Ukraine Tourism Report Q4 2012

The Ukraine Tourism Report examines the significant long-term potential being offered by the tourismindustry, but also highlights the potential downward pressure that economic uncertainty in Europe couldhave on currently strong arrival numbers. We also analyse the growth strategies being employed by thecountry to continue to attract arrivals, including following the UEFA European Football Championship(Euro 2012) held in June and July.

A weakening global growth picture bodes badly for Ukraine’s export-dependent economy and a falteringdomestic demand picture underpin our lower growth estimates for the rest of 2012. Ukraine’s economyexpanded at the slowest pace since the 2009 recession in Q112, posting real GDP growth of just 2.5%year-on-year (y-o-y). We forecast many of the economic imbalances to correct themselves going into2013, when we forecast GDP to hit 3.4%, up from 2.5% GDP growth in 2012. The recession subduedarrival numbers in 2009, dropping by 18%, and as the majority of arrivals come from Central and EasternEurope (CEE), 2010’s arrival numbers did not entirely rebound. For 2010 and 2011, BMI calculates therewas continued growth in tourist arrival numbers, with a jump from 20.8mn in 2009 to 21.2mn in 2010and 22.9mn in 2011. From 2012 to the end of our forecast period in 2016, we forecast the industry toreturn to and largely maintain double-digit growth until 2016, when it is then forecast to grow by 9% y-oyto 33.7mn tourist arrivals.

Ukraine was a co-host of the Euro 2012 with Poland in June-July and the tournament was expected to bea key driver for the country’s tourism industry during our forecast period. Not only did it bring thousandsof tourists to the country, the requirements to be chosen as a host for the competition included an array ofinfrastructure investment that can only be regarded as positive for the industry. Significant attention wasafforded to the event and the potential for it to provide a boost to the economy. That said, it was plaguedby poor publicity in months leading up to tournament and has been slightly overshadowed to some extentby the Olympics, which start at the end of July. As such, while some boost to growth is likely to havebeen generated, we remain sceptical about the ambitious expectations of a surge in economic activity.

Hungarian budget airline Wizz Air started offering services from Ukraine in 2008 and BMI expects thetrend of low-cost carriers in the country will increase in the coming years. This would be a positivedevelopment as it would drive down fare prices, making travel within, to and from Ukraine moreaffordable, increasing tourism numbers. Wizz Air’s entrance to the market has already prompted thelargest Ukrainian carrier, Aerosvit, to reduce fares. Since March 2011, Wizz Air, Italy’s Wind Jet andTurkey’s Pegasus Airlines all fly to Ukrainian cities. The authorities at Boryspil International Airport,which serves Kiev, are constructing another terminal for international and budget flights. Terminal D wascompleted in winter 2011 but it required another six months for commissioning. The new terminal onlyserved football fans during Euro 2012.

The January 2010 presidential election, the country’s first since 2004’s Orange Revolution, had thepotential to destabilise the country politically but turned out better than expected, with political riskcontinuing to subside. President Viktor Yanukovych successfully formed a coalition government inMarch 2010 and it obtained a new US$15.2bn Stand-By Arrangement (SBA) from the IMF (after theoriginal loan was suspended in November 2009), which are all positive steps for stability. That said, webelieve Ukraine will ultimately carry out the reforms spelled out under the SBA with the IMF, althoughwe believe these are unlikely to occur until after the October parliamentary election. Continuedcooperation with the IMF is crucial to anchoring confidence in Ukraine’s economy and underpinningmacroeconomic stability.