A general view of the Eiffel Tower with the Olympic rings and the national flags of the participating countries from the Place du Trocadero ahead of the 2024 Olympic Games on July 21, 2024 in Paris, France.
Kevin Voigt | Getty Images Sports | Getty Images
The Olympic Games are causing a price increase, although French consumers are barely feeling it.
Major events such as the Olympics or large concerts such as Taylor Swift's Eras tour lead to increased demand for hotel rooms and airline tickets, as well as other goods and services that the influx of visitors requires. Nevertheless, most consumers are unlikely to feel the effects, according to UBS.
However, the data may also suggest otherwise. The method used to calculate consumer price changes may take into account rising costs in tourism-related industries, such as hotels, and thus give a distorted picture.
“The Olympics or a Taylor Swift concert trigger a sudden demand shock,” wrote Paul Donovan, chief economist at UBS Global Wealth Management, in a recent analyst note. “The method of measuring these prices is more likely to capture the unusual and temporary demand pattern, and this is where the rise in consumer price inflation occurs.”
Taylor Swift performs during the Eras Tour at Wembley Stadium in London on June 21, 2024.
Kevin Mazur |
This was already evident during the Eras Tour, which led to an increase in hotel revenue in the US cities where Swift performed.
This year, hotel prices in the UK rose in June, but Donovan said the higher costs “may have been borne by a select group of Swift lovers” as the Eras Tour stopped at Wembley Stadium this month.
Meanwhile, the Summer Olympics in Paris are causing a similar phenomenon. “The tourists who flock to Paris for the Olympics and pay the price for it are not representative of French consumers,” he wrote.
A Paris hotel boom?
Although hotels in the City of Lights struggled in early July, with occupancy rates dropping by an estimated 60%, prompting hotels to discount rates, the trend has reversed during the Games. Paris hotel occupancy rates rose year-on-year during the Olympics, which began on July 26 and ran through Sunday, according to global real estate data firm CoStar. However, bookings in Paris are expected to decline year-on-year in the days following the closing ceremony.
The city's hotel industry has also seen massive year-over-year price increases. For each day during the first full week of this year's games, from July 28 to August 3, CoStar reported a 206% increase in weekly revenue per available room compared to last year, driven by a 17.4 percentage point increase in occupancy to 85.4%, as well as a 143% increase in average daily rate (ADR).
The Paris Tourist Office expects occupancy rates to reach 86 percent from August 5 to Sunday.
Other parts of France are also seeing significant price increases. In the surrounding Île-de-France region, CoStar found that ADR rose 83.4% year-on-year in the week ending July 27. At the same time, occupancy in Paris fell 5.7 percentage points year-on-year while ADR rose 90.8%.
“Does the average French person want to stay in Paris right now? No, they absolutely don't, unless they're crazy or going to the Olympics,” he said in an interview with CNBC. “Most are not affected by the price increase.”
Olympic successes
Nevertheless, the Games are attracting a huge number of tourists. In the first week alone, the Paris Tourist Office reported 1.73 million visitors in the greater Paris area, an increase of 18.9% compared to 2023.
Of these, 924,000 were international tourists – around 14 percent more than the previous year – with most foreign visitors coming from the USA. The number of French tourists in the city rose by 25.1 percent compared to the previous year to 803,000.
Overall, the Tourist Office estimates that the Olympic and Paralympic Games will attract a total of 15.3 million visitors, including 11.3 million for the First Games and four million for the Paralympic Games.
Tourists take selfies in front of the Arc de Triomphe in Paris, France, on July 7, 2023. Paris will host the Summer Olympic Games from July 26 to August 11, 2024.
Matthias Hangst | Getty Images Sports | Getty Images
This came as the Games enjoyed record ticket sales. The Paris 2024 Organising Committee recorded that a total of 10.6 million tickets for the Olympic and Paralympic Games have been sold or allocated so far, with at least 9.4 million for the Olympic Games and at least 1.2 million for the Paralympics. The previous record was held by the 1996 Games in Atlanta with 8.3 million tickets sold or allocated.
“You see it quite often that tourism that has nothing to do with the Olympics will plummet,” Donovan told CNBC, adding that this is different from the Eras Tour and other major events. “It's a demand shock, but a narrowly focused demand shock, which is a problem on the inflation side because you create a concentrated period of absolutely above-average demand. The price mechanism basically goes haywire.”
Demand fluctuations are also evident in other sectors of the Paris economy, such as the aviation industry. Although some airlines are predicting a drop in revenue for the third quarter due to lower traffic to Paris over the summer, recent Visa data shows that flight bookings to the city in the run-up to the Olympics increased by 39 percent compared to the same period last year.
Tourists walk past a banner bearing the Paris 2024 logo before the start of the Paris 2024 Olympic and Paralympic Games on June 17, 2024 in Paris, France.
Chesnot |
Small businesses across the city also saw gains. Visa found that these businesses saw a 26% increase in revenue from cardholders during the first weekend of the games compared to last year.
While the long-term economic impact of the Paris Olympics is still uncertain, Donovan expects it to be “overall probably positive,” pointing to previous Games that saw a tourism boom, such as Barcelona in 1992. “If you do it right, it can be a stimulant effect,” he said, noting that Summer Olympics are generally more attractive than Winter Olympics.
According to a recent study by the Centre for Law and Economics of Sport, Paris 2024 could generate long-term economic added value of up to $12 billion or €11.1 billion. The International Olympic Committee said even more value could be created at the next two Summer Olympics.
“We see that the economic impact of the Games is very large,” said Christophe Dubi, the Olympics' executive director. “This is an injection of resources into the local economy that will have a profound impact now and in the future.”
According to Victor Matheson, economist and professor at the College of the Holy Cross, the reforms to the IOC Agenda 2020 have helped make the events more economically sustainable.
These will be the first Summer Games since Sydney 2000 that are expected to cost less than $10 billion. Money has been saved by having 95 percent of the venues already in place or temporary. This strategy could mark a “turning point” for the Olympic movement, said Matheson.
“The IOC has allowed Paris to go ahead with an Olympics where they don't build these billion-dollar monuments and where everything isn't gold-plated,” he said. “These things that can drive up costs pretty quickly, they don't seem to be pushing forward.”
Disclosure: CNBC parent company NBCUniversal owns NBC Sports and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder for all Summer and Winter Games through 2032.
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