April 19, 2021
2020 has been the worst year on record for more than 50 years, driving most countries deep into recession. The world’s economies have always shown resilience to recover from the most severe financial crises - downturns which were driven by pandemics, wars, terrorism, political change, currency, or banking meltdowns.
The return of travel will take a while. The sector has always grown around 4% per annum for the last 40 years, except for the Iraq War and recession, 9/11 and the Global Financial crisis. There have been regional epidemics such as Ebola and SARS, but the world has not seen such a killer pandemic since Spanish flu of 1918, Asian flu in 1957 and AIDS in the 1980s. The world was ill prepared, and the impact has been devastating.
Compared to manufacturing, banking, pharmaceuticals, the travel and tourism sector has been the worst hit financially and will take the longest time to recover. Airlines, airports, hospitality, cruise, car rental businesses, and the tour operators and travel agencies that supply them have been dealt mortal blows, with some alleviation from government loans, bail outs and employee retention schemes. More than 40 airlines have collapsed since COVID-19 despite USD173 billion of government support. Airlines lost USD 118.5 billion in 2020 and have debts of more than USD 651 billion.
Government support for businesses has not been uniform around the world. Complete collapse of global and regional coordination, including the UN, EU, ASEAN has meant that each country has had to act alone. Pressure to open borders will be on governments which rely heavily on tourism to drive jobs and GDP growth, but recovery will be slow by country and by segment – with each country policing internally and being selective about whom to let in. Bi-lateral agreements on opening travel flows, based on PCR testing regimes in place at either end, will be in place for some time, with mandatory quarantine on arrival from certain countries.
Vaccination rollouts give a ray of light. Although it is a complex picture with rollouts happening at different speeds across the world and uncertainties about virus mutations and the efficacy of vaccines remain. Electronic vaccination passports will not gain global acceptance, due to implementation complexity and discrimination against those who do not participate. Governments will get into a rhythm on testing, decision-making and protocols required, so there will be increasing certainty for the industry based on data driven analysis, with less last-minute policy changes.
The majority of global travel and tourism GDP is stimulated by domestic vacations. Spring Break for kids in the USA usually numbers 110 million, which is dwarfed completely by the Chinese New Year Festival movements of 2.9 billion passenger journeys. The latter is the largest annual human migration in the world. The trend to vacation domestically will increase, driven by consumer demand and platforms like Airbnb/Expedia/Trip and Booking. Consumers want to stay closer to home for vacations, and adventure travel and countryside pursuits away from metropolis areas will pre-dominate.
Migration away from cities is becoming a serious option now, with companies encouraging working from home and some governments creating special long stay visas for digital nomads. Business travel will rebound more slowly than leisure, probably to 80% 2019 level by 2024. This is predicated on the human need to sell, market, and transact face to face. Video conferencing works fine when relationships are already built, but it is not so effective in opening new market opportunities.
Travel businesses have had to focus on re-engineering their business models. Global airlines will shrink their networks, do more point-to-point flying to avoid layovers, and improve their sustainability credentials by retiring older aircraft to the Mohave desert. Low-cost carriers will bide their time preserving cash and will benefit hugely from the pent-up demand from leisure travellers. Hotels will have all health protocols in place, but city centre ones will remain under pressure in line with business travel demand. Leisure resorts will do well.
The vaccination roll out globally will ensure that the world starts the long road to economic recovery in the second half of 2021. The travel industry will rebound at different speeds, by country and by sector, over the next two to three years. International leisure travel will start to return as infection rates come down, vaccines get rolled out and testing regimes are put in place in each country
Key to everything will be communication — by governments, by tourism boards and by travel suppliers — to ensure that consumers regain trust, feel safe, and travel with confidence once more.
As brands market their products again in the sectors most impacted, concise, and transparent communication to their customers has never been more important.
Underlying of all this remains the fundamental desire of people to travel, to see family, to do business and to experience new places. Nothing will replace this human need for people to move around the planet. Tourism will remain resilient in the face of this pandemic. With innovation and partnership, it will return as it has done in the past. This time in a more sustainable manner. The only question is at what speed. Time will tell.
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