by Klaus Lengefeld und Frank Tetzel
- Why does the tourism industry suffer more than other sectors?
Flight, train or bus seats, hotel room nights, restaurant spaces etc. are not stackable. So all business lost now in these three core tourism sectors cannot be recovered once Corona crisis is over. This is the main reason why tourism together with the cultural sector will lose by far more revenue than most other industries that can store their products and sell more once shops are open again.
The latest figures for Germany (cited from hospitality inside) indicate that German hotels are losing every week a revenue of 750 Mio Euros. But the dramatic figure is that these hotels have to pay per month 500 Mio. Euros for credits, lease fees, and annuities. And that 250.000 hotel employees are in short-time work co-sponsored by the government.
The aviation industry and tour operators are in the same dramatic situation. Frankfurt Airport had last week 3 per cent of the normal number of flight passengers in this period. Many airlines had to ground nearly all of their planes. TUI, the world’s biggest tour operator, had to ask for state guarantees for a 1,5 Bio Euro credit to stay alive.
- Why tourism will be the last to recover
Everybody expects that because of slower infection rates, the Corona restrictions will be lifted step by step from May or June 2020 on. In this very moment people will first flock to the reopened shops. Restaurants, cultural venues, museums etc. will also see a huge demand, even if they still need to restrict visitor numbers to guarantee physical distancing. So it is to be expected that for all these sectors, business will normalize in the second half of 2020.
However, leading epidemiologists around the world are warning against a rapid opening of the economy and society. One key to reopening will be regular – weekly or fortnightly – mass testing, which should provide negative proof of COVID-19 and be seen as an entry into economic and cultural life. Many governments and regions are working towards this, but the costs are still enormous. The fact will be, however, that without health safety and a current proof of this, no one will be allowed to board an airplane – or possibly any other means of transport.
Unfortunately travel&tourism will be the last to benefit from the restart of public life, because:
- Going far from home to where many other people with a potential Corona risk move around will be considered as still more risky than entering the next-door shop or restaurant.
- Leisure travel will not be considered an immediate priority, because all the other elements of normal life will first have to normalize: Schools, universities, Kindergarten, Workplace, sports, health&wellness, culture, shopping etc.
- It is not yet clear how many airlines will actually survive the crisis. The fate of SAA will be just one among many. States that can afford it will probably nationalize their airlines, but whether the governments in the doldrums can afford to do so because of the health costs of the crisis is another matter entirely. It is therefore to be expected that flying will become more expensive, with lower seat capacity, and possibly a simultaneous under-utilisation of seats due to precautionary measures in the pandemic.
- Business trips will also be avoided as much as possible, by going on to use online meetings. The experience in the Corona crisis that less traveling to business partners does not necessarily affect business but on the positive side reduce the travel costs will keep having an impact.
- A significant part, if not the majority of potential travelers will have suffered major cuts in their income. So they need to use their disposable money to cover their basic needs
In summary, it is to expect that a significant number of airlines, hotel companies and tour operators will not survive the Corona crisis.
- Which type of tourism will be the first to recover?
People will also start moving and traveling again when the “stay home” phase is over. Unfortunately they will first go to places considered as “Corona-safe”. This can only be guaranteed if, as described above, the test is guaranteed both for the guests – before the start of the trip – and for the personnel along the travel chain.
This means that domestic tourism will be the first to recover from July 2020 on. Yet people will be more selective in choosing the right time, venue and the appropriate means of transport:
- Smaller and rather isolated accommodation facilities instead of big city hotels
- Reachable with their own cars instead of trains, buses or aircraft
- Places where they would not meet people who came in from other countries, considered as risky to bring Corona back
- Places they have already been and where they can easily communicate with the owners or operators concerning safety&security
- If possible, not travel during high season (there is a debate in Germany to postpone the summer school holidays to autumn…)
- What about cross-border tourism?
It is very difficult to predict the recovery of cross-border tourism. It will require the following conditions to be fulfilled:
- The borders need to be reopened without the risk to become closed in the near future
- The outbound country needs to be considered as a low-Corona-risk tourism source market
- The inbound country equally needs to be considered as a low-Corona-risk place for visitors.
- The governments of both countries – out- and inbound – need to have declared similar high-level health and hygiene standards and a harmonized policy to treat visitors without demanding conditions such as post-arrival 14days Corona quarantine.
As a consequence, it is to expect that cross-border tourism will first recover between directly neighboring countries with a similar status of the Corona pandemics. And of course, with a similarly good health system and effective hygiene measures.
From a German perspective, such neighboring countries to be visited again in the second half of 2020 might be Austria, Switzerland, Denmark, the Netherlands, Belgium or Luxemburg.
For France, Czech Republic, Poland and even more for Italy, Spain, Portugal and Greece there are many more question marks if recovery will already start this (later) summer. Anyway customers will be quite selective in deciding where to go in these countries and how to reach these places.
