Carnival in Vilnius.
Photo: Lithuanian State Department of Tourism

- It was something of a recovery period for the Baltic tourism industry in 2010, following a challenging 2009. In all three Baltic countries tourist arrival numbers fell in 2009. Latvia welcomed the most tourists (4.72mn), with Lithuania and Estonia both attracting just over 4mn. Latvia's position as the cheapest tourist destination of the three Baltic countries helped it maintain tourist numbers slightly better than its neighbours during the period of global economic uncertainty in 2009. The decision by the Latvian parliament in May 2010 to reduce the VAT rate on hotel accommodation from 21% to 10% further underlines the country's attractiveness compared to its Baltic peers.

Looking at trends in 2010, all three countries reported higher hotel occupancy rates over the summer months, which bodes well for full-year tourist arrivals figures. We estimate growth in tourist arrivals of 3% for Estonia, 5% for Latvia and 2.5% for Lithuania in 2010. Looking ahead, we are positive about the outlook for all three countries, with a slight preference for Latvia's potential growth in the next five years. Estonia remains the largest tourism market in terms of tourist revenues, generating US$1.42bn in 2009. Lithuania was second with US$870mn, with Latvia in third on US$674mn.

We are upbeat about the outlook for the Baltic region. Cruise travel in the region is continuing to grow in popularity, with Tallinn's status as a European Capital of Culture in 2011 also likely to draw in tourists from across the continent. Riga will be a Capital of Culture city in 2014. Arrivals from Russia should also continue to grow strongly throughout our newly extended forecast period to 2015 as a result of rising disposable income and increased flight services between Russian cities and the Baltic region, most notably by airBaltic.

In BMI's updated Tourism Environment Business Ratings for 2011, the Baltic countries are towards the middle of the table: Estonia is in joint sixth place with Turkey, while Latvia and Lithuania are in joint eighth place. This partly reflects the still developing nature of the region's tourism industry compared to its peers across Central and Eastern European.

Note On Accommodation Data

BMI advises readers that the official number of accommodation establishments across the Baltic region has fluctuated wildly in recent years as a result of new builds and existing establishments choosing to register with government bodies and therefore becoming part of official data. This latter trend looks set to continue over the forecast period, which must be borne in mind when considering our projections through to 2015.

Estonian Air Back Under State Control

In May 2010, Scandinavian airline SAS Group announced that it wished to divest its 49% stake in Estonian Air as it concentrates on its home market. In September, a transaction was approved by the Estonian government, which provided EEK280mn via a rights issue to increase the airline's share capital. Following the rights issue, SAS saw its stake reduced to 10%, with the government now holding 90% of Estonian Air. According to SAS, the airline has an option to buy this 10% stake (and SAS has the option to sell the stake) at a 'fair market value' after four years. SAS has said it will continue commercial cooperation with the Estonian flag carrier.

Over January-August 2010, Estonian Air carried 383,271 passengers, down by 1.6% year-on-year (y-o-y). However, following a poor start to the year, there was a steady increase in passenger numbers in the last four months of this period, according to the airline.

Star Holidays Enters Bankruptcy

In October 2010, Lithuanian travel company Star Holidays (and its subsidiary Star1 Airlines) started bankruptcy proceedings. The company, which was only established in June 2009, had incurred debts reportedly in excess of LTL5mn by the time of its closure. The trigger for the bankruptcy was the decision by Dublin Airport in late September to detain Star1 Airways' only Boeing 737 aircraft following non-payment of aircraft leasing fees.

The collapse of the travel company was another blow to the Lithuanian aviation industry, which suffered the indignity of the former national flag carrier flyLAL going to the wall in early 2009. Star Holidays' failure also underlines the risks still prevalent across the global tourism industry as the world economy moves towards recovery.

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