TURKS WEIGH AN IRAQ OPERATION'S TOURISM IMPACT

UNCLAS SECTION 01 OF 02 ISTANBUL 000294

SIPDIS


SENSITIVE


STATE FOR E, EUR AND EB
TREASURY FOR U/S TAYLOR AND OASIA - MILLS
NSC FOR QUANRUD AND BRYZA


E.O. 12958: N/A
TAGS: ECON EFIN PREL TU
SUBJECT: TURKS WEIGH AN IRAQ OPERATION'S TOURISM IMPACT


This is a joint Istanbul-Ankara cable. Sensitive but
Unclassified - not for internet distribution.

SIPDIS



1. (SBU) Summary: Turkish government and tourism industry
officials are bracing in anticipation of a sharp downturn in
tourism in the event of an Iraq operation. The sector,
Turkey's largest foreign exchange earner, turned in a good
performance in 2002, earning over 10 billion USD (27 percent
of all foreign currency income). Anecdotal reports hinting
at reservation declines of 30-50 percent in the first months
of 2003 have led some to suggest that the sector could lose
4-5 billion USD for the year as a whole. The Tourism
Minister is putting a braver face on the situation.
Unsurprisingly, all agree that while a quick and successful
operation's effect could be rapidly overcome, an extended
campaign would have a much larger impact. Key tests will
come later this month at tourism fairs in Germany and
Russia--Turkey's largest tourism markets. End Summary.



2. (SBU) Already Feeling the Chill: Tourism Ministry
officials told Embassy Econ officer this week that Turkey is
already feeling the chill from war anxiety. Summer travel
reservations that are usually made in January to February
have slowed considerably, they reported, while by some
anecdotal accounts hotel reservations are off by 30 to 50
percent. Istanbul's Ciragan Hotel, for instance, reports a
25 percent decline in bookings. The Ministry's Acting Head
of External Relations, Tolga Tuyluoglu, admitted that
predicting the exact effect of a crisis is difficult, but
that based on Turkey's Gulf experience, a former Ministry
official has estimated that Turkey would lose 4-5 billion USD
in 2003 and 10-12 billion over the next three years. This
year's target of 15 million travelers generating 12 billion
USD in revenue, already an ambitious increase from last
year's 10 billion USD level, would appear well out of reach.



3. (SBU) Industry Predictions: Basaran Ulusoy, President of
the Association of Turkish Travel Agencies, told us on March
5 that the association concurs in estimates of a 40-50
percent decline in tourism: without a war it estimates
tourism revenue at 10.35 billion USD; in the event of a war
it forsees only 5.5 billion USD in revenues (these totals do
not include the 1.5 billion USD that the government adds to
account for unrecorded income--the association thus
calculates 2002 revenue at 8.5 billion USD.) ATA Invest, one
of Turkey's leading brokerages, predicts a slightly higher
level of tourism revenue for 2003--8.5 billion USD. All
noted that beyond its importance to Turkish foreign exchange
earnings (27 percent last year),tourism is deeply interwoven
into the fabric of the Turkish economy, and by the Ministry's
count 38 associated sectors ranging from food to jewelry and
carpets will also be negatively impacted.



4. (SBU) Anecdotes: Turkish Tourism Investors' Association
(TYD) Secretary General Nedret Koruyan told us March 4 that
she is already hearing reports that travel agents in Europe
are pressing Turkish tourist facilities for price cuts, given
slumping demand. Since prices never fully recovered from the
Gulf Crisis, however, she sees little margin for such
flexibility for the industry. Ulusoy, whose family runs one
of Turkey's largest tourism conglomerates, noted numerous
anecdotal examples of the freeze in the market, ranging from
cancellation of 44 maritime cruises to Turkey (which will
severely impact the Kusadasi and Istanbul regions),to
rent-a-car firms backing out of car purchase agreements. As
for the Association itself, while typically it purchases
eight million museum tickets from the Ministry of Culture to
sell at cost to its members, this year it is only taking 2.5
million.



