Diversifying Slowly

Economic News

22 Jul 2010
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With the eyes of the world concentrated on the Olympic Games in neighbouring Greece, Bulgarian tourism officials are hoping that some of the attention devoted there will drift over the border. And with new figures out showing a healthy rise in tourist numbers, they may be onto something. While Black Sea beach tourism revenues are looking healthy, concerns remain over the short-term sustainability of present business models. Many now see the need for the country to exploit its many other natural and man-made advantages in order to get more bang from the tourism buck.



The latest statistics reported in media last week by the Ministry of Economy show that in the first seven months of 2004 more than 2.5m foreigners visited the country - 20% more than in 2003. Visitors from EU member states represented the biggest rise, some 31% up on last year. Amongst them, Greek visitors constitute the largest group, followed closely by German and British tourists.



According to the Ministry of Economy, tourism generated 412.8m euros in revenue in the first five months of 2004, 30% more than in the same period of 2003.



While these figures are said to exceed all expectations, anything less than double-digit growth in this all-important sector would probably be considered a fiasco. With so much investment tied up in tourism, any slowdown would send alarm bells ringing not only in the financial and property sectors, but also among the one-in-six Bulgarian workers who depend on the industry for their livelihood.



Some concerns were already raised in July by the media, when the Bulgarian Association of Travel Agents reported that for the first time in six years the 30% increase in bed capacity in Black Sea resorts was not matched by holidaymaker numbers. Later, the daily Dnevnik reported that some leading Black Sea tourism operators were complaining of declining profits. Several hotel owners warned that the current rate of expansion was not sustainable, because the number of hotels along the Bulgarian coast has exceeded the number of qualified staff available.



Casting further doubt on recent successes, the chairman of the Council of Tourism in Sofia, Rumen Draganov, was reported in the Sofia Echo on July 23 as saying that the positive data provided by the Ministry of Economy does not correspond to reality. According to Draganov, foreigners that pass through the country are counted twice. He also claims that the net revenues in tourism in the first half of 2004 are no more than 30m euros, which strongly contradicts the figures provided by the ministry.



Yet, international tour operators have helped to dispel some of the pessimism surrounding the tourist industry, announcing recently that nearly all packages for 2005 have already been sold, and the sector will maintain its strong rate of expansion. Hristo Kolev, local representative of the leading German tour operator Thomas Cook, told the daily Dnevnik in July that "over 70% of the hotel beds in Bulgarian seaside resorts managed by Thomas Cook have been booked for the 2005 summer season."



The company was in further talks with Bulgarian airline Air Via to launch new charter flights to boost the flow of Polish and Scandinavian tourists. Meanwhile, the leading British tour operator Cosmos included Bulgaria in its first edition of three summer brochures for 2005. Packages will start from $530 per person for seven nights bed and breakfast accommodation.



Although these positive reports from tour operators are likely to allay fears of an imminent slowdown, tourist experts continue to maintain that positioning Bulgaria as a package tour destination is a mistake. Despite a significant rise in numbers of visitors, revenues remain quite low and profit margins are thin, because bargain holiday hunters have limited purchasing power. It was estimated last year that foreigners coming on a package tour for 10 days spend on average $594. Furthermore, a large slice of that revenue is retained by foreign tour operators.



Most importantly, critics argue, Bulgaria's strategy is risky, because global tourism market trends suggest that mass tourism is in decline and Bulgaria will continue to face fierce competition from regional competitors Turkey and Greece. While Bulgaria is currently able to compete on price, the rising cost of labour, together with its shorter seasons and lower quality facilities, could erode its regional competitive advantages.



Industry analysts have therefore argued that any long-term strategy should focus on broadening Bulgaria's appeal, offering a greater variety of travel experiences. A mixture of affluent, better-educated and adventure-seeking travellers should be its preferred customer base. Such tourists stay for longer and spend more, therefore offering better profit margins.



Emmanoil Matsakis, general manager of the Sheraton Sofia Hotel, told the OBG this week that Sofia's four- and five-star hotel sector is almost exclusively dominated by business travellers from EU countries. "An average stay is around 2.1 days and involves mainly business activities with an occasional visit to nearby tourist attraction, such as Rila monastery or Plovdiv city."



