Turkey is harnessing tourism revenue to stabilize its fragile economy

More than a dozen vacationers boarded the hot air balloon basket for a journey over the lunar landscape of Turkey’s Cappadocia region.

“It’s sold out, we’re all booked, that’s why I’m smiling,” owner Mehmet Halis Aydoğan said ahead of the morning ride, one of about 140 that filled the skies every day this month.

After two years of disruption linked to the coronavirus pandemic, tourism in Cappadocia – like the rest of Turkey – is on track for a record year, helped by the fall in the value of the lira which has made the country a cheaper holiday destination than many European rivals. The number of foreign visitors rose 53% year on year in July, according to government figures released on Monday.

The booming summer tourist season is a blessed relief not only for local businesses, but also for President Recep Tayyip Erdoğan and his officials, who are racing to attract as much foreign currency as possible to support the economy.

The soaring energy import bill caused by rising world prices resulting from the war in Ukraine has fueled a growing imbalance between Turkey’s imports and exports. This has increased the pressure on the lira, which has fallen from an exchange rate of around 8.6 to the dollar a year ago to more than 18 today, depleting the country’s foreign currency reserves.

“Tourism revenue is key in this environment to alleviate the pressures,” said Selva Demiralp, professor of economics at Istanbul Koç University. “The government has turned to tourism as a last option to salvage the situation.”

The last few years have been difficult for the holiday industry in Turkey. A record 45 million foreign visitors came in 2019, but less than 13 million arrived a year later as the coronavirus crisis took its toll. The fall has inflicted pain on tourist-dependent resorts as well as Istanbul, a popular destination for city breaks, and places such as Cappadocia in the heart of Turkey’s central Anatolia.

Numbers partially recovered in 2021, reaching nearly 25 million, but quarantine rules and travel bans ensured arrivals were well below their peak.

Mehmet Güleşer, who sells scarves and trinkets in a small shop in the Cappadocian town of Üçhisar, has resorted to collecting scrap metal to make ends meet. “We went through some tough times,” he said. “But we came out the other side.”

Like many companies, Aydoğan, of which Voyager Balloons is one of the largest local companies offering hot air balloon rides, accepted the government’s offer of a nationwide scheme that paid 60% of wages to employees unable to work due to of the pandemic.

He used cheap loans offered by the government to help him fill a cash flow shortfall and used the time to branch out and start making hot air balloons himself. “We tried to turn [the pandemic] to our advantage,” he said.

Voyager Balloons by Mehmet Halis Aydoğan is one of the local companies offering trips over the lunar landscape of the Cappadocia region © Laura Pitel/FT

Normal operations are now back in full swing, with around 220 people a day signing up for hot air balloon rides that offer stunning views of unusual rock formations and ancient churches.

Teyfik Ölmez, president of KAPTD, a local tourism association, said July was a “best ever” for hotels in the region, even though Chinese tourists – who normally make up a significant proportion of visitors – are absent. due to strict lockdowns in their country.

Their seats are filled with visitors from other Asian countries as well as South Americans, Europeans and Americans. Even Russians keep coming, despite fears that Vladimir Putin’s war in Ukraine and the economic fallout from Western sanctions will keep them home. Russian visitors were second only to Germans in the first seven months of the year, followed closely by the British.

Oya Narın, head of the Turkish Association of Tourism Investors, said Istanbul, in particular, was having a bumper year. “Istanbul is magical and mystical, and international travelers have recently started to experience it,” she said, adding that the lira’s weakness had “a big effect.”

Tourism businesses serving international visitors are largely insulated from Turkey’s 80% inflation and currency decline because their prices are denominated in euros, pounds or dollars – or tied to a foreign currency. Narın said the biggest problem for the industry is recruiting staff.

Revenue from tourism is helping to limit the damage to Turkey’s economy from soaring energy costs, but experts say it’s unlikely to be enough to solve the country’s problems.

Barclays last month revised its forecast for this year’s current account deficit – which reflects the imbalance between imports and exports – from $4 billion to $35 billion on the back of better-than-expected tourism receipts.

But he also warned that this “temporary positive picture” would change from the autumn when tourism revenues fall as the weather cools, energy needs increase and external debt payments put pressure on the pound and foreign exchange reserves. Last week, Erdoğan shocked the markets by cutting interest rates even as inflation continues to rise.

Business owners in Cappadocia insist they are more than pulling their weight in the battle to bring in hard currency. Unlike the all-inclusive resorts that populate the coastline, visitors to their area pay not only for accommodation but also for meals, drinks, taxis, site admissions, and activities.

Jakub Novák and Zuzana Klimecká, two young backpackers from the Czech Republic, were attracted by the cheap flights and the “much cheaper” cost of traveling to Turkey than to their own country.

At the other end of the spectrum, at Üçhisar’s Museum Hotel, rooms start at €600 a night and guests lounging by the infinity pool pay the equivalent of €16 for an Aperol Spritz.

Tolga Tosun, the owner, said the industry deserves credit for the fact that the pound has yet to fall further than its current rate of around 18.1 to the dollar. “We are bringing money into the country,” he said.

Last month was a record for his hotel in terms of occupancy and revenue. “They locked the whole world in their homes for a year and a half,” he said. “And now everyone wants to travel.”

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