Turkey's expanding tourism offering driving sector growth

With a selection of archaeological ruins to rival Italy and Greece, 7200 km of scenic coastline, Istanbul’s unique blend of rich heritage and cosmopolitan culture and an advantageous location at the crux of three continents, Turkey’s diverse visitor offerings have seen its popularity grow rapidly over the past decade in the process of becoming a world-leading tourist hotspot.

In the past 10 years the number of visitors to Turkey has grown 115.7%, going from 17.08m in 2004 to 2014 in 36.84m. The country ranks as the world’s sixth most popular tourist destination, after France, the US, Spain, China and Italy: it is within striking distance of achieving its Vision 2023 goal to rise to fifth place worldwide. In terms of source markets Germany remains the number one tourist market for Turkey, recording 5.2m visitors in 2014. Germany is closely followed by Russia, with 4.48m visitors, and the UK with 2.6m visitors.

While visitor arrival numbers continue to grow yearon-year, 2014 saw a slight dip in the rate of growth. A record 36.84m foreign arrivals were recorded in 2014. While an increase of 5.52% on the 34.91m arrivals in 2013, this marked a slight slowdown on the 9.84% increase between 2012 and 2013. Even still, the country is set to meet many of its Vision 2023 tourism goals, including welcoming 50m visitors annually. With new hotel and transport infrastructure, as well as increased government promotion of various tourism sub-segments, the sector is expected to remain healthy.

Challenges persist, however. Visitor spending has remained flat in recent years, still recovering from a dip in 2012. Furthermore, Istanbul’s diminished occupancy rates during low season have some hoteliers concerned about a flood of new rooms over-saturating the market. But with a new airport set to greatly expand capacity, anticipated growth in meetings, incentives, conferences and exhibitions (MICE) tourism, and rapidly expanding medical, halal and cruise ship segments, the sector appears to have a promising future.

By the Numbers

The tourism industry’s governing body, the Ministry of Culture and Tourism (MoCT), has played an increasingly proactive role in the sector’s development since President Recep Tayyip Erdo ğan – then prime minister – launched the Vision 2023 economic development plan in 2007. Among the targets set out for achievement before its 2023 centenary, Turkey aims to attract 50m visitors annually, become the fifth-largest tourist destination worldwide and generate $50bn in annual revenue.

Visitor arrivals have more than doubled in the past decade, with expansion driven by increased government initiatives to grow the industry, a rush of foreign investment and international brands entering the market and a well-developed flight network located at the crossroads of three continents. A comprehensive range of market sub-segments is represented within the country: from the traditional sun, sand and sea segment to medical to MICE, halal and cruise ship tourism.

Turkey’s tourism sector has much to offer, including 11 UNESCO World Heritage sites, 352 Blue Flag beaches, 19 Blue Flag marinas and 20 international-standard golf courses. Tourism revenues have been rising steadily as a result of increased international attention and a sizeable domestic tourist base.

While Istanbul is still the most popular port of entry to the country, the southern region has seen an enormous uptake in visitor arrivals since 2011. In 2013 Erdo ğan announced that the government had invested TL13bn (€4.58bn) in Antalya’s development since 2002, and data from the MoCT found that Antalya was the most popular city for tourist arrivals in 2012 and 2013, and a close second behind Istanbul in 2014. The city reported 11.50m arrivals in 2014, just behind Istanbul’s 11.82m. The south-western city of Mu ğla ranked third, with 3m visitors recorded in 2014.

Progress

Given its progress in attracting tourists, Turkey’s goal of attaining 50m tourists annually by 2023 is certainly feasible: in fact, the World Tourism and Travel Council (WTTC) projects that by 2023, the country will attract 50.77m visitors annually. Turkey’s Tourism Investor’s Association (TYD) gave an even brighter forecast, predicting that the country will reach 60m visitor arrivals by 2023. “50m visitors is something we could achieve before 2023,” Kerem Demircan, general manager at Midtown Hotel, told OBG. “With a growing supply of hotel rooms and the construction of the new Istanbul airport, there is no doubt we can achieve and even surpass these figures by 2023.”

