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Analysis

Balearic Islands: celebrating the hotel industry with projects by the cartload

The Balearic archipelago, a leading beach resort destination, has met with great success among European clientele, particularly from Germany and The United Kingdom. Known for their shoreline, their mild climate and quality for value, the Balearic Islands are a mass tourism mecca, an image that can be damaging. But hotels in the region will undergo significant renewal in the months to come thanks to improved activity performances enabling major investments. How will demand react?

Bathed in the Mediterranean, the Balearic Islands form an archipelago east of Spain’s coastline. An independent community of Spain, Las Islas Baleares consist of 8 major islands dominated by the Island of Majorca, which covers nearly 75% of the region and is home to the capital Palma de Majorca. Minorca is only 695 km², Ibiza 570 km² and Formentera 81 km². Other, smaller, islands include Cabrera, Dragonera, Conejera and Espalmador. The Balearic Islands also include a hundred or so islets that are uninhabited for the most part. Although they are in the same archipelago and share their evolution, each island has its very own identity.

Made famous during the second half of the 19th century by the stormy passage of Chopin and Georges Sand, it is from the 1950s that the Balearic Islands affirmed themselves as a tourist destination, and became practically fully dedicated to this activity. The first infrastructures were built prior to major shoreline urbanization. At the time, the destination’s expansion was helped by the development of airline transportation, the generalization of paid vacations, and inexpensive, local man hours. The archipelago’s economy thus shifted into mass tourism, allowing it considerable economic growth and generating very dense urbanization, especially on the island of Majorca.



Today, tourism provides employment for 168,000 people in the archipelago, or 27% of jobs, and directly or indirectly generates no less than 45% of the autonomous community’s GDP. The Balearic Islands have a population of 1,105,180 habitants, or a density of 223 people per km². As Spain’s twelfth regional economy, they post a GDP of 27,546 M€, dominated by the tourism business. In 2015, the archipelago hosted close to 50 million international hotel nights (or 3.6% more than in 2014), making it the second tourist destination among foreign travelers in Spain after the Canaries. And yet, over the decade 2005-2015 there was only +1.5% growth per year on average, which is below national standards. The number of nights remained at a comparable level between 2012 and 2015, whereas most regions in Spain gained market shares thanks to economic and security troubles that impacted different international markets (particularly on the southern and eastern shores of the Mediterranean). The Balearic Islands are thus a solid and established market, with a growth dynamic that had slowed.

2016 has marked an important rupture: international arrivals at airports on the island surged by close to 12% across the year. This enabled occupancy rates at hotels to grow by 3.6 points to 72.7% on average across the year 2016, according to Observatory at MKG Consulting - OlaKala_destination. With the influx of international clientele, average daily rates also exploded in 2016: +13.9%. The RevPAR of hotels on the island is over 92€ on average including taxes. It is nonetheless important to remember that because of the seasonality of the destination, properties are not open year-round. They operate an average of 7 months per year (generally from April to October); on 12 months the turnover is thus less than 20,000 € per room.



The market of the Balearic Islands is dominated by German clientele, who generate 32% of nights, and British Clientele (27% of nights). More generally, most nights are generated by European clientele; domestic clientele represent only 12% of nights, while Asian and North American arrivals, which are very dynamic in Spain, center on urban destinations and remain limited in the Balearic Islands.



Considering this breakdown, the Balearic Islands offer an interesting European barometer for the evolution of summer nights from The United Kingdom which is just beginning its “Brexit” and has undergone an important devaluation of its currency. It is nonetheless necessary to underline that The United Kingdom posted a strong increase in demand in 2016 resulting in very high occupancy rates in resorts on the Balearic Islands. The islands thus entered a strong growth dynamic in their prices, while tourist arrivals from Turkey (and particularly the key region of Antalya) fell from 2016, converging with North African destinations that continue to suffer. And until now Turkey had been one of the leading destinations in the sun for travelers from Germany, the other major source market of the Balearic Islands… Several dynamics are thus underway on this atypical hotel market, but the same cannot be said for all the different islands.





