28 March 2018

HVS In Focus: Capri Island, Italy

By Pavlos Papadimitriou - Senior Associate at HVSand Ezio Poinelli - Director of the HVS Milan Officeand Carlo Reitano - HVS Milan

Introduction

Capri, together with Ischia and Procida, is the one of the three main islands of Campania, a region in Southern Italy with an area of about 13,500 km² and a population of 5,836,317 (2016). The distinctive features of the region are its mild climate, the abundance of art and historical sites, the strong passion for music and food as well as the presence of Mount Vesuvius, one of the most active volcanos in Europe located in the Gulf of Naples. Being largely washed by the Tyrrhenian sea, many leisure tourism destinations were developed over the years in Campania, such as Capri, Amalfi, Positano and Sorrento; besides Naples, which is the regional capital.

Capri's area spans over approximately 10,5 km2, while the inhabitants of the two municipalities (Capri and Anacapri) are about 15,000. Its precipitous coast and its numerous caves give a very peculair configuration to the natural setting of the island. Moreover, Similar to Campania region, music, food and history are always there, but what established the island as such an attractive tourist pole is the exclusivity and the "dolce vita" that visitors experience during their stay, through the sea life and the nightlife, which certainly revolves around the timeless "piazzetta".

The charm of this island is remembered since the Roman Empire. Some of the first known admirers and visitors of Capri were the Emperor Augustus, that made the island his private dominion, and the Emperor Tiberius, who built 12 properties to retire from Rome's life, some of them are still visible today. The current tourism status begun with the two World Wars, where the island hosted many political figures which gave birth to a small political-literary oasis. After that, a gradual change of the island's economy accomplished through a progressive decline in agriculture and coral production in favour of the tourism sector.

Accessibility

Being an island, Capri can be accessed by air or by sea.

The closest airport is Naples International Airport, about 10 km far from the city's port, while the nearest train station is Naples Railway Station, about 4 km far from the city's port.

  • By air: Capri features a heliport in Anacapri, the upper part of the island, and the main routes are from Naples (20 minutes), Rome (70 minutes) and Ravello (20 minutes).
  • By the sea: the island can be reached by ferry or hydrofoil, mainly in 50 minutes from Naples, 25 minutes from Sorrento or Positano, and one hour from Amalfi.

Once on the island, the main square is accessible by car or by public means of transportation (funicular and bus), whereas the shopping streets nearby can be accessed only on foot since they are located in a pedestrian area.

Demand for Transient Accommodation

Passenger movements at Naples Airport have been increasing at a moderate pace over the past 11 years. The Compound Annual Growth Rate (CAGR) for the examined period was 4.1 % in total, due to a sustained growth of the international inflow, which was 8.3%. At the beginning of the period, international passengers were less than domestic ones at a roughly 45:55 ratio, while after 2010, domestic travelers recorded a steady decrease up until nowadays, where the ratio has been transformed at 65:35 in favor of international visitors. This slump in domestic traffic occurred most probably due to the national economic downturn and, at the same time, to the growth of the high-speed train connections amongst Italian destinations. Furthermore, after a volatile pace during 2008-13, the general traffic shows a stable growth since 2013 and 2017 results registered a vigorous increase of 26.6% compared to same period in 2016.

Naples' airport occupies the seventh place in Italy for volume of passengers and features 36 operating carriers amongst main and low cost companies. Currenlty, according to the ACI Europe Award, it is the best Airport in Europe in the category 5-10 million passengers airports. Moreover, believing his potential value, several investements have been materializing such as the opening of the first Capsule Hotel in Italy (open 24/7) and the decision by Michael O'Leary, CEO of Ryanair, to extend the routes number from 19 to 28 starting from summer 2018, reaching this way two millions of passengers volume per year only by Ryanar.

Although Naples Aiport connects Italy with many countries, Capri's international tourists use to stop in other Italian destinations such as Rome, Florence, Venice, Amalfi and Positano Coastcities before or after joining the island. Therefore, the most common way to reach the island is by sea through approximately nine different connecting routes from different ports of Campania (such as Naples, Amalfi, Sorrento and Positano). The island constantly receives more than two million tourist arrivals by its Sea Port every year ranged between 2.5 million in 2006 and 2.3 million in 2016 after a fluctuating period. Figures 1 and 2 represent the traffic flows to Naples (by air) and to Capri (by sea).

HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
FIGURE 1: DOMESTIC AND INTERNATIONAL PASSENGERS 2006-17 – NAPLES INTERNATIONAL AIRPORT (000s)
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
FIGURE 2: TOTAL ARRIVALS BY SEA 2006-16 – CAPRI SEAPORT (000s)

Basic Visitation Factors

Nowadays, tourism accounts for more than 10% of national GDP, and in 2016 Campania ranked at the 7th place amongst all Italian regions in terms of bednights (approximately 19 million). Campania is one of the best known and most sought-after tourist destinations in Italy. With its diverse cultural heritage, landscape, environment, and ecosystem, it can meet a wide range of needs and provide a variety of destinations to visitors such as cultural and historical sites as well as beach destinations. Figure 3 depicts domestic and international visitation and accommodated bednights for Capri.

HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
FIGURE 3: ARRIVALS AND ACCOMADATED BEDNIGHTS IN HOTELS - CAPRI 2008-16 (000s)

Throughout the entire 2006-16 period most visitors at hotels in Capri were of international origin. During the examined decade, international bednights increased from representing 60% of the total market to 68%. The high number of international visitation to the region can be explained by the fact that this area is one of Italy's prime destinations for international travelers. In general, the number of total bednights at hotels in the island has experienced a CAGR of 1.3% in the examined period, from approximately 470,000 in 2006 to about 535,000 in 2016. When compared to the aforementioned seaport statistics, it becomes evident that a large number of disembarking travelers are daily visitors, that spend only a few hours on the island. Domestic bednights decreased at a sustained pace, showing a negative CAGR of -1.8%, while in the same period international bednights raised at a CAGR of 3.2% showing remarkable resilience. The decreasing domestic bednights could be most probably attributed to the shrinkage of disposable income of Italian citizens as part of the economic crisis that has affected the country. Moreover, due to its international caliber, Capri island is considered an expensive destination for Italians, so they seek alternative places within their country to spend their holidays.

Main Source Countries

The main international source market in Capri is the United States of America that in 2016 captured a share of 18% of total bednights, almost three times higher than the markets of Germany and the UK. Nonetheless, special attention should be brought to Brazil and Australia which achieved a CAGR of 13.1% and 15.5%, respectively, at a lower base though. At the same time, bednights from Japanese guests declined recording a negative CAGR of -8.7%.

Seasonality

Capri displays a typical seasonality pattern for a leisure destination with peak season extending from end-June to end-August, high-season in May, June, and September, while April and October are considered as shoulder season.

HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
FIGURE 5: TOURISM SEASONALITY – CAPRI 2016

Most hotels on the island use to match their seasonal inauguration of operations with Easter holidays, while they close either in mid- or end-October depending on the weather conditions. In any case, annual operation is rather impossible due to the rough sea conditions, not allowing for daily connection by the sea, in conjunction with the closing of most of the tourism-related businesses such as restaurants, bars and so forth. The island is also visited during Christmas holidays, but mainly by people who own properties there; in fact, almost all hotels remain closed in this period.

Hotel Supply

During 2009-16 the general hotel supply has not changed dramatically, in fact it appears fairly stable with a CAGR of 0.5%. The quantity of four- and five-star hotels has slightly increased whereas, combined together, they represent more than 75% of the island's total room inventory in 2016. On the other hand, hotels of lower classification, experienced a negative trend losing some 100 rooms over the last eight years. Moreover, even though the number of four- and five-star properties has increased in absolute terms, the average size of five-star hotels was reduced from about 60 rooms in 2009 to 50 rooms in 2016 while the size of four-star hotels was reduced from 38 to 35.

Growth in the higher spectrum of the market is attributed to the demand of guests looking for higher quality services, while on the other side hoteliers realise that in order to keep their properties competitive they ought to offer such services. The increasing interest in developing five-star hotels can also be attributed to the needs arising from the tourism inflow of affluent travellers from countries with emerging economies in conjunction with the positioning of the destination as a more upscale one. Nonetheless, the total supply is mainly characterized by indipendent hotels, or by small national groups, whereas the international braneded properties are not much established on the island.

In general, the destination is characterised by being relatively fragmented with demand outpacing supply whereas the various building limitations on the island enhance this phenomenon. Furthermore, the shrinkage of the number of lower classified hotels can be attributed to the expanding sharing economy where property owners of the island rent their homes through online platforms; thus, satisfying the demand for accommodation of price sensitive clientele and competing with hotels of lower classification or, in some cases, even with four-star hotels.

Figure 6 summarises hotel supply in Capri over the past eight years.

HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
FIGURE 6: HOTEL SUPPLY – CAPRI 2009-16

Upscale Hotels' Performance

Figures 7 and 8 summarise the important operating characteristics of four- and five- star hotels in Capri. The charts set out the average occupancy, average daily rate (ADR), and rooms revenue per available room (RevPAR) for a sample of eight four-star hotel properties and five five-star hotel properties. For consistency reasons, despite the seasonal operation of the specific hotels, all occupancy percentages refer to 365 days of operation.

HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
FIGURE 7: FOUR-STAR HOTEL PERFORMANCE 2014-17

The four-star hotel market shows a sustained growth of both ADR and RevPAR, respectively at 4.0% and 6.4%, while the occupancy is showcasing a constant but slow improvement at around 2.3%. This trend is probably due to the bnb's growth, which, affecting the four-star market's occupancy as well, implies an increase of ADR as a defense method to preserve the revenues.

Regarding the five-star hotel sample's pace, the trend is positive in this case as well. The four years occupancy and average rate witnessed a CAGR of 2.0% and 5.7% respectively, leading to cumulative increase of the RevPAR by 7.8%. This phenomenon could be attibuted to the fact that the limited new additions to current supply, together with the growing number of arrivals and bednights, helps existing properties to push more with higher ADR levels.

HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
HVS In Focus: Capri Island, Italy | By Ezio Poinelli, Pavlos Papadimitriou and Carlo Reitano
FIGURE 8: FIVE-STAR HOTEL PERFORMANCE 2014-17

Conclusion

Capri is clearly a popular tourist destination because of its charm, history and its natural configuration. The island is currently constrained by its seasonality, which is essentially a seven-month period that experiences a high-point in July and August with average annual occupancy levels ranging from 43% for four-star properties (approximately 75% seasonal occupancy) to 47% for five-star properties (approximately 82% seasonal occupancy) . Capri remains unique and is high on tourists' lists of 'must see' destinations.

Currently the hotel supply seems stable, mainly due to the difficulties in obtaining the permits to build new hotels on the island. Thus, the current hotel market is characterized by relatively small-scale properties mainly managed by boutique hotel operators and usually affiliated with renowned brand consortiums, in an effort to increase sales, while the lack of international hotel operators is obvious. Moreover, the increasing demand for alternative accommodations also contribute to put pressure on the hotel market, including some four-star hotel as well. As for the hotel performances, during the last years Capri's four- and five-star hotel markets are experiencing a positive growth in both ADR and occupancy, at about 3 - 5% per year.

Corporate demand in the market is present during the shoulder season (comprising mainly incentives and events from domestic corporations), but visitation is primarily leisure-driven. The port zone is often overcrowded during the day, due to the high number of daily tourists who leave the island after a quick tour, in fact only 10% of the annual registered tourists stay for at least one night.

Pavlos Papadimitriou

Pavlos Papadimitriou is a Senior Associate with the Athens Office of HVS specializing in hotel valuation and financial consultancy. He joined HVS in late 2007 after completing an MBA from Les Roches School of Hotel Management in Switzerland and a BSc in Marketing and Communication from the Athens University of Economics an d Business. Since then, he has conducted a number of valuations, feasibility studies, and market research analyses in Croatia, Cyprus, Georgia, Greece, Italy, Montenegro, Poland, Serbia, Spain, and Turkey. Contact him at ppapadimitriou@hvs.com

Ezio Poinelli

Ezio has more than 17 years experience in Hospitality, Real Estate, and Leisure Real Estate markets in Europe, Caribbean, Latin America, and South Africa. Before joining HVS, Ezio was Head of Southern Europe at Northcourse Advisory Services (Madrid), the hospitality and real estate consulting arm of Wyndham Worldwide, one of the largest hospitality companies in the world. He was also Head of Expansion & International Development at Compañia de Las Islas Occidentales (Canary Islands) and Director - Head of Real Estate and Hospitality at Ernst & Young Financial Business Advisors (Milan). He started his career with Investment & Tourism Consulting Associated with exposure to European and Latin America markets and REVA - Real Estate Value Advisors - a boutique firm focused on real estate and financial advisory. He is a native of Italy, graduate in Economics and Business Administration, Master in Tourism Economics at Bocconi University. He is fluent in Italian, Spanish, and English.

Carlo Reitano

Carlo Reitano joined HVS in 2017 after receiving a Bachelor Degree in Economics and Management at LUISS (Rome) and a Master in Tourism Economics at Bocconi University (Milan). His activity includes both on-the-field and desk work conducting market analysis and feasibility studies in the hospitality industry. Contact him at creitano@hvs.com.


Markets & PerformanceEuropeItalyCapri Island

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