Political Instability Equals the Collapse of Tourism in Ukraine?

Abstract

The purpose of this study was to determine how political instability influences inbound tourist flows in Ukrainian cities, performance of tourism-related businesses, and tourism-based profits in general. This study allows us to present the impact of various events on the tourism economy in Ukraine; however, the available secondary data with the unobserved component model procedure detection give only a general overview of the situation. Thus, interviews were conducted with experts, including managers of accommodation facilities, employees of municipal tourism development departments, and researchers investigating tourism. Interviews with experts revealed opportunities, threats, and future scenarios of tourism in Ukraine in the face of five years of political instability. The results support previous findings that political instability reduces tourist traffic over the short term. On the other hand, the interviews with experts representing major province cities have shown different results for the long-term perspective. Cities with developed tourism sectors in areas away from the place of conflict are beneficiaries of political instability. Disadvantaged are cities that had their tourist flows based on the citizens of the aggressor’s country—the Russian Federation. Cities that are underdeveloped in terms of tourism did not experience a significant impact of the political instability in eastern Ukraine.

1. Introduction

Tourism is a leading industry in the modern world in terms of its size and rate of growth. It can provide economic benefits to countries that foster its development by attracting foreign visitors who pay with their foreign currency. Tourism is a necessary sector for many countries and it may help secure jobs for local residents during times of economic crisis and may provide profits to tourism-oriented businesses [1]. The continent of Europe, and this includes the Russian Federation, is a leading tourist region of the world, attracting 709.9 million foreign tourists in 2018. The top tourist destinations in Europe are France, Spain, Italy, Great Britain, and Germany. From a regional perspective, Southern Europe experiences the greatest influx of tourists at 289.4 million visitors per year. Western Europe welcomes 200.4 million tourists per year. Central and Eastern Europe receives 141.4 million foreign visitors per year, which is more than the number of visitors in Northern Europe (79.9 million) [2]. In this context, Ukraine appears to be rather unpopular among tourists, with only 14.2 million tourists in 2018. Tourism yields 5.6% of Ukraine’s GDP or 1.08 billion USD. This is far below the European average of 9.9% and the average for the European Union (10.2%). In reports published by the World Travel and Tourism Council, Ukraine ranks 156^th in the world in terms of total revenue from tourism [3,4]. Furthermore, the World Economic Forum Report notes the low level of competitiveness associated with Ukraine’s tourist market on a global scale [5].

Ukraine is home to a fairly large Russian-language population (17% to 18%), which is strongly concentrated in its eastern provinces and the Crimean Peninsula. Ukrainian provinces are referred to as oblasts. According to Ivanov et al. [6], the coexistence of many different nationalities in one state was quite a peaceful one until 2013, when pro-EU protests informally known as Euromaidan (also known as Ukrainian Spring [7]) and the formation of a pro-Western government in Kiev helped trigger a period of destabilization [8]. In March 2014, the Autonomous Republic of the Crimea voted in a controversial referendum to join the Russian Federation. The next stage of the conflict involved the formation of two pro-Russian people’s republics in eastern Ukraine in the provinces of Lugansk and Donetsk (Figure 1). Both provinces are home to a large percentage of Ukraine’s Russian population and both decided to follow a separatist path with respect to Ukraine’s government in Kiev (both the Donetsk People’s Republic and Lugansk People’s Republic, formed in May 2014, are not recognized by Ukraine and the international community). In addition, a Malaysian passenger airplane was shot down with 298 passengers aboard, in this very area, in July 2014. Most of the passengers were Dutch citizens.

As a result of these events, travel to the Crimea has become problematic both for foreign tourists and persons holding a Ukrainian passport. Transportation problems also affect Russian citizens who wish to travel to the Crimea, as this is only possible via airplane and ferry across the Kerch Isthmus. On the other hand, the Lugansk and Donetsk People’s Republics remain an area of armed conflict and may be accessed only with the permission of Ukraine’s National Security Service. Crossing the border between the two republics and Russia is considered to be a crime by the Ukrainian government. The remaining part of Ukraine is relatively safe for the purposes of tourist travel, although acts of terrorism and homicide do occur in many parts of the country. These include an incident in May 2014 in Odessa, another incident in July 2015 in the town of Mukachevo near the Hungarian border, and still another incident in June 2017 in Kiev.

The World Economic Forum Report lists Ukraine as one of the leading countries with the highest number of persons killed or wounded per terrorist attack. For example, the index of terrorism incidence equals 6.6 for Ukraine placing it 17^th among 136 examined states [5]. According to the global peace index (GPI), Ukraine is ranked very low in terms of peace—148^th of 163 examined states [9,10].

The aforementioned problems in Ukraine are magnified by the effects of the 2008 global economic crisis, including increased unemployment, low level of foreign investment, growing national debt, high costs of protecting the national currency, and limitations on easy access to bank accounts. According to Papatheodorou et al. [11], cited by Tekin [12], an economic crisis yields uncertainty in the tourism sector in terms of its duration and extent as well as manner in which it affects the economics of tourism. Another way in which Ukraine has manifested its pro-Western stance is its joint organization of the European Football Championships in tandem with Poland in 2012. In addition, Ukraine signed a so-called Association Agreement with the European Union in 2017 and its citizens can now travel to Schengen zone countries without a visa.