Majorca: between natural heritage and going all Balearic

The biggest island in the archipelago, Majorca is also home to its capital, Palma de Majorca. The island is rich with the beauty of its natural landscapes: sandy white beaches, transparent water, pine forests, streams and cliffs, as well as a varied offering for tourists that is both natural and cultural. The city of Palma offers the only shoreline cathedral in Europe along with a maze of small streets. La Serra de Tramuntana, meanwhile, is the island’s primary mountain chain and has survived urbanization thanks to the creation of a nature preserve and was registered as part of UNESCO’s World Heritage List. Its terraces have orange groves, vineyards, olive groves, citrus groves and steep slopes. Nonetheless the island suffers from its reputation as a “destination for the masses”, further to the significant urbanization of some of its coastlines starting in the 1950s and the considerable volume of tourist arrivals each year.

Palma de Majorca’s airport, third ranking in Spain, handled more than 26 million passengers in 2016, or 71% of the air traffic to the Balearic Islands.  Like the destinations it services, Palma Airport is also very seasonal, with arrivals concentrated between May and September, peak transit occurs in July and August (in 2016, these months each saw 15% of the annual total). Inversely, December and January are characterized by very slow traffic (3% and 2% of the annual total).



Due to the steadily growing volume of visitors, the hotel supply has improved overall, gradually trying to target higher customer segments through renovation. Many openings are scheduled on the archipelago for 2017, most of which are positioned on the 4- and 5-star segments and have relatively large capacities. Majorca has the largest hotel capacity among the Balearic Islands with more than 76,000 rooms, or 75% of the supply in the region. The supply is mostly shared among 3-star and 4/5-star hotels, which have more than 38,000 and close to 34,000 rooms respectively. The average capacity of a property is 275 rooms; so it is interesting to observe that although the domination of mass tourism may lead to prejudice in terms of image, it is nonetheless this same vector that has allowed real local development to emerge. But in order to undo this stereotype image, the destination also wishes to revalorize its rural and cultural heritage. In partnership with 7 other European destinations, Majorca has presented a solidary and participatory tourism program, Eurorural Tourism (ERT), to the European commission. In 2017, it will offer participatory holidays in connection to the local culture and population.  Could this be a first step toward the progressive repositioning of its supply?



Ibiza, festivity

Listed as part of UNESCO’s world heritage, Ibiza has a flourishing biodiversity as well as a remarkable cultural heritage. Among them are Las Salinas park, a protected space that includes a wildlife conservation area on land and a marine beach area, the archeological site Sa Caleta, and the upper village of Eivissa, the fortified Phocaean city. In addition to its remarkable seabed, the island has a preserved historic and cultural heritage.  But the destination’s reputation is first and foremost a result of its wild nightlife, which gained its renown in the 1970s. Today, Ibiza’s clubs, which have a capacity for up to 3,000, host internationally famous DJs.  The island’s nightlife is mostly concentrated in the towns of Eivissa and San Antonio.

Ibiza, with a population of 862,390, registered more than 9 million hotel nights in 2016. The market is largely dominated by British clientele, who account for 38% of nights on the island, well ahead of German tourists (16%), who are less present there than in the rest of the archipelago, Italians (12%) and Spanish (11%). In 2016, hotel nights posted 6.1% growth over the previous year and 11.6% since 2012. Concentrated on the leisure segment, Ibiza has 105 hotels for 18,190 rooms, or an average volume of 173 rooms per hotel. It is the second most important hotel pole in the Balearic Islands after Majorca. The 3-star category is the best represented, with close to half (48%) the supply on the island. 4-and 5-star hotels represent 36% of the supply. As mentioned, most tourism in Ibiza takes place in the summer. Nonetheless, each year the city of San Antonio hosts the Flower Power Festival in January, boosting winter arrivals. During the peak season, Ibiza is the stage for many events with an international reach, particularly the Ruta de la Sal regatta, a sailboat race that takes place in April, and the International Music Summit that brings together some of the greatest professionals from the electronic scene in May.



