Mara Manente, Valeria Minghetti THE CONTRIBUTION OF THE INBOUND TOUR OPERATING BUSINESS TO THE ITALIAN ECONOMY Analysing the production chain and the price components of inbound packages OECD Forum on Tourism Statistics Prague, May 2014

Source: CISET elaboration on Bank of Italy database 2012Total incomingPackage tourism % share package tourism Tourists46,6 mln5,4 mln 11,1% Overnight stays 327,3 mln36,4 mln 11,1% THE ROLE OF INBOUND PACKAGE TOURISM IN ITALY

Extra expenses at destination: 387,8 Euro ( 57,7 Euro per night) Extra expenses at destination: 387,8 Euro ( 57,7 Euro per night) Accommodation(3,8% Food & beverage (41,6%) Local transports (7,1%) Shopping (39,6%) Other (7,9%) In addition to the package, organised tourists spend an amount equal to about 37% of the package price at destination (extra expenses) In total, 214,4 Euro per night vs. 104 Euro, on average, for a foreign leisure tourist in Italy In total, 214,4 Euro per night vs. 104 Euro, on average, for a foreign leisure tourist in Italy Package price: 1.053,9 Euro (156,7 Euro per night) Package price: 1.053,9 Euro (156,7 Euro per night) THE AVERAGE EXPENDITURE OF INBOUND PACKAGE TOURISTS IN ITALY Source: CISET elaboration on Bank of Italy database

THE PROJECT CONFTURISMO-CONFCOMMERCIO AND CISET: MAIN OBJECTIVES Production and distribution chain of inbound TOs: State of the Art (type of packages sold; type of services included; stakeholders involved) Contribution of each stakeholder to package development and selling (breakdown of price paid by tourists into its main components: net costs of services included; mark-up applied by the Italian TO and its foreign counterparts) Estimation of total turnover of inbound package tourism, identifying the share that remains in Italy and the share that remunerates international operators

5 Step 1: Overview on inbound package tourism in Italy Step 2 : Analysis of the package production chain Step 3: Economic impact of inbound tour operating business Volumes and trends Tourists’ profile Expenditure behaviour (source: Bank of Italy database) Face-to-face survey with a group of inbound TO who make business in four selected international markets Assessment of inbound package tourism industry in Italy (no. of TOs, activities developed, main economic indicators) (sources: Italian equivalent of Internal Revenue Service, ISTAT) Turnover, generated by the selling of inbound packages, that remains in Italy Turnover generated by inbound package tourism in Italy (extra package expenditure made at destination included) THE PROJECT CONFTURISMO-CONFCOMMERCIO AND CISET: RESEARCH STEPS AND MEHODOLOGY

6 THE INBOUND TOUR OPERATING INDUSTRY IN ITALY Sources: CISET estimate on data provided by the Italian equivalent of the Internal Revenue Service and by the Cofturismo-CISET survey % distribution of incoming TOs and TAs by range of turnover (incoming activity only) (Euro) In 2011 about 742 TOs and TAs specialised in incoming tourism, with a turnover less than 5 mln Euro. Of them, 305 (41%) have incoming as their exclusive activity, while 437 (59%) as prevailing activity. There are also about 20 big enterprises with a turnover higher than 5 mln Euro The average revenue from the organisation of tourism packages is about 1,11 mln Euro, for enterprises having incoming as their exclusive activity Average no. of staff per enterprise: 2 (about 50% of enterprises)

INBOUND PACKAGE TOURISM: MARKET DIFFERENCES GERMANY, RUSSIA, USA, JAPAN (about 40% of total package tourists in Italy) Source: CISET elaboration on Bank of Italy database

INBOUND PACKAGE HOLIDAYS: THE MAIN PRICE COMPONENTS The mark-ups applied by italian TOs vary in a range 10-15%, according to the type of package and to the markets where it is sold The remuneration of foreign TO and the retail network varies in a range 20-35%, according to the type of package and to the markets where it is sold Source: Confturismo-CISET survey

ECONOMIC IMPACT OF INBOUND PACKAGE TOURISM IN ITALY: FROM MICRO TO MACRO ANALYSIS - Gross turnover of inbound packages Gross turnover from extra expenditure made by package tourists 5,7 bln Euro 2,1 bln Euro 7,8 bln Euro 2,2 bln Euro International transports Mark up foreign TO + remuneration retail network Remuneration of foreign distribution chain - 0,7 bln Euro = Direct imports - = 0,1 bln Euro = Direct imports (direct+indirect = 0,3 bln Euro) 0,1 bln Euro -= Net turnover of inbound packages Net turnover from extra expenditure made by package tourism 2,7 bln Euro 2,0 bln Euro (1,8 bln Euro) 4,7 bln Euro (4,5 bln Euro) Gross turnover generated by inbound package tourism Total turnover generated by package tourism that remains in Italy Step1 Step 2Step 3Step 4 Step 5 Source: CISET elaboration on Bank of Italy, ISTAT, Report on Italian Tourism and Confturismo-CISET survey