Income

Tourism income has grown impressively in recent years. The WTTC expects tourism spending will grow by 4.6% annually to reach TL131.8bn (€46.4bn), or 4.7% of GDP, by 2025. WTTC figures include income generated from hotels, travel agents, airlines and other passenger transportation services, as well as restaurant and leisure industries supported by tourists.

Visitors in the leisure segment dominate tourism, with Turkey offering a diverse array of historical and archaeological sites, as well as ample variety in climate and culture. The WTTC found that leisure travel spending generated 84.4% of direct travel and tourism GDP in 2014, compared to 15.6% for business travel spending. WTTC projects 2015’s figures to increase by 2.7% for leisure, and 1.4% for business, reaching TL129bn (€45.4bn) and TL23.6bn (€8.3bn), respectively.

Turkey’s domestic segment is also growing; Turk-Stat’s figures for the first three quarters of 2014 showed a 25% increase in total expenditure by domestic tourists, compared to the same period in 2013. The WTTC projects domestic travel spending to grow by 1.7% in 2015 to reach TL68.3bn (€24.1bn), and rise by 4.2% annually to reach TL103.1bn (€36.3bn) in 2025.

Despite good overall growth, operators have highlighted low visitor spend as a challenge for the industry. Foreign visitors accounted for 80.97% of foreign tourism revenues in 2014, with Turkish citizens living abroad comprising the remainder. However, while visiting Turkish citizens spent an average of $1130 per capita, foreign visitor spend averaged just $775.

“The problem is that expenditures per person for foreigners have not risen in several years, and are not expected to increase soon, which we as an industry need to work on,” Tugrul Temel, development director at Hilton Worldwide’s Istanbul office, told OBG.

However, the industry’s contribution to employment is increasing; the WTTC reports that travel and tourism generated 580,000 jobs directly in 2014 (2.2% of total employment); and the number of jobs generated is expected to rise by 5.9% in 2015. By 2025, the WTTC expects tourism to generate 915,000 jobs in Turkey.

Hotels

Turkey’s hotel capacity is set to grow substantially. Invest in Turkey reported in 2013 that licensed hotel facilities increased 48% between 2005 and 2012, with the country now offering guests 715,692 beds. The TYD projects the country will need to add an additional 1.5m hotel rooms by 2023 to meet demand.

According to the Istanbul Convention & Visitors Bureau (ICVB), Istanbul offers 94,000 hotel beds and over 170 four- and five-star hotels. Significant potential exists outside of Istanbul; while the city is often viewed as the largest tourism city in Turkey, its hotel numbers fall short of Antalya, which offers over 400,000 guest beds and 260 five-star hotels, according to the International Congress and Convention Association (ICCA). Izmir, with just 29,000 beds, is hoping to expand its offerings via increased foreign hotelier investment, according to Invest in Turkey. There is some concern from Istanbul’s operators, however, that with low season occupancy rates averaging 25-35%, an influx of new hotel rooms in the city will over-saturate the market.

“During the high season there is probably space for more hotels, but with Istanbul Atatürk Airport already at full capacity, supply is the same for many more hotel rooms. You’re spreading the same amount of butter over a larger piece of toast. High season premium is needed to compensate for the low season, when we’re all fighting over the same slice,” Massimilliano Zanardi, general manager of the Ritz-Carlton Istanbul, told OBG.

Resorts are becoming increasingly popular; while ownership of summer residences is common for domestic tourists, a rise in disposable income domestically is leading families to choose large, all-inclusive resorts for summer holidays, signalling significant investment potential. The example of Bodrum, where Swissôtel Resort and Nikki Beach Resort are opening shortly (in June 2015 and spring 2016, respectively), demonstrates the market potential for international investors.

