Crisis case study: The downturn in a Portuguese holiday region (Algarve)

When I went to Lisbon – the capital and largest city of Portugal – last week Thursday, for a rare sunny long weekend near the Atlantic coast, I spotted a couple of interesting newspaper articles on the plane dealing with the effects of the recession in Portugal on the country’s vital holiday industry, especially in the Algarve region. And I thought this was interesting material, given that holiday regions around the world must now be facing similar problems!

 

To give a very broad picture first, domestic travelling is hurt by a weak economic outlook, with Portuguese GDP expected to shrink by a massive 4.1% this year, in real terms, before contracting again by 0.5% in 2010. This is according to the latest forecasts from the International Monetary Fund (IMF) as published in April.

 

 

Apart from this unsightly outlook – which combines with rising unemployment and a need for households to re-build their savings after years of excessive spending – consumer confidence has also been shaken by the bombshell liquidity troubles at the privately-owned BPP bank (Banco Privado Português), which continues to provoke resolute demonstrations in front of national government buildings, and has been a recurrent top story across the media for several months. In fact, many Portuguese think that the government’s handling of the BPP crisis isn’t particularly reassuring for other banks’ clients, which contributes further to consumers’ careful attitudes.

 

Meanwhile, across the boarders, many foreign tourists are staying away as job losses are piling up in neighbouring Spain, in the UK, in France, in Germany and in Italy. What makes the situation even worse in the UK – whose residents tend to account for a decently large proportion of tourists in Portugal – is the recent depreciation of the pound, which has made holidays in the Eurozone substantially more expensive.

 

Apart from the Algarve, Lisbon also attracts many visitors. Last weekend was dominated by the Saint Anthony celebrations...

Apart from the Algarve, Lisbon also attracts many visitors. Last weekend was dominated by the Saint Anthony celebrations...

 

So, Thursday was a holiday in Portugal and the long weekend around Corpus Christi is traditionally an important peak period for hotels and restaurants across the country, but mainly in the Algarve – the sunny region in the very south of mainland Portugal, home to well-known cities and towns such as Faro, Lagos, Albufeira and Portimão.

 

...where grilled sardines are at the centre of attention. But the crisis has caused the price...

...where grilled sardines are at the centre of attention. But the crisis has caused the price...

 

According to the AHETA hotel and tourism association (Associação de Hotéis e Empreendimentos Turísticos do Algarve), hotel occupancy rates this weekend were at around 80%, significantly lower than usual, while prices had also dropped to as little as EUR20 per night at some one-room holiday apartments (this is unbelievably cheap, although no 2008 price levels were revealed by the association).

 

The reduced number of foreign holidaymakers was partly compensated for by a stronger inclination of Portuguese families to spend the weekend in a domestic holiday region, such as the Algarve, rather than going abroad on an expensive plane.

 

...per fish to fall to EUR1.00 this year, down from EUR1.50 last year.

...per fish to fall to EUR1.00 this year, down from EUR1.50 last year.

 

But while more Portuguese families were coming to the Algarve, holiday makers were staying for shorter periods this weekend than they used to last year, with the average time spent falling to 4-5 days, down from 5-7 days. Meanwhile, the average amount spent per day and visitor at cafés and restaurants appears to have halved to around EUR25. This is because many Portuguese families now bring their own food to the beach, and those who have dinner at restaurants are looking for cheaper places and order cheaper food.

 

The Algarve’s trade and services association, ACRAL, also speaks of falling retail sales, with tourists cutting back on small everyday purchases, such as newspapers. According to the association, “people enter the stores, look around and touch things, but they only buy the most essential items. There are no more spontaneous purchases taking place”.

 

Following this busy but weaker-than-usual weekend, the Algarve’s beaches will look much emptier again in the coming weeks, and no further peak periods are expected until the second half of July and the first three weeks of August, during the European school holidays.

 

Wish I had more hard figures, but I don’t. But I’ll be back on Friday with a look at international unemployment trends, and you’ll find lots of figures there!

 

Boris

2 Comments on “Crisis case study: The downturn in a Portuguese holiday region (Algarve)”

  1. #1 Chris Hawkins
    on Jun 17th, 2009 at 5:57 pm

    Boris,

    Very interesting and concurs with much of what I am picking up.

    Have placed a link on my blog here.

    http://barlaventostravelblog.blogspot.com/2009/06/crisis-case-study-downturn-in.html

  2. #2 Tim Miller
    on Jun 24th, 2009 at 9:38 am

    There’s been a lot made in the UK about holidaying within the confines of the British Isles, promotions of English Heritage and television campaigns for various regions - Ireland, Scotland, the North West (???) etc. Dorset businesses, hotels, restaurants and so on will even be accepting Euros this summer in a bid for a) bring an increase in people across from Europe and b) for all the British holidaymakers’ spare Euro change that you’ve not managed to get rid of!

    I love the Algarve region and I’d pay pretty much anything for the fresh Piri Piri sardines, so hope it pulls through ok.

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