The basis for selecting the study area described in this paper is the ongoing and quite unique political conflict in the studied region. After 20 years of being part of Ukraine, the Crimea was annexed by Russia. This political act has not been recognized as legitimate by the international community. At the same time, both the Donetsk People’s Republic and the Lugansk People’s Republic remain de facto beyond the control of Ukraine’s government, even though they are still nominally part of Ukraine. This makes the study area somewhat different than other areas characterized by political instability and its effects on tourism. The present study expands the body of knowledge on the subject of the relationship between tourism and political instability in the unique context of Ukraine.

The problem of economic crisis is driven by economic demand, whose impacts may be assessed by measuring changes in the volume of international tourism and in lost revenue from tourism in areas affected by political instability [13,14,15,16,17,18,19,20,21,22]. Many researchers today use statistical models to analyze the impacts of political instability on tourism [23,24,25,26,27,28]. However, despite the relatively large number of case studies on tourism and terrorism, the impacts of terrorism on tourist demand remain an issue to be examined in more detail [29].

The purpose of the study was to understand the impact of political instability before and during the conflict in 2014–2019 (the conflict continues in 2020) on the tourism industry, and associated opportunities and threats.

The specific objectives are:

(1)

elaboration on how political and other events of national importance influenced tourism performance in the last two decades,

(2)

identification of the role of the Crimea in inbound tourism,

(3)

identification of changes in income from the use of tourist services by foreigners in Ukraine,

(4)

identification of changes in the accommodation sector at the provincial level compared to data prior to recent political instability,

(5)

to show possible lost opportunities associated with the most recent conflict,

(6)

to explore differences in perception of political instability on tourism on a local level by experts,

(7)

to reveal the perception of threats arising from the recent conflict in developed and undeveloped tourist localities,

(8)

indication of possible scenarios for tourism development in the future, and opportunities for tourism development.

The research gap includes the impact of political instability on tourism; taking into account the long-term (5-year) impact of the most recent conflict, and qualitative data provide information on opportunities, threats, and scenarios for the future. Lost opportunities associated with the most recent conflict were presented using the unobserved component model (UCM) where time series of tourist arrivals served as an indicator of growth and changes in tourist activity in the study area [30]. Additionally, this article strengthens the empirical base of scientific work for unstable post-socialist tourist destinations. The work also aspires to fill the gap in the studies for decision-makers/planners in tourism control and strategic plans for its development.

The next part of the article presents a literature review, Section 3 elaborates the methodology of quantitative and qualitative research, and Section 4 analyzes the findings, while the next section discusses the prospects for tourism development with possible scenarios and development opportunities. The article ends with conclusions and future research directions.

2. Political Instability and Tourism—Literature Review

The most widely reported in the literature factors affecting tourism in the world include economic, demographic, ecological, technological, and political difficulties [31]. Political problems were classified by Boniface et al. [1] as: (1) broadly defined politics related to tourism, e.g., the Chinese government controls the direction and level of tourism traffic, (2) participation in alliances and political systems, e.g., the European Union member states have agreed to abandon border controls and adopt a common currency (euro), which led to an increase in tourism demand within EU states, (3) political climate conducive to deregulation and privatization, e.g., deregulation of the transportation sector, leads to the lowering of prices, which triggers additional demand for travel services, and (4) political instability broadly defined as ethnic and religious conflicts, revolutions, wars, civil wars, and the threat of terrorism in countries such as Iraq, Syria, and Nigeria posed by the Islamic State of Iraq and Syria (ISIS).

Political instability was examined by Cook [32], cited by Sönmez [33] in terms of situations where a government is abolished or controlled by a single fraction following a coup or elementary functions needed to control and maintain social order are not stable and remain temporarily disabled. However, Hall and O’Sullivan [34], cited by Cooper and Wahab [35], as well as William [36] define instability as a situation where the conditions and mechanisms of government are questioned in terms of their legitimacy and righteousness by elements and forces acting from outside the normal political system. Another definition of political instability is provided by Helmy [37] who equates it with uncertainty. Hall and O’Sullivan [34] note that perceptions of political instability and security serve as a precondition for making decisions by tourists about traveling or not traveling to a given destination. Analysis of different types of crises in tourism shows that they are associated with other events of a political, social, and economic nature [38]. The tourism sector is extremely reliant on stability, peace, and security [39].

Abrupt street protests, social unrest, civil war, acts of terrorism, discernible violations of human rights, and even the very threat of such problems may cause tourists to change their travel plans [40]. Yap and Saha [41] obtain that the impact of political unrest on tourism is much greater than that single incidents such as assassinations and terrorist attacks. Countries that experience a high level of political risk also experience significant tourist interest both in terms of numbers of tourists and income. A lot of research note that unstable political conditions negatively affect tourism, especially if they last over an extended period of time and affect developing countries [29,33,42,43,44,45,46,47,48,49]. However, research by Morakabati [50], Ranga and Pradhan [51], and Tekin [12] indicates that the number of tourists has increased in the long term despite an unstable situation (Middle East) or acts of terrorism (India, Turkey). Liu and Pratt [52] argue that there exists a certain minimum long-term impact of terrorism on global tourism. The study was based on 95 countries. Demand for tourism is resistant to terrorism if a certain number of exceptions are discounted including Nepal, Colombia, and Thailand.