Turkey’s hotel offerings include 165 chains, 15% of which are international brands, according to Invest in Turkey. Hotel beds are expected to greatly increase on the back of new foreign investment, especially in Istanbul, where new offerings from Hilton, Mondrian and Sheraton are opening in 2015. Internationally branded hotels are in shorter supply outside of Istanbul and Ankara, signifying further investment opportunities for international operators (See analysis).

MICE

Business tourism holds significant potential in Turkey, and Istanbul is becoming a high-profile MICE tourism destination, with national carrier Turkish Airlines offering over 239 direct destination flights between Istanbul and five continents, and an additional 300 international airlines serving two major airports on the European and Asian sides of the city. Along with every other segment, MICE activities are expected to expand even further with the opening of the Istanbul New Airport, which will be the world’s largest and offer an annual capacity of 90m passengers when it opens in 2017. Capacity is eventually expected to rise to 150m.

“MICE is a rising star, and the most productive area of tourism at the moment. There is tremendous potential in the MICE segment, as evidenced by recent construction of exhibition halls and conference centres in Istanbul and elsewhere,” said Demircan.

In a 2014 report by the ICCA, Istanbul was the eighth-most popular conference destination worldwide, hosting 146 international meetings in 2013. The city can accommodate events of up to 30,000 people, according to the Istanbul CVB, with offerings including seven purpose-built convention centres, three exhibition centres, and a large selection of palaces, waterfront venues, and convention hotels.

Outside of Istanbul, MICE tourism has room for growth, and an increasing number of first- and second-tier cities are seeing new construction and renovation projects catering to the MICE segment.

Antalya is one such city. In November 2014, when Antalya hosted the 53rd ICCA Congress, ICCA President Arnaldo Nadone noted in his programme notes that “21st century Antalya is reinventing itself as a top quality, modern and international conference destination, building on its tremendous success over recent years in the leisure tourism industry.”

Izmir is also making strides in increasing its MICE activities, jumping more than 100 places in ICCA’s international convention cities ranking. The new Izmir Fair Exhibition Centre opened in 2014, featuring 80,000 sq metres of space, with the existing exhibition centre set to be converted into a smaller 24,000-sq-metre conference centre and mixed-use development. The Izmir International Fair, Turkey’s oldest trade show, is set to celebrate its 85th anniversary in 2016, and attracts 3m visitors annually, including 40,000 foreign visitors.

At nearby Ku şadası, the 43,000-sq-metre Ephesus Convention Centre opened in August 2013. Business travellers have the added touristic draw of the ruins of Ephesus, currently under consideration to become Turkey’s 12th UNESCO World Heritage site. Other UNESCO sites in Turkey include the archaeological site of Troy, Göreme National Park, the rock sites of Cappadocia and the Neolithic site of Çatalhöyük, with evidence of human activity dating back to 7200 BC.

Halal

Halal tourism is a rapidly expanding segment worldwide, with the industry expected to reach a value of $160bn by 2017. Designed for Muslim families and business travellers who abide by sharia rules, the segment offers hotels with separate swimming pools and beaches for women and men, halal-certified food and kitchens, and non-alcoholic beverages. Muslim tour operators may also provide pork- and alcohol-free flight options, facilities with prayer announcements and religious broadcast TV options.

Turkey’s touristic offerings, adaptable hospitality industry, and proximity to Arab countries have made it a significant player in the halal tourism market; in March 2015, Turkey took second place in the MasterCard-CrescentRating Global Muslim Travel Index. Evaluated on attentiveness to the needs of Muslim travellers, including the presence and accessibility of halal restaurants and the provision of prayer rooms in airports, malls, and hotels, the survey ranked Turkey ahead of the UAE, Qatar, Saudi Arabia, Singapore and Morocco. A 2014 survey by the Mediterranean Union of Hotel Owners reported that there were 75 halal-friendly hotels currently operating in Turkey. Muslim-friendly offerings include the Caprice Thermal Palace, the Adenya Beach Resort & Hotel, the Karya Hotel and the Şah Inn Paradise, and are mainly located in the southern, Aegean, north-western and Black Sea regions.

