How COVID-19 Impacted Travel & Tourism Industry Globally

September 28 2020 Mohamed Aref

Travel, Logistics & Hospitality,Business Strategy,Economics

How COVID-19 Impacted Travel & Tourism Industry Globally

The Travel and Tourism Industry

In the past decades, tourism has experienced continued growth and became one of the fastest growing economic sectors globally. The sector witnessed a 59% growth over the decade in international tourists’ arrivals from 1.5 billion 2019 compared to 880 million in 2009. Tourism is also a key driver for socio-‎economic progress, with tourism specific developments in an increasing number of national and international destinations.

Globally, the tourism industry contributed to $8.9 trillion to the global GDP in 2019 equaling a contribution of 10.3%. It is also to note that 1 in 10 jobs around the world is in tourism, equaling 330 million jobs.

However, the strong historical growth has been halted in 2020 amid the global Covid-19 pandemic. With airplanes on the ground, hotels closed and travel restrictions implemented, travel and tourism became one of the most affected sectors since the very start of the virus spread. The pandemic has cut international tourist arrivals in the first quarter of 2020 to a fraction of what they were a year ago.

Closing borders, tourism & travel ban

Countries all over the world applied travel restrictions to limit the coronavirus spread. Airport closures, the suspension of incoming and outgoing flights, and nationwide lockdowns are just some of the measures that countries are implementing in an effort to help contain the pandemic.

After the spread of the pandemic in the first two quarters of 2020, at least 93 percent of the global population lived in countries with coronavirus-related travel restrictions, with approximately 3 billion people residing in countries enforcing complete border closures to foreigners.

The decline of International Tourists during the Pandemic

The number of international tourist arrivals has been growing remarkably in the last decade and still sustained growth throughout the last years; in 2017 arrivals reached a total of 1.3 billion globally, 2018 reaching 1.4 billion and 1.5 billion in 2019.

In 2020, and with the severe impact of the COVID-19 Pandemic, international tourism went down by 22% in Q1 and by 65% in the first half of 2020 when compared with 2019 figures.

In March 2020, the UNWTO proposed 3 scenarios for possible declines in arrivals of 58% to 78% for 2020 depending on the start point of gradual opening of borders and lifting travel restrictions.

According to the UNWTO’s March forecast and its September update, the recovery for the industry might be in 2021 and domestic demand is expected to recover faster than international. In May 2020, the majority of the UNWTO tourism experts expect to see signs of recovery by the final quarter of 2020 but mostly in 2021.

Covid-19 and Airline Failures

The International Air Transport Association (IATA) financial outlook released in June showed that airlines globally are expected to lose $84.3 billion in the year of 2020 for a net profit margin of -20.1%. It also stated that revenues will fall by 50% to $419 billion from $838 billion in 2019. In 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion.

IATA’s Director General and CEO, stated that “Financially, 2020 will go down as the worst year in the history of aviation. On average, every day of this year will add $230 million to industry losses. In total that’s a loss of $84.3 billion”.

What’s shocking is witnessing how many airlines have failed during the coronavirus pandemic. And even for airlines that are still in business, the situation is severely difficult: e.g. the US carriers have given out $10 billion in vouchers due to the pandemic. Listed below are a few examples of the biggest coronavirus-related airline failures worldwide.

– LATAM: To date, Chile’s LATAM is the largest airline to file for U.S. bankruptcy protection in May due to the pandemic. LATAM says it will continue flying as it restructures its debts in bankruptcy court.

– Avianca Holdings: The second-largest carrier in South America, Avianca survived the Great Depression – but not coronavirus. The airline filed for Chapter 11 bankruptcy protection in May. Like LATAM, Avianca will continue flying during the restructuring.

– Virgin Australia: After almost 20 years of operation, Virgin Australia – the country’s second-biggest airline – filed for voluntary administration, the equivalent of bankruptcy restructuring. It’s the largest airline to collapse in Australian history.

