26 February 2019 Ben Martin Principal, HKS Advisory

Lofoten in the Context of Global Travel & Tourism

Tourism is Changing - 1919 Page 2

March 7, 2019

Tourism is Changing - 2019 Page 3

March 7, 2019

Tourism is Changing Page 4

March 7, 2019

• McLaren’s Ice Driving Centre is an Arctic driving experience located in Finnish Lapland

• Guests drive US $200k McLaren 570S’s around 100km of specially designed Arctic race tracks

• US $5,000 per night(first two weeks February)

• Guests learn expert skills from both current and former professional drivers

• Stay in a boutique, 10-bed lodge

Table of Contents Page 5

March 7, 2019

• Introduction

• Global Tourism Trends

• Emerging Markets

• Luxury Tourism

• Arctic Tourism

• Nature, Heritage & Culture

• Challenge & Reward

• Volume Vs Value

• Challenges & Strategies forTourism Businesses in Lofoten

Introduction Page 6

March 7, 2019

Ben Martin, PrincipalHKS Advisory

• Degree in Recreation & Tourism Management

• Masters in Tourism Management

• Joined ERA in 1995

• ERA joined AECOM in 2009

• AECOM to HKS in 2018

• 23 years in resort consultancy

Introduction Page 7

March 7, 2019

Not so cute anymore, but they help to keep me anchored.

Introduction Page 8

March 7, 2019

Where I do what I do…

Strategic Advisory for Tourism Development. More than 300 studies in over 50 countries.

Introduction Page 9

March 7, 2019

Let’s think outside the bowl for a few minutes…

Global Tourism Trends Page 10

March 7, 2019

• Rising global wealth leading to more people travelling

• Increased interest in immersive, adventurous holidays

• Greater appreciation of ‘eco-tourism’

• Increased desire to get ‘off the beaten track’ & experience authentic culture 400

600

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1 200

1 400

1 600

1 800

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Source: World Tourism Organisation (UNWTO)

Global International Tourist Arrivals (million) 2030

conservative forecast

GFC Slowdown

Tourism has shown robust growth for decades, and shows no signs of slowing down.

• Unique Experiences

• Bleisure

• Localisation

• Risk Aversion

• New Destinations

• Intergenerational Travel

• Eco-tourism

General Trends in Tourism Page 11

March 7, 2019

How does Lofoten (and your business) measure up against these trends?

Trends in Tourism: Millennials Matter Page 12

March 7, 2019

Millennials are a fickle bunch, but they’re soon to dominate the international travel sector.

• Expected to spend incrementally more on travel services than any other age cohort

• 6 in 10 would rather spend their money on experiences rather than material things

Marina BaySands Hotel

Porto Montenegro

Trends in Tourism: Influencers Page 13

March 7, 2019

Influencers are often viewed similarly to a trusted peer and can be super-effective marketing tools.

Famous social media influencer Chiara Ferragnioffers her exclusive products in concept stores

• “Word-of-mouth influence doubles the sales of paid advertising and boosts the customer retention rate by 37%” (McKinsey & Company)

• “92% of consumers trust an influencer more than an advertisement or traditional celebrity endorsement” (MuseFind)

7 Pines Resort, Ibiza

Trends in Tourism: Easternisation Page 14

March 7, 2019

The Asian tourist market, lead by China, is an extremely lucrative market to tap into.

0 50 100 150 200 250 300

Italy

Korea

Russia

Canada

Australia

France

UK

Germany

USA

China

Top 10 Countries for International Tourism Expenditure (in billion $US)

“Experience is the foremost priority for Chinese Tourists. Price is not a decisive factor when choosing travel destinations or tourist attractions...”

Chinese Outbound Tourism:

• 2008: 46 million

• 2013: 98 million

• 2018: 134 million

Trends in Tourism: Global Connectivity Page 15

March 7, 2019

Increased global connectivity will significantly expand the potential pool of tourists for the Lofoten region.

• The A2: capacity 300 passengers

• Mach 5 – Focus on speed not scale

• Brussels to Sydney in 5 hours.

• 25 years from now

Elon Musk’s BFR promises all long distance trips below 60mins (2024).

• London to New York: 29mins

• London to Sydney: 51mins

• As global travel becomes cheaper and travel times reduce, the world becomes more and more connected

• This opens up new tourist markets, particularly for places previously considered inaccessible due to cost or time

Trends in Tourism: Singletons Page 16

March 7, 2019

Lack of dependents means more available income and flexibility to travel out of peak-season.

• Solo/single travellers now represent 50% of US market alone

• People with a busy lifestyle but strong control of their choices

• Lucrative sector, with individual needs

• Strong sense of independence (IT plus choice = Free Independent Traveller)

• 1 in 6 travellers chose to go on holiday by themselves in 2018 compared to 1 in 9 in 2017

Trends in Tourism: Women-Friendly Travel Page 17

March 7, 2019

• There has been a 230% increase in the number of women-only travel companies in the past six years alone

• The percentage of business travellers who are women has grown dramatically since the early 1990’s

A size of this sector has increased substantially – ignore this trend at your peril.

