The Olympic Games are pushing up prices, but French consumers are unlikely to feel the impact.
Major events like the Olympics or Taylor Swift’s Eras tour typically drive up demand for hotels, airline tickets, and other services. Despite this, most consumers may not experience the effects, according to UBS.
However, the data may tell a different story. The method used to calculate consumer price changes could reflect the spike in tourism-related costs, such as hotel rates, and give a misleading impression of overall inflation.
“The Olympic Games or a Taylor Swift concert create a sudden demand shock,” noted Paul Donovan, chief economist at UBS Global Wealth Management, in a recent report.
“The way these prices are measured is more likely to capture this unusual, temporary demand, which is where consumer price inflation appears.” This pattern was already observed during the Eras Tour, which significantly boosted hotel revenues in U.S. cities where Swift performed.
In the U.K., hotel prices rose in June, but Donovan pointed out that these higher costs might have been “borne by a select group of Swift’s music aficionados,” given that the Eras Tour was at Wembley Stadium that month.
A similar trend is happening in Paris with the Summer Olympics. “The tourists flocking to Paris for the Olympics, and paying high prices, are not representative of French consumers,” Donovan wrote.
Paris Hotel Industry Sees Mixed Results
Parisian hotels faced challenges in early July, with a 60% drop in occupancy rates, leading to discounted rates. However, the trend reversed during the Olympics, which began on July 26. According to global real estate data company CoStar, hotel occupancy in Paris during the Games has increased compared to last year. However, bookings are expected to drop after the closing ceremony.
The city’s hotel industry also witnessed significant year-over-year price hikes. During the first week of the Games, from July 28 to August 3, CoStar reported a 206% increase in weekly revenue per available room. This was driven by a 17.4 percentage point rise in occupancy to 85.4% and a 143% jump in the average daily rate (ADR).
The Paris tourist office predicts an 86% occupancy rate from August 5 through Sunday.
Other parts of France also saw price surges. In the Île-de-France region, ADR rose by 83.4% in the week ending July 27 compared to the previous year. At the same time, Paris saw a 5.7 percentage point drop in occupancy, while ADR jumped by 90.8%.
“Is your average French person looking to stay in Paris right now? No, they’re not, unless they’re going to the Olympics,” Donovan told CNBC. “Most of them are unaffected by the price surge.”
Olympic Games Drive Tourism Boom
Despite the price increases, the Olympics have attracted large numbers of tourists. During the first week, the Paris tourist office reported 1.73 million visitors in Greater Paris, an 18.9% increase from 2023.
Among these visitors, 924,000 were international tourists, a 14% increase from last year, with the most significant number coming from the U.S. The number of French tourists in the city also rose by 25.1% to 803,000 from last year.
Overall, the tourist office estimates a total of 15.3 million visitors for the Olympic and Paralympic Games, with 11.3 million for the Olympics and 4 million for the Paralympics.
This comes as the Games set a record for ticket sales. The Paris 2024 Organizing Committee reported that 10.6 million tickets have been sold or allocated for the Games, surpassing the previous record of 8.3 million held by the 1996 Atlanta Games.
Donovan noted that tourism unrelated to the Olympics often declines significantly during the Games, differentiating it from other major events like the Eras Tour. “It’s a demand shock, but it’s narrowly focused, creating a period of extremely high demand. The pricing mechanism goes a bit crazy,” he said.
The airline industry in Paris has also experienced demand fluctuations. Although some airlines expect a decline in third-quarter revenue due to reduced traffic to Paris this summer, recent data from Visa shows a 39% increase in flight bookings to the city leading up to the Olympics compared to last year.
Small businesses across Paris have also benefited, with Visa reporting a 26% year-over-year sales boost from cardholders during the Games’ first weekend.
While the long-term economic impact of the Paris Olympics remains uncertain, Donovan believes it will likely be positive, citing examples like the 1992 Barcelona Games, which led to a tourism boom. “If you get it right, it can be a boost,” he said, noting that Summer Olympics generally attract more attention than Winter Olympics.
A study by the Centre for Law and Economics of Sport estimates that Paris 2024 could generate up to $12 billion (11.1 billion euros) in long-term economic impact. The International Olympic Committee has suggested that the next two Summer Olympics might create even more value.
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