to come to fruition.
According to Noel Josephides, Managing Director of Cyprus and Greece specialists Sunvil Travel, who is an expert on the Cyprus-UK market, told the Sunday Mail the only way to make any inroads would be to bring in another one million arrivals.
“Cyprus will need to bring in lot more volume and more volume means lower prices,” he said. “We are not going to get that volume at current prices. Prices must fall dramatically.”
Josephides also said Cyprus’ complacency towards the UK market over the past five years had led not only to a drop in arrivals from Britain from a peak of 1.6 million a decade ago to around one million now, but has resulted in the decimation of the structure which was in place in the UK to boost the numbers.
“Tourism to Cyprus from the UK is now almost entirely in the hands of TUI and Thomas Cook. Cyprus also destroyed the UK market by paying no-frills carriers. They don’t fill hotels and are not necessarily cheap,’ he said.
As for hope of tourism saving the island like it did after 1974, Josephides said: “In 1974 there was no Turkey, no Tunisia, no Egypt nor Croatia in term of tourism. Now we have competition coming out of our ears. Tourism is not the magic bullet it once was.”
With economists also pointing to strong competition from Greece and Turkey, foreign investment and large scale upgrades seems an unlikely prospect, given the lack of confidence in the local economy.
“Just the uncertainty about the future tends to be a killer in terms of activity,” says ABN Amro’s Nick Kounis. “Who is going to invest in Cyprus now?”
Brushing the economic considerations aside, CTO chief Alecos Orountiotis insists that Cyprus continues to be an attractive destination.
In an attempt to counter the potential fallout from weeks of negative foreign press headlines, Minister of Tourism George Lakkotrypis said he predicted an “exceptional touristic year,” adding that he had been in contact with major travel companies to reassure them about the future of the sector.
One lingering fear that has crept into news reports over the past fortnight is that Germans in particular will stay away, fearful of a hostile reception as a result of the savage austerity imposed in the EU-IMF bail-out.
Nonetheless, Sibylle Zeuch, Press officer at the Deutscher ReiseVerband, the leading lobby group of the German tourism sector believes that hotel and restaurant owners will welcome holidaymakers from Germany, despite resentment.
“At the moment they might wait a little bit before booking and see how the situation develops, this is what we experienced in Greece. If things start to return to normal they will surely go back because the product hasn’t changed,” Zeuch told the Sunday Mail.
Prior to the bailout crisis, the CTO launched an "aggressive" policy to promote Cyprus as a destination for Germans.
“In 2009 there were 130,000 visitors from Germany, in 2010 it was 140,000 and in 2011 it was 160,000. So it is becoming a more attractive destination for Germans, but 2012 saw 145,000 tourists - a bit less, but it doesn’t change that much,” says Zeuch.
Despite a dip for Easter holidays, forecasts suggest that the British market is expected to remain stable this year, with bookings recovering last week according to online travel agency Lastminute.com.
“The UK is by far the leading market to Cyprus, sending one million visitors a year. There is no reason for this to change. On the contrary, prices on the island will probably fall as recession bites,” says Ian Taylor from the London-based Travel Weekly magazine.
Taylor predicts the Russian market will suffer, despite an influx of Russian holidaymakers boosting tourist arrivals to a seven-year high in 2012, with a jump of 42 per cent.
“It’s hard to see Russians continuing to visit on the same scale,” he said.
But CTO official Marios Hannides said he had sent a message to tourist agents and partners in Russia that “they can continue to operate in Cyprus without any problems”.
Speaking last week he said that many Russian tourist agents had invested millions in Cyprus already on hotel maintenance and booking advances.
Some industry observers say tourism is not the magic bullet it was in 1974 when it saved the economy