8 Oct, 2019
Tourism Industry Overview: The Next Destination
- Georgia’s tourism industry has achieved a remarkable growth over the past decade, hitting record numbers of tourist arrivals and outpacing the economy growth with a 12.8% CAGR over the past ten years.
- Tourism represents the largest component of service exports in the BOP, accounting for 72%, up from under 40% a decade ago. As of 2018, tourism revenues make up 36% of Georgia’s total exports. Consumption by international visitors is signiﬁcant, with 84% contribution in spending on short-term accommodation, 20% on food and beverages, 51% on culture and entertainment and 16% on ground transportation.
- Despite the impressive figures, Georgia is still under-toured. With visitor-to-population ratio of 1.9, Georgia falls behind some European countries, however the share of same-day trips in visitor trips I significant. As the increase in overnight trips outpaces that of same-day trips for the past three years, supported with positive trends in the share of first-time and holiday visits, we see further potential for the industry growth. Average length of stay per visit increased from 3.4 in 2015 to 4.2 in 2018. Even though the number of international visits peak in summer, tourism in Georgia is more than a classic “Sun and Sea” destination, with winter months keeping the relative balances.
- The residents of the neighboring countries account for over half of all visitors, with visits from Russia showing the fastest growth before the recent ﬂight ban. However the share of EU citizens, a high-spending segment, is increasing (5.3% in 2018 in absolute numbers, up from 4.1% in 2015 and 11.6% in total tourist receipts, up from 6.9% in 2015). There is still a need for further diversiﬁcation: In 2018, the top 5 countries of origin accounted for 76% of all international visitors to Georgia, signiﬁcantly higher compared with other countries.
- The share of air arrivals is rising, promising growth in average spending. The increasing air connectivity will keep underpinning the growth in future. Visitors spent GEL 7.9bn in Georgia in 2018, up 37.4% YoY. Average expenditure per trip picked up, totaling USD 447 per visit in 2018, up by 7.2% YoY. Country comparison indicates a high upside in average spending. Attracting visitors of older age would increase the tourist receipts.
- We believe the effect of Russian sanctions is not long-lasting. The number of Russian citizen visiting Georgia by plane has been declining by around 75-80% YoY in July and August, however the alternative routes have been activated. Overall, we expect a low-single digit decline in tourism inflows YoY in 2019 and 5% growth in the absolute number of visitors.
- A total of 30 million nights were spent by international tourists in Georgia. Tbilisi and Adjara see the highest total nights among the regions. The length of stay is on the rise in the major tourist destinations, with average nights spent in Tbilisi up from 2.4 in 2015 to 3.6 in 2018, and nights spent in Adjara rising from 3.1 in 2015 to 3.5 in 2018.
- The share of stays at tourist accommodation is increasing, up from 40% in 2015 to 53% in 2018. The share of hotels and similar establishments is growing among the tourist accommodation, reaching 74% in 2018, up from 65% in 2015. At circa 25% of total accommodation stock, the share of large hotels in Georgia is currently lower than in Europe. Georgia’s bed-per-visitor ratio at 12 per 1,000 visitors is among the lowest in Europe, indicating need for additional accommodation. The hotel occupancy rate of 64% in Georgia is among the leaders in Europe and it keeps growing. Even if the supply of tourist accommodation outgrows the tourist arrivals for a certain period, the occupancy rates will remain attractive. Currently, a sizable increase in accommodation facilities is expected. We expect the hotel accommodation stock to grow at a CAGR of 11% for 2018-2025. Tbilisi, Mtskheta-Mtianeti, Kakheti, and Imereti are interesting locations for additional stock, while Samegrelo, Guria, Racha are so far under-toured.
- Currently, the branded hotel pipeline is mostly concentrated in Tbilisi and Batumi. We see the potential for unique local brand concepts on the market. We compare the hypothetical upscale and midscale hotels for the capital and the region to present the ranges of their returns. The annual occupancy rates in branded hotels are the highest in the country, averaging at 70% in Tbilisi and 64% in Batumi. Rates and prices for economy hotels as well as in seasonal resorts are lower. We expect the international tourism to grow at a slower tempo than accommodation supply in coming years, causing country’s occupancy rate to somewhat decline, stabilizing at circa 60% in the three years’ time.
- The winter resort comparison indicates that Bakuriani lacks skiing infrastructure, Gudauri needs both more infrastructure and accommodation, and remaining resorts have the capacity for more visitors. The 2023 Freestyle Ski and Snowboard world championships will be held in Georgia, further highlighting Georgia as a winter destination. Niche and cultural tourism is on the rise, with wine, wellness and spa, gambling and eco-tourism having a potential to gain the momentum in the country.
- The 2019 edition of the Travel & Tourism Competitiveness Index by the WEF ranks Georgia 68th out of 140 countries, ranking high on the safety and security and health and hygiene sub-pillars. However, the scores for international openness, and natural resources remain low.
- The state is prioritizing tourism. GNTA implemented the Tourism Development Strategy, setting benchmarks to achieve by 2025, which is successfully followed so far. The Government of Georgia is engaged in co-ﬁnancing of loan interest rates for entrepreneurs involved in the hotel industry, subsidizing the interest rates on loans. A state program “Film in Georgia” marked a major success in 2019, shooting parts of the ﬁrst Hollywood project in the country.