The pandemic has hit few industries harder than tourism. In the first half of 2020, tourist arrivals fell globally by more than 65%, compared with a decline of 8% during the global financial crisis and 17% during the SARS epidemic.
Outside of a brief recovery last summer, the industry has been struggling for the past year. Persistent travel restrictions have pushed the industry back to traffic levels last seen about three decades ago. International tourist arrivals declined by 74% year-over-year in 2020, a fall of 1.1 billion travelers. This translated to an estimated $1.3 trillion loss in tourism revenue globally.
The outlook for tourism remains difficult. According to multilateral institutions and industry experts, the industry will need up to four years to return to pre-pandemic levels of international tourist traffic and receipts. Though vaccines are promising, they are not an overnight cure for the broad challenges of Covid-19. As we wrote last week, vaccine nationalism is one factor. Uncertainty about the effectiveness of vaccines against new variants, as well as changing quarantine guidelines upon both arrival and return, will also keep travelers at bay.
As the market for travel reopens, leisure trips will rebound well ahead of business travel. This is a mixed outcome for airlines. Leisure travel accounts for the majority of airlines’ passenger volumes, but business travel is twice as profitable. According to the World Travel & Tourism Council, business travelers spent $1.4 trillion in 2018 on airlines, hotels, ground transportation, food and other services, with the U.S. and China alone accounting for half and Europe one-fifth of the remaining business travel spend. At best, business travel will recover slowly as employers stay cautious about endangering employees and receiving visitors. Demand may permanently decline as businesses adapt to virtual meetings and conferences.
It’s Going To Be A Long Road To Recovery For The Tourism Industry
Over the past decades, travel and tourism have grown in economic importance. Tourism activity is now a major source of employment and a key component of service exports. Among G20 nations, the travel sector accounts for about 10% of employment and gross domestic product on average. In some cases, the dependency is well above one-fourth of national output. Many island nations in the Caribbean and southeast Asia are almost entirely reliant on tourism. Several European economies, like Italy, Spain, France and Greece, will struggle to recover without a rebound in this vital sector.
According to research by the International Monetary Fund, a six-month severe disruption to hospitality and travel services would reduce the GDP by 2.5%-3.5% in G20 countries. The predicted losses to low- and middle-income economies were also significant.
The slower the recovery of tourism, the more lasting the damage to tourism-led communities and economies. Strong coordination among countries, including digitalization of Covid-19 screening and vaccination checks, will be essential to getting everyone back on their way.
Kicking The Bankruptcy Can
Recent policy interventions have been aimed at preventing the temporary disruption of Covid-19 from causing permanent economic damage. Some losses of revenues and payrolls have been inevitable, but that did not need to lead to lasting harm. By the measure of U.S. bankruptcy filings, these interventions have helped to stave off the worst outcomes, at least for now.
Bankruptcies provide a legal means for a debtor to move on from unaffordable obligations. Filings for individuals will curtail a consumer’s ability to borrow money for years to come, but will expunge most or all current liabilities. Corporate bankruptcies can mean a total liquidation that ends a business (chapter 7) or a reorganization in which debts are renegotiated (chapter 11), which can allow the business to survive.