- What about long-haul tourism?
Long-haul tourism will be the last to recover, because:
- The farer away the country, the more difficult it is for travelers to assess possible health risks from Corona and other diseases
- Corona pandemic has created a lot of distrust in governmental measures to contain it, and also in their ability and will to publish the real dimension of this problem in their country.
- On the other hand, authorities will also be less confident in travelers from far-away countries, especially from the former Corona hot spots such as China, most EU countries and the USA.
- Most countries will require the fulfillment of stricter hygiene and safety precautions, including possibly to stay in quarantine after arrival.
- It will be difficult for travelers to stay informed about such measures for potential long-haul destinations, increasing the risk of running into problems when arriving.
Some travel obstacles are rather country- or region-specific:
- On the one hand, the strictness of government measures and the discipline of Chinese people to follow these might create a certain amount of trust to be safe when visiting China.
- On the other hand, the censorship of unwanted information, especially of messages about “alternative facts” to the official Chinese Corona success stories is undermining this trust.
- And last but not least, the strict regulations for visitors considered as a risk to reimport Corona and the subsequent risk to be asked to stay in quarantine after arrival disattract travelers.
- Significantly different to China, the international press usually points out problems when publishing on governance in Sub-Saharan Africa. Now in times of Corona the main critical issue is the inefficient health systems in this region. UN SG Antonio Guterres’ recent statement that Corona could devastate Africa like a bushfire seems to confirm the huge problems of many African countries to handle the Corona pandemic . .
- Similar to China, there is only a limited trust in the official figures on Corona dissemination and a low motivation to visit Sub-Sahara Africa.
- The handling of the Corona pandemic by Donald Trump in the US has created much distrust in both crisis governance and crisis preparedness.
- This means that similar to China and Africa, there is only a limited trust in the official figures on Corona dissemination and a low motivation to restart traveling to the USA.
- What can hoteliers do to re-attract guests?
The strategies will be different, according to the hotel’s target clientele.
In general terms, it will be easier to re-attract nearby domestic visitors, especially wealthier local clients. They do not need to travel far or cross borders. Wealthier clients will be the first to have the budget to restart traveling. And they usually travel with their own vehicles thereby minimizing the risk to contract Corona while moving from their homes to the hotel.
But in countries with a poor health system and without adequate testing facilities, the restart with local clients might prevent foreign guests from visiting.
Given the fact that for many countries, the most important source of tourism income are foreign visitors, I will focus on strategies to regain such international guests:
- Create “Corona minimum-risk zones”
It is of utmost importance to regain customer confidence that the risk of contracting Corona while traveling is minimized as much as possible. To create such “Corona-minimum-risk zones” is possible through a bundle of measures, such as:
- Regular Corona tests of all employees along the travel chain, meaning in hotels and in transport facilities from the point of entry in the country.
- Inside the buildings Continuous disinfection, mask-carrying, use of gloves (which is already common in many hotels’ food&beverage facilities);
- Fast access to medical facilities – in bigger resorts there is usually a health station with qualified doctors and/or nurses.
- Smaller and neighboring hotels can jointly set up a next-door health center;
In this context, the “isolability” of hotels will be an important argument to convince customers of the safety of their trip. Some small island destinations such as the Seychelles or the Maldives do have comparative advantages:
On the Maldives more than 90 per cent of all resorts are on uninhabited islands. Their Maldivian employees either live on a neighboring island or, together with the staff from overseas, in compounds on the resort island. This means that if there is no Corona case among the employees and the inhabitants of the neighboring islands where employees live, these resorts could be considered as Corona-free. However they would require Corona-testing facilities in order to check guests after arrival. And nevertheless keep following the strict rules of physical distancing as much as possible.
All-Inclusive resorts might also have some of these advantages, especially if they are outside populated areas and if many of their employees live in staff compounds on their ground. For those employees returning to their families, they would need to get tested when they re-enter the resort.
A similar advantage can be seen in many hotels in Dubai. 90% of their employees are from other countries, live in compounds and use transport controlled by the hotel. This means that only for those employees who live with their families, such as the Emirati staff, regular testing would be required.
- Direct contact with customers
Another important issue is what I would call a “De-anonymization” of booking: customers will prefer a direct contact with the hotel and travel provider instead of the anonymous hunt for the cheapest online offer.
As a consequence, the direct contact with potentially interested guests is very important. Ideally, the hotelier has the possibility to address former guests with special offers and the information about Corona security measures. The advantage of contacting former guests is that they might have more trust in places they have already visited.
- Low volume – high value
Global air travel has been decimated as countries around the world enforce lockdowns and restrict travel. With no end in sight for either the pandemic or the recession that follows, even the mightiest of carriers like American Airlines and Lufthansa have been forced to seek help from their governments.
