Spain

Crimea crisis poses a threat to tourism in Spain, Greece

April 2, 2014: 11:38 AM ET

Russia's annexation of the region has weakened the ruble and may mean fewer Russians visit southern Europe this summer.

By Ian Mount

The annexation of Crimea has led to Russia becoming an international pariah and weakened the ruble. It may also mean further economic woe for Spain and Greece.

The annexation of Crimea has led to Russia becoming an international pariah and weakened the ruble. It may also mean further economic woe for Spain and Greece.

FORTUNE -- You don't need a master's degree in international relations to understand why Russia's annexation of Crimea worries many Ukrainians. It's a little less obvious why it's so perturbing to Greek hoteliers and boutique owners on Spain's Costa Brava, but they have good reason to worry.

International condemnation of Russia's actions has hit the already weakening Russian ruble, driving it down 11% for the year in March to record lows against the U.S. dollar and euro. This, in turn, has made European summer vacations more expensive -- and less attractive -- to Russians, who in recent years have discovered a love for warm European beaches.

"The exchange rate is fundamental for tourism," said Ramón Estalella, CEO of the Spanish hotel trade association Confederación Española de Hoteles y Alojamientos Turísticos, or CEHAT. "If the ruble keeps devaluating, we'll have a problem," he noted.

This is an especially sensitive issue for the troubled economies in southern Europe, where tourism has been one of the few shining lights and where Russian tourists have been a driving force behind the boom. Almost 1.6 million Russians visited Spain in 2013, up 31.6% over 2012, according to the Spanish ministry of industry, energy, and tourism.

MORE: In battling German unions, will Amazon emulate Wal-Mart?

In Greece -- where tourism accounts for 16.4% of GDP and tourist spending helped the country post its first recorded current account surplus last year -- the boom was even more pronounced. More than 1.2 million Russians visited over the first nine months of 2013, up 49.4% over the same period in 2012, according to the Hellenic Statistical Authority, an independent statistics agency overseen by the Greek parliament.

European tourism businesses are especially fond of Russian visitors because they are known for spending freely on high-end brands and for using travel agencies instead of less expensive travel websites, which are popular among Western Europeans and Americans. A November 2013 study by the Barcelona provincial government and Serhs Tourism, a travel agency and travel services provider based in Barcelona, found that Russians spend an average of 125 euros per day, outpacing visitors from Germany (98 euros), Britain (93 euros), and France (80 euros). Ninety-six percent of Russian tourists used an agency to set up their trip, according to Serhs.

Now, however, Russians are taking a wait-and-see attitude before they book their European summer vacations, according to Serhs Tourism's managing director Delfí Torns, who recently returned from the Moscow International Travel and Tourism conference (MITT).

Torns says he's seen an 11% decline in the number of airline seats Russian tour operators are reserving on scheduled and charter flights to Spain. Advance bookings by Russians planning vacations in Spain are also down -- by as much as 20%, he notes.

MORE: How to reform Ukraine's economy

The ruble's decline in value against the euro has also led Russian tourists and travel agencies to ask for price cuts of some 20%, according to CEHAT's Estalella, who also attended the MITT conference. But such discounts are very difficult to make because companies in Spain and other EU countries have high taxes and regulation compliance costs they cannot avoid. This makes it hard to cut prices to compete with countries such as Turkey, another top Russian tourist destination.

"We would love to have the margins to drop prices 20%," Estalella said.

European tourism suppliers were further frightened when the EU called off negotiations on visa-free travel for Russian travelers and threatened more sanctions, leading some to worry that visas for Russian tourists would be restricted.

"To make it more difficult for Russians to come to Europe is only hurting Europe," Taleb Rifai, Secretary General of the U.N.'s World Tourism Organization, said at a Nueva Economía Fórum conference in Barcelona in March.

MORE: Hold on to your hard hats: A capital spending boom may be coming

For some in the industry, however, all the talk of a Russian slowdown is overblown. There is still time for the ruble to recover before the summer, they say, and even if it remains weak, free-spending Russian visitors can still afford to travel if they dial down the luxury a little bit.

"One thing that could happen is that Russians who were not sensitive to price now may become so. Instead of being the best clients for a five-star hotel they might become the best clients of a four-star hotel, or ask for a lower price," said Pau Guardans, who owns Único Hotels & Real Estate. Ten percent of the guests at his five-star Grand Hotel Central in Barcelona are Russian, he notes, adding that he believes warmer temperatures will continue to attract Russian visitors.

At the Prada boutique on Barcelona's swish Passeig de Gracia, an avenue known for free-spending Russians, there's been no perceivable slowdown in Russian tourist traffic, said Ken Woo Kim, a salesman at the store.

"The Russians haven't stopped coming," he said. "And they often come in already carrying purchases from other stores."

Search This Column
View all entries from this: Week, Month
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.