Making room for more: Ever so popular and with a promising future

Long described as a “bridge of civilisations” by locals and travel writers alike, Turkey is now enjoying a new inspiring status: an island of stability. Surrounded by Arab uprisings and eurozone crises, the country is attracting attention and visitors with its economic growth and increasing international prominence. In 2011 Turkey hit its goal of 30m tourists and increased its income to $23bn in receipts, which equalled to 3% of GDP.

A NEW DAWN: The exciting push is in part driven by profile-raisers, such as Istanbul being named the 2010 European Capital of Culture, and tourism officials hope to see Turkey in the top five worldwide destinations by 2023. The country ranked seventh in international tourism arrivals in 2010, according to the UN World Tourism Organisation. Reaching the top-five bracket would require surpassing Italy, which drew 43m visitors in 2010, to join the ranks of France, US, China and Spain. Turkey’s growth in visitor numbers appears sustainable for the time being, but the country will need to improve and diversify its tourism offerings to compete with premier global destinations. Sector analysis shows that Turkey derives much of its market share from value-focused resort tourism, which boosts raw visitor totals at the expense of per-capita spending. All-inclusive tourism has also left resort towns like Antalya culturally underdeveloped, as visitors prefer to stay in their hotels and use complementary services. Fortunately, Turkey has the opportunity to boost revenues by capitalising on underdeveloped resources in its portfolio. This includes the cultural capital of Istanbul, where the tourism market is still immature compared to its European counterparts, despite several decades of growth. Istanbul has also been attracting a steadily growing stream of high-spending visitors, particularly tourists from the Middle East who are drawn to Turkey’s Islamic heritage and increasingly positive public profile in the region. Finally, Turkey’s Anatolian heartland is famous for its historical sites, natural wonders, and other religious and cultural draws, even though investment and easy transit options are still lacking.

BY THE NUMBERS: In 2011 Turkey experienced its most impressive tourism growth since the onset of the global economic crisis. Figures fell away sharply in 2008-09, but 2011 brought Turkey a rise in visitor numbers of 9.86% to 31.5m, thanks to a 21% increase in the months of January-April. This ended two consecutive years of declining revenues, boosting income by 10.6% from $20.8bn to $23bn. Turkey’s growth in tourism significantly outperformed the global average, having expanded an estimated 4.5% in the first eight months of 2011. Globally, the tourism sector’s contribution to GDP was expected to increase by only 3.2% in 2011 and 3.3% in 2012, given the economic decline.

The German market has dominated the Turkish tourism industry for many years, but its share has been on the decline. Some 4.83m Germans visited Turkey in 2011, accounting for 15.3% of arrivals, compared with their peak representation of 26.3% in 2002. Still, Europeans and Russians continue rounding out Turkey’s top-visitors list, with 3.47m Russians making up 11% of arrivals. With 2.6 m visitors, British nationals accounted for 8.2% of all guests. Visitors from Iran amounted to 1.88m or 6% of the total, and Bulgarians ranked fifth, comprising 4.7% of Turkey’s tourists. Syrians, Dutch, Georgians, French and US visitors followed, with each group representing less than 4% of the total.

WELCOME MAT: Tourism industry figures tend to divide the industry into three segments: Istanbul, Anatolia, and resort tourism in the Mediterranean and Aegean regions. The resort sector, which has for decades offered Europeans a budget holiday destination, is currently the most developed of these segments. Turkish border gate figures show Antalya, on the Mediterranean coast, to be the top province for arrivals in 2011 with 10.5m visitors, or one-third of all tourists. An additional 3.1m (9.8%) came in through Muğla province, which features the Aegean resort towns of Bodrum, Ölüdeniz, Marmaris and Fethiye. Rounding out the coastal gateways, Izmir welcomed 1.4m arrivals, or 4.4%. Together, these provinces accounted for over 47% of all arrivals, although not all visitors headed directly for all-inclusive resorts. At the same time, Istanbul captured 25.6% of visitors – 8m people – while Edirne had 8.6%, or 2.7m arrivals.

One area where Turkey has lagged is in the average spending of tourists, which has fallen fairly steadily over the past decade. The high point was 2003, when Turkey welcomed 14m visitors and gathered $13.2bn in income, or roughly $946 per person. Income hit its nadir in 2010, when 28.6m visitors spent only $20.8bn, an average spend of $727 per guest. However, both total and per-capita spending ticked upwards in 2011, to $23bn in gross receipts and $731 per person. Many attribute this in part to an influx of wealthy tourists from the Gulf countries, who typically spend far more than budget holiday goers (see analysis).