Yet, such trips are considered to be a diversion and often require private initiative on the part of the businesspeople who complain that tourist services in Sofia are underdeveloped. Many of them complain about the lack of signs transliterated into Latin script from the Cyrillic alphabet, both in the city and on the roads, which makes it difficult for foreign visitors to find their way around.



Friedrich Niemann, general manager of the Hilton Sofia, confirmed in an interview to the OBG that "Sofia remains little known as a tourist destination, despite the fact that it has all the elements to become an attractive city break destination - low prices, interesting cultural sites and good entertainment opportunities."



Niemann revealed that all five-star hotels together with local tourist agencies have now joined forces in trying to promote Sofia as a destination for convention organisers. Members of the newly established Bulgarian Convention and Visitors Bureau (BCVB) have invited major convention organisers to inspect the National Palace of Culture, the largest convention centre in South-eastern Europe, which according to Niemann could accommodate from 100 to 4000 convention delegates. Located in downtown Sofia, the National Palace of Culture is within walking distance of Sofia's historical attractions. One of Sophia's most-impressive architectural landmarks is the Alexandre Nevski cathedral; there are also several museums all set against the picturesque view of Vitosha Mountain. The palace incorporates 13 halls and 55 meeting rooms and was allegedly built at the request of former communist leader Todor Zhivkov's daughter. It once hosted the most important Communist Party conferences and events. It is ironic, therefore, that is has become a rallying point to attract Sofia's capitalist fortunes.



Convention business, it is expected, could produce some important synergies with the tourist industry from extension trips. Most delegates, according to Niemann, "like to bring their spouses or family and want take advantage to explore the country". Although smaller in number this particular group of visitors, belonging to much higher income bracket would help to boost the capital's economy and balance out the effect of the Black Sea tourism economy.



Experts have long been prodding the government to promote Bulgaria's capital city, Sofia, as both the country's business destination and a vacation gateway. Many of Bulgaria's other cultural, historic, and natural assets close to Sofia remain relatively unexplored. Convention business could prove to be just the first step in this direction.



While Sofia still is not a major convention destination, and it will take several more years of promotion before tourism from conventions helps the Bulgarian market, the seaside and mountain tourism industries are thriving. In much the same way as the seaside has become very popular for summer vacationers, ski resorts are also thriving in the winter. Ski resorts attract the same number of tourists each year as the seaside resorts do, and this is mainly because of large tour operators. It was reported last week that, Bansko, one of Bulgaria's most popular ski resorts, expects 100m euros in investment for hotel construction projects. Municipal authorities are currently extending the ski lanes and infrastructure in the resort, which will turn Bansko into the biggest ski centre in the country, putting it ahead of its main rival Borovets. The authorities in Borovets are also trying to keep up and have recently drafted a 150m euro medium-term investment programme aiming to expand accommodation capacity and improve skiing facilities.



Meanwhile, there was some positive news for Bulgarian spa resort Varshets, when it was reported last week that the German company Matthiesen & Co is looking to set up a joint venture in order to upgrade tourist facilities in a 150m euro project. Investors hope to offer Varshets to clients of German health insurance companies. Varshets is renowned for its mineral springs, which are good for patients suffering from cardiac problems, diabetes, kidney disease and nervous system disorders.



The hunting season is also set to start soon with 3000 hunters expected to generate some 1.5m euros in income this year. Bulgarian-language daily The Standard reported on August 15, that Minister of Agriculture Mehmed Dikme and Minister of Justice Anton Stankov opened the hunting season for migratory game birds such as quails, pigeons, turtle-doves, woodcocks and snipes, when they staged a hunting party near the town of Karnobat, not far from the Black Sea coast. Dikme said, "Hunters from foreign lands are coming back to Bulgaria, but their number has not reached the figures, recorded in the best years of the past."



Signs are emerging that the Bulgarian tourist industry is becoming more diverse, even though critics argue this process is too slow, with most tourist investors still placing their bets on the Bulgarian coast. Focus is starting to shift towards alternative travel locations such as Sofia, Varshets and Bansko, as well as to traditional hunting haunts, at long last.

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