The literature on the effect of political instability and terrorism on tourism may be divided into several basic areas. The first group of scholars argues that this effect is neither significant nor long-lasting [47,52,53]. The second group implies that instability leads to a complete collapse of the tourism sector [54,55,56]. Recent research, especially that by Korstanje [57,58], has shown that while initially tourism does suffer due to instability, tourist traffic does return to previous levels thanks to “dark tourism” and thanatourism [59]. The literature also demonstrates that political instability does impact tourism in economic and social terms. This last approach most frequently takes the form of two related economic perspectives—so-called micro- and macroeconomic perspectives [60]. Our research takes the microeconomic approach.

Political instability and tourism in Ukraine are covered in a number of works, although the number of such works remains small. The most advanced works in this area include team research by S.H. Ivanov and C. Webster as part of a special project called “Political instability and tourism.” Surveys of hotel managers and travel bureau managers in the Crimea, Ukraine, and Russia show the economic impacts of the political crisis in the region and suggest ways to reduce this impact. Ivanov et al. [6,61] and Webster et al. [62] state that events such as the annexation of the Crimea and civil war in eastern Ukraine have unequivocally negatively affected the tourism industry in Ukraine and the Crimea. The main effects of the conflict noted in 2014 were: (1) decreasing number of tourists, (2) decreasing revenues and increasing costs of labor and general costs. The effects of the conflict affected Ukraine’s tourism sector more than Russia and Crimea’s tourism sectors. The methods employed to reduce these effects of political instability in the study area varied. Managers of Ukrainian hotels and travel bureaus were more likely to undertake marketing efforts than to lower prices or labor costs. On the other hand, Crimean travel bureau managers usually lowered costs and pursued marketing efforts and hoteliers lowered prices, reduced staff levels, and demanded payment in cash. Both hotels and agencies in the Crimea redirected their contacts with Ukrainian partners to Russian partners.

Wen et al. [63] examined the relationship between the image of tourist destinations and perceptions of political instability by surveying 17 Chinese tourists visiting Ukraine. The survey participants indicated that political instability and the language barrier constituted the main risks associated with their travel to Ukraine. In a surprising turn of events, some tourists were attracted to risk as an element of the travel experience.

3. Research Purpose and Methods

The purpose of the study was to understand the impact of political instability before and during the conflict in 2014–2019 (the conflict continues in 2020), and associated opportunities and threats.

Political instability has been taking place since 2014 and continues (2020). In 2018, martial law was introduced in ten provinces (north-eastern, eastern, and southern), which lasted 30 days (from 26 November 2018). Martial law was instituted in oblasts that border the Russian Federation, the Black and Azov seas, and the separatist region of Transnistria. The following provinces are subject to martial law: Chernihiv, Donetsk, Kharkiv, Kherson, Luhansk, Mykolaiv, Odessa, Sumy, Vinnytsia, and Zaporizhzhia.

The study is based on data triangulation: secondary data provide an opportunity to identify the impact of political instability on tourism at the state level, while qualitative data provide information on the perception of the impact of political conflict on inbound tourism (threats, opportunities, scenarios for the future) at the city level. The first stage of the present study was the collection of secondary quantitative data in order to conduct additional analyses using econometric tools. The lack of detailed data at the regional level and local level led to the next stage of survey research—interviews with experts. The following step consisted of the collection of qualitative data, their analysis, and interpretation.

3.1. Secondary Data

The approach used in the study included an analysis of the problem at hand along with a description of the history and statistics related to the issue. The study period was from 1995 to 2019. The present study uses data obtained from the World Tourism Organization at the United Nations (UNWTO), Worldwide Governance Indicators, State Statistics Service of Ukraine (STTU) including its regional divisions, State Border Guard Service of Ukraine (SBGAU), the Ministry of Tourism and Resorts of the Republic of Crimea (MTRRC), and also Worldwide Governance Indicators (WGI).

The unobserved component model (UCM) in SAS Studio was used to forecast trends in inbound tourism excluding the current political conflict. This method gives an overview of the possible lost benefits of events. The long-term perspective made it possible to show the effects of the most recent political instability in the context of other events.

3.2. Primary Data Collection

Analysis of secondary data represents a general overview of the impact of the political situation on tourism, so at the next stage of research was conducted interviews among experts representing major province cities. The results showed five years perspectives after the beginning of the conflict.

The interview was conducted in February, March, and April of 2019. It focused on employees of municipal tourism departments in province-level cities, hotel managers, and researchers studying tourism. A total of 214 emails containing an invitation to an interview were sent to the largest hotels in province-level cities (hotel size tended to reflect city size). Another 22 were sent to local divisions of national tourism bureaus, while 45 were sent to the chairs of tourism departments at state universities. A total of 69 responses were received, including 65 with whom such a conversation took place via Internet communicators (

Table 1. Sample size.

Respondent	Total
Hotel manager	17
Department of tourism in government administration	14
Heads of tourism departments at state-run universities	34
Total	65

). Some respondents indicated that they also perform other functions in the area of tourism—some work as urban guides, while some operate their own travel agencies or run restaurants. The number of completed questionnaires returned was as follows—from eight western provinces a total of 22 questionnaires, from eight central and northern provinces a total of 22 questionnaires, from eight southern and eastern provinces a total of 21 questionnaires.

