Following a slowdown in 2017, after two years of above average growth in inbound tourism, Ireland is facing into a year of positive growth potential but not without its challenges. The lessons of 2017 point to a struggle to halt the decline of demand from Britain, to boost the rate of growth from mainland Europe while capitalising on the strong growth from high spending tourists from North America and further afield.

Ireland is well positioned in the international marketplace to continue to attract growing numbers of visitors thanks to its strong brand positioning and its success in delivering a highly rated satisfying visitor experience. However, the steady decline in destination marketing budgets over recent years is now showing signs of a lessening of destination awareness in several key source markets..

The outlook for 2018 is positive:

Mainland Europe: The economic conditions and consumer confidence indicators suggest that 2018 will be a good year for continued growth in demand for travel. However, Ireland’s faces a challenge to maintain its market share in the top continental source markets. Germany will see an expansion of airlift as Ryanair launches new services to Ireland which provides an opportunity for a well focused tactical marketing campaign to drive growth in 2018. In France the almost doubling of ferry capacity together with modest increases in airlift provides an opportunity to further deepen Ireland’s market penetration. Across mainland Europe demand is expected to remain buoyant as economies remain in positive territory and the unique experiences of an Ireland holiday is increasingly valued by our target market segments.

North America: the market which continues to drive Ireland’s tourism revenues thanks to an expanding economy, the relative strength of the US dollar, and unprecedented growth in airlift, offers an exceptional opportunity for continued growth over the short to medium term. Aer Lingus’ planned increase in services and gateways – which will see its transatlantic fleet expand from 15 aircraft in 2017 to 25 in 2021, provides for the first time an opportunity to develop a multi-year marketing investment programme to capitalise on the potential of this critically valuable source market. The profile of North American visitors is valuable due to its average spend per trip, its propensity to tour the country and length of stay. Building on the success of recent years and based on the planned increase in air services double digit growth can be achieved in 2018.

Britain: the biggest challenge facing Irish tourism is to stem Ireland’s absolute and share decline of outbound travel as the British consumer faces into a period of belt tightening. The economic conditions in the market are forecast to deteriorate as consumer disposable incomes decline in the face of rising inflation, lowering consumer confidence and a weakened pound sterling. Ireland is in danger of being perceived as a poor value experience when compared to other destinations. Past experiences suggest that Ireland is particularly vulnerable in periods of economic downturn, due to its visitor profile and the high incidence of short breaks and secondary holidays. Uncertainty surrounding Brexit is also likely to continue to impact business and conference travel.

New developing long haul markets: continue to grow although still relatively small in volume but with a high value to volume ratio. Investment in market development and the expansion of new intercontinental air services via the Middle East, Hong Kong and European hubs should facilitate Ireland gaining a stronger foothold in these markets.

Aggregate growth of upwards of 5% in volume and 7% in value in 2018 could be achieved, with a caveat on the performance of the British market.

Domestic demand is expected to continue to improve, particularly the incidence of short leisure breaks, as the economy and consumer feel good factors improve. The domestic market demand underwrites the year round sustainability of many tourism businesses, particularly outside of Dublin.

Key challenges facing tourism in 2018

Competitiveness and ability to continue to deliver value for money will be a key challenge for the industry in 2018, as currency volatility is likely to prevail. Ireland will face stiffer competition in the marketplace from the UK which is presenting better value to much of Ireland’s target market. Businesses are facing increasing cost pressures, including state induced costs of doing business, utilities and labour, which further threatens the competitiveness of the tourist offering. The continuation of the 9% VAT rate on tourism services is critical in safeguarding Ireland’s competitiveness.

Capacity constraints are impacting the ability to cope with increasing demand, in specific locations and times of the year. The shortage of hotel accommodation in Dublin, as the top gateway and urban destination, continues to be a limiting factor, although new rooms coming on stream in 2018 will help alleviate the pressure. While airlines continue to add service there is an urgent need to ensure that airport infrastructure at Dublin keeps pace with airlines’ growth plans. On the ground specific strategies are required to boost demand outside of the peak season from selected markets if medium to longer term sustained growth is to be achieved.

Investment in destination marketing by the state over the past number of years has diminished the awareness of the destination in many markets and will continue to do so unless adequate resources are made available for marketing Ireland internationally. While the industry continues to invest increasing resources in marketing, the level of investment by the state has been in decline.

Innovation in the visitor experience will be required over the medium term to cater for new and developing markets as well as diversifying the visitor experiences for traditional and new market segments from established markets. It is hoped that the government's 10 year capital plan, due to be published shortly, will signal increased investment in new tourism products.

