Czech Republic Tourism Report Q2 2008

Tourism Overview BMI estimates that growth in foreign visitor arrivals continued to slow in 2007, with the total number of visitors put around 103mn. This follows growth estimated at a modest 2% year-on-year (y-o-y) in 2006.

These figures are partly based on weakening growth in the number of foreign guests in the hospitality sector over the last two years; 1.6% y-o-y growth in 2006, with only marginal growth expected in 2007.

Hospitality The most recent available data for the first three quarters of 2007 show a marginal decline of just over 1% y-o-y in the total number of guests overall at collective accommodation establishments. However, foreign guests recorded a very slight increase of some 0.3% compared with the corresponding period in 2006.

With regard to the two most important source markets (for the hospitality sector), the number of guests from Germany fell nearly 7% y-o-y, while the decline in guests from the UK continues to fall, down a similar 7% y-o-y. Guests from Russia meanwhile, the third most important source market in 2006, were up a buoyant 36% y-o-y. The total number of tourism nights over the period January to September 2007 was disappointing, declining some 5% y-o-y, with foreign tourism nights down marginally compared with the same period in 2006. Overnight stays by German and UK tourists, however, were down a marked 9% and 8% respectively. In line with the buoyant growth in the number of Russian guests, overnight stays by Russian tourists were up a similarly strong 27.5% y-o-y.

Forecast Scenario The Czech Republic's strong economic performance in Q3 reaffirms our end-2007 real GDP growth forecast of 6.0%. Furthermore, we expect economic growth, buoyed by high investment and consumer demand, to remain robust through to 2012, albeit growing at a more moderate rate than experienced in 2007. We forecast end-2008 economic growth of 5.2%, with growth averaging 4.7% until 2012.

Taking into account the most recent data from the hospitality sector for foreign guests, we estimate only marginal growth in foreign visitors to the Czech Republic in 2007 as a whole. This would represent weak growth for the second year running. Moreover, despite some diversification of source markets and membership of the Schengen zone (abolishing passport checks at its land borders and international airports), BMI maintains a subdued outlook for foreign visitor arrivals over the remainder of the forecast period to 2012. This is largely due to continued weakness in arrivals from key source markets (for the hospitality sector) - especially Germany and the UK - and BMI's view of the modest strength of the Czech koruna in relation to the euro (and the US dollar) over the medium term.

Prague Ruzyne International Airport Prague Ruzyne International Airport looks set to have recorded another year of relatively strong growth in passenger numbers in 2007. Latest data for the period January to November 2007 show the airport handled nearly 12mn passengers, up 7.3% y-o-y. The most popular destinations over the eleven month period, in order of importance, were Paris (some 530,000 passengers), Frankfurt (420,000) and London/Heathrow (almost 386,00 passengers). Among the long-haul destinations, New York was the most popular (103,000 passengers), followed by Seoul (80,000) and Toronto (over 52,000 passengers).

Czech Airlines (CSA) carried the largest number of passengers, more than 4.9mn, in the eleven month period, including almost 4.4mn on regular services. Travel Service Airlines carried the second largest number with 1.1mn passengers (including almost 891,000 travelling to their holiday destinations). In third place was easyJet with more than 900,000 passengers.

Czech Airlines CSA's financial results for the first nine months of 2007 show a profit of CZK563mn (US$28.9mn), an improvement of CZK886mn on the corresponding period of the previous year. Based on comparable exchange rates, operating income increased by 4.6% y-o-y to CZK17.95bn, while operating costs grew by 1.7% y-o-y to CZK17.34bn. Traffic data for the period January to September 2007 show CSA carried 4.2mn passengers, largely unchanged on the same period in 2006 (due mainly to lower seat capacity). The positive financial results were due primarily to improvements in carriage performance, with the airline on track to meet its profit target of CZK40mn in 2007.