The interview was open-ended, structured, and consisted of four parts. The use of this tool made it possible to obtain multiple answers to the same question as well as compare and systematize the responses [64,65]. In order to enhance the value of the research results, one of the questions covering future scenarios for tourism in Ukraine provided a set of prepared options as well as the chance to propose an entirely novel option. At the beginning, the respondents were asked about their place of work, position, experience with tourism, age, and then questions related to the impact of the political situation on inbound tourism (good/bad influence/no influence, why?). The next part of the interview concerned possible scenarios of the development of the political situation and inbound tourism, and the latest proposal to develop the tourism sector in Ukraine. A limitation of this study was the difficulty in reaching a larger group of respondents and that which follows the inability to draw distinctions within each studied group of respondents.

4. Research Results—Effects of Political Instability

4.1. Impact of Events on Tourism in Ukraine (2000–2019)

Tourist volumes in Ukraine have fluctuated over the last two decades in part due to many political changes. Research has shown that foreign tourist volumes increased in Ukraine until 2008 with a value of 25 million visitors. The number of tourists had increased continuously in Ukraine from a value of 6.5 million visitors in 2000. The average rate of increase for this period was almost 13% per year. No discernible fluctuations were noted in conjunction with the 9/11 terrorist attacks in the United States and the so-called Orange Revolution in 2004 in Ukraine. The global financial crisis of 2008 decreased tourist volumes across the world including those in Ukraine. The number of foreign tourists in Ukraine declined from 25 million in 2008 to 20 million in 2009 (Figure 1). The tourist arrival rate stabilized in Ukraine in the next several years and then increased in 2012 due to Ukraine’s hosting of the European Football Championships called Euro 2012. Tourist volumes in Ukraine suffered a dramatic decline in 2014 when the Crimean Peninsula was annexed by Russia and armed conflict broke out in the eastern provinces of the country (12.7 million in 2014). Kiptenko et al. [66] noted similar decreases in several key metrics such as the number of hotels (3,582 in 2013 and 2,644 in 2014), number of hotel beds, and number of room reservations at hotels. In the period of armed conflict in the eastern parts of the country and three years after the annexation of the Crimean Peninsula by Russia, tourist traffic in other parts of Ukraine has stabilized at roughly half the volume in 2013. It is important to note that the Crimean Peninsula, the Lugansk province, and the Donetsk province are excluded from Ukrainian statistical reports since 2014. This suggests just how important these areas were to the Ukrainian tourist industry.

The tourist volume in the Crimea hovered around a stable 5 to 6 million visitors per year in the first decade of the 21^st century—of which 65% were Ukrainian tourists and 25% Russian tourists. A small decline was noted in 2009 due to the global financial crisis of 2008. Tourist traffic in Crimea then declined abruptly in 2014. Statistical data provided by the Ministry of Resorts and Tourism in the Republic of Crimea indicate that subsequent years show a marked increase in tourist flow in the region (Figure 2) dominated by Russian tourists (90%) and were marked by a dramatic decline in the number of Ukrainian tourists and non-Russian foreigners in general. The Russian government began a major promotional campaign in 2015 to help drive tourists to the Crimea, which included television commercials touting the tourist value of the Crimea and an increased number of flights to and from the peninsula. The purpose of this campaign was to increase interest among Russian tourists as well as tourists from a number of other countries part of the Commonwealth of Independent States including Armenia, Belarus, Kazakhstan, and Kyrgyzstan. Many of these tourists would previously visit countries in the Mediterranean area such as Greece, Turkey, and Italy as well as resorts on the Red Sea in Egypt and Balkan states such as Montenegro and Serbia [67].

Figure 2 shows the number of foreign tourists in Ukraine without Crimea. Ukrainian sources of statistical data no longer include Crimea following its annexation by the Russian Federation. Tourist volumes from previous years (without Crimea) follow a similar pattern in relation to earlier events. A comparison with the global financial crisis of 2008 shows that current foreign tourist arrivals have decreased by 2 to 3 million. The crisis was followed by the Euro 2012 championships in Ukraine, which triggered an increase in foreign tourist arrivals. At the present time, the COVID-19 pandemic is also generating a very negative impact on the tourism sector in Ukraine and across the world.

The Russian government is also promoting the Crimea as a tourist region by employing patriotic attitudes associated with the 2014 Russian annexation of the peninsula. Kirilchuk and Nalivaychenko [70] note the political significance of the region to the Russian Federation. The relationship between geopolitics and tourism development is readily observable in the Crimea, as noted by Doan and Kiptenko [8]. Tourism is perceived as a method for stimulating the Crimea’s economy, which has suffered substantially due to the imposition of sanctions and the loss of the Ukrainian market [71]. On the other hand, Ukrainian data estimated for the Crimea indicate that the tourist numbers provided earlier in the paper for the post-annexation period are strongly exaggerated (1.5 million in 2014 vs. 1.7 million in 2015). This would indicate a reduction in tourist volume of 70%. The magnitude of the effect of the annexation of the Crimea on tourist volume may be determined by the example of the number of tourists visiting the fortress of Sudak—one of the main tourist attractions on the southern coast of the Crimea. Quirini-Popławski [72] found that its overall tourist volume declined about 30% after 2014 due to a change in its structure of tourist traffic, including a major decline in the number of Ukrainian tourists and other non-Russian foreign tourists.