In Europe, struggling airlines like low-cost carrier Norwegian had to make a financial case to private banks in order to qualify for government aid. In the U.K., the government said airlines need to exhaust all other lines of credit before coming to the government for help — indicating that countries are not immediately rushing to the rescue and will do so with conditions attached.
In other cases like Italy and Belgium, governments are considering the re-nationalization of struggling airlines as their solution to the crisis. According to industry analyst Bob Mann, airlines typically have between 9 percent and 15 percent of their 12-month expenses available in cash or cash equivalents on hand. Unlike charter carriers, which are required to hold onto the proceeds from a ticket sale until the flight is complete, commercial airlines use payments for future travel to pay for today’s expenses.
For the recovery of air travel, Ryanair’s Michael O’Leary has just predicted that it will come but with massive price dumping. This might be true, yet for a much smaller clientele as before Corona, because the so-far typical low-cost airline users have been low-income persons or families. And many of these, if not the majority will have lost a major part of their income, if not their jobs, and therefore not be willing to travel in the near future. In addition, this clientele is more susceptible for health risks.
Another obstacle for such a price dumping recovery strategy in air travel is the fact that clients will not feel safe if the airplane is too crowded. It might also happen that governments will allow flights only if the physical distancing rules will be applied. This would mean that airplanes would have to fly with much less passengers, for instance only one passenger in the common 3-seat row on each side, adding up to a 33% occupancy.
Anyway, for hotels, a strategy to reattract guests by price dumping is even less feasible than for airlines. Governments who are currently lifting the bans for hotels and restaurants demand the implementation of the physical distancing rules, such as minimum distances. Also guests will avoid crowded hotels.
Therefore it will be more intelligent to sell the Corona-limited room offer to a high-paying clientele instead of trying to win guests by low prices. This is especially true for hotels in long-haul destinations, where the first guests to come back to these places will be FITs, Frequent Individual Travelers. A significant number of these FITs will still have enough disposable resources despite of the huge economic impact of the Corona crisis.
- Will sustainability of tourism be a crisis-winner or –loser?
The drastic decline in business and travel has brought immediate environmental benefits. Hence many people and some politicians now demand to take the current lockdown as a chance to reduce the ecological and climate footprint of our economic activities before these are recovering to the former high level. Others claim that corona-stressed companies should be relieved of costly environmental and climate mitigation requirements.
Travel&Tourism is regarded as a rather dispensable activity, and in particular a drastic reduction of flight travel is demanded as part of a more sustainable economic recovery. Unfortunately, the dramatic consequences of a massive drop in visitor numbers for many countries and the subsequent negative environmental and climate impact is not taken into account.
There is some information about the economic consequences of massive visitor drops on income and employment, for example in Egypt or Palestine after terrorist attacks or for Sri Lanka after both terrorist attacks and the Tsunami. Unfortunately, in all these cases, no information was collected about the ecological and climate footprint of the alternative livelihoods of those who lost job and income in tourism.
About ten years ago, we have piloted such a study for the Indonesian island of Bali. The guiding hypothesis was that 50% of international visitors would stop visiting Bali in order to reduce greenhouse gas emissions from flights. As immediate effect, about 50% or 300,000 people would lose their job and/ or income from tourism. The main other generator of new jobs and income in Indonesia is agriculture, especially the expansion of oil palm plantations. If only a minor part of these 300,000 people would either cut rainforest or become workforce for new oil palm plantations on destroyed rainforest land, the ecological and climate footprint would be by far higher than the one of the avoided flights and tourism stays on Bali.
The Corona-crisis induced job and income losses of tourism employees will affect a minimum of 20% or 66 Mio people of the world’s tourism workforce of 330 Mio (source: last WTTC tourism economic impact report). And quite often, they live in countries where most alternative livelihoods are in agriculture, forestry or fishing with much more devastating environmental and climate impact than tourism.
Nevertheless, nobody will restart to travel to developing or emerging countries just to support local people’s livelihoods. But for those willing to travel, such as the Frequent International Travelers mentioned above, it would be a good argument to defend their travel plans against the tourism critics who are now more than ever calling for the boycott of air travel.
Africa will be the most affected country from the Corona-driven massive drop of international visits. In the table on next page, we have made estimation on the job&income losses for the most tourism-dependent African economies.
- The fatal impact of Corona for tourism in Africa
As stated under 5., international travelers consider most African countries as weakly governed and with very limited and inefficient health systems. And there is only a limited trust in the official Corona-infection figures.
As a consequence, international tourism to Africa will not recover in 2020. In 2021, a slow recovery maybe expected, yet with figures reaching eventually 50% of the pre-Corona visitor numbers. Even if intra-African tourism might recover earlier, visitor numbers for the summer 2020-summer 2021 season will drop at least by 50%. This means that at least 50% of people whose job or income is depending on tourism will become job- or incomeless. The following table outlines these losses for 11 of the most tourism-depending African countries: