Ukraine Tourism Report Q4 2010

While the broader medium-term macroeconomic outlook across emerging Europe has improved considerably since the beginning of H209, when Central and Eastern Europe (CEE) was facing the worst macroeconomic crisis since the post-Soviet transition, nevertheless maintain our view that the prospects for a demand-led recovery in Ukraine in 2010 are bleak. This will adversely affect Ukraine’s tourism industry. The recession subdued arrival numbers in 2009, dropping by 12% year-on-year (y-o-y), and as the majority of arrivals come from the CEE, 2010 arrival numbers will not entirely rebound. For 2010, BMI forecasts growth of 7% y-o-y in tourist arrival numbers, a jump from 21.9mn in 2009 to 23.3mn. From 2011 to the end of our forecast period in 2014, forecast the industry to return to doubledigit growth.

The majority of tourists arrive in Ukraine via road or rail. The country is well placed for land travel as it borders seven countries, including Russia. Transport via road is forecast to substantially outpace rail travel. This coincides with the visa liberalisation between the EU and Ukraine – so that EU citizens no longer require a visa to enter the country for stays under 180 days, and the fact that Ukraine’s rail connections with the rest of Europe and Asia are in need of development. Positively, in November 2009 a memorandum of intent was signed between Slovakian Transport Minister Lubomir Vazny, Ukrainian Railways deputy director Micheal Kospjuk and Russian Railways president Vladimir Yakunin for the expansion and upgrades to the broad gauge line linking Ukraine and Slovakia. The line was originally built to transport Ukrainian iron ore to Slovakia’s steel works in Košice.

Ukraine is set to co-host the 2012 UEFA European football championship with Poland, and this event is a key driver for the country’s tourism industry during the forecast period. Not only will it bring thousands of tourists to the country, but also the requirements to be chosen as a host for the competition include an array of infrastructure investment that can only be regarded as positive for the industry. European football’s governing body UEFA said in December 2009 that it was satisfied with the progress made by four of the country’s cities selected to host matches for the 2012 football championship. UEFA had given Ukraine until November 2009 to make progress on building work on the Olympic Stadium in Kyiv, airports and other infrastructure. However, the final decision of whether the country will host the championship will be made in 2011. UEFA will be carrying out a progress inspection in 2010, warning that developments must be on track for June 2011 completion, otherwise it will relocate the tournament.

There is serious danger of Ukraine being behind schedule as investment sources for much of the required infrastructure are difficult to pinpoint. Of particular concern is the construction of hotels, with reports on the ground highlighting the inadequate progress and even rumours that some visitors are to be housed in tents. Former president Viktor Yushchenko controversially torpedoed legislation in December 2009 that would have allowed the National Bank of Ukraine (NBU) to pump UAH10bn into infrastructure preparation.

Hungarian budget airline Wizz Air started offering services in Ukraine in 2008 and BMI expects the trend of low-cost carriers in the country to increase in the coming years. The authorities at Boryspil International Airport, which serves Kyiv, are constructing another terminal exclusively for budget airlines. This would be a positive development in view, as it would drive down fare prices, making travel within, to and from Ukraine more affordable, increasing tourism numbers. Wizz Air’s entrance to the market has already caused the largest Ukrainian carrier, Aerosvit, to reduce fares.

The January 2010 presidential election, the country’s first since 2004’s Orange Revolution, had the potential to destabilise Ukraine politically but turned out better than expected, with political risk continuing to subside. The new president, Viktor Yanukovych, successfully formed a coalition government in March and the coalition government obtained a new US$16.4bn Stand-By Arrangement from the IMF, after its original loan was suspended in November 2009, all of which are positive steps for stability.