A WORLD LESS TRAVELLED

May 22 2020: As industry observers have begun plotting the timeline for a reopening of international travel and tourism, this edition of our NAO What Series examines the structural and behavioral determinants of whether or not the global travel market will return to normal anytime soon. We look for signs of a new dawn and wonder what the future has in stall for Europe’s urban destinations. But before you read any further, a friendly warning might be in place if you are having a bad day with Corona-blues and longing for the good old globe-trotting-frequent-flyer-days-of-endless-metropolitan-exