Tourism economy in oversupply conditions by default

(Published in 08.04.2024, in greek)

Every mature tourism economy is being challenged by oversupply conditions, at least, on the accommodation sector level. Past data on the average annual occupancy of Greek hotels easily confirms this. Investigating the phenomenon, I limit myself to the accommodation sector, not only because it is the least difficult variable to measure, but also because it acts as a pole of attraction for investments in related/complementary sectoral tourism activities.

A basic principle of tourism development in Greece is that: "regardless of the number of beds we build, they will be occupied during the high season". During the planning phase, there is no real concern about the rates or the long-term rate of return. As for the middle and low seasons, there is always the narrative about the extension of the tourism season (which is lately confused with the shift of the demand due to the climate crisis) to sustain interest. In addition, there is a lack of proper infrastructure, which usually lags.

So, after heavy investment in some popular destinations and for some relatively short periods, extreme conditions are not that rare. Call them “overcrowding”, call them "overtourism", call them "whatever the boss wants", the name refers to the result. But a problem is solved, when the cause is addressed. Here, the cause is the oversupply.

The oversupply should be continuously the focus of tourism policy. The solution is not easy at all. In most cases, when corrective action is needed, it seems to be too late. However, even in the initial planning phase, there are serious reasons that favour the creation of oversupply conditions. Among them and by priority, the reasons are political.

Governments always want more investment (public and private), more jobs (in existing and new businesses) and more revenues (from indirect and direct taxation). Investments, beyond their economic dimension, are also a means of exercising power, which the respective rulers know very well how to use. Also, with particularly high indirect taxation, governments prefer low or marginal profitability in many businesses (i.e., more jobs), rather than high profitability in some businesses (i.e., fewer jobs). In other words, governments will always favour the creation of oversupply.

Another serious reason for creating oversupply conditions is the time-gap of information. Between the conception of an investment idea and the start of operation, there is always sufficient time for data to turn around and demand trends to change.

Last, but not least, is the existence of problems of a structural nature: from the uneven distribution of investments throughout the country, the pressure and the creation of expectations by the ТОs, to the non-rational strategies of creating added value for the tourism economy and sharing the wealth among the stakeholders.

So, until long-term planning becomes the real focus, it is suggested to avoid extreme verbalism and get ready to welcome the new market equilibrium.


George Drakopoulos