Greek tourism rebound needs reforms to last

Tourists are flocking back to Greece’s sun-drenched islands, drawn by sharply lower prices on offer for Aegean holidays, but the crisis-hit country will need tough reforms for the rebound in visitors to last.

Anxious to improve an image tarnished by news footage of bloody street protests, Greece’s top earning sector must cut through the nation’s endemic red tape, which scares away cruise companies and investors, and offer even better value for money.

Visitors to Greece’s tranquil islands and ancient monuments account for nearly a sixth of the economy and one in five jobs, so a strong tourist sector is crucial to Athens’ plan to emerge next year from its worst recession in four decades.

“We should not relax and be content with the fact that this looks like a good year … we must focus on improving the value,» said Yannis Retsos, head of the Greek hoteliers’ association, adding:

“We are pushing the government to make it easier to do business, to attract new funds: if you want to build a new hotel or add a swimming pool, it should be simple.”

The number of tourists flying in to enjoy Greece’s sunsets, picturesque villages, archaeological sites and Mediterranean cuisine has leapt by nearly 10 percent this year after two years in which income plunged by a fifth due to the global downturn, violent anti-austerity demonstrations in Athens and strikes.

The island of Rhodes, whose mediaeval city is popular with British and Scandinavian tourists, has seen a third more visitors, with arrivals on the island of Crete up 15 percent.

HOTEL PRICES LOWER

The surge in arrivals is largely due to low prices to entice visitors who were put off by the violence, which claimed the lives of three bank employees in one incident last May and strikes that left visitors stranded at ports and airports.

Hotel room rates have dropped by about 12 percent in the past two years, Retsos said, while inflation jumped, peaking at a 13-year high of 5.6 percent in September.

But Greece is still more expensive than Mediterranean competitors Egypt and Tunisia, which benefit from cheaper labour costs. These nations lost visitors due to the political unrest of the Arab Spring, but officials expect them to return soon.

“There is no way to try to be competitive only on price levels, because there will always be somebody who is cheaper than you,» said George Drakopoulos, general manager of Greece’s main tourism industry body SETE.

Half of the increase in arrivals is due to price cuts, he said with others coming back to Greece after cancelling last year due to unrest or avoiding North Africa due to the turmoil there. Israelis also seem to be choosing Greece over Turkey.

“We cannot cut prices any lower, that’s why we push our members to offer better services, to increase the value for money, we ask the state to do better promotion, undergo reforms and improve infrastructures,» Drakopoulos said.

Among key reforms needed were a land registry that holiday home buyers and investors can trust to boost real estate investment, and efforts to extend tourism beyond a three-month peak summer season focused on beach-goers.

Greece needs to expand from selling itself as a summer, beach-going destination to attract high-end tourists willing to pay more for cultural and culinary experiences and keen to travel out of the main summer season to discover Greece’s Byzantine history or sample its wines, analysts say.

“Mykonos 20 years ago and Mykonos now is the same, the product hasn’t changed, while Greece is competing with countries like Turkey and Croatia who have evolved their product,» said Diego Iscaro, at IHS Global Insight, referring to the popular Cycladic destination famous for summer clubbing.

“You can extrapolate that to the rest of the economy,» he said. «One way (to be more competitive) is to cut costs but they will have to look at innovation, offer higher-value products … and expand to fast-growing economies.”

In its July review of the 110-billion euro bailout that saved Greece from bankruptcy last year, the European Commission said Athens must agree by the end of August on a law to facilitate investment in resorts and vacation complexes, marinas and privatise state real estate.

RED TAPE AND TEAR GAS

But in a nation around the bottom of competitiveness indices because of stifling corruption and bureaucracy, reforms do not come easy, even in the prized tourism sector which ministers hope will lead the way in dragging Greece out of recession.

For instance, a 2010 law meant to boost earnings from the lucrative cruise ship business failed to reach its objective because of the many restrictions that remained in place, industry officials said.

More cruises now transit through Greece, said Drakopoulos, but fewer began their voyages from here because big firms feel stifled by over-burdensome bureaucracy. Passengers spend about five times more at the start-off point than on a stop-off.

“(Changing regulations governing cruises) is easy, has no cost, it’s simply a new way of thinking but some people just have to open their eyes,» Drakopoulos said.

Hoteliers, souvenir shop owners and tour operators also face the uncertainty that an upsurge in violent protests against the EU/IMF plan of tax hikes and wage cuts meant to pull Greece out of its debt crisis could once more scare people off.

Last month, after two days of highly-publicised clashes between protesters and police in Athens’ central Syntagma square, visitors cancelled nights in the city’s hotels and bookings for the end of the summer slowed down.

“You kill the image, you damage the destination, it really hurts,» said SETE’s Drakopoulos.

Another possible negative could be a government decision to raise VAT paid by bars and restaurants to 23 from 13 percent, which industry officials warned could lead to owners simply not declaring income resulting in decreased revenue for the state.

If Greece succeeds in bringing in 10 percent more from tourism this year, the trend could help to start the containment of a recession seen at nearly 4 percent of GDP this year after a 4.5 percent contraction last year.

According to an unpublished government-commissioned paper by consultants, tourism could account for 20 percent of Greece’s GDP and one in four jobs by 2020.

“Big crises are also an opportunity for change,» the hotels’ chief Retsos said. «We don’t want to see just a one-year rebound, we want a sustainable rebound. It’s not easy.”