Scotland’s tourism sector is a critical foundation of our national economy yet it has never faced such an uncertain macro-economic environment.
The war in Ukraine and the consequent impacts on fuel and power, food and transport have created an operating environment that many businesses will find extremely challenging in the year ahead.
In a sector still being negatively impacted by Brexit-related labour shortages the inflationary pressures across so many elements of operating costs have created a perfect storm for the Scottish tourism sector.
Recent data compiled by the Moffat Centre on the visitor attractions sector suggest just under 20% of this valuable sector faces insolvency following unsustainable cost escalation.
Heating and lighting in heritage buildings and other parts of the attraction sector were always major cost centres yet recent price rises of 400-500% make feasible operation questionable.
It is always worth noting that tourism’s value to the economy is disproportionately greater in our rural and island communities.
(Professor John Lennon)
It is ironic that the value proposition of the UK Sterling makes the appeal of destination Scotland particularly strong as the international inbound markets of North America and Europe begin to return.
However, late 2022 saw a reversal of traditional demand patterns in Scottish tourism with the dominance of urban centres eroded and a buoyant recovery in rural, northern and island destinations.
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With the notable exception of Edinburgh, many of the formerly dominant city products have seen slower recovery.
Moffat Centre accommodation performance measurement suggests Edinburgh has seen the strongest revival in occupancy and rates achieved returning to 2019 levels.
Yet for other Scottish cities leisure, business and conference business has been challenging.
(Chris Greenwood)
The pandemic work-from-home ethos has demonstrated to managers more cost-effective business operations and challenges the orthodoxy of urban corporate space and office leases.
Many city locations have experienced reduced footfall as office workers and business visitors add further to the decline of high street locations already severely eroded by online retail.
Outside of the cities, the self-catering and touring markets witnessed consistent recovery from the lockdowns of 2020 and 2021, with rural locations benefiting from the hot summer weather.
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The impacts of energy, transport and food inflation were a constant presence during the first three quarters of the year, but it was after October the impact was felt by businesses and consumers.
That said demand for tourism remains buoyant among consumers. Indeed 69% of UK adults plan on taking an overnight domestic trip at some point in the next 12 months.
But it is the rising cost of living which is the biggest perceived barrier to taking overnight UK trips in the next 6 months, followed by personal finances and rising costs of holidays/leisure.
As a nation, we have previously benefitted from growth in air connectivity, yet we now face a long period of slower growth in our major airports.
While new routes to North America started this year overall there are simply fewer flights, and fewer carriers offering a reduced level of connectivity. Airlines such as British Airways and EasyJet; both are evidencing downturns of -23% and -8% on daily flights respectively when compared with 2019.
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One highlight in air transport is from Scotland’s Regional Carrier Loganair which continued to see an increase of 3% in daily flights compared to pre-pandemic.
Aviation route networks will take years to mature to the 2019 levels and the increases in fuel costs will continue to challenge inbound tourism.
The other shadow over connectivity is the ongoing impacts of industrial disputes on rail connectivity which looks likely to continue well into 2023 along with a range of sectoral disputes.
Travel connectivity is vital for domestic and international tourism and restriction impact consumption in many parts of our hospitality industries.
Restaurants, bars. night clubs, events and performing arts are all impacted resulting in lower realisable sales.
As profitability is challenged by escalating costs one is left with the impression of an industry (continually) gazing over a cliff.
Insolvencies are likely to increase across the sector and without government relief, many SMEs will face a challenging year.
At a domestic level, Scottish tourism will continue to see positive demand as UK consumers are faced with expensive overseas destinations as Sterling buying power continues to diminish.
ABTA forecast 5 million brits will take an international break this Christmas. Longer term 58% of UK residents intend on taking an overseas trip in 2023.
Self-catering, holiday parks and online accommodation supply will continue to see buoyant domestic demand as UK consumers continue to pursue value accommodations options.
Whilst for many UK citizens the primary overseas vacation is likely to continue, it is the second (formerly international) break that becomes more questionable and herein lies the ongoing ‘staycation’ potential for Scotland.
Scotland remains a popular destination for domestic and international visitors alike, and demand remains good, although consumers will seek value for money in their purchases.
It will be in the availability of supply from the industry where challenges are building and will remain in 2023.
The ongoing concerns about trade, import tariffs, air access and customs issues in a post-Brexit environment will continue.
Food price inflation is already exceeding more general indicators creating pressure on gross margins in the hospitality sector.
The prospect of a Transient Visitor Tax being introduced by cash-strapped local authorities looks likely to create a further operating cost in the sector, with no certainty that such taxation revenue will be channelled back into tourism marketing or infrastructure upgrade.
Fuel cost rises will be an ongoing concern for 2023 and the cost of internal Scottish travel, which remains predominantly car-based will become more expensive.
The problem here is maintaining the appeal of highland, island and rural destinations when access costs rise.
Professor J John Lennon, Director of the Moffat Centre for Travel and Tourism, Glasgow Caledonian University and Chris Greenwood, Senior Research Fellow.