Health

With a highly skilled, multilingual workforce and relatively low equipment and HR costs, Turkey’s medical tourism segment holds formidable potential for the industry. In 2014, 496,000 foreigners received treatment in Turkish hospitals, according to Invest in Turkey. The Ministry of Health (MoH) expects health-related tourism to grow to $20bn by 2023, serving 2m international patients. The government has been working hard to promote investment in the sector, offering incentives to providers and launching a worldwide marketing campaign to attract more patients.

In 2013 the MoH began investing in state-run research hospitals, focusing on core areas that are expected to rise in international popularity over the next decade. In 2014 the ministry also launched a campaign entitled “Turkey: Right Choice for your Life,” promoting the most popular segments of Turkey’s medical tourism industry abroad: cosmetic surgery, orthopaedics, cardiology and ophthalmology.

Booklets in a variety of languages, including English, French, Spanish and Arabic will be distributed to airline passengers, espousing the benefits of medical tourism in Turkey, as well as offering information on accredited health institutions and the services they provide. The MoH also plans to launch as many as 20 new websites to promote medical tourism, according to Invest in Turkey. The campaign aims to increase Turkey’s health tourism target of $5.6bn to $10bn by 2018, and to compete with other leading medical tourism destinations, including Dubai, Thailand, India and Singapore (See Health chapter).

Cruise Ships

Cruise ship tourism holds significant potential for Turkey, and increasing activities in the sea tourism segment has been listed as a priority in the Vision 2023 tourism master plan.

The Mediterranean region is ranked as the second-largest cruise market globally after the Caribbean. A July 2013 report by the International Association of Maritime Economists (IAME) found that cruise operators deploy 25% of their vessels with a capacity of 29.5m bed-days to the Mediterranean region, with activities expected to increase in the coming years.

The Izmir Chamber of Trade (IZTO) moved to create a Union of Turkish Cruise Ship Ports in 2012, identifying 13 port cities that hold significant potential for cruise ship growth. Ports in Istanbul, Ku şadası, Izmir and Marmaris are the most popular cruise destinations in Turkey, with Ku şadası, Bodrum, and Marmaris all hosting specifically designated cruise ship terminals.

In 2012 the Anatolia News Agency reported that passenger numbers in Turkey grew by 276% between 2002 and 2011. The industry has grown by 10% annually, with 1623 ships carrying 2.2m passengers in Turkey in 2011. Long-term demand is expected to grow, especially with a growing segment of Turkish tourists choosing cruise ship holidays departing domestically.

The Port of Istanbul is the largest cruise port in Turkey in terms of traffic. Ideally located on the Bosphorous strait – the only sea passage into Black Sea countries – Istanbul is in an advantageous position to increase its role as a regional hub, with cruise line operators increasingly looking to Romania, Bulgaria, Russia and Georgia for future market expansion. However, cruise ship growth in Istanbul is slightly lower than the regional average of 13%, according to the IAME report, which suggested Istanbul could increase its current market share if it improved port congestion and capacity issues.

Ku şadası is also poised to see cruise activities expand. The MoT reported Ku şadası welcomed 563,817 passengers in 2012, many drawn by the ancient ruins of Ephesus nearby. Royal Caribbean Cruise Lines owns a 27.5% stake in the port, and the line planned 44 cruise ships for Ku şadası in 2014, with the port receiving over 700,000 cruise ship passengers.

Outlook

Tourism growth remained strong in 2014, with rising visitor arrivals in Antalya, Istanbul, and regional cities expected to drive hotel and operator expansion well into 2023. Although visitor spending and capacity issues pertaining to the new airport and rising influx of hotel rooms remain, the government is lobbying hard to increase foreign investment, grow the industry nationwide, and increase visitor spending.

With all major sub-segments – especially MICE, medical, halal, and cruise ship tourism – forecast to rise substantially in the coming years, Turkish tourism’s international standing and contribution to its domestic economy will improve significantly in the years to come.

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The Report: Turkey 2015

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