Trends in Tourism: Wellness Tourism Page 18

March 7, 2019

Wellness tourism becomes more and more sophisticated – and Lofoten has much to offer.

• Increasing awareness of the benefits of a healthy lifestyle

• Rebellion against sedentary life

• Trend of continuous self-improvement

• Wellness Tourism is expected to hit $680 billion this year and is growing 50% faster than the overall tourism industry.

Trends in Tourism: Urbanisation Page 19

March 7, 2019

• The global trend of urbanisation has seen more and more people move into cities

• City-dwellers people are seeking out remote holiday destinations to escape the urban environment and reengage with nature

• Eco-tourism and nature-based tourism are becoming more popular

More travellers a looking to escape the urban jungle and get back in touch with nature.

0 %

25 %

50 %

75 %

100 %

1950 1975 2000 2020 2045

Pe

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nta

ge o

f P

op

ula

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Urban

Rural

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat

Trends in Tourism: Digital Detox Page 20

March 7, 2019

Operators have the option of ‘connecting’ or marketing their ‘disconnectedness’ – you choose.

• 73% of smartphone, tablet and laptop-toting office workers will check their emails while on holiday

• 62% expect their employer to contact them whilst they are on holiday

• 41% take mobile devices on holiday for work purposes

At the same time…• People’s interaction with technology has become a love-hate relationship

• Growing body of research linking constant connectedness to anxiety and other mental health issues

• ‘Digital Detox’ holidays offering the chance to ‘unplug’ becoming popular

The Light Phone is an ultra-minimalist phone designed to allow users to leave their smartphones behind and switch off from things such as social media and news (phone calls & 9 speed dials only)

Trends in Tourism: Nostalgia Page 21

March 7, 2019

Feed off nostalgia to create memorable, authentic experiences.

• Need to retreat for short time periods into simpler times, or some semblance of “time gone by”

• Understanding and participation in traditional activities becomes interesting and worthy of trying

• Formerly routine activity such as cake-baking, jam-making, and home-cooking are gaining popularity again

Trends in Luxury Tourism Page 22

March 7, 2019

• Virtuoso’s 2018 Luxe Report revealed that cold-climate tourism to places such as Iceland was increasingly popular with luxury tourists

• Top travel motivations included:

• Exploring new destinations

• Crossing off bucket-list items

• Seeking authentic experiences

• Personal enrichment

• Immersive Experiences > Passive Experiences

• Nature-based, sustainable eco-tourism is also increasingly popular within this demographic

Create immersive experiences that are as authentic as possible, maintaining a high level of service.

Question? Page 23

March 7, 2019

Indoors In the Car Outside

Where Do We Spend Our Time?

87%

7%

What percentage of time does the average American spend indoors each day?

We may be indoor more, but we’re often wishing that we could be out in the great outdoors.

6%

What is Polar Tourism? Page 24

March 7, 2019

• Tourism based in high or low latitudes

• Characterised by a cold and extreme natural environment

• Involves a mix of culture, adventure and sports based activities

The harshness of the conditions found in Polar regions often forms part of the overall appeal of the experience.

Polar tourism is not a new concept…

1807 Arctic Travel Guides first published

What is Arctic Tourism? Page 25

March 7, 2019

• Arctic tourism is on the rise

• 10.5 million people travelled to the Arctic Circle in 2017

• Much more than one destination (there are many different types of Polar tourism)

Above: Different Definitions of the Arctic Region

The character of the Polar tourism offer will change quite considerably depending on the location.

Arctic Tourism Page 26

March 7, 2019

Tourist Arrivals Indexed to 2008 figures

Source: Statistics Iceland, National Bureau of Statistics Maldives, Barbados Tourism Marketing, Jamaica Tourist Board & Hawaii Tourism

• Arctic tourism is growing in popularity

• Iceland has seen this figure quadruple in the past 10 years

• Iceland has significantly outperformed traditional holiday hotspots such as the Maldives and Hawaii

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Iceland Maldives Barbados Jamaica Hawaii

Arctic tourism is growing in popularity as people seek out new frontier locations.

Arctic Tourism: Snow-Based Page 27

March 7, 2019

A series of very specific activities lend themselves to the ‘snowy’ locations (the ‘Winter Wonderlands’).

Arctic Tourism: Nature-Based Page 28

March 7, 2019

Warmer destinations may actually provide a greater variety of opportunity across the year.

Arctic Tourism: Polar Phenomenon Page 29

March 7, 2019

• Northern Lights/Aurora Borealis related tourism is extremely popular in the Arctic Circle

• Greatest chance of sightings from late September to early March

• Can combine with things such as photo tours, horse riding tours and other nature-basedactivities

The Aurora Borealis is extremely appealing and can be use to smooth out visitor seasonality.

Arctic Tourism: Midnight Sun Page 30

March 7, 2019

Though much is made of the cold-weather activities, the real visit pressure comes during the summer.

