Travel providers face some tough decisions ahead. Here are some considerations with the current pandemic

An industry that saw unprecedented blue skies for years, is going to take the biggest hit in its history

Over the last decade the travel industry has seen booming growth year over year, and accounted for nearly 10.4% of the global GDP in 2018 (1). The World Travel and Tourism Council (WTTC) estimated that 1 out of every 5 new jobs was created by the Travel and Tourism sector. But this industry that grew faster than the global economy over the last decade is at significant risk. Travel and Tourism (like any other industry) did not account for closed borders and a sudden steep drop in demand in its risk strategy. How could it – no one saw a pandemic coming.

Financially, the Travel and Tourism industry will arguably be hit the hardest and longest. With ongoing operating costs and revenues down to zero in a matter of weeks, travel providers worldwide are struggling to keep their financials intact and have already announced large % lay-offs. WTTC projects a global loss of 75 million jobs globally (1). These numbers are staggering and should be a cause for concern for all governments.

While large airlines and hotel chains may have the financial strength to rough it out with government support, what happens with smaller travel providers and mom-and-pop businesses remains to be seen. This will largely depend on the actions taken by governments and society to swiftly contain the spread of the virus, and provide support to those severely affected to prevent families from going into debt. The prospects of international travel resuming to the pre-COVID peak seem grim until a vaccine is developed, but there is hope for domestic travel markets to recover a bit faster.

It’s going to be a difficult road ahead for travel providers to plan for the rest of 2020 and 2021. Providers will likely have to consider multiple demand scenarios (best, neutral, and worst case), understand the short-term changes in the industry with new restrictions, and quickly adjust plans for the short – and long-term to explore new opportunities in the sector.

Predicting demand uplift is going to be challenging with many uncertainties. Although domestic travel could start its recovery in 2020, the international market might be looking at a slower recovery starting in 2021

There are several factors that will determine how fast demand picks up, and it’s difficult to predict with models changing everyday. Although the overlying factor is how the spread of the virus is contained through mitigation strategies and development of a vaccine, travel providers should consider these 3 factors (among others) when thinking about demand:

  • Lifting of travel restrictions – Countries are on a different timeline with different levels of restrictions. When a country has overcome the peak and mitigated much of the spread, it is likely to still face the same threat of infection from outside until a large percentage of the population has developed immunity through exposure or a vaccine. There is considerable risk of re-opening borders too quickly and resuming travel as usual. As China and other countries in Asia start to slowly open up districts previously on lock-down, it will be important to see whether there is a resurgence of the virus, causing a second peak. It is possible that there will be some form of international travel restrictions in place for the rest of 2020 or until a vaccine is manufactured at scale, which will likely take anywhere between 12-18 months. Seasonality of the virus could also play a role, although there isn’t sufficient evidence to suggest that yet. Lastly – much of the decision will be placed on how society – which is currently (and rightfully so) prioritizing saving lives and the healthcare system than saving the economy – decides to deal with a resurgence or multiple peaks.
  • Lingering fear once restrictions are lifted – Even when travel restrictions are gradually lifted (likely domestic first, then international), initial fear of being stuck abroad or contracting the virus in an uncomfortable environment away from home will still persist. Early adopters – frequent travelers and digital nomads – will likely have some bottled up desire to travel and will grasp the first opportunity to board a flight. There will also be an initial cluster of people who are currently stuck in lock-down that will travel home to see family and friends. But the vast majority of the vacation travel market will wait for a comfortable and safe environment to travel, especially abroad.
  • The economic impact – The biggest uncertainty however is surrounding the economy – what is going to be the aftermath of the pandemic on the economy? To put things in perspective, 17M people have already lost their jobs in the U.S. (2), far eclipsing the jobs lost during the 2007-2009 recession, in just 3 weeks. The Great Depression in the 1930s had an unemployment rate of ~20% (3), surpassing which is a real possibility in the current crisis. The $2 trillion stimulus package will certainly help, but the economy will need a much larger stimulus to keep afloat for the duration of restrictions. The economic impact of the pandemic is going to be significant and it could take a few years to fully recover to pre-COVID levels. Although some, like the Oxford Economists, theorize that a V-shape rapid recovery is possible (4), that theory is heavily predicated on the assumption that COVID-19 is a short-lived phenomenon. That assumption is becoming increasingly unlikely, and many economists and investors now believe a much slower recovery is likely (3). If mitigation efforts and government support are not effective until a vaccine is developed, or if there are multiple waves like the Spanish Flu in 1918, a pandemic of this proportion might cause too much global economic stress and the trajectory could be one with a longer depression at the bottom (an L-shaped curve) and a slower demand recovery.

