A MAJOR survey published this week gave a glimpse of hope for the Scottish tourism industry as it strives to fully recover from the coronavirus pandemic, while underlining the deep challenges businesses continue to face.

As the industry turned out in huge numbers for a conference in Edinburgh, the autumn ‘How’s Business’ survey from the Scottish Tourism Alliance, published on Tuesday, offered evidence that overseas visitors are returning to Scotland at an encouraging rate.

Given the extent to which international travel was vanquished by Covid, it would have been very heartening for the assembled delegates to hear that the number of people visiting Scotland from Europe has increased by 30% and from North America by 29% this year compared with 2022.

The ability to attract visitors from abroad is crucial to the long-term prospects of the tourism industry, and the fact the survey found Scotland had outperformed the rest of the UK, in terms of the value and volume of inbound tourism, in the first two quarters will likely have been welcomed by delegates at the Edinburgh International Conference Centre and all those operating in the sector.

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But while the inbound trend is clearly positive for the industry, the survey gave a stark reminder not only that trading conditions remain extremely challenging for firms, but that, crucially, the dominant source of visitors to Scotland is stuck in the doldrums.

The domestic market, which includes tourist trips and activity by people resident in Scotland and elsewhere in the UK, is understood to account for 65% of tourism in Scotland. But worryingly for the industry, respondents to the STA survey reported a 16% fall in visitors from Scotland, and a 20% drop from other parts of the UK.

As to the reasons for this decline, look no further than the cost-of-living crisis and spike in interest rates. Respondents to the survey, which was carried out over two weeks from early October, observed that a range of economic factors were having a significant influence on choices made by domestic consumers. Some 83% said they believe the cost of living crisis was a barrier to people taking a holiday; 77% cited inflation (which remains stubbornly high) as a key factor; and 71% mentioned higher energy and fuel costs.

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With no sign of those economic pressures easing to any notable degree – annual UK consumer prices index inflation was unchanged at 6.3% in September, and interest rates are forecast to remain at 5.25% following the next vote by the Bank of England’s Monetary Policy Committee, due to be announced today – there will be little change to consumer behaviour soon. That hardly augurs well for the tourism industry.

Yet, the challenges facing the sector do not just come from the consumer side. As the STA survey made abundantly clear, firms in the industry remain under huge pressure from cost inflation, so much so that nearly half (48%) of respondents reported decreased profits. In most cases, the survey found, the year-on-year decline in profits had been 10% or more.

As for factors hitting the bottom line, around nine out of 10 tourism and hospitality businesses reported higher energy and supplier costs, while 69% highlighted increased staffing costs.

In this operating environment, it is inevitable that the ability of tourism firms to make a profit is severely constrained. In turn, that limits the capacity of firms to fully make up the ground lost during the pandemic – many took on further debt which needs to be serviced and repaid – and to undertake the kind of reinvestment that is crucial to their future prospects.

For a highly competitive sector like hospitality and tourism, investment to maintain the physical fabric of premises, develop and market new offerings, and in staff training is sacrosanct and without it businesses can falter all too easily.

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Yet, given the present trading environment, it probably has never been so difficult to free up the cash to do so.

The pressure on overheads has naturally led many operators to look for ways to recoup costs. That has already seen many businesses increase prices, be it for meals, rooms, or tourist attractions, but it is surely a strategy that must be pursued with caution.

Consumers themselves are feeling the financial strain and, over the last year and a half or so, will have seen their spending power greatly diminish. They will be approaching expenditure on leisure activities with more care than they will have before the cost of living crisis arose, and looking closely at whether hotels, restaurants, and visitor attractions offer genuine value for money. For businesses that fail to get the balance right, their chances of winning repeat custom will surely be limited.

But while there are things businesses can control internally, there are major external factors beyond their influence and as such it was no surprise to hear the industry call on Scottish and UK governments for support this week. The STA declared the industry needs help to fill vacancies – Brexit has been a major challenge for recruitment – and for the burden of tax and regulation to be reduced. Calls for value-added tax to be cut for the sector are once more being regularly aired.

“With factors such as the higher cost of living, inflation and increased energy and fuel costs influencing consumer choices and holiday decisions, we can no longer rely on our domestic market as a key driver for Scottish tourism,” said Marc Crothall, chief executive of the STA.

“The reality is that healthy trading is all about the bottom-line performance of the business; while revenue may be strong for many businesses, the key to commercial success lies in the ability of that business to convert profit into sustainable recovery and growth.

“In light of these challenges, it is crucial that both the UK and Scottish government’s work more closely with our sector to understand and address those cost pressures, enhance business confidence, and position Scotland as being a ‘must visit’ destination within the global marketplace.”