Iran: Forex Fluctuations Impact Domestic Travel Behavior

EghtesadOnline: A weak local currency has proved to be a boon to Iran’s inbound tourists while a nemesis to its outbound tourism industry, at least twice in the past decade.

News ID: ۷۴۸۶۶۵

09 October 2019

With the strengthening of the US dollar exchange rate against the rial, the number of foreign visitors to Iran, as a cheap destination, accelerated while fewer Iranians opted for overseas travels, particularly to their favorite destinations: Turkey and the UAE’s Dubai.

The number of foreign tourists travelling to Iran over the last fiscal year (March 2018-19) and the first four months of the current year (March 21-July 22) grew by 53% and 40%, respectively. However, 31% and 7% fewer Iranians travelled overseas over the periods under review.

The more than 1.5-fold rise in the number of foreigners visiting Iran has been unprecedented since the Iranian year ending March 2010, according to Financial Tribune.

According to a report by Persian-language daily Donya-e-Eqtesad, a noteworthy relationship exists between the effect of forex rate trends and tourism demand.

Last year’s 166% increase in the value of USD boosted the total number of foreign visitors arriving in Iran. In the year ending March 2013, the 117% rise in the value of dollar resulted in a 21% growth in the number of foreigners visiting Iran.

However, when the government kept the exchange rate of US dollar stable, i.e. Iranian years ending March 2015 and March 2018, more Iranians travelled overseas. For example, a record number of 2.5 million Iranians travelled to Turkey in the year ending March 2018, indicating a 50% rise compared with the year before. In the year ending March 2015, the number of Iranians travelling to Turkey was up 33% on the year before.

On the contrary, the depreciation of local currency shot up travel expenses and consequently hurt the appeal of overseas travelling for Iranians during last year and in the fiscal 2012-13.

The number of Iranians who visited Turkey last year dropped by 20% compared with the year before. The four months leading to July 22 also saw a 10% decrease in the number of Iranian nationals traveling to Turkey, as the value of dollar increased by 27%. The value of dollar increased by 117% in the year ending March 2013 and about 37% fewer Iranians traveled to Turkey compared with its previous year.

Data suggest that the decline in the number of Iranians visiting the UAE was more dramatic than that of Turkey. Last year’s devaluation of Turkey’s lira against the US dollar made up for the increased travel expenses for Iranians. The number of Iranians visiting the UAE last year and in the four-month period since March 21 declined by 37% and 53%, respectively. There is no data available for the year ending March 2013 about Iranians’ trips to the UAE.

The collapse in the value of local currency has also affected Iranians’ outbound travels to other destinations such as Azerbaijan. A 34% and 54% decline have been recorded in the number of Iranian visitors to Azerbaijan last year and the first four months of the current year.

World's Most Price Competitive in Travel and Tourism

Iran has been ranked first worldwide in terms of price competitiveness in the World Economic Forum's "The Travel & Tourism (T&T) Competitiveness Report 2019" with a score of 6.7.

Scores range from 1 to 7 where 1 means worst and 7 means best.

The report attributes Iran's top ranking to low ticket taxes and airport charges (seventh), fuel prices (fifth) and high purchasing power (fifth).

"Price competitiveness" is in fact one of the four pillars of the "T&T Policy and Enabling Conditions" sub-index, which captures specific policies or strategic aspects that impact the T&T industry more directly.

"Lower costs related to travel in a country increase its attractiveness for many travelers, as well as for investing in the T&T sector. Among the aspects of price competitiveness taken into account in this pillar are airfare ticket taxes and airport charges, which can make flight tickets much more expensive; the relative cost of hotel accommodation; the cost of living, proxied by purchasing power parity; and fuel price costs, which directly influence the cost of travel," the report reads.

The 2019 edition of the Travel & Tourism Competitiveness Report features the latest iteration of the Travel & Tourism Competitiveness Index. Published biennially, TTCI benchmarks the T&T competitiveness of 140 economies and measures “the set of factors and policies that enable the sustainable development of the travel and tourism sector which, in turn, contributes to the development and competitiveness of a country”.

The Travel & Tourism Competitiveness Report is a flagship product of the World Economic Forum’s Platform for Shaping the Future of Mobility, which brings together world leaders to ensure travel and transportation systems meet 21st century demands. This report serves as a strategic benchmarking tool for policymakers, companies and complementary sectors to advance the future development of the T&T sector by providing unique insight into the strengths and development areas of each country/ economy to enhance industry competitiveness.

Furthermore, it serves as a platform for multi-stakeholder dialogue to understand and anticipate emerging trends and risks in global travel and tourism, adapt their policies, practices and investment decisions, and accelerate new models that ensure the longevity of this important sector.

The index comprises four subindexes, 14 pillars and 90 individual indicators, distributed among the different pillars.

Overall, Iran was ranked 89th worldwide with a score of 3.5 placed after Cape Verde and before Bolivia. Iran's ranking improved by four places as its score improved 3.4% since 2017. The country's difference from global average stands at -7.9%.

Among the Middle East and North Africa countries, Iran stood at 11th place after Tunisia and Kuwait. Regionally, the country's difference from global average stood at -3.7%.

Notably, the "ICT Readiness" pillar of the "Enabling Environment" subindex, which captures the general conditions necessary for operating in a country, for Iran saw the most improvement in MENA region.

"Online services and business operations have increasing importance in T&T, with the internet being used for planning itineraries and booking travel and accommodation. However, ICT is now so pervasive and important for all sectors, it is considered part of the general enabling environment," the report reads.

“The components of this pillar measure not only the existence of modern hard infrastructure [i.e. mobile network coverage and quality of electricity supply], but also the capacity of businesses and individuals to use and provide online services.”