A vacation at a sun-baked Turkish resort is a hard sell this year. So is family dinner at a once-bustling cafe.
Tensions with Russia and a succession of deadly bombings blamed on Islamic State and Kurdish militants are scaring away visitors from the world’s sixth-most popular holiday destination. Shuttered hotels and cancelled flights are eating into the foreign currency inflows the economy needs to keep its current-account gap under control. Tourism revenue may fall below $20bn this year for the first time since 2008, according to political risk consultants Eurasia Group.
US-based Delta Airlines suspended service from New York to Istanbul that was to have begun next month, and Spain’s Iberia temporarily cancelled four weekly flights from Madrid. The violence, which has killed more than 200 people since July, is also deterring locals from frequenting once-popular gathering places, hushing the thrum of the country’s busiest streets.
“I can’t help noticing people’s bags, it makes me uncomfortable,” said Murat Kurtulus, a 32-year-old worker at a telecommunications company. “Before the bombings, I used to spend my weekends at shopping malls and movie theatres. Now I prefer to go to parks and avoid crowds.” Tourism accounts for 6.2% of Turkey’s economic output, according to the Association of Turkish Travel Agencies, and 8% of employment. This year, hundreds of resorts on Turkey’s Mediterranean and Aegean coasts have scrapped plans to hire thousands of seasonal workers, industry officials said.
Others may not even reopen for the season. Foreign arrivals sank 8.5% in January-February - the largest on-year drop in at least a decade, according to tourism ministry figures. Salim Tasci, a real-estate agent in Ankara, says he’s handling dozens of hotel sales offered at discount prices. “I have never seen such a dramatic increase,” said Tasci, an agent for 40 years.
After annual peaks of nearly $30bn in revenue, “Turkey would be lucky to get $20bn this year,” said Naz Masraff, director for Europe at Eurasia Group. “This is a significant blow to the country’s foreign exchange revenues.”
Militant attacks and political turmoil have clobbered economies in an array of countries in the Middle East, including Egypt and Tunisia. Security concerns in Turkey have arisen from a resurgence in the decades-old war with Kurdish groups after a pro-Kurdish party briefly stripped the ruling AKP of its parliamentary majority and spillover from Syria’s civil war.
Given that Turkey receives about 40% of its tourism revenue between July and September, an escalation in attacks could “have a much more significant impact on tourism revenues and hence the current-account deficit,” said Yarkin Cebeci, an economist at JPMorgan Chase & Co in Istanbul.
The Turkish economy, however, will face the potential crisis from a position of strength.
The plunge in global commodity prices has helped narrow the current-account shortfall to 4.46% of economic output at the end of 2015, the lowest since 2010. Gross domestic product, fuelled by consumer demand, expanded 5.7% in the last three months of 2015, exceeding estimates.
The government is also trying to minimise the financial fallout, letting banks twice restructure as much as $17bn in loans to tourism businesses before declaring them non-performing. It’s also offered to pay salaries of 45,000 tourism workers for three months.
That might not be enough.
For hotels, the outlook is “quite bleak,” said Cetin Osman Budak, a lawmaker from the opposition Republican People’s Party and former head of the Chamber of Commerce in Turkey’s most popular resort city, Antalya on the Mediterranean.
“Many hotels did not open this year in the resort town of Kemer near Antalya, there is a 40% drop in reservations from Europe based on early bookings,” Budak said. “Even big companies are keeping half of their hotel-chains closed because hotel managers are finding it harder to pay back loans.”
Visitor numbers have fallen off especially sharply from Germany and Russia.
After 12 German tourists died in a bombing in Istanbul in January, about 40% of hotel bookings from Germany were cancelled, according to the Hotel Association of Turkey. Turkish leisure airline SunExpress, jointly owned by Turkish Airlines and Deutsche Lufthansa, scrapped dozens of flights a week from northern Europe.
Visitor traffic from Russia plunged 52% between December and February on an annual basis after the Turkish military downed a Russian warplane that crossed into its territory from Syria in November, according to the Tourism Ministry.
Shares in Turkish Airlines have plunged nearly 18% since an October 10 suicide bombing claimed by Islamic State killed more than 100 people in Ankara. The Borsa Istanbul Tourism Index has declined 9%, compared to an 8% rise in the main gauge.
The violence is also hurting carpet dealers and jewellers in Istanbul, which hosts more visitors each year than New York, according to the 2015 Mastercard Global Destination Cities Index. The falloff is especially striking at the city’s 15th-century Grand Bazaar, whose rooftop was used for the motorbike chase in the James Bond movie “Skyfall.”
“The number of foreign visitors fell more than 80% nowadays and even Turks are shunning the Covered Bazaar unless they need to exchange gold,” said Hasan Firat, chairman of the bazaar’s merchants association. “Shops are shutting down one by one and taxis are forming long lines for clients. People’s nervousness is palpable even on security cameras.”
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