– Flybe: The British regional airline Flybe was already struggling before coronavirus and both the UK government and Virgin Atlantic tried to save it. However, the airline entered voluntary administration, similar to bankruptcy, in March.

– Miami Air International: After 29 years in service, Miami Air International filed for Chapter 11, then proceeded to cease operations.

Hospitality Sector Hit by the Lockdown

The lockdown due to the pandemic has affected the tourism industry across the globe, and the hotel sector is among the hardest hit. Global hospitality data company STR compared 2020’s first quarter status to 2019 figures, hotel occupancy rates dropped as much as 96% in Italy, 68% in China, 67% in UK, 59% in USA and 48% in Singapore.

There’s no doubt that the hotel industry has witnessed a severe impact by the pandemic and the lockdown status. STR is also comparing U.S. Hospitality statistics between 9th of May 2020 to 11th of May 2019 and reported a sharp decline in global hotel performance indices:

– 55.9% decline in occupancy to 30.1%

– 42.1% decline in average daily rate (ADR) to $76.35

– 74.4% decline in revenue per available room (RevPAR) to $22.95.

Balancing the Return of Tourism Revenues and Safety

As of July 2020, the EU opened borders to tourists from 15 different countries leaving the U.S. off the list. Health officials developed a plan to classify accepted countries based on how the country is performing in controlling the coronavirus. A country is considered under control when they have a number close to or below the EU average for new coronavirus cases over the last 14 days and per 100,000 inhabitants.

On 15 June, the European Commission launched ‘Re-open EU’, a web platform that contains essential information allowing a safe relaunch of free movement and tourism across Europe. The platform will provide real-time information on borders, available means of transport, travel restrictions, public health, and safety measures.

Safe Tourism

Enabling tourism once again would require measures ensuring that people are and feel safe towards traveling. Global safety and hygiene stamps are awarded by the World Travel & Tourism Council (WTTC) to countries that are demonstrating their commitment to reopening their tourism sector as they recover from the coronavirus outbreak.

The WTTC, a council that represents private-sector travel and tourism, created the Safe Travels Stamp to allow tourists to recognize governments and companies around the world which have adopted health and hygiene global standardized protocols – so consumers can experience ‘Safe Travels’.

Eligible entities such as hotels, restaurants, airlines, cruise lines, tour operators, attractions, short term rentals, car rentals, outdoor shopping, transportation and airports, will be able to use the stamp once the health and hygiene protocols, outlined by WTTC, have been implemented.

As of September 2020, the ‘Safe Travels’ List included 100 destinations with Saudi Arabia, Spain, Portugal and Mexico among the first destinations to adopt the stamp and the Philippines as 100th destination.

The Return of Tourism Globally

With lockdowns ending around the world, many countries have started to ease border restrictions and reopen for international tourists. Although many governments are still advising against “nonessential” international travel, a host of popular destinations have eased their Covid-19 border restrictions and are readily welcoming tourists back:

– The European Commission has released guidelines for how its Member States can start to ease coronavirus travel restrictions and enable tourism to begin again

– The Baltic states are creating a “travel bubble”, allowing citizens to travel freely between them.

– New Zealand and Australia have committed to introducing a trans-Tasman “COVID-safe travel zone”, as soon as it’s safe to do so

– Destinations like Dubai, the Maldives, Egypt, Lebanon, Croatia, Kenya, Tanzania and Jamaica have already opened their doors to foreign visitors again, while Thailand hope to reopen soon

While tourism is slowly returning in some destinations, most members of the UNWTO Panel of Tourism Experts expect international tourism to recover only by the second half of 2021, followed by those who expect a rebound in the first part of next year.

However, there are still concerns over the lack of reliable information and deteriorating economic environment which are indicated as factors weighing on consumer confidence, especially with the potential new limits on travel as world comes to grips with second Covid-19 wave. The concerns over the “second wave” of coronavirus brought on by returning vacationers are wreaking havoc on the world’s tourism industry.

Mohamed Aref – Business Analyst