In addition, the coronavirus pandemic forced the introduction of drastic restrictions on tourism starting in March of 2020. The magnitude of losses by the tourism sector in Ukraine is not yet known. Uncertain and early projections suggest international arrivals could decline by to 60% relative to 2019 [73,74].

Five years after the annexation of the Crimea, the Ministry of Tourism and Resorts of the Republic of Crimea official data show that the Crimea was visited by 7.4 million people in 2019, 66% were Russians (many Crimeans today have a Russian passport); in second place were Ukrainians—14% (Ukrainians who have families and relatives in the Crimea are allowed to cross the border legally), and 20%—other foreigners, including Belarusians, Kazakhs, Uzbeks, and Armenians [69].

Analysis of the number of foreigners taking advantage of the services of Ukrainian tourist service organizations such as tour operators and tourist agencies has shown a marked decline starting in 2004 (Figure 3). It is interesting that an international event such as EURO 2012 did not yield any significant increase in tourist traffic in Ukraine. The largest decline in the number of foreigners taking advantage of the services of Ukrainian tourism-related businesses occurred in 2004 during the Orange Revolution and in 2014 (only 17,000 visitors). Over the studied period of time, this number declined tenfold. This means that either foreign tourists in Ukraine began to organize their travel individually or they began to use travel agencies located in their parent countries. One part of this group includes foreigners living in Ukraine.

On the other hand, revenues derived from foreign tourists in Ukraine fluctuated following a pattern resembling that of changes in overall tourist flow. In this context, it may be assumed that the SARS epidemic may have caused a reduction in tourism revenues in the years 2003–2004. The largest value was recorded in 2008 at close to 6 billion dollars. The global financial crisis of 2008 and the annexation of the Crimea unequivocally generated negative impacts, while positive impacts were generated by the 2012 European Football Championships (Figure 3). Tourism-related revenues stabilized after 2014 at a very low level of 1.1 billion dollars in 2016.

Data on the origin of tourists visiting Ukraine are available for more than 100 countries. The vast majority of foreign tourists visiting Ukraine are citizens of neighboring countries including Russia, Moldova, and Belarus. The number of Russian and Belarusian tourists declined several hundred percent after 2014. Russia declined to the number three source of tourists, from 41% to 11%. The next few ranks are occupied by Central European countries that serve as important sources of tourists, including Poland, Hungary, Romania, and Slovakia. This group of countries contributed 3.0 to 3.5 million tourists per year during the study period. This also represented a virtual doubling of the share of tourists from these countries from 14% to 23% during the study period. Other large sources of tourists include Israel, Germany, and Turkey. Of the examined countries, the only country to increase its number of tourists in Ukraine during the years 2013–2017 was Turkey.

A research project known as the Worldwide Governance Indicators (WGI) measures six dimensions of governance for more than 200 countries around the world. Despite a margin of error, the WGI database allows for advanced and highly valuable comparisons of the multiple dimensions of the governance of countries [81]. One of the six dimensions is political stability and absence of violence/terrorism (PV). It illustrates the probability of the destabilization or abolishment of a government via unconstitutional or violent means including political violence and terrorism. The PV index for Ukraine varied strongly during the study period from 2002 to 2018 (Figure 4). A small decline occurred in 2004 due to the events associated with the country’s Orange Revolution. A larger decline occurred in 2009 due to a combination of several different factors including the effects of the 2008 global financial crisis, conflict with Russia over the delivery of natural gas, and a conflict with neighboring Romania over Snake Island in the Black Sea. The PV index for Ukraine declined dramatically in 2013–2014 and has remained very low ever since. The highest PV index value for Ukraine (above 45) was noted right before and right after the global financial crisis of 2008 in the years 2007 and 2008 and 2010.

The number of foreign tourists in Ukraine declined markedly in the period 2013–2016 in virtually all provinces across the country. These data are based on the number of foreigners in Ukraine staying at hotels and other lodging facilities. As expected, tourist traffic declined most severely in regions affected by political unrest and in regions neighboring regions with political unrest (Figure 5). The number of foreigners declined at least 50% in nine provinces in Ukraine. The provinces of Lugansk and Donetsk as well as the Kherson province neighboring the Crimea recorded severe declines in tourist flow (90% decline). Regions located some distance away from the areas of conflict tend to suffer less than those located close to areas of conflict in Ukraine. This pattern of decline is also seen in data available in Ivanov et al. [6] who describe it in terms of the geographic concept of decay used in tourist traffic modeling.

The unobserved component model (UCM), which breaks down time series into trends, cycles, or seasonal components, was used to estimate financial losses due to the recent political instability. This model extrapolates past variables to predict future values [87]. The UCM model is a time-series model that decomposes the dependent variable into four different components: trend, seasonal, cyclical, and idiosyncratic [88,89].

The UCM Procedure Detection in the “Outlier Summary” shows the most likely types of breaks and their locations within the series. The shift of 2014 is easily detected (Estimate -11959714; Standard error 3221700.5; DF 1; Pr. > chi-kw 0.0002). The following statements specify a UCM that models the level of tourist arrivals as a locally constant series with a shift in the year 2014, represented by a dummy regressor. The plots show smoothed trends including the correction due to the shift in the year 2014 (Figure 6).