Uncertainty governed by geo-political and economic factors always present a threat to demand for travel, not least in relation to Brexit and the British market. The industry will need to be nimble in ensuring an optimisation of a revenue centric approach to exploiting market opportunities including investment in market diversification.

Ireland earned an estimated €4.9 billion from overseas visitors this year, up 6% on the previous year. Based on the latest available CSO data for the first 9 months of the year, the net increase in earnings resulted from spending by visitors from North America and new and developing long haul markets, as earnings from Britain declined and receipts from mainland European visitors showed only a marginal increase.

Visitor volumes reached another record level in 2017 with an estimated 8.9 million visitors from overseas staying visitors arriving into Irish air and sea ports, excluding day trips and transfer passengers – almost a 3% increase on the previous year.

Growth in aggregate earnings outpaced the increase in volume due to increasing numbers of higher spending visitors from beyond Europe, despite a further decline in the average length of stay but helped by the relative strength of the US dollar.

Growth in holiday visitors, estimated at 5%, was a positive outcome, again underwritten by the strong demand from North America thanks to increased air services by carriers, a favourable exchange rate, and effective marketing.

Some key insights into overseas tourism in 2017

Sustained growth in international tourism

Global international arrivals surpassed 1.1 billion in the first 10 months of the year, setting a new worldwide travel record. The latest UN World Tourism Organisation (UNWTO) World Tourism Barometer shows a 7% increase in international travellers on last year between January and October – amounting to an additional 70 million arrivals, reflecting a global economic upswing. Europe led the growth in international arrivals by region with numbers up of 8% on 2016, driven by Southern and Mediterranean Europe (+13%), while UNWTO reports a 7% growth in visits to Western Europe and 6% growth in Northern Europe.

IATA reports a 7.5% rise in passenger numbers worldwide in 2017, with a forecast increase of 6% in 2018.

More modest growth in visits to Ireland

Following two years of exceptional growth, 2017 turned out to be a year of more modest growth with mixed results from across source markets.

Ireland welcomed close to an additional 200,000 visitors in 2017, the lowest incremental annual increase since 2012.

Over 200,000 additional visits from North America, coupled with almost 70,000 more from new and developing long haul source markets, and close to 100,000 more from mainland Europe more than compensated for a drop of over 200,000 British visitors. The rate of increase in demand from North America suggest that Ireland is continuing to win share in the market for travel to Europe, while the rate of increase from mainland Europe would suggest some slippage in market share.

The most challenging conditions were experienced in the British market where visits declined by 7%. It would appear that Ireland fared less well than the overall outbound demand for travel from Britian which grew by 3% in volume with a 5% in increase in expenditure (January-August), despite a weakened currency, tightening economic conditions and a fall in consumer confidence resulting from Brexit.

Holiday visits grew by an estimated 5% to reach just over 4.6 million in 2017. Over the peak months of July through September, 42% of holiday visits were from mainland Europe, while North Americans increased in importance accounting for almost 30% as British holiday visitors declined in absolute and share terms.

Tourism earnings up 6%

Continental Europe continues to be the top earner for Irish tourism reaching an estimated €1.7 billion in 2017, followed closely by North America, a market now worth upwards of €1.5 billion. British visitors spent just over €1 billion, while visitors from new and developing long haul markets were a source of almost €600 million.

Ireland earned €250 million more from overseas visitors in 2017 compared to the previous year. The increase in tourism in 2017 helped generate an additional 25,000 new jobs within tourism and hospitality during the year.

The estimated 16% increase in earnings from the North American market, contributing an additional €213m, was the main driver of the growth in overseas tourism receipts in 2017.

The average expenditure per visit showed little change over the first 9 months of the year, with a marginal drop as the average length of stay declines. Long haul visitors, from around the globe including North America are the most valuable in terms of spend per visit, exceeding €930 for visitors from Austral Asia/Pacific region and €730 from North America.

The average expenditure by visitors from continental Europe tends to be close to €500 per visit, with Germans the highest spenders.

British visitors on average spent €273, reflecting the relatively high incidence of short stay visits.

Domestic Tourism in 2017 – an overview

The domestic travel market is worth an estimated €1.9 billion with up to 9.3 million trips taken by Irish residents spending 25 million nights away from home. Holiday trips are estimated at close to 4.7 million generating expenditure of over €1.1 billion.

Latest CSO data for the first three quarters in 2017 shows:

• Expenditure on domestic trips up 5%, driven by more spending by those visiting friends and relatives (VFR) while expenditure on holiday trips showed only marginal change.
• The aggregate number of trips taken was static at 7.3m, while holiday trips decline by 2% to almost 3.9 million.
• Nights spent away from home declined by 3%.
• Demand for hotel accommodation increased by 1% to just over 5.5 million bednights.