The Czech Republic suffered effects of the global financial crisis in 2009: it caused a full-blown recession and impacted businesses as well as individuals throughout the year. The downturn was especially severe as it came unexpectedly, after several years of strong and steady growth. Companies began to lose business, needed to reduce costs and were, thus, forced to downsize staff. Increased unemployment rate and lower consumer spending resulted in decreased profits. The first signs of improvement appeared only in the last quarter of 2009: full recovery, depending largely on development in Western Europe, is anticipated in early 2011. The difficult conditions impacted almost all markets and industries, including travel and tourism.

 

Negative results across all categories of travel and tourism

Czech travel and tourism initially only suffered from the global crisis, and dealt with lower numbers of incoming tourists and curbed spending. After the Czech economy began to crumble, the losses spread into outbound and domestic tourism also. Fewer foreign visitors affected mainly airlines, hotels, car rental and travel retailers. Limited travel and the tighter budgets of locals led to substantially lower revenue from sales of packaged holidays by tour operators as well as accommodation outlets, attractions and restaurants in regions. Most travellers returned to taking advantage of last minute deals or other special offers. They often did not have to discount much on quality of service, as desperate operators lowered prices to an unprecedented minimum, wiping away borders between 2-, 3- and 4-star establishments. This unhealthy competition eventually revealed the excess of supply over demand and a seriously flawed accommodation category in the capital.

 

Challenging business environment halts progress

In 2009, Czech travel and tourism was rather stagnant. Most operators put all their efforts into preventing losses and maintaining their market share: they did not risk new investments or expansion in such uncertain times. Some foreign investors postponed openings originally planned for 2009 to a later date, or indefinitely. Inevitably, a number of often smaller local operators were forced out of the category. This trend will open new possibilities for larger players with sufficient financial resources to seize the moment and the opportunity. It is anticipated that hotel accommodation in the capital and in urban areas will undergo most notable changes. Air transportation was the only category where a major new player entered the Czech Republic and, as a coincidence, the incumbent leading low cost airline was forced to cease all operations.

 

Low cost air transportation continues growth despite all obstacles

It was the Hungarian low cost airline, and currently the leader among low cost operators in Central Europe, WizzAir that started flying to Prague airport in January 2009. It immediately announced plans to become the number one low cost carrier in the Czech Republic in 2010. The company’s bold move was rewarded with much luck. Only a few months later, its key competitor, Slovak SkyEurope, lost its licence due to bad debt and thus filed for bankruptcy. While traditional airlines struggled to stay in the black, low cost airlines maintained growth even during the crisis. Most low cost carriers relied solely on the internet as a sales channel. They, thus, saved on staff and also frequently employed a business model where income from the flight ticket was not the primary profit. Instead, a variety of additional charges and paid services generated the key revenue.

 

Stagnating performance to occur in 2010

In mid-2009, it was evident that the soaring crisis will have an effect on the performance of businesses and individuals also in 2010. According to current forecasts, 2010 should be a more stable year: however, there will continue to be slight decrease in performance across major categories. Travel and tourism should become more consolidated, with a decreasing number of tour operators and hotel outlets that are underperforming or low quality. Entry of global players is expected, especially in accommodation and air transportation: multinational companies will either expand their business or acquire business across the Czech Republic to strengthen their positions.