By Heinz Wehrle and Michaela Wehrle
When looking at the Swiss economy, one also must look at Switzerland’s economic and political system.
The Swiss are strong believers of the cost-by-cause principle. Subsidies, so popular all over the rest of Europe, are practically unheard of. Naturally, this results in low tax rates and higher prices for products. While this system is as transparent as it can get, it impacts competitiveness compared to its most important commercial partners and neighbors.
Adding to high price levels is the strong Swiss franc burdening the Swiss economy. It had been considered a safe haven currency for some time already after the global financial crisis hit in 2008. As a result, a massive capital inflow was recorded, causing the currency exchange rates to skyrocket.
In 2012, Switzerland vindicated its lead on the Global Competitiveness Index ranking. When looking at the details, the country came in first with regard to quality of overall and railroad infrastructure, inflation change, quality of the educational system, availability of research and training services, extent of staff training, goods’ extent of market dominance, overall labor market efficiency and cooperation in labor-employer relations, local supplier quality, availability of financial services, overall technological readiness and broadband Internet subscriptions, and overall innovation and university-industry collaboration in research and development. Low corruption, a low crime rate, and the stable political system paired with reasonable inflation rates keeps attracting foreign companies. However, save for the high-tech sector, many of them only relocate their financial headquarters to Switzerland while leaving production facilities in more affordable regions.
In 2011, the hospitality industry accounted for only 1.9% of the country’s total gross production value and for 2.1% of the country’s total gross value added compared with 3.4% in 1998, according to the Swiss Federal Statistical Office. Until recently, the industry was not permanently present on the radar of politicians or the general public and its lobby has potential for improvement.
In the 1950s, Switzerland was among the top five tourist destinations worldwide in volume. As globalization of the industry progresses, Switzerland’s tourism industry faces quite a few challenges. It’s dominated by small businesses scattered throughout the country, disposing of only small marketing budgets. Infrastructure is often lacking and/or out of date.
According to a report by GastroSuisse, the association of hotels and restaurants in Switzerland, at the end of 2007, citizens of a euro-country paid €625 ($841.19) for an average stay of seven nights at 150 Swiss francs ($161.95) per night. By mid-2011, they had to pay €963 ($1,296.10) for exactly the same, equalling an increase of 54% due to the currency exchange rate.
Switzer-land for every budget
Foreign investment may be complicated by Lex Koller regulations, a Swiss law on the acquisition of real estate by non-residents. Persons of foreign nationality, companies based abroad or Swiss companies controlled by foreign citizens are subject to restrictions regarding the purchase of real property or land. They are required to obtain approval by the cantonal government regardless if the property is already under foreign ownership or the reason for the acquisition (purchase, exchange, donation, etc.).
Citizens of the eurozone or European Free Trade Association countries with Swiss domicile and other foreign nationals entitled to take up residence in Switzerland are exempt from these restrictions.
Nevertheless, Asian investors have discovered Swiss resort hotels as an attractive addition to their portfolio. A fair number of time-honored luxury hotels in dire need of renovation are currently being revived and preserved that way.
Supply and demand
According to the Swiss Federal Statistical Office, on the supply side, between 2001 and 2012, the total number of registered hotels dropped by 10% while, at the same time, the number of rooms increased by 2.7%, thus increasing the average size from 45 to 51 beds per hotel. Compared with 1992, the average size has increased by 20%.
In 2012, three out of the 26 cantons (Berne, Grison, and Valais) accounted for 42% of all hotels and 41% of all rooms in Switzerland. The canton of Zürich, including the major gateway Zürich City, contributes 6% of all hotels and 10% of all rooms to Switzerland’s total supply. The other hot destination, Geneva, accounts for only 2.5% of all hotels and 7% of all rooms Switzerland has to offer, according to the Swiss Federal Statistical Office.
Almost 60% of all accommodation establishments in the country are unclassified and 11% are chain affiliated. The 4- and 5-star segments account for only 8.4% and 1.7%, respectively. At the same time, 21% of total beds can be ascribed to the 4-star segment with an additional 6.8% in 5-star hotels, according to the Swiss Hotel Association.
City destinations could increase the roomnights by 0.5% in the 2012 summer season, when at the same time the alpine villages lost 4.1% of the roomnights, continuing the trend of the previous winter season, which produced a loss of 3.8%. Alpine destinations in Switzerland lost 14% of their roomnights since 2008, said the Swiss Federal Statistical Office.
While the city of Zürich reaches stable occupancy levels of around 71.1%, Geneva lags that performance at 64.1%. In return, Geneva’s average daily rate of 304.84 Swiss francs ($333.09) tops Zürich, which had an ADR of 227.57 Swiss francs ($438.66), although both markets have not yet returned to pre-crisis levels, according to year-end 2012 data from STR Global, sister company of HotelNewsNow.com.
According to the Swiss Federal Statistical Office, Swiss tourism, especially tourism to resort destinations, profits from a strong domestic demand. Forty-seven percent of all arrivals are Swiss citizens; they produced a growth rate of 2.7% on average between 2005 and 2011. The most important single market is Germany, accounting for 11.6% of all tourists (compared with 15% in 2011), followed by the U.S. (4.3%), the U.K. and France (4% each). Between January and October, the German arrivals decreased nearly 10%, generating 13% fewer nights in 2012 over 2011. Between 1992 and 2011, arrivals had already decreased by nearly 27%. The German traveler switched to other destinations and such a significant drop cannot go unnoticed.
Until 2011, domestic demand had dampened Switzerland’s downward trend.
In 2012, the Swiss Federal Statistical Office said domestic demand saw a decrease in nights by 1.3% between January and October. International nights recorded were 4.5% less during the same period. Also, the average length of stay fell from 2.19 days in 2011 to 2.14 days in 2012 caused primarily by global tourists. In comparison, average length of stay in 2005 was 2.39 days.
The Swiss National Bank expects the pressure on the Swiss currency to remain throughout 2013 and that the situation will improve in 2014. Accordingly, from the Swiss Secretary of State for economy, BAK Basel’s forecast predicts that the downward trend in nights will stabilize at 0.3% in 2013 and that the turnaround can be expected in 2014 with producing 1.8% in roomnights. Also, investments in construction of new hotels and renovations should exceed 1 billion Swiss francs for the first time since 2007. As was the case in previous years, the biggest parts of these investments are large-scale projects initiated by global developers and financiers.
Heinz Wehrle heads up the Horwath HTL office in Switzerland and is largely responsible for transactional advice, tourism project development, corporate finance, performance monitoring and operational reviews.
Michaela Wehrle has been working in Horwath HTL’s Swiss office since 2010 and is working as a Senior Consultant and Project Manager. She has an active role in establishing and implementing Horwath HTL Corporate Design guidelines throughout offices worldwide. Michaela focuses on Sales & Marketing concepts and improvement, organisational development and quality management, in addition to being closely involved with transaction work undertaken by our Swiss office.
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