0 10 20

Miami

Agadir

Sicily

Nice

Newquay

Jutland

Lofoten

Hours

It’s not all about the cold…

The greatest pressure from demand comes in summer

Hours of Daylight in June

Nature Nails It Everytime Page 31

March 7, 2019

Reality is so much better than seeing these places on a screen.

The Heritage Magnet Page 32

March 7, 2019

• It is important to recognise and leverage heritage attractions

• When managed correctly, they can provide a huge tourism draw

• Tourism can play a role in safeguardingtraditions and site of historical importance

Lofoten’s rich cultural heritage has the potential to draw significant interest. The media loves it right now.

Culture & Traditions Page 33

March 7, 2019

People want to have authentic cultural experiences based around:

• Local history

• Local sagas and folklore

• Local traditions, cuisine, festivals, attire & customs

People like to engage with a location through its cultures and traditions.

Heart of the Matter Page 34

March 7, 2019

Important to remember the Arctic isn’t for everyone…

At certain times of the year, Lofoten may struggle to appeal to families with young children and senior travelers.

Heart of the Matter Page 35

March 7, 2019

Challenges: Rewards:

The harshness of the Lofoten climate offers many challenges, but also many rewards. You must offer both.

Volume Vs. Value Page 36

March 7, 2019

Tourism is about finding a balance between volume and value…

Vs.

Lofoten should be about ‘Value’ not ‘Volume’ – the natural environment and community must be safeguarded.

Issues for Lofoten Page 37

March 7, 2019

• Nordland currently receives around 1 million visitors annually, but the numbers are very seasonal

• The sharp increase in tourism in the past few years has not been without its challenges

• Important to recognise the value of tourism to the region

• An increased investment in tourism infrastructure is required to ensure that Lofoten does not feel ‘overloaded’

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Nordland Tourist Arrivals (2018)

Investments will have to be made to ensure that future tourism operations are sustainable in Lofoten.

Issues for Lofoten: Seasonality Page 38

March 7, 2019

Important to develop infrastructure for a blend of activities that will attract visitors year-round, and appeal to a mixture of different markets.

Mixing Markets…

Families

Young people

Seniors

Mixing markets and having a broad activity programme throughout the year will help smooth seasonality.

Issues for Lofoten: Accessibility Page 39

March 7, 2019

It’s not that easy to get here!

Turn negatives into positives. Make the journey part of the experience…

“The journey is just as important as the destination..”

The journey to Lofoten should form part of the experience. Turn this into a positive.

Issues for Lofoten: Infrastructure Page 40

March 7, 2019

Waste disposalPublic RestroomsRoads

Public transportAirport expansionAccommodation

To avoid the negative consequences of over-tourism, appropriate investment in infrastructure is required.

Issues for Lofoten: Viability (High Operational Costs) Page 41

March 7, 2019

• Prices in Norway are high by international standards (why do you think people camp?)

• They have to be – wages are high

• Staffing is the dominant expense in the P&L for tourism businesses

• Can the market wear the prices required to make a profit and payback construction costs?

It must be hard to make a tourism business stack-up in Norway, with such a high payroll burden.

Average Annual Income (US$) in 2017

31 020

37 270

37 970

38 550

38 970

39 130

40 530

41 790

42 870

43 490

44 580

45 440

46 180

46 310

51 360

52 590

54 530

55 220

55 290

58 270

60 830

65 130

70 260

75 990

80 560

106 140

116 300

186 080

Italy

Israel

France

Japan

New Zealand

United Arab Emirates

United Kingdom

Belgium

Canada

Germany

Finland

Austria

Netherlands

Hong Kong

Australia

Sweden

Singapore

Denmark

Ireland

United States

Iceland

Macao

Luxembourg

Norway

Switzerland

Bermuda

Liechtenstein

Monaco

Issues for Lofoten: Viability (Can I Push Rate?) Page 42

March 7, 2019

There are examples of small-scale exceptional developments pushing the boundaries on price in the Polar Regions.

Fogo Island Inn, Newfoundland

$1,483 per night

Sheldon Chalet, Alaska

$2,880 per night

$8,130 per night (excluding flights)

Union Glacier, South Pole

You can push on rates, but the profile of the physical and service offer will have to rise (or the uniqueness of the experience)

In Summary… Page 43

March 7, 2019

• The number of tourists to the Arctic is increasing

• The profile of these tourists is diverse and will be more so

• If you want tourism to grow, consider guest requirements

• What is your offer (and what is it not)?

• Preserve the ‘Asset’ at all costs

• ‘Challenge’ tourists then ‘Reward’ them

• Think creatively how to build low-months & shoulder-months

• Make the journey to Lofoten part of the experience

• ‘Value’ rather than ‘Volume’ likely to be the answer going forward

• Raising standards may enhance viability (but narrows appeal)

• Lofoten has extraordinary potential, what will you do with it?

Page 44

March 7, 2019

**Inspirational Quote**

26 February 2019 Ben Martin Principal, HKS Advisory

Lofoten in the Context of Global Travel & Tourism

Questions & Answers