Czech Republic Tourism Report Q3 2008

Tourism Overview According to the Czech Tourist Authority (CTA), the country's tourism marketing organisation, the number of foreign tourists travelling to the Czech Republic totalled 6.7mn people in 2007. This represents a relatively favourable increase of 3.8% year-on-year (y-o-y). These figures however may not be compatible with government data from the statistical office (which BMI relies on), which recorded a much weaker scenario for the number of foreign guests and foreign tourism nights in the first nine months of 2007. According to the CTA, the largest increases were seen in arrivals from Russia (up some 34% yo- y) and Spain (an increase of almost 17% y-o-y). The CTA also reported favourable increases in arrivals from countries such as Slovakia, Poland and Austria, where it had operated marketing campaigns and upped the activities of its representatives to promote incoming tourism.

Forecast Scenario The cyclical peak in the Czech economic cycle is now behind us, after a very strong 2007 outturn of 6.6%. The slowdown in the eurozone economies looks likely to weigh on growth, as will increasingly important base effects resulting from real convergence and softening domestic indicators. Critical to note, however, is that the landing will be very soft, with the growth outlook remaining solid.

BMI estimates that there was only marginal growth in the number of foreign visitors to the Czech Republic in 2007. This would represent weak growth for the second year running. (New official data on the number of foreign guests in the hospitality sector in Q407 are yet to be released.) Moreover, despite some success in diversifying source markets, BMI maintains a subdued outlook for foreign visitor arrivals over the forecast period. This is largely due to downward revisions to economic conditions in key source markets and BMI's view of the modest strength of the Czech koruna.

Prague Ruzyne International Airport Annual growth in international and domestic passengers passing through Prague Ruzyne International Airport was maintained in 2007 at 7.4% y-o-y to over 12.4mn passengers. Growth in the numbers travelling on low-cost carriers was buoyant at some 22% y-o-y resulting in around 2.8mn passengers. The low-cost airline sector now accounts for just over 22% of market share at the airport. Overall, in 2008, the airport anticipates a marginal slowdown in growth in total passenger numbers to 13.3mn.

Czech Airlines Preliminary 2007 financial results for Czech Airlines (CSA) show a profit before tax of CZK111mn (US$5.5mn), an improvement of CZK507mn compared with the previous year. Operating income rose CZK798mn to reach CZK23.78bn (US$1.17bn), with income from scheduled operations accounting for the largest part of income, increasing CZK348mn to near CZK19.01bn. Operating costs fell CZK240mn to around CZK23.4bn (US$1.15bn), despite the fact that salaries increased CZK250mn during the course of the year. Savings were made, however, in telecommunications and maintenance. Traffic data show CSA carried over 5.6mn passengers, up about 2.4% y-o-y (the relatively low figure was mainly due to lower seat capacity). In April 2008, the Czech government will launch the long-awaited sale of CSA by announcing a tender for a privatisation adviser. The winner would then recommend a timetable and a method of sale. Selling its 91.5% stake could earn the government some CZK5bn.