Inbound tourism in Ukraine decreased by about 12 million tourists per year since 2014, which yields about 60 million lost international tourist arrivals over a 5-year period (2014–2019). Given a smaller assumed annual volume loss of only 8 million tourists, the 5-year total stands at 40 million.

4.2. Impact of Political Instability on Tourism in Major Cities—Interview Results

The profile of those interviewed was the following: 55% of respondents were men, and 45% women. The largest share of respondents consisted of people aged 41–50 (37%), followed by people aged 31–40 (29%), then 51–60 (17%), and 18–30 years (15%), while people over the age of 60 accounted for 2% of the sample.

Participants were asked to assess the effect of political instability on tourism in Ukraine. Most felt that the effect was negative (72%), while 28% felt that it did not produce a significant impact.

Threats and Beneficiaries of Political Instability, according to Experts

The interviewed experts noted a feeling of a lack of safety among potential tourists in Ukraine as a basic factor resulting from political instability and its impacts on tourism. “Many foreigners simply do not want to take the risk, and do not want to go somewhere, where it is not safe” (F17, Ivano-Frankivsk 31–40 years old).

The issue of safety or perhaps more accurately “security” was discussed by a number of developers of tourism-related offerings in many different parts of Ukraine. In their view, the issue of security is a leading factor associated with the generation of a negative image of attractive areas in Ukraine by the media, which tend to present the situation inaccurately and exaggerate the potential threat level.

The negative impact of political conflict is felt most strongly in cities and areas where the citizens of the invading country used to travel in large numbers for tourist purposes:

“… most tourists in our area used to come from Russia, and then they stopped coming—all tour groups canceled their reservations” (M27, Chernihiv, 31–40 years old).

However, almost one third of the respondents indicated that political instability and the introduction of martial law do not currently affect the development of the tourism sector. This view was held by respondents from western Ukraine (Lviv, Chernivtsi) who gear their tourism products mostly towards visitors not coming from Russia. In fact, the decline in the number of Russian tourists in western Ukraine helped trigger a new influx of tourists from other countries via 50 new airline connections with various cities in Europe including Lisbon, Hamburg, Tallinn, and many cities in Poland. In effect, the number of tourists arriving in Lviv by air increased—for a total of 31% of all tourists visiting this city [90].

The number of foreign tourists in Ukraine is increasing, while the number of domestic tourists is now decreasing, in part due to the fact that since 2018 Ukrainian citizens can visit EU countries without a visa. In Lviv, the largest share of tourists since the beginning of political instability in eastern Ukraine in 2014 comes from Poland (about 20%). Another 5% to 8% of tourists come from Belarus and Turkey, while the top ten countries of origin include the United States, Great Britain, Canada, and also Lithuania. One respondent from Lviv noted that foreign tourist traffic continues to grow in the city:

“[Instability] is not a factor. Tourist flows continue to grow. It is difficult to find a substitute tour guide if one does not show up for work!” (M30, Lviv, 41–50 years of age).

The lack of significant impacts related to political instability was noted by respondents from poorly developed tourist cities such as Cherkasy and Kirovograd.

“The current political situation is not the most significant factor affecting tourism in our city” (M7, Cherkasy, 51–60 years of age).

Respondents were also asked to indicate the most realistic scenarios associated with the evolution of the political situation in Ukraine and its tourist scene. The results are presented in the subsequent sections of the paper.

5. Perspectives

The future of tourism in Ukraine may be examined in terms of four different scenarios:

Scenario 1. Escalation of the current crisis in the form of the geographic expansion of military action into adjacent provinces or full-scale armed conflict that would cause a further decline in the number of tourists and tourist revenue.

Scenario 2. Persistence of the current unstable situation in eastern Ukraine, similar to the situation in the Dniester Area of Moldova, will help cement the current low level of tourist interest in Ukraine, especially on the part of foreign tourists.

Scenario 3. Permanent dissolution of the bond between Ukraine and the Crimea—and the end of military action in eastern Ukraine—may in the long term help increase the number of foreign tourists in Ukraine and the associated revenue from foreign tourists and relieve the country of the burden of the effects of the current political instability, especially in the western provinces of the country.

Scenario 4. Emergence of a political solution in the form of a return to the pre-2014 state of affairs, which may help spark new interest among potential foreign tourists who may again begin to choose to visit Ukraine and the Crimea in larger numbers.

Experts have also suggested the evolution of other scenarios in Ukraine:

(1)

the persistence of the present, unstable state of affairs, but with an increase in tourist traffic (10%),

(2)

the lack of impact of the political situation on tourism in Ukraine, which remains not highly developed anyway.

The second scenario appears to be the most likely in the short term, in the respondents’ opinion (35%). The fourth scenario was indicated by 22% of respondents, while the third scenario by 17%. Respondents over the age of 40 living in areas subject to martial law tended to be more pessimistic—they were the only respondents to indicate the possibility of the occurrence of the first scenario (6%).