5. (SBU) A Brave Face: If privately Ministry officials are
pessimistic about Turkey's prospects, Tourism Minister Guldal
Aksit is putting a braver face on the situation. She told
"Hurriyet" newspaper this week that she is an optimist, and
that by diversifying its tourism market, Turkey would be able
to limit an operation's impact. Industry observers made
clear that while they do not share the Minister's views, they
understand that she must remain a cheerleader for the sector:
if she cried that the sky was falling, Ulusoy commented, it
would fall that much more quickly and lead banks to move to
foreclose on loans to the sector. Already many companies
face bankruptcy, as reduced revenue flows will not cover
financing costs of the renovations and projects they
completed in the off-season.



6. (SBU) Hoping for a Short War: Both Ulusoy and Koruyan
agreed that a short war, started soon and finished in a few
weeks, could limit the impact on the sector to 25-30 percent,
and permit it to recover in a few years. However, even in
this case a significant impact is unavoidable, as the current
uncertainty has already begun to affect bookings, given that
March is the month in which many summer reservations are made
and in which airlines plan their summer schedules. Ulusoy
reiterated a refrain we heard frequently last fall (and heard
in Ankara this week as well),in expressing regret that
international exigencies had prevented the operation from
being launched and completed in January and February.



7. (SBU) New Realities: Behind the high impact estimates are
several new realities facing the industry. Turkey's
competitors have already started using the possibility of
military action against Iraq to promote themselves at
Turkey's expense. Ulusoy noted Greece's new pitch to the
industry: "Come to Greece, there is no war in our
neighborhood." Both Ulusoy and Koruyan noted that travel
contracts, beyond providing an out in case of force majeure
(such as war),also now include alternate destinations, so
that travelers can be easily rerouted to back-up locations.



8. (SBU) Interrupted Progress: The uncertainty caused by the
Iraqi crisis has interrupted Turkey's strong rebound in 2002
from the post-September 11 world tourism downturn. Koruyan
characterized last year as a very good year, noting that
Turkey had experienced the largest increase in tourism in the
Mediterranean region. January figures continued that trend,
with total arrivals increasing by 18 percent from 2002, and
EU arrivals increasing by 45 percent. Even arrivals from the
U.S. and Japan, two countries that Koruyan characterized as
"lost markets" for Turkey, increased by 11 and 17 percent
respectively (though U.S. tourism in Turkey is still barely
half its pre-September 11 level). (Note: MOT officials are
less willing to write off these markets, as American and
Japanese tourists typically spend more per capita than their
European counterparts. End Note.) Koruyan noted that Turkey
has benefited from its price advantage over rival
destinations in the Mediterranean: introduction of the Euro,
she suggested, had provided a pronounced edge over Spain and
Greece (which saw a 5.6 percent decline in tourism in 2002).



9. (SBU) Repackaging the Market: Koruyan also gave some
credit for the strong results in 2002 to the Ministry of
Tourism's new advertising campaign. While funding has
remained flat at 50 million USD, it has been refocused away
from Turkey as a general destination and towards emphasis of
specific areas such as Antalya (especially popular among
Russians) and Bodrum (popular with British and German
tourists). It is easier to distance such resorts from Iraq
than to distance Turkey as a whole, Koruyan suggested.



10. (SBU) Key Tests: Both Ministry and Industry contacts
stress that Turkey faces its key tests this month, with major
tourism fairs in both Germany and Russia, the country's two
key tourism markets (with 3.5 million and 950,000 visitors
respectively in 2002). The industry pins special hopes on
the Russian market, which in the past has proven more crisis
resistant than its European counterparts. But Ulusoy noted
that even a charter package from Kazakstan was recently
cancelled because of war concerns: "I thought they were used
to crises," he noted.



11. (SBU) Comment: Given the sensitivity of the sector to
international conditions, a significant impact on Turkey from
both continued uncertainty and/or a war is unavoidable. If
quick and decisive, however, observers concur that the impact
can be overcome. They note too the potential upside from an
end to uncertainty and from a regime change in Iraq. Ulusoy,
who professed strong support for U.S. goals in Iraq,
estimated that there are three to three-and-a-half million
potential annual visitors to Turkey from Iraq and the broader
Middle East who do not now travel because of the crisis. End
Comment.
ARNETT