English: Eruption of Strokkur close by. França...

Spoke at conference on Tourism and Investment yesterday. I may have said things that were not in agreement with the rest of the speaker as it relates to the number of tourist visitors to Iceland. I think everyone wants to believe that the upward trend is going to continue but I disagree. My assessment is that 2011 was by far the best year and it was the peak, 2012 will be flat or can be lower than 2011. Here are my reasons:

  1. Travel today is easy, you can find remote places, book your ticket, learn more about the place before you leave your chair and get connected with local people and/or ask your friends/family/trust network how is this place you are visiting. Given this background, the choice of travel destinations have widened a lot. Iceland has to compete with all other remote, unique and different places. What is going for Iceland is the nature and the experience past travelers have had
  2. Euro Zone is going to go into recession and the first thing anyone cuts when you need to conserve is Travel
  3. However, US market is picking up so there may be more visitors coming from there to offset the slowdown from the Euro zone countries.
  4. Iceland had one of the best PR and marketing campaign conducted by the Global media in 2010 because of the Eyjafjalljokul eruption and then again in April of 2011 there was another smaller eruption. The pictures, videos and discussion of the volcano basically brought attention to Iceland and that drove the tourism numbers. Nothing like that has happened in the past 6 months.
Let me illustrate with the following three graphs, the first one is just the % change between years of Foreign tourists overnight stays, the second one is the absolute number of overnight stays by foreigners and the third one is a trend of searches for the word “iceland” in Google. If you look at the second graph, the absolute value, sure it is an upward trending graph but if you look at the % change the numbers don’t look all that great. It has rebounded but nothing to the level that we seen even in 2005. The bounce can be attributed to various reasons, the volcano, Inspired by Iceland campaign, Icesave in the news etc. The good thing is that those who have visited Iceland always have great things to say so the network effect might draw others to want to come. These are smaller effects compared to the forces of Recession. It is more like comparing a Tsunami to a ripple. My philosophy on predicting the future or forecasting is very similar to George Soros, “Markets are unpredicatable, so I don’t try to predict their direction”. The long term prospects of Tourism in Iceland is very attractive, however, our investment thesis in Iceland is not based on the absolute number of growth but Niche growth of the higher end tourists who are looking for something unique and Iceland fits that bit fantastically and that is where we are investing.

Here is a graph from Google Insights for Search:

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