The good, the bad and the ugly of cut-price tourism - Monocolumn | Monocle


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28 July 2011

As high summer approaches, it’s easy to resent the summer tourist hordes on your turf, but for many in Portugal, the increasing number of visitors is a welcome sign that their country is still open for business.

According to Paulo Rita, MA director at the ISCTE Business School Lisbon, incoming tourist receipts went up 8.7 per cent between January and April compared with the same period last year. Last year, the number of foreign tourists had already risen by 6 per cent, recovering most of 2009′s 8 per cent fall, while hotel revenues increased 3 per cent. British, German, Spanish and French holidaymakers accounted for nearly two-thirds of all international tourists – significantly, at a time when the number of people travelling from those countries decreased.

Allan Katz, the US ambassador to Portugal, says the country should be targeting the American market, as it has everything it is looking for (“old things, good food, good wine”).

Europe’s other troubled members, Greece and Ireland, are seeing a similar boost in visitors, given the weak euro (a draw for visitors from the US), VAT rate slashes for tourists in both nations (down from 13.5 per cent to 9 per cent in Ireland), and price reductions on tourist attractions and hotel rooms.

“It is understandable that when facing macroeconomic difficulties, firms try to entice consumers with severe price reductions due to more fierce competition,” Rita says.

This popularity has its downsides, however. TAP, Portugal’s flag carrier, has lost billions in the last four years thanks in no small part to the rise in budget airlines, namely easyJet, which has settled in at Lisbon’s Portela airport. Ryanair, which has bases in Porto and Faro, has also made public its interest in having a third base in Lisbon. TAP has lost many passengers on routes to London and Paris because of, it believes, aggressive marketing techniques and skewed perception; the airline is not that much more expensive than low-cost providers. “If we go too far down the cut-price holiday path, margins will become too narrow because of substantial price cuts,” warns Rita. “If companies are cutting costs significantly, this will undoubtedly affect service quality.”

Luís Faria, co-founder of think-tank Contraditório, points out that the last few decades has seen a number of different sectors successively elected as the catchall solution to economic problems, without much success – tourism being the evergreen “holy grail”.

“The role of government should be to remain sector-neutral and to unleash entrepreneurial energies across the board,” he says. “In tourism, like in any other sector, new practices should emerge by ongoing experimentation. Instead of showing what the ‘right way’ is, Portuguese people should be given the opportunity to fish when the fish are there – not just when the weather is good.”


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