Ukraine Tourism Report Q1 2010

Central and Eastern Europe (CEE) is facing its worst macroeconomic crisis since the post-Soviet transition, and while the region weathers the crisis its tourism industry will suffer. For Ukraine, which is among the countries worst affected, we expect the recession to subdue arrivals numbers in 2009 and 2010, as the majority come from CEE. WE forecast a 12% year-on-year (y-o-y) fall in tourism arrivals for 2009, following double-digit arrivals growth almost every year since 2002. Despite 2009’s bleak outlook, arrivals will begin to rebound in 2010, with forecast growth of 7% y-o-y. From 2011 to the end of our forecast period in 2014 we forecast the industry to return to double-digit 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 recent 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.

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. 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 Kiev, airports and other infrastructure. However, the final decision of whether the country will host the championship will be made in 2011. The Ukrainian authorities said they will allocate UAH76.2bn (US$15.14bn) for the construction and rehabilitation of roads, as well as the construction of dozens of hotels to make up for the lack of accommodation capacity, as part of preparations for the event. That said, the government’s poor economic situation and underlying political crisis will make it difficult to proceed with its plans. Although the Ukrainian hryvnia has stabilised recently, we expect the currency to suffer due to the county’s weak macroeconomic outlook, coupled with elevated political risk and easy monetary policy. The hryvnia’s weakness, however, is positive for the country’s tourism industry as it has increased Ukraine’s price competitiveness.

Budget airline Wizz Air started offering services in Ukraine in 2008, and we expect the trend of low cost carriers in the country to increase in the coming years. The authorities at Boryspil International Airport (KBP), which serves Kiev, are constructing another terminal exclusively for budget airlines. This would be a positive development in our view, as it would drive down fare prices, making travel within and to/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. We do not expect the H1N1 flu (swine flu) pandemic to have a severe impact on Ukraine’s arrival numbers. Those concerned about the virus have generally been reassured by its moderate symptoms and relatively low mortality rate.