Among the various suggestions via which the tourism sector in Ukraine could be improved were improvements in tourist infrastructure and the service sector (1/3 of respondents). Another third of the respondents suggested creating a more positive image of the country in foreign media markets. This type of solution was thought to be more effective than the end of the armed conflict in eastern Ukraine (27%). Some experts believe that the creation of favorable conditions for small and midsize businesses (7%) is the best solution to problems in Ukraine’s tourism sector, while others (7%) felt that government support for tourist investment is the key solution for the sector. Still others tended to suggest the development of green tourism, industrial tourism, and dark tourism. Some other ideas included ethnographic tourism, culinary tourism, and physically active forms of tourism. More general ideas included the provision of information to tourists on safe areas in Ukraine along with the establishment of a number of new tourist information centers, modernization or expansion of existing information centers, and improvements in transportation systems that would likely be used by tourists.

Areas located far away from conflict areas may benefit from the situation at hand over the long term. One advantageous change in Ukraine has been the change in the exchange rate of the hryvnia (the Ukrainian currency) in a way that favors foreign visitors and helps domestic tourism by prompting Ukrainian tourists to visit places in Ukraine due to the reduced valued of the domestic currency. The creation of linkages with new markets and the introduction of new products targeting specific markets as well as the activation of new airline connections have resulted in higher volumes of tourists and higher tourist revenues.

The perspective for tourism development in the Crimea appears to be difficult to assess in an unequivocal manner. The persistence of any form of serious conflict pushes the tourism industry into a spiral of decline. If this does occur in Ukraine, competing tourist areas in the Black Sea region will grow at the expense of Crimean tourist areas. Multiple Russian studies [91,92,93,94] show that the Crimea is expected to experience strong growth in the tourism sector following its annexation by the Russian Federation in 2014. This is especially likely given the fairly long tradition of tourism in Russian society reaching the late 17^th century [95]. The Crimean Peninsula served as a principal summer resort area during Soviet times and was visited by top Communist party officials. Many Russians still remember those times, which makes it easy for them to make the decision to visit the Crimea [96].

Tourist infrastructure has experienced a discernible improvement in the Crimea in recent years with the opening of a new airport terminal in Simferopol and plans for a new terminal in Sevastopol. Other improvements include the construction of a new railway and vehicular traffic bridge and renovation of hotel facilities formerly held by Ukraine’s government. Additional key improvements include changes in the organization of tourist attractions in the Crimea that include the creation of a gambling zone in Yalta, approval for a development program for area resorts and other tourist facilities in the Crimea in the period 2015–2017, and a promotional program called “Culture. Relaxation. Yes. Crimea”. Finally, tourism and recreation clusters are further being developed in the Crimea to meet tourist needs [97]. If the current political climate persists (i.e., Crimea permanently remains in Russia), then it is likely that tourist flow will gradually increase in attractive and also well-developed resort towns along the Black Sea. These would include Sochi, Yalta, Alushta, and Yevpatoriya. The Russian government is currently following a strategy of import substitution designed to help promote domestic tourism as a means of retaining tourist money in Russia and stimulating the economic development and integration of the Crimea [61]. On the other hand, certain barriers to development do exist in the Crimea including transportation isolation and geographic isolation from Russia along with the effects of economic sanctions, which may also expand in the future. Other problems include infrastructural issues (i.e., natural gas, electricity, water), conflicts between different ethnic groups residing in the Crimea, and deepening armed conflict in neighboring areas [70,98].

6. Discussion

The tourism industry needs a stable political, legal, and financial system. The planning of tourist travel in a state of political uncertainty is a challenge given how crucial this industry is to the national economy. In times of political uncertainty, governments often give priority to things other than tourism, especially given limited financial resources. While many different factors affect the decision to travel to a given destination, political instability remains a negative factor in most cases. It is important to note that the tourism potential of Ukraine is one of the largest in the former republics of the Soviet Union. Despite its rich cultural heritage, Ukraine’s political and economic situation remains an important factor shaping tourist traffic. Ukraine is suffering from a negative international image and inadequate levels of tourism development in many of its regions and cities. Other problems include a low number of lodging facilities and unstable demand for tourist services in the country. Riashchenko et al. [99] note that Ukraine has the resources to become an important tourist destination with international reach. A similar case of a country with significant tourism potential but an unstable political situation is Pakistan [100].

If Ukraine continues to be perceived as an unstable country, potential tourists may wish to travel somewhere safer or not travel at all [101,102]. According to Kuto and Groves [20] and Buigut et al. [103] developing countries such as Ukraine are more likely to be exposed to an increased risk of terrorism. At the same time, research has shown that a group of Chinese tourists was actually attracted to a lack of political stability and chose to visit Ukraine partly for that reason [63]. Following their loss of control over the Crimea, the Ukrainian government ought to actively attempt to limit military action in the country’s eastern provinces in order to attract more tourists and increase tourism revenues. In addition, it is difficult to find strategic efforts on the part of the Ukrainian government in the area of tourism promotion. On the other hand, the country’s creation of a National Tourism Organization in 2016 may be considered inadequate, as mostly it focuses on the domestic tourism market. This action on the part of the government actually may have a negative effect on the overall tourism industry in Ukraine.

