Analysis of Norway’s travel industry and the impact politicians are having on it
By Hans Jørgen Elnæs
Norway is planning for a prosperous life after oil and gas, driven by salmon exports and tourism. We can’t complain too much about life, being inside the borders of one of the wealthiest countries in the world and recognized as the happiest people on earth. No doubt about it, Norway is doing pretty well, or is it…?
There are about 160,000 people employed (part- and full-time) in the Norwegian travel industry and its annual economic impact represents 4% (NOK 73.4 billion, or €7.5 billion) of the total domestic economy in Norway in 2015.
Broken down into subgroups and share of economic impact: transport companies 45%, restaurants and similar 24%, hotels and lodging 15%, excursions 12% and booking services 4%.
Norwegians themselves represent 70% of all hotel room capacity utilized and spent NOK 51.4 billion on travel-related services in 2015.
The remaining 30% of the hotel capacity was used by foreign tourists, the main markets being: Germany 18%, Sweden 12%, Denmark 8%, UK and the Netherlands 7%, USA 5%, China 4% and a basket of other countries totalling 27%.
Holidays and leisure travel represent 52%, business travel 35% and conferences 13%.
Considering the geographical spread of hotel rooms booked in Norway: central eastern area including Oslo 48%, western area including the fjords 24%, northern area 11%, southern area 9% and mid-Norway 8%.
Financial results do not correspond
What about the financial results; is the travel industry making a fair return on invested capital? Since 2001, the average operating margins have not followed the growth in both domestic and international travel in Norway.
Hotels and lodging have an average operating margin of 6.2%, transport companies 10.8%, restaurants and similar 6%, excursion companies 8.8%, booking services 4.6%, and the average operating margin for all sub-branches is 8%.
In 2015, the total operating margin equalled NOK 5.87 billion, based on total spend on travel-related services of NOK 73.4 billion.
50% of foreign tourists use planes
Norway has already implemented taxes and fees to cut emissions from airlines and there is a solid majority in the parliament to support further measures to curb the volume of people travelling on airlines.
This may work on domestic tourism, as two out of every three Norwegians already travel by car when exploring Norway on their holidays. This is in line with the dream of many politicians: “slow travel” by train, bus or boat to your destinations, take your time and enjoy the views of our lovely country.
Innovation Norway and local destination companies travel all over the world to sell Norway as the ultimate destination and already 50% of foreign tourists travel by air to, from and within Norway.
Mass tourism is not wanted. Norway wants the high-end market and big spenders to explore the country.
Norway is a small country and not developed for mass tourism, so the goal is a sustainable travel industry not linked with fuel-guzzling aircraft in the air and cruise vessels that cover the fjords in a cloud of exhaust, say the politicians.
Considering data on emissions from aircraft, ships and fisheries in Norway from 1991 to 2016, the annual emissions in 1991 were 5.5 million tons of CO2 equivalents and, in 2016, 6 million tons, representing an increase of 11% in 25 years.
Emissions from airlines represented only 1%, or 1.4 million tons of CO2 equivalents, of the total emissions for 2015 in Norway, while ships and other mobile sources represented 18% and cars and heavy transport on the roads generated 38% of all emissions.
Cutting emissions at great cost
Norway wants to become the ‘beacon’ for the world in reducing emissions, but it may come with a cost if the travel industry is to be regulated into an ‘emission neutral’ framework.
Because without a fully functional transport system taking tourists, both international and locals, quickly and seamlessly to points of interest, the travel industry will have a hard future maintaining the 160,000 employees spread across Norway.
If the focus and marketing of Norway are to attract the high-end segments and big spenders, how can small-scale hotels and attractions survive, as they cannot offer the required 5-star service?
One solution would be for the Norwegian regulator to provide a more competitive commercial framework for low-cost airlines, to attract them to operate from the major tourism markets of Germany, the UK, the Netherlands and France to regional airports in Norway’s south, west, mid, north and east. That would do the trick and secure a manageable year-round flow of incoming tourists, providing good revenues for the travel industry.