Minorca, preserved

While Majorca and Ibiza may host 91% of visitors to the Balearic Islands and have most of the hotel supply, the little island of Minorca is not a popular destination in the archipelago. But this does not mean it is any less interesting. Minorca is considered the most wild of the Balearic Islands, and its landscapes have been preserved from urbanization for tourism.  Declared “Biosphere reserve” by UNESCO, the island is brimming with small atypical villages and has 215 km of coastline. Interesting historic vestiges are of touristic interest, such as the old city of Ciutadella, the Naveta d’Es Tudons prehistoric site), the Mahon port and traditional small fishing ports. Minorca has a population of 93,910 and registered 4,659,540 hotel nights in 2016. While the island only garners 8% of nights in the archipelago of the Balearic Islands, the volume of hotels nights is up sharply over two years: from 2014 to 2015 it posted an increase by 9.8%, then 11.8% between 2015 and 2016. This growth is generally driven by British clientele, who were the source of 45% of nights in 2016. It may also be noted that Minorca is the island with the highest share of domestic clientele (19% of nights versus 11% in Ibiza and just 6% in Majorca). Could this ratio reflect the quest for calm on behalf of Spanish clientele?

Minorca’s airport is 3rd among the Balearic Islands, bringing together 9% of the traffic in the archipelago; this rate reflects the nights hosted by the city. Minorca is no exception to the seasonal effect: 40% of traffic is concentred in the months of July and August. The island’s supply is relatively limited (and proportional to its size), representing 6% of the offer on the Balearic Islands with fewer than 7,000 keys. The other islands in the archipelago have a very small hotel supply.





Constructions and renovations drive the market

Overall, the hotel industry on the Balearic Islands remains generally concentrated in Majorca and Ibiza. It is shared by many operators specializing in the “resort” segment. Nearly thirty groups offer more than 1,000 rooms in the Balearic Islands and most of them are Spanish, although the German leader on the sector, TUI, is n°1 with nearly 10,000 rooms. The British tour operator Thomas Cook (4th) is no exception with more than 5,000 keys in the Balearic Islands, although it is behind Fiesta Hoteles and Hoteles Globales in the ranking of leading hotel operators in the archipelago.

After local and international players recuperated financial maneuvering margins thanks to recent growth in performance, many construction, conversion and renovation projects sprouted up in the archipelago (see our infographics in p87). 3 properties for 431 keys with 4 stars will be operated under All Tours in Majorca starting summer 2017, while HM Hotels will gain 3 units for 635 additional rooms for the group. Hiphotels, already 8th hotel group in the archipelago, will add the Hipotel Gran Playa de Palma (4* with 368 rooms) and Playa de Palma Palace Hotel & Spa (5* with 224 rooms) to its portfolio. Generally speaking, the hotel supply appears to have entered a certain upmarket tendency, as the opening of a smaller new 5-star the Grand Hotel Portals Nous (65 rooms) in Majorca demonstrates along with the recently opened Blanco Hotel Formentera, the first 5* on the island (79 keys). And, of course, there are also the traditional high-capacity resorts, such as Viva Zafiro Palmanova & Spa (5*, 198 keys) that will open its doors soon.



But the many constructions, should not overshadow the major investments being made to renovate existing products. These may be in the form of an extension, such as at the Allsun Christopher Columbus which will add 40 rooms and renovate its terrace; the group Alltours is renovating all its rooms at the Allsun Riviera Beach (4 star). Sirenis, another local operator, plans to renovate 3 of its properties in the Balearic Islands, by improving recreational spaces at the Sirenis Seaview Country Club and a full renovation of rooms at the Sirenis Goleta & Spa in Ibiza.  Finally, Bluebay Hotels has invested 20 million euros in the renovation of the Bellevue Club and the Bellevue Lagomonte at Majorca. The group plans to modernize rooms (change design and furniture), add two new thematic restaurants, a new snack bar and renovate the reception area.

A leading international destination, the Balearic Islands have many infrastructures that have contributed to their tourism success. While the archipelago has not been empty since it became a tourist destination, it is far from resting on its laurels and plans to adapt to changes on the sector and offer a renewed product. How will demand react, since Brexit and the growing difficulties in competing Mediterranean destinations are sending diverging signals?

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