A panoramic view of the Eiffel Tower, decorated with the Olympic rings and the flags of the participating countries, from Trocadero Square ahead of the 2024 Paris Olympics in Paris, France, on July 21, 2024.
Kevin Voight | Getty Images Sports | Getty Images
The Olympics are causing prices to rise, but French consumers won't feel the hit.
Mega-events like the Olympics and big concerts like Taylor Swift's “Erasure” tour will lead to increased demand for hotel rooms, flights and other goods and services needed to accommodate the influx of visitors, yet most consumers may not feel the impact, according to UBS.
Yet the data may suggest otherwise, as the method of calculating changes in consumer prices could pick up spikes in costs for hotels and other tourism-related industries, giving a distorted impression.
“The Olympics and Taylor Swift concerts create sudden demand shocks,” Paul Donovan, chief economist at UBS Global Wealth Management, said in a recent analyst note. “These price measures tend to capture unusual and temporary patterns in demand, and this is where the rise in consumer price inflation occurs.”
Taylor Swift performs onstage during her The Eras Tour at Wembley Stadium in London on June 21, 2024.
Kevin Mazur | Getty Images
This has already been seen with her Erasus tour, which saw increased hotel revenues in cities across the US where Swift performed.
Hotel rates in the UK increased in June this year, but with the Eras Tour visiting Wembley Stadium that month, the increased costs “may have been borne by some of the most dedicated fans of Swift's music”, Donovan said.
Meanwhile, the Summer Olympics have created a similar phenomenon in Paris: “The paying tourists who flock to Paris for the Olympics are not representative of French consumers,” he writes.
Paris hotel boom?
Hotels in the City of Light struggled in early July, with occupancy rates down an estimated 60%, leading hoteliers to slash rates, but that trend has reversed during the Olympics. According to global real estate data firm CoStar, hotel occupancy in Paris is up compared to last year during the Olympics, which began July 26 and run through Sunday. But in the days following the closing ceremony, hotel bookings in Paris are expected to be down compared to a year ago.
The city's hotel industry has also experienced significant year-over-year increases: During the first week of this year's Olympics, from July 28 to August 3, CoStar revealed that daily room revenue increased 206% year-over-year, driven by a 17.4% increase in occupancy to 85.4% and a 143% increase in average daily rate (ADR).
The Paris Tourism Board expects occupancy rates to reach 86% from August 5 until Sunday.
Other parts of France also saw notable price increases: the surrounding Île-de-France region saw its ADR increase 83.4% year-over-year for the week ending July 27, according to CoStar, while Paris' occupancy rate fell 5.7 percentage points year-over-year, but its ADR increased 90.8%.
“Is the average French person trying to stay in Paris right now? No, absolutely not, unless they're insane or going to the Olympics. Most people are not affected by the rising prices,” he said in an interview with CNBC.
Olympic Achievements
Still, the Olympics are drawing huge numbers of tourists: The Paris Tourism Board reported that visitor numbers in the greater Paris area reached 1.73 million in the first week alone, an 18.9% increase over 2023.
Of these, 924,000 were international tourists, up about 14 percent from last year, with Americans making up the largest number of foreign tourists, and French tourists visiting the city at 803,000, up 25.1 percent from last year.
The tourism bureau estimates that a combined total of 15.3 million visitors will attend the Olympic and Paralympic Games, with 11.3 million for the former and 4 million for the latter.
A tourist takes a selfie in front of the Arc de Triomphe in Paris, France, on July 7, 2023. Paris will host the Summer Olympics from July 26 to August 11, 2024.
Matthias Hangst | Getty Images Sports | Getty Images
The announcement comes as Olympic ticket sales hit record highs. The Paris 2024 organizing committee recorded 10.6 million tickets sold or allocated so far for the Olympic and Paralympic Games combined, including at least 9.4 million for the Olympics and at least 1.2 million for the Paralympic Games. The previous record was 8.3 million tickets sold or allocated in Atlanta in 1996.
“It's common to see sharp declines in tourism that are not related to the Olympics,” Donovan told CNBC, adding that this is what sets it apart from the Erastour and other mega-events. “This is a demand shock, but it's a focused demand shock. This is an inflationary problem because you're concentrating a period of extremely abnormally high demand. It basically throws the price mechanism out of whack.”
Fluctuations in demand are also being seen in other related sectors of the Paris economy, such as the airline industry. While some airlines are predicting lower third-quarter revenues due to fewer passengers travelling to Paris this summer, the latest data from Visa shows that bookings for flights to Paris in the pre-Olympic period are up 39% compared to the same period last year.
Tourists walk past a banner featuring the Paris 2024 logo before the start of the Paris 2024 Olympic and Paralympic Games in Paris, France, on June 17, 2024.
Chess knot
The city's small businesses are also benefiting: A Visa study found that sales from small business cardholders increased 26 percent over the first weekend of the Olympics compared to last year.
While the long-term economic impact of the Paris Olympics is still unclear, Donovan predicted that “on balance, it will probably be positive,” citing past Olympics that experienced tourism booms, such as the Barcelona Olympics in 1992. “If it works, there could be an economic boost,” he said, noting that the Summer Olympics generally tend to draw more spectators than the Winter Olympics.
A recent study by the Center for Sports Law and Economics said the Paris 2024 Games could generate as much as $12 billion (€11.1 billion) in long-term economic benefits, and the International Olympic Committee said the next two Summer Olympics could generate even more value.
“We see the economic impact of the Olympics as very significant,” said Christophe Dubi, executive director of the Olympic Games. “It's an injection of resources into the local economy that will have a huge impact now and into the future.”
Victor Matheson, an economist and professor at the College of the Holy Cross, said the IOC's Agenda 2020 reforms are helping make the Olympic and Paralympic Games more economically sustainable.
These will be the first Summer Olympics since Sydney in 2000 that are expected to cost less than $10 billion. Costs will be saved by using 95 percent of venues as existing or temporary, a strategy that Matheson said could be a “turning point” for the Olympic movement.
“The IOC has given the go-ahead to host an Olympics in Paris that doesn't involve building billion-dollar monuments to the Olympics and plating everything in gold,” he said. “The IOC doesn't seem to be pushing for that sort of thing, which could drive up costs very quickly.”
Disclosure: CNBC's parent company, NBCUniversal, owns NBC Sports and NBC Olympics, which holds the U.S. broadcast rights to all Summer and Winter Olympic Games through 2032.