There are many more variables that are changing everyday, like what happens to the political and economic situation of the EU with countries like Italy in considerable debt. Predicting the global recovery is difficult, but it’s important for travel providers to monitor and consider these outcomes to adjust their demand forecast and strategy in the short-and long-term.

Travel experiences will likely look a little different in the immediate future

How governments respond in the next few weeks and months will be critical in mitigating the spread around the world. While domestic travel might be gradually enabled after countries are past their peak, international travel will likely resume at a slower rate with new restrictions in place for the first few months as governments evaluate how the virus behaves. This means vacation experiences might look a little different in 2020 and 2021, and travel providers will have to adapt to the changing environment in the short-term. Some possible changes could include –

  • Restrictions on group gatherings, which will impact group travel companies
  • Closure of popular tourist spots to avoid mass gatherings
  • Mandatory quarantine measures for upto 2 weeks on arrival
  • Frequent temperature checks and mandatory wearing of face masks when outside
  • Etc.

This will fundamentally change the type of experiences travel providers can create for customers with many of their previous offerings no longer viable with such restrictions. E.g. – group travel providers that host 20+ customers at a time might not be allowed more than 5-10 people to travel in a group. Even though travel companies have always pushed boundaries with new adventures around the world, they will have to make tough decisions and cut back on certain destinations due to increased risk. Many destinations, like some European cities, might be off the list in the short-term entirely, but new destinations, especially local destinations, could emerge.

Looking forward, travel providers can benefit from exploring new avenues, rethinking their operating models, and establishing new procedures to plan for outcomes they previously didn’t have to consider

  • Short-term focus on the domestic market – The international travel market can be a long-term play, but travel providers can benefit from pivoting to the local business model in the short-term until international demand grows with lowering of restrictions. As international destinations remain closed temporarily, avid travelers will turn to local getaways. This is a good opportunity for complementary providers to partner on providing travel services. Those who have local expertise can leverage partners with a vast network of travelers, and vice versa.
  • Remote work will become more prominent – The current ways of remote working could establish a new normal in the workplace where remote work environments become more prominent. Although more employees have been demanding flexibility to allow for remote work over the last 5 years, that demand is likely only to grow post-COVID. A hypothesis is that more people will value saving commute time in favor of spending time with family and pursuing personal interests like traveling. Employees would have tasted the ‘work from home’ life for several months and will at least value the flexibility more than before. Companies that were previously reluctant to the remote model, would have also noticed that productivity has not reduced (for those who were set up properly for remote work), and they can save substantially on real-estate to reinvest in their people. The added time and flexibility that remote work provides to people will hopefully boost the number of travelers in the long-run, offering an opportunity to create more remote-work travel experiences.
  • Lean operating teams – Smaller companies focused on providing travel experiences already operate in a lean environment, but more travel operators are likely to shift to a contractor model vs. long-term hiring until the market is more stable. Although this might add additional cost in the short term, it will hedge against uncertainties in demand and travel restrictions. Learning from the recent layoffs, travel providers will likely adopt a leaner model with more remote and contract based positions than before.
  • Build in new policies to plan for COVID – what happens if someone shows flu-like symptoms on your trip? What happens if a country is showing signs of a second wave and another potential lock-down? These and many more situations will require strong preparedness as soon as travel resumes. Re-thinking and brainstorming all scenarios with local teams on the ground will help companies better manage adverse outcomes. Consumers will (and should) demand the extra preparedness, and providers should reassess their risk strategy when hosting international trips.

Although the next few months are scary and uncertain, the Travel and Tourism industry has bounced back before after economic recessions and showed that it’s a foundational part of the global economy. It employs 330 million people globally (5), and the survival of the industry is not a luxury, but a necessity that will require a change in fiscal policies and robust support from governments. This industry forms the backbone of many countries’ GDP, and can be an integral part of its economic recovery. Once the virus is contained and managed by the healthcare system, there is hope to return to positive growth. Until then, patience will certainly be tested, but agility, creativity and perseverance will prevail.

Sources:

  1. https://www.wttc.org/about/media-centre/press-releases/press-releases/2020/latest-research-from-wttc-shows-an-increase-in-jobs-at-risk-in-travel-and-tourism/
  2. https://www.politico.com/news/2020/04/09/coronavirus-unemployment-claims-numbers-176794
  3. https://www.theguardian.com/business/2020/mar/21/100-years-on-another-great-depression-coronavirus-fiscal-response
  4. https://www.spectator.co.uk/article/oxford-economics-predicts-a-quick-post-virus-recovery-with-one-big-caveat
  5. https://www.wttc.org/about/media-centre/press-releases/press-releases/2020/eu-travel-and-tourism-sector-will-be-critical-to-the-eus-economic-recovery-says-wttc/
Sharan Chawla

Sharan Chawla

Founder of The Out Of Office Club

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