The main part of the Croatian Tourism season has ended, and the results are in. In today’s blog, we’ll look at how the industry is doing, as well as a selected group of companies within it. A special focus will be placed on comparisons to 2019, the last “record” year.

Whenever comparisons to how well Croatian tourism does, it is always made to 2019, considered not only the last “normal” year before the pandemic but also a record one. 2022 turned out to be quite good in terms of “normalcy” but it still failed short of being a “record” year. While 2023 is yet to be over, the majority of tourist arrivals and nights are recorded during the Q3 summer season, and as such conclusions about the sector’s performance could be made even before the year’s end.

Total tourist arrivals and nights in Croatia (January 2019 – October 2023)

Source: HTZ, InterCapital Research

In the first 10 months of 2023, tourist arrivals and nights increased YoY by 9% and 3%, respectively. The distribution between foreign and domestic arrivals showed similar percentage growth, but as foreign tourists make up the majority of arrivals, they were the ones driving the increase. Furthermore, compared to 2019, both tourist arrivals and nights narrowly missed the record, reaching 99% of the 2019 figures. Notably, foreign arrivals declined by 3% compared to 2019, while domestic arrivals increased by 16%. On the other hand, foreign nights remained stable, while domestic nights decreased by 6%.

Furthermore, if we were to zoom in on the Q3 data only, total arrivals increased by 5% YoY, but tourist nights remained the same, mainly due to unchanged foreign nights. Compared to 2019, Q3 2023 had 1% higher total arrivals, driven by increased domestic arrivals as foreign arrivals remained unchanged. However, total tourist nights declined by 2%, with both foreign and domestic nights decreasing by 2% and 8%, respectively. Although official tourism revenue data for the year is unavailable, H1 2023 showed approximately 21% YoY revenue growth, suggesting a similar trend for the rest of the year. If this happens, the total tourism revenues in 9M2023 are about to amount to EUR 14.3bn at least.

Select Croatian tourism companies revenue change (9M 2023 vs. 9M 2022, 9M 2023 vs. 9M 2019, %)

Source: Companies’ data, InterCapital Research

On average, the presented companies recorded 16% YoY growth in revenue during 9M 2023, with Plava Laguna leading the way at 24%. Compared to 2019, the selected companies on average recorded a 30% increase in revenue.

Select Croatian tourism companies EBITDA change (9M 2023 vs. 9M 2022, 9M 2023 vs. 9M 2019, %)

Source: Companies’ data, InterCapital Research

During 9M 2023, the featured companies recorded an avg. EBITDA increase of 14% YoY, and 22% compared to 2019. The difference in op. profitability is of course due to different accommodation mixes between the companies. For example, Plava Laguna and Sunce Hoteli saw an impressive EBITDA increase of 32% and 27% YoY, and 50% and 44% compared to 2019, respectively. In contrast, Liburnia Riviera recorded a 2% higher EBITDA YoY but 5% lower than in 2019, and Arena Hospitality Group reported a 1% decrease in EBITDA both YoY and compared to 2019.

Select Croatian tourism companies net income to majority change (9M 2023 vs. 9M 2022, 9M 2023 vs. 9M 2019, %)

Source: Companies’ data, InterCapital Research

In terms of net profitability, during 9M 2023, the avg. YoY growth amounted to 9%, and 16% compared to 2019. Once again a similar trend of both double-digit growth, and a decline is recorded, both on a YoY basis and compared to 2019. With the increase in business activity during Q3, costs are also more pronounced. As such, the avg. net income to majority grew by 2% YoY, and 17% compared to 2019 in Q3. However, to fully understand the situation, it’s essential to consider these numbers in the context of EBITDA and net income margins.

Select Croatian tourism companies EBITDA margin comparison (9M 2023, 9M 2022, 9M 2019, %)

Source: Companies’ data, InterCapital Research

The average EBITDA margin for 9M 2023 was 38.9%, showing a 0.75 p.p. decline YoY and a 3 p.p. drop compared to 2019. Notably, there are variations among companies, with Arena Hospitality Group experiencing a 5.13 p.p. YoY decline in its margin, while Sunce Hoteli recorded a 3.64 p.p. increase in EBITDA. In Q3 2023, the average EBITDA margin was higher at 53.5%, reflecting a 0.63 p.p. YoY decline but a 1.07 p.p. improvement compared to 2019. Notably, Valamar contributed significantly to the EBITDA margin improvement with a 16.1 p.p. increase compared to 2019, while Liburnia recorded an 8.24 p.p. decrease in the EBITDA margin.

Select Croatian tourism companies net income margin comparison (9M 2023, 9M 2022, 9M 2019, %)

Source: Companies’ data, InterCapital Research

In terms of net income margins, the average for 9M 2023 was 22%, while for Q3, it was 42.3%. In both periods, compared to 2022 and 2019, net income margins decreased, averaging between 2.3 p.p. and 2.99 p.p. during 9M compared to 2022 and 2019, respectively, and between 4.95 p.p. and 4.63 p.p. during Q3 2023 compared to 2022 and 2019, respectively.

Having all of this data in mind, what can we conclude? The companies managed to improve their top line at double-digit rates, both YoY and compared to 2019. On the other hand, profitability suffered, due to higher costs across the board, especially material, energy, and labour costs. Because of this, the price increases of accommodation were one of the only choices the companies had left. In other words, without them, profitability would have suffered a lot more. But price increases came not only due to cost and inflationary pressures but changes in the accommodation mix. For a while now, accommodation, private and commercial alike have been upgraded towards higher-end and more luxurious tourism. During 2023, the observed hospitality companies are expected to invest a little less than EUR 200m in accommodation. As such, price increases came due to this development as well.

Estimated investments of the featured tourist companies* (2023, EURm)

Source: Companies’ data, InterCapital Research

*Includes both investments done during 9M 2023 and estimated investments for FY 2023, depending on the company in question

However, the numbers in terms of arrivals and nights do not lie. While prices grew by double-digit rates YoY in 2022 and 2023, the arrivals and nights stagnated. Furthermore, the pandemic ended more than a year ago, and tourism countries to which access was restricted are fully open. Due to this, competition is mounting, and many other countries have already taken the opportunity to offer more competitive prices, swaying potential customers from Croatia.

As such, one very important conclusion can be made. Price growth was tolerated this year and the last, but it would be hard to justify it going forward. Companies are striving to return their profitability to pre-pandemic levels, but this can only happen in 3 distinct ways. Firstly, of course, price increases. Secondly, cost management and optimization. Thirdly, investments, possibly focused on the higher end. The first option has happened. The second is ongoing. The third, at least in regards to new projects, is unlikely in the current high-interest rate environment. Due to these factors, going forward it would be hard to imagine that 2024 will be able to beat 2019 by a large margin, across both top-line growth and profitability levels.