Few industries have felt the sting of COVID-19 more than global tourism. Travel plans were instantly impacted by governments scrambling to repatriate citizens, border closures, quarantine rules and eventually, full lockdowns. Canadian snowbirds flocked home early and spring break for most was better measured in hours. Data now describe the devastation; can this critical sector rebuild when the COVID-19 storm passes?
Tourism typically tanks in a recession. Job losses and reduced incomes lead consumers to hack away at discretionary spending and unless the dream vacation is locked in, it takes a back seat to the necessities. At the same time, there are many with greater wealth or more stable income, like defined-benefit pensions, that are still able to travel and take advantage of recessionary discounting—these help to tide the tourism industry over to better times.
This time around, money wasn’t a factor. Restrictions applied to everyone, regardless of wealth, income or any other factor. Deep price discounting did occur as COVID-19 closed in on travellers, but the only takers were stranded tourists desperate for a speedy way home. As it happened, nobody was left to lure into the market. It hit so quickly that it was impossible to prepare.
Given the importance of this sector and its current duress, EDC Economics released a tourism impact analysis paper this week. It points out that, as in Canada, global COVID-19 travel restrictions began in March and as of May there are no international travel destinations that do not have some form of restriction. Moreover, 70% of Asia-Pacific countries have closed their borders to international tourists, while in the Americas it’s 80% and in Europe, 83%. The United Nations World Tourism Organization estimates that international tourism fell 22% in the first quarter alone, and that for 2020 as a whole we’re looking at something closer to 60 to 80%. This is the worst crisis to hit international tourism since record-keeping began in the 1950s, even eclipsing the aftermath of the 9/11 terrorist attacks.
In Canada, tourism generates almost $10 billion in output and accounts for up to 5% of total exports. This segment has been growing faster than the overall Canadian economy, mostly made up of small businesses with fewer than 100 employees. There are lots of businesses, however, and they provide jobs for 743,000 people. More than 40% of tourism-industry businesses expect to see a 50% decline in revenues in 2020, the highest proportion amongst all industries. Consequently, in the tourism-heavy accommodation and food industries, the layoff rate is 50%.
Although Canadians account for 79% of our tourism demand, it’s those from further afield that are the big spenders. The United States and China send the largest numbers of tourists; as such, the Jan. 29 ban on non-essential travel to China and the subsequent cancellation of Air Canada’s key China flights lowered arrivals from that country by 53% in February alone. The Canada-U.S. travel ban at the end of March lowered monthly arrivals of Americans by 55%.
The easing of travel restrictions has begun in countries showing success in COVID-19 containment. However, reopening plans are slow, deliberate and incremental. Some countries—such as China, Spain, Australia and New Zealand—have already hinted that the resumption of tourism may not happen in 2020. Most experts expect signs of recovery to be delayed until the final quarter of this year, with full recovery delayed until 2021.
For Canadian tourism, it seems that 2020 is largely a writeoff. Estimates from Destination Canada show that compared with 2019, 65% of tourism- and business travel-related events are cancelled, with events planned for later this year facing risk of the same. Assuming the virus is contained effectively, the losses to tourism revenue are projected to hit $29 billion for 2020 and 2021. Recovery of tourism activity depends on several factors, including consumer willingness to restart longer-haul travel, and the dreaded risk of a second wave of infections. Domestic travel is a bellwether: it will recover first as it’s less risky and easier to co-ordinate. Resumption of international travel will depend on bi- and multi-lateral co-ordination of travel activities.
The bottom line?
Global tourism will not quickly forget the COVID-19 episode—its scar is likely to be worn for at least a generation. With 2020 for the most part a lost cause, the key question for the outlook is how many tourism businesses will actually survive. Critical to this is how quickly and thoroughly the sector revives. Ensuring traveller safety is key. Prices also help—expect discounting to lure a first round of daring bargain-hunters. If that goes well, many operators may live to see another cycle. Fingers crossed.
This commentary is presented for informational purposes only. It’s not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.