THE PACKAGE TURNOVER THAT REMAINS IN ITALY Euro (mln)% Total turnover of inbound packages5.703,24100% International transport expenditure (remuneration of international companies) 2.226,2039,0% Total turnover of inbound packages cleaned by intl. transport3.477,0461,0% Mark up of foreign TO and retail network695,4112,2% Gross turnover of packages that remains in Italy2.781,6348,8% Imports96,551,7% Net turnover of inbound packages that remains in Italy2.685,0847,1% Source: CISET elaborations on Bank of Italy, ISTAT, Report on Italian Tourism and Confturismo-CISET survey Considering the total turnover of inbound packages (based on package final price), expenditure for return travel with international companies amount to 39% of the total, while the total remuneration of the foreign retail network to 12,2% Taking also into account the imports made by TOs to build the packages, the net turnover that remains in Italy is about 47% of total turnover (equal to 2,68 bln Euro) 10

THE TURNOVER GENERATED BY EXTRA PACKAGE EXPENDITURE Source: CISET elaboration on ISTAT data The turnover generated by other expenses made by package tourists at destination is about 2 bln Euro, from which the imports of goods and services made by local tourism SMEs to fulfil tourists’ requirements should be extrapolated If direct and indirect imports are deducted, the turnover is 1,79 bln Euro Euro (mln)% Gross turnover of extra package expenditure at destination2.098,66100% Direct and indirect imports308,5014,7% Net turnover of extra package expenditure at destination (direct and indirect imports excluded) 1.790,1685,3% 11

Euro (mln)% Total turnover generated by the selling of inbound packages5.703,24100% Net turnover of packages that remains in Italy (A)2.685,0847,1% (*) Net turnover of extra package expenditure at destination (direct and indirect imports deducted)) (B) 1.790,16 Total turnover generated by inbound package tourism in Italy (A+B) 4.475,2459,7% (+) 12 TOTAL TURNOVER THAT REMAINS IN ITALY (*) % share on total package turnover (+)% share on total package turnover + extra package expenditure If also indirect imports are deducted, the net turnover generated by package tourism decreases to 4,5 bln Euro, of which 60% deriving from the package selling (2,7 bln Euro) and 40% from extra expenses made by inbound package tourists at destination (1,8 bln Euro) Source: CISET elaborations on Bank of Italy, ISTAT, Report on Italian Torirsm and Confturismo-CISET survey

THE INBOUND TOUR OPERATING BUSINESS IN ITALY: SOME CONCLUSIONS (1) Bargaining power of TOs: the larger the size of the Italian TO and the no. of packages sold, the higher its power over foreign counterparts. In Italy, big inbound TOs are a minority. However, also small operators, specialized in niche products, can get more profitable contracts  The total economic impact of inbound package tourism on the Italian economy is higher that that calculated on package turnover only (extra package expenses at destination)  However, the share of turnover generated by inbound packages in Italy is diminishing in the last years, as a consequence of a number of factors: Source: Confturismo-CISET survey The growing role of international air carriers (traditional and low-cost companies): the share of the final cost of the package that remunerates them rises in parallel with the increase of travel length Flexibility/rigidity of TOs mark-ups: the larger the size of the Italian TO and the no. of packages sold, the more the mark-ups applied are standardised. Viceversa for small specialized TOs 13

Provision of other services included in the package: apart from international transports, other services can be provided in Italy by foreign operators (see the EU Law 2013, stating that tourist guides qualified to practice in other EU countries can also operate in Italy, without any additional authorization or licence). The cost of a guide represents from 5% to 15% of the total net cost of services included in the package The Web factor: price/package comparability and competitive offers by OLTA (OnLine Travel Agencies) make it difficult for TOs to apply high mark-ups. Growing need to cut costs and control profits in order to stay competitive 14 THE INBOUND TOUR OPERATING BUSINESS IN ITALY: SOME CONCLUSIONS (2) Source: Confturismo-CISET survey

THANK YOU FOR YOUR ATTENTION Mara Manente CISET - Università Ca’ Foscari URL: OECD Forum on Tourism Statistics Prague, May 2014