LOFTY GOALS: In tourism, as in most other sectors of the Turkish economy, all eyes are on 2023, the year in which the republic will celebrate its 100th anniversary and the government hopes to hit a number of growth milestones, including a rise in tourism’s visitor and income figures. By 2023, Turkey aims to host 50m guests and garner $50bn in revenue, establishing a spending goal of $1000 per tourist. These targets, announced in 2008 by İsmet Yılmaz, then undersecretary at the Ministry of Culture and Tourism, also included goals for 1.25m beds, 5m tourism workers, 500 planes, 10 conference centres, 40 marinas and 25 cruise ports.

To reach these figures, in 2007 the government laid out a strategy for several improvement programmes, including diversifying tourism products, strengthening transport infrastructure, increasing city branding and boosting cultural development. Current incentives for tourism include access to public land; long-maturity, low-interest rate loans for investment; the ability to hire up to 10% foreigners; and a variety of tax exemptions such as value-added tax and Customs. Tuğrul Temel, a business development manager at Hilton Turkey, notes that “investment in hotels is easier than other types of real estate, as it’s supported by the government.”

The government has designated tourism promotion as a top priority. The budget for advertising abroad grew to $98.6m in 2011, compared with $27.8m in 2002. Asia is a particular focus of the promotional campaigns, and the General Directorate of Promotion has opened offices in Brunei, Malaysia, India and China.

Visa policies play a major role in opening new markets to Turkey’s tourism industry. The cancellation of visa requirements for Russian nationals in May 2010 should help sustain the recent rise in budget holidaymakers from that country. Arrivals from Russia grew 15.3% and 11.6% in 2010 and 2011, respectively, and the number of visitors has more than doubled since 2004. Turkey then eliminated visa requirements for Ukrainian nationals in 2011, and the government has agreed to drop the permit requirement for Belarusian passport holders as well. Outreach in the Middle East has similarly led to visa-free travel for visitors from Syria, Qatar, Lebanon, Yemen and Jordan (see analysis).

THY: Turkish Airlines (THY), the nation’s flagship carrier, has a symbiotic relationship with the tourism industry, as it both benefits from and contributes to the country’s attractiveness to foreigners. It is in the midst of an unprecedented expansion, having added 20 routes and acquired 32 new planes in 2011. This was coupled with 67% boost in advertising spend in 2011, THY’s greatest increase on any individual item aside from fuel. As the face of Turkey’s tourism for many visitors, THY’s reputation is crucial. Since its partial privatisation in 2006, the airline has evolved considerably and was recently named Skytrax’s Best Airline in Europe in 2011.

REGULATORY MATTERS: The sector is regulated by the Ministry of Culture and Tourism. There was an abortive proposal in the 2007 strategy to create a National Tourism Council by bringing together private and sector figures, and a continuing worry of tourism operators and organisers is the lack of a clear policy direction. “One minister says, ‘focus on medical tourism,’ and everyone focuses on that. Then the cabinet changes and the next minister says we have to focus on congress tourism. There is neither continuity nor focus,” said Bulut Bağcı, the chairman of Gençtur, a local tour operators association. Bağcı recommends developing Turkey’s diverse tourism attractions, but marketing them to different audiences. “We have to match countries with their destination. For example, Japanese tourists are interested in cultural tourism, so they travel to Cappadocia, Van, Mardin, Urfa and other places in the south-east. In London we might promote the financial sector. To people in Switzerland, we should be promoting beach tourism in Antalya and Bodrum.”

BY THE SEA: With nearly 50% of tourists coming to Turkey in search of sun and sand, resort tourism is the industry’s primary driver and a key contributor to revenue growth. A look at accommodation statistics is instructive: according to 2010 figures, the Mediterranean region accounted for 319,630 hotel beds, or 50.7% of the total, while the Aegean region represents another 25%. Istanbul has only 10% of the country’s overnight hosting capacity. The sheer size of accommodation capacity, combined with the seasonality of resort tourism, makes for serious underutilisation in the winter, even as hotels expand to meet summer demand. Just 110,176 visitors arrived in Antalya in January 2011, while 1.7m graced its shores the following July, capping average stay at less than six nights per person.

