The Balearic government and ministry for tourism may have made a hasty decision in slashing its promotional budget now that previous competing destinations, which were rocked by security issues, are coming back online and looking to rebuild their tourist industries - whatever the cost.
Foreign holidays remain a top priority for Europeans despite economic and security worries, tour operator Thomas Cook said yesterday. It is reporting a 40% jump in bookings to Greece and signs of a recovery in travel to Turkey and Egypt.
"Customers’ appetite to go abroad on holiday this summer is good across all our markets," CEO Peter Fankhauser said. "After a slow start to the season and a tough year in 2016, we’re seeing early signs that customers are beginning to go back to Turkey and Egypt."
Thomas Cook, which unnerved investors in February with a cautious outlook, said that while it was seeing some pressure on profit margins due to more competition, strong demand for summer holidays meant it was on track to profit forecasts.
Analysts expect the group, which arranges holidays for around 20 million people a year, to report full-year operating profit of around 327 million pounds. Summer bookings for the group are up 10 per cent compared to a weak period last year.
Tourists turned their backs on previously popular resorts in Turkey and elsewhere in the eastern Mediterranean last summer because of concerns about security, leaving Thomas Cook scrambling to find more hotel rooms in Spain and Portugal.
It said it has expanded capacity in Greece this season, while smaller destinations such as Cyprus, Bulgaria and Croatia were also proving popular. The Spanish market was more competitive however, it said, and it was focusing on selling higher-margin holidays rather than chasing volume growth.
Analysts at Jefferies, who have a "buy" rating on the stock, said they believed the margin pressure was manageable thanks to the group’s cost savings strategy.
Industry experts have warned that this year will be "interesting" for Spain while 2018 will be extremely competitive with Brexit looming ever closer, insecurity about the strength of the pound and new emerging destinations.