US embassy cable - 03ISTANBUL294

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, Istanbul 
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