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Turkey: junction of continents, crossroads of brands

As it persistently knocks on the gates of the European Community, Turkey is already among the territories that have the priority of international hotel groups in Europe. Driven by economic growth that is above average and renewed interest in tourism, the country is witnessing the arrival of many new brands .

The centuries succeed one another without resembling one another. At the beginning of the 20th century, the Ottoman Empire was the "sick man" of Europe. In one century, Turkey has risen up and the moribund metamorphosed into a vigorous youth. More than 5% annual growth in the GNP over the last decade with similar results expected for the next decade, 77 million residents at present and probably 90 million in 2030 when twenty or so cities will surpass a million residents: its economic dynamism and vast national market make the country one of the new sweethearts of investors. Its entry among the Top 10 world economies– versus seventeenth today- could also be just a matter of decades. According to the CEO of HSBC, Michael Geoghegan, the country is one of the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa), otherwise known as tomorrow’s BRICS. This rise in power also goes hand in hand with growing international and diplomatic weight, prior to eventually joining the European Union.Many business sectors drive development and agriculture continues to be active, several industries - automobile, textiles, electronics, ship building, building – supported by a competitive and qualified workforce, as well as services that are expanding with leaders such as Akbank and Garantasi Bankasi, in the financial and insurance sector, or Turkcell and Turk Telekom for telecommunications. The country also benefits from its strategic geographic position at the crossroads of Asia and Europe to record a boom in maritime traffic.The country’s appeal has been reinforced by the major reforms undertaken during the last decade. Curbed chronic inflation and controlled public debts with the lowest level of debt in Europe, privatizations: the economic liberalization by Recep Erdogan’s government following the financial crisis of the years 2000-2001 made it possible for the GNP to take off and promote an explosion of foreign investments in an improved environment. And yet, the country is not safe from economic shocks. The Turkish economy remains very dependant on European demand and its primary partner, Germany. The recent crisis demonstrated this with a very sharp drop in growth in 2009, a slump that was fortunately brief since the economy has already regained the growth track.In comparison, Turkish tourism seems totally impermeable to the economic upsets. Even at the heart of the crisis, the country saw its arrivals grow by 2.8% last year, after a prolific 2008 (+12.8%). And on the first quarter 2010, Turkey has already returned to a stronger growth rate (+6.7%). The tourism sector is affirming itself as one of the best performing, with growth that has been higher than that of the global economy for several years. Whereas the country posted 27 million arrivals last year, they were barely over 10 million ten years earlier. The 30 million benchmark is getting closer as Turkey benefits from a "double carrier effect". The increasing volume of businessmen has been joined by tourism clientele seduced by a highly diversified offer that is as capable of pleasing tourists who are history buffs as those who are beach and sun chasers.For a few summers, Turkey has been affirming its position as one of the favorite destinations of Europeans, competing with well-established Mediterranean destinations such as Italy, Spain and even more so Greece which is suffering from its neighbor’s rise. At a time when travel budgets are shrinking, the destination’s good value, particularly its all-inclusive resorts, has gained favor. This is particularly evident among British arrivals. Whereas this clientele is lacking throughout Europe, it grew by more than 10% in Turkey in 2008 and again in 2009. It is part of the leading pack together with Germans, which represent over 15% of the market, and the Russians who, despite a slight drop in 2009, remain the number-two clientele in the country.But its tourism does not rely only on the supply countries of Western Europe: it is also able to play on increasingly diversified sources of clientele. The countries are experiencing significant growth in arrivals from nearby countries such as Bulgaria, Georgia as well as Syria. In fact, with its East and West borders, Turkey has imposed itself as the tourism turntable for all of the Near and Middle East. Now surpassing one million visitors, Iranians are increasingly numerous each year and take advantage of not needing a visa to do their shopping in Istanbul or in Van, which is closer to the border. The share of tourists from the Gulf countries, while it is still small, has also grown by more than 20% in recent years with shopping and wellness tourism as the primary motors. Inversely, increasingly tense relations between Turkey and Israel have led to a strong decrease in this clientele, which dropped from over 500,000 arrivals in 2007 to barely 300,000 visitors in 2009. The recent incident between the "fleet of Peace" and the Israeli army didn’t help, provoking the cancellation of vacations by many Israelis. But Seçim Aydin, vice-president of Türofed, the federation of Turkish hoteliers, told the local daily Zaman at the end of July that this crisis had generated a phenomenon of communicating supply basins between Israel and neighboring Muslim countries: “we have doubled our reservations since these cancellations. This problem did not hurt the tourism industry, instead it was beneficial to it.”Just a few smudges on this idyllic tableau: the overall length of stay of leisure tourists is on a downtrend. Spending is also progressing less quickly than arrivals (+3.5% since the beginning of the year). According to the daily newspaper Hurriyet, these elements combine with an unfavorable exchange rate for the Turkish pound and an increase in operating costs. Confronted with a drop in their margins, some hoteliers such as Ahmet Barut, the president of Türofed, are pleading to increase prices by 10% for the summer season 2011. Hoteliers are aware that this rate weapon must be handled with care especially since value is a major asset with respect to competing destinations.Pressure on operating results remains high. Since 2009 when average daily rates at hotel chains experienced a 7.9% drop, professionals still have not regained a full maneuvering margin in 2010. With exception to Istanbul, one of the most dynamic markets in the world where occupancy (6.8 pts) and prices (+7.2%) are already in a waxing phase, hotels had to allow advantageous rate policies throughout the first semester. Average daily rates are down by -5.4% on the first six months of the year despite a recovery of occupancy identical to that of Istanbul. Fortunately the horizon is clearing each month. June marked an initial improvement in terms of prices (+1.7%), confirmed in July (+5.0%). This first month in the summer season was, moreover, particularly prolific for the Turkish hotel industry. The RevPAR climbed by 25.3% with strong growth in Istanbul (+39.6%) which posted almost no occupancy with 88.9% OR and growth in room revenue by 11.9% outside this metropolis.In addition to the good current results, perspectives for long-term growth are pushing the leaders of the global hotel industry to look more carefully at opportunities for development in Turkey. For five years now, across all segments, openings have multiplied in Istanbul but in no way affected the growth of results. (read further). But the bustling metropolis and Ankara, the capital, are no longer the only destinations in the sights of groups. To satisfy domestic and international business clientele, secondary cities are working to seduce hoteliers, among which the most active –Hilton and Accor– plan to build networks. There is no doubt they are not the only ones that want to cross the threshold of the "Porta Sublima"…

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