However, given the steady growth of visitors, supply is rising. Statistics show that investments under way in 2010 will expand bed capacity by 25.9% in the Mediterranean and 56.5% in the Aegean regions. Additionally, the government has designated six sites along the coast – Çeşme, Dalaman, Didim, north Antalya and Manavgat – as Tourism Development Regions. Plans, such a land zoning, have been slow to develop in some cases, but progress is being made. In 2011, the Ministry of Culture and Tourism approved the construction of five hotels in Didim, with more potentially to follow. In Dalaman environmental protection approvals were finally obtained, giving the go-ahead to build a new marina, which will allow for the docking of large yachts.

The attraction of the coast is obvious: it hosts the vast majority of Turkey’s 324 Blue Flag beaches, which puts it just behind Spain, Greece and France as a resort destination. In addition, the region boasts historical sites – Ephesus near Izmir, a crusader castle in Bodrum, and the Roman sites of Perge and Side, near Antalya. Turkey’s coast as a premier attraction is reflected by the transportation and accommodation options available throughout the country. There are direct flights to Antalya from 10 German cities and three Swiss cities, as well as from Moscow, Amsterdam, London, Manchester, Vienna, Oslo, and most major Turkish hubs. With THY recently redirecting its focus on long-haul and transit traffic, most of these routes are available through European airlines or via Turkish budget carriers like Pegasus, Onur Air, AtlasJet and SunExpress.

On the hotel front, the focus on budget travel has not detracted from the provision of top-quality accommodation. Statistics from the Ministry of Culture and Tourism show that the Mediterranean region hosts 392, or 44%, of the country’s total of 841 four- and five-star hotels, and the Aegean holds an additional 22%. Rates are competitive, and a survey from the website Myhotelcost.com rated Turkey the second-cheapest Mediterranean destination after Malta for hotels and restaurants. Another survey, the UK Post Office’s “Worldwide Holiday Costs Barometer 2012”, analyses the average cost of a bundle of goods commonly bought in resorts, including coffee, sun cream, cigarettes, and dinner for two. Turkey ranked as the 17th-cheapest spot worldwide in 2011, with Spain and Cyprus the only Mediterranean countries to beat it on value.

REBALANCING: There is a growing concern that the industry’s focus on cheap, all-inclusive resorts is shortsighted and risky in the long run. In this view, the steady growth in European arrivals seeking cheap holidays has impeded the diversification of resort destinations, leaving many coastal towns as little more than a collection of hotels. The predominance of the all-inclusive model is responsible for some of this underinvestment, according to tour operators, because package tourists tend to spend very little outside their own hotel.

“Between 70% and 80% of the people arriving at the airport don’t see Antalya as a city,” said Nina Öger of Öger Tours, a leading tour operator specialising in package tours. “They go straight to their hotel and spend the rest of the time there.” Öger argues that the lack of development hurts the ability of tour operators, and thus hotels, to charge higher prices.

Hotel operators tend to concur, but they emphasise that the all-inclusive vacation package phenomenon is being driven by tour operators, who would need to take the initiative in shifting approaches. “In the southern region – Antalya and Alanya – you have to supply all-inclusive products,” said Temel. “The resort business in Turkey is mostly led by international tour operators and their local partners. The hotels want a large number of visitors, and they work through the tour operators.” Temel stressed that non-inclusive hotels would be more profitable, if they could attract visitors. “None of the hotel operators in this region support all-inclusive other than as a means of getting guests.” Öger told OBG that, in the past, “we saw lots of hotels being built, with little attention paid to infrastructure or developing the resort towns as destinations with their own culture. We need to begin marketing Turkey as a product.” Öger’s solution involves promoting Turkish specialties like olive oil and wine, and diversifying the attractions surrounding resort destinations. “We should work together with local governments to organise special trips, festivals and create the infrastructure to connect these towns.” Bağcı also argues against the cookiecutter trend of massive hotels along the coast. “There is an inflation of five-star hotels in Antalya,” he said. “We need more boutique and budget hotels.”

GOLF TOURISM: The growth of golf tourism in the Antalya region might be evidence that resort destinations recognise the need to distinguish themselves and boost spending. The town of Belek near Antalya has cornered the market on Turkish golf tourism, boasting 15 of the country’s 19 golf courses. Although investment in the area began in 1994, interest in the coast as a golfing destination has only seriously taken off in the last 10 years, with the number of rounds played more than tripling between 2003 and 2009. In 2008, Belek was named “Best Golf Destination of the Year in Europe” by the International Association of Golf Tour Operators, and it will host the 2012 Amateur Teams Championship. Given that the average golf tourist spends about five times as much as regular visitors, the potential for luxury tourism is high.

