AIGO   Milan, Italy

Politics


The 2008 political elections have been won by the centre-right conservative coalition led by Silvio Berlusconi, now elected Prime Minister of the Italian Government. The opposition is represented by the center-left coalition and guided by former Rome mayor Walter Veltroni. He took the leadership role of Romano Prodi who left his political activities after the failure of the previous centre-left government (May 2006 - April 2008). The Italian President is Giorgio Napolitano, elected on May 2006.

Economy


According to ISAE (Istituto di Studi e Analisi Economica) statistics, Banca d’Italia Observatory and OECD Economic Outlook after a three-year period of low growth rate, a recession is on the way, which is likely to extend through much of 2009, as in all OECD countries. Recovering confidence towards the end of 2009 should allow output to accelerate significantly during 2010. The GDP is expected to be negative in 2008 (-0.4 percent) and 2009 (-1 percent) and recover in 2010 (+0.8 percent).

As a first measure to face the situation, the government is debating a 5 billion Euro plan, expected to be in force within January 2009, for an immediate support to families and companies, which are suffering from the credit-crunch. Meanwhile, to prevent the negative impact on the labour market, the Ministry of Welfare is working on a comprehensive project aimed at protecting employment.

After a substantial reduction in the budget deficit in 2007, the fiscal stance turned somewhat expansionary in 2008. The government’s three-year budget plan for 2009-2011, among other measures, foresees cuts in public employment to contribute to improved efficiency as well as fiscal savings.

Inflation should decline significantly. The main contribution to lower inflation comes from the fall in energy prices but relevant to the decrease are also the forecasts of weak demand and labour market deterioration.

Private consumption should decline by 0.2 percent in the first part of 2009 and expected to stagnate for the rest of the year.

Tourism Industry

Market Overview

Two of the main issues affecting the Italian travel industry in 2008: the crazy growth of oil prices in the first semester of 2008 and the impact of the economic slowdown on the middle class families, whose effects were amplified by the subprime mortgage crisis involving the Italian market, although to a limited extent than other countries.

According to a survey conducted by Assotravel (Associazione Nazionale Agenzie di Viaggi e Turismo), despite the uncertainties of the market, the tourism sector has suffered less than other sectors the contraction in spending.

The major Tour Operators have announced that, after a feeble start in early spring, the year 2008 ended with figures in line with the previous year. Even Italians have shortened long holidays’ to an average stay of 10 days, also on domestic destinations, and the budget to 900 Euro. Long weekends and short breaks have become a well established trend.

Seven million tourists were expected to travel during the holidays at the end of the year, with a total investment of approximately 3.7 billion Euros in pre-packed tours. The attention to saving emerges from the choice of destinations: noticed by a greater propensity to remain in Italy than in the past. The vacation on the mountains is in strong recovery thanks to the exceptional weather conditions that have marked the beginning of the season. Fully booked ski resorts in the Alps, with 3 percent growth in presence compared to 2007. The upward trend is expected to continue for the first months of 2009 despite the increase in prices at around 4 percent. Also growing is spa tourism, due to the increasing need of personal wellbeing and as an appealing solution for short breaks.

As for outbound travel, in addition to the traditional European capitals that offer solutions for every budget, the most popular destinations have been the beaches of the Indian Ocean and the Caribbean followed, to a lesser extent, from Kenya, Thailand, Australia, Brazil and Argentina while the USA are paying the empowering of the Dollar against Euro.

According to the Amadeus Observatory, 2008 was marked by the consolidation of advanced booking, but at the end of the year the phenomenon of last minute returned. Last minute is considered to be more convenient in this period of budget constraint and for people who postponed their decision to travel.

The cruise segment continues its positive trend. In 2007 about 640.000 Italians chose a cruise (+24 percent) and a double digit result is expected for 2008, in spite of the general constraint in the leisure travel segment. Cruises currently represent 1 percent share of the Italian holiday market and Italy is ranging third among the European countries for volume after the UK and Germany.

According to Enac (Italian Civil Aviation Authority) the low-cost carriers offer represents 25 percent share of the total Italian air traffic. About 40 carriers connect Italy with 20 countries. The leading position is held by Ryanair, followed by Easy Jet, based at Milan-Malpensa airport that, in spite of the general slowdown in sales, is growing on domestic connections, in addition to the consolidated European routes.

High-end travels seem not to suffer from crisis. Reservations for the most exclusive resorts have begun to reach the agency since last September. Among the most popular destinations in the luxury segment is Dubai, which has registered an important growth during 2008. The Emirates announced 36 percent increase in 2008 volume of sales and, with Italy being one of its priority markets, a further investment for 2009 is planned to double the daily flights from Milan-Malpensa.

Forecasts for 2009 are uncertain and fickle. An increase of niche segments such as luxury and the suffering of the mass market are expected, which will lead to reductions in expenditure, including those intended to travel. Due to a significant cut in the family budgets and reduced access to credit, more than 25 percent of Italians think they cannot afford to travel in 2009. 53.7 percent, instead, feel crucial a period of vacancy and would not spent money for trips, reduce the budget or further shortening the duration.

Nevertheless, the year 2009 will remain a difficult year, so it is important to review the business model and lay the groundwork for 2010, when economic recovery is expected. According to the statements of the key players, the travel industry is engaging to face the challenge by reviewing the pricing, lower fixed costs, seeking new sources of profitability and looking at new products on medium-short haul to meet the emerging market needs and satisfy the demand of cost effective proposals.

The 2009 investments from Tour Operators and airlines operating charter rotations are mainly addressed to well-established destinations and point-to-point connections, maximizing as much as possible capacity and frequencies.
The Alitalia issue has come to an end. The agreement between the board of Alitalia (newco, ex-CAI) formed by a group of Italian entrepreneurs and Air France-KLM has been signed on January 13th, 2009. It foresees the underwriting of 25 percent shares from the French-Dutch group against an investment of 322 million Euros and, subject to the antitrust approval, the access into the SkyTeam alliance. The Alitalia hub remains Rome-Fiumicino until the issue between the two Milanese airports Malpensa and Linate (city airport) will be solved. A number of airlines, interested in the North-Italian market, are now claiming for international and intercontinental connections from Milan-Malpensa.

Sources: Assotravel-Confindustria (Association of Italian Travel Agencies), Censis,(Study and Research Institut), IPK, ILSole24 Ore (financial newspaper)