According to Moufakkir and Kelly [104], tourism may actually help facilitate peace in the world and with proper management may help address important challenges such as conflict, globalization, migrations, and poverty. The study goes on to cite a number of case studies in Bosnia and Herzegovina and Ireland where the relationship between peace, end to conflict, and tourism is observable. Tourism is seen therein as a catalyst of change and development. Becken and Carmignani [105] also suggest in their research that tourism plays a stabilizing role that may lead to peace. Pratt and Liu [10] show empirical data based on the Global Peace Index where tourism may serve as a basis for peace, but also tends to be its greatest beneficiary (see also studies by D’Amore [106,107]. Issa and Altinay [108] use the example of Lebanon in their study to argue that an analysis of past and present trends ought to serve as the basis for an implementation of an action plan designed to manage crisis situations and make it possible to predict likely scenarios. While the example of Bosnia and Herzegovina is imperfect, it provides an illustration of how tourism may forge a path to the solution of a political conflict that retards domestic social and economic development. Tourism is treated as an incentive to partnership between hostile communities in order to help them reconcile in the process of realizing common goals via the management of a local tourism economy [42]. Alluri et al. [109] argue that tourism may help solve problems associated with democracy.

When formulating tourism policy, it makes sense to create offerings targeting a variety of markets in order to secure the sector in the event of political conflict by filling in gaps with tourist traffic originating in other markets. Thus, the diversification of the tourist offer is a key strategy. Products need to be created for tourists from different countries. Cities need to be made more accessible for foreign travelers. Personnel working at tourist-related facilities need to be trained in foreign languages. Other helpful ways of countering the effects of political instability include better access to tourist information, improvements in the quality of tourist information provided to foreign visitors, and promotion of the multicultural heritage of destinations. Military action in the Crimea ended in 2014, shortly after the region’s referendum that ended favorably for the Russian Federation. Tourism promotions employed by the Federation relative to Crimea were skillfully focused on the common language and history of Crimea and Russia. For the citizens of the formerly Soviet states, Crimea is a new-old tourist area characterized by high environmental value, strong cultural offering, and attractive prices.

7. Conclusions and Future Research

This paper analyzes the impact of political instability in Ukraine during the years 1995–2019 on foreign tourist arrivals. Our research has shown that the impact of the events of 2014 is much greater than that of the global financial crisis of 2008. Both metrics of tourist industry activity levels—the number of foreigners using the services of Ukrainian tourist service organizations and revenues derived from foreign tourists in Ukraine—declined much more due to political instability than did tourist traffic in general. An analysis of correlations confirmed a powerful effect of the country’s political crisis on the tourism economy. The use of the unobserved component model (UCM) made it possible to estimate losses in the years 2014–2019 at approximately 40 million tourists. Our study also strongly suggests that the effects of political unrest on tourism are much greater than those of individual negative events or assassinations—in line with findings by Fletcher and Morakabati [110] and Yap and Saha [41].

The events that have affected tourism in Ukraine are external in nature. The present study confirms research by Ivanov et al. [6] from 2015, who noted that political instability leads to negative impacts on the tourist industry in Ukraine. The annexation of the Crimean Peninsula and the emergence of separatist people’s republics in two eastern provinces triggered a marked decline in tourist flow in Ukraine and an associated decline in the tourism industry in general. This applies not only to regions that neighbor conflict areas, but also the country as a whole, although the former are affected to a greater extent than the latter.

The most recent conflict has had the most significant negative impact of all the events in the last two decades, even after excluding Crimea inbound tourism from the general trend, which has ceased to be included in Ukrainian statistics since 2014.

Research has also shown that political incidents in Ukraine have also altered the structure of tourist traffic, especially with regard to Russians. Our research has shown that regions not affected by large volumes of tourists in years past were also not affected by the negative impacts of political instability in Ukraine in recent years.

According to experts, the greatest threat resulting from political instability is the lack of a sense of security among potential tourists and the negative image of Ukraine created by the media, even in the case of regions far removed from the area of conflict and secure at the present time. The leading beneficiaries of this instability turned out to be cities with well-developed tourism sectors offering a diverse array of tourism-related products and characterized by an openness to new markets as well as marketing designed to also attract domestic tourists (e.g., Lviv). On the other hand, tourism experts from cities without well-developed tourism sectors noted that political instability has not had a direct effect on their hometowns. The survey participants were not unanimous in their predictions of future events, but most did suggest that political instability in Ukraine is here to stay and tourist volumes from foreign countries are likely to remain at the same low level.

Webster and Ivanov [111] use the examples of Cyprus, Korea, and Ireland to show a situation where tourism has played or may play a constructive role by supporting collaboration and the building of political stability. Is this type of scenario likely in Ukraine? Is it likely in occupied Crimea? It is reasonable to argue that tourism may help lead to peace in Ukraine and become a stabilizing factor therein. This may constitute an interesting subject for further study. Future research could also focus on the effect of political instability on various forms of tourism in a regional sense. The flaw in the current study is the absence of an analysis of tourist flow based on cities and provinces (oblasts), which was not feasible due to a lack of access to such information. This problem is noted by the authors of the report “European Tourism amid the Crimea Crisis” [112]. The paper provides a review of the literature and examines political factors only. Finally, it is important to underscore that a number of other factors affect tourism traffic in Ukraine and elsewhere. In 2020, such factors included the coronavirus and associated restrictions on international travel [113,114,115,116], but it will take some time to fully understand the impacts of these factors over the short term and long term.