Growth in Turkey’s tourism implies that the challenge of better developing resort destinations is a long-term hurdle, not a short-term crisis. However, given that much of Turkey’s draw rests on its value proposition, tour operators will pay close attention to the economic fallout from Europe’s debt crisis. In the event that prices fall in embattled countries – as they appear to be doing in Spain in 2012 – the impetus for Turkey to boost its offerings would become that much stronger.

ISTANBUL: Despite being Turkey’s largest city and culture capital, Istanbul is twice second fiddle – to Ankara’s politics and to Antalya’s tourism. But this underdog status is disappearing, thanks to a decade of steady economic growth and an opening toward the outside world. This transition was underscored by Istanbul’s selection as the 2010 European Capital of Culture, which spurred art exhibitions and renovations across the city.

Cultural centres in major European cities tend to attract a large number of tourists, and in this regard, Istanbul, with 8m tourists in 2011, has been catching up to its counterparts. “Paris is getting 30m tourists per year, Turkey as a whole is getting 26m,” said Bağcı. “So how are we going to compete?” The attractions, however, are clear: Istanbul spans Europe and Asia, integrating the finest in Ottoman and Byzantine architecture, with a vibrant nightlife to top it off.

Most industry professionals see huge opportunities for Istanbul. For one, although the city might appear to be entirely populated with hotels, Istanbul is far from saturation. “There is a huge potential for hotels in Istanbul,” Temel told OBG. “To illustrate, Hilton has 50 hotels in the Charlotte, North Carolina area and only five in Istanbul.” Furthermore, Istanbul’s market is far less seasonal than that of the coastal regions, especially given its growing status as a business centre for the region. Thus, operators are able to invest in hotel rooms without worrying that they will be empty for four months of the year. Leisure-focused hotels do have a relatively “dead season”, according to Onur Altay, supervisor at the Tünel Residence, but “during the summer, Istanbul still doesn’t have enough hotel space.”

SUPPORTING AN UPTICK: Istanbul also does not suffer from a perception that it is a budget destination. Prices are certainly lower than in competing European cities: according to the 2011 Hotel Price Index by Hotels.com, the average five-star hotel in Istanbul costs $209 per night, compared to $229 in Munich, $347 in London and $496 in Geneva. Much of this is owed to the city’s late start in economic development and the current rapid catch up. “All the top international companies in the hospitality sector are coming to Istanbul – Le Méridien, Shangri-La – and prices are rising automatically,” Bağcı told OBG. “If you combine increased services with more extensive marketing, prices will rise.”

Foreign chains are quick to open properties in Istanbul. Marriot will add the Renaissance Istanbul Bosphorus Hotel in September 2012, bringing its portfolio in the city to six. Hilton has four hotels in the pipeline, mostly in the city’s underserved suburbs and outskirts. The Rezidor group has two Radisson Blu operating properties in the Istanbul area and two under construction, including a 305-room hotel in the Şişli district.

Istanbul and its vicinities still face shortcomings in terms of transport infrastructure, although this affects residents and businesses more than tourists. The main tourist attractions in the historic district of Istanbul are connected by a tram that links via metro to Atatürk Airport. Intercity train transport will be interrupted from 2012 through at least 2013, when the Haydarpaşa Station on the Anatolian side will close for construction. The Marmaray project, set to open in 2013, is a massive railway construction and upgrade effort that will serve as an intra-city commuter rail and also connect Istanbul with a greater inter-city rail system.

MICE: As Istanbul grows in both size and economic importance, an increasing number of visitors are arriving for business purposes. The meetings, incentives, conventions and exhibitions (MICE) industry is thus in an advantageous position. According to the International Congress and Convention Association, which tracks meetings held by industry associations that rotate between destinations, Istanbul ranked seventh worldwide with 109 meetings in 2010. This represents a major improvement over 2001, when it ranked 29th with 35 meetings and in 2009 when it ranked 16th.

“We know the convention potential is strong,” said Temel. “We expect the demand and supply for convention space to rise significantly in the upcoming years.” According to Temel, conventions maximise both occupancy and room rates for operators. Additionally, they mitigate the effects of seasonality, as most conventions happen outside the summer months when demand for rooms in Istanbul stretches the existing capacity.

The bulk of Istanbul’s conference settings are located in three clusters: the Airport & Exhibition District, the Business & Finance District, and Conference Valley near Taksim Square. The airport district is home to two of the biggest exhibition spaces in the country – CNR Expo, with 150,000 sq metres of exhibition space, and the Istanbul Expo Centre, which boasts 162,000 sq metres of exhibition space.

Istanbul’s premier conference facilities include Tüyap Fair, Convention and Congress Centre (TÜYAP) in Büyükçekmece; CNR in Ye şilköy; the International Congress Centre, which recently opened in the central Taksim district; and the WOW Istanbul convention centre that currently offers a 4000-person-capacity venue but has major expansion plans for the future.

MICE offerings in the business district are geared more towards conventions and meetings than exhibitions. These are often linked to hotels, such as the 2500-person Grand Cevahir hotel and convention centre. Conference Valley, meanwhile, holds two major meetings and exhibition spaces – the Istanbul Congress Centre (ICC) and the Istanbul Convention and Exhibition Centre (ICEC). According to the Istanbul Convention and Visitors Bureau (IVKB), each of the three main MICE centres can host events of up to 20,000 participants.

Turkey has the ability to host prominent international events and its importance in regional affairs has grown, making Istanbul a convenient destination for high-level diplomatic meetings. In recent times it has hosted events such as IMF and World Bank meetings, a NATO summit, the World Water Forum, and World Economic Forums in 2008 and 2012. “Istanbul became a leading destination for international meetings, congresses and exhibitions, and will need more conference centre space and hotels,” Kemal Keskin, manager of business development at Ay’dan MICE, told OBG.

In February 2012, WOW Istanbul announced a $20m investment that will add meeting rooms, expand seating capacity to 6500 and provide the largest meeting space of any combined accommodation and convention facilities the city. TÜYAP, a long-standing industry player in the western suburb of Büyükçekmece, added three halls in 2010, bringing its total exhibition space to 98,000 sq metres inside and 75,000 sq metres outdoors. In February 2010 UK-based venue operator SMG Europe opened Ora Arena in Istanbul, which will specialise in conventions and corporate presentations, as well as concerts and similar entertainment events.

BRANCHING OUT: Beyond Istanbul and the coast, Turkey sees valuable potential in diversifying its tourism portfolio to encompass regions that remain outside the purview of the average tourist. This includes the country’s eastern expanses, which are underdeveloped for tourism, despite their many historical sites, natural wonders and places of religious significance.

To realise these opportunities and target the premium end of the market, the Ministry of Culture and Tourism will address the potential of the east and has included in its 2023 Vision plans for a number of “tourism corridors”. For example, the north-eastern cities of Erzurum, Erzincan, Kars, Ardahan and Ağrı, would be linked together as the winter tourism corridor, promoting skiing and other cold-season attractions. The region received international attention in 2011 due to the Winter Universiade collegiate tournament held in Erzurum. Still, only 15,000 tourists come to Turkey yearly for winter tourism, a tiny share of the 62m ski tourists worldwide. The ministry’s proposed $10m budget would develop winter tourism centres in several towns and help train and coordinate between sector personnel. Other planned areas of promotion include the Silk Road corridor around Ankara, the faith tourism corridor in south-east Anatolia and the western Black Sea coastal corridor. The Black Sea is particularly amenable to development, Öger told OBG. “With 15m people in Istanbul and no close destination for weekend holidays, there is plenty of potential there,” Öger said.

HEALTH TOURISM: One niche area already seeing growth is health tourism, where Turkey benefits from lower costs and proximity to Europe. The country saw 74,093 visiting patients in 2008, 91,952 in 2009 and 109,678 in 2010. Most health tourists are residents of Germany, the Netherlands and France with Turkish backgrounds who return for competitively priced medical care. However, Turkey’s moderate climate and abundant thermal springs offer scope for expansion beyond Turkish-heritage visitors. The ministry, seeking to become the world’s leader in “thermal tourism”, aims to have 50,000 thermal beds installed in the short term, with 250,000 beds as the medium-term target. One example of investments being made in this sector is the Alila Wellness Park, which will bill itself as Europe’s largest thermal facility with 2000 beds. The $80m project will feature two hotels and two spas and offer a combined “thermal, summer and religious” holiday.

OUTLOOK: Given the volatile nature of the industry, even an attractive market like Turkey cannot rest on its laurels. Obstacles for growth are diverse: a strengthening lira, price competition with Spain and Greece, unsustainable building practices and environmental degradation. One concern is a backlash over what Vural Öger, a European MP from Germany’s Social Democratic Party, labelled “concretisation”. As huge resorts replace once-beautiful natural spaces and small, traditional towns, the region’s attractiveness as a whole diminishes. The Turkish government faces the challenge of promoting tourism without damaging the social fabric of local communities or the environment. Sustainability is the watchword of the future, and the country will need to adapt if it is to keep the current trend growing strong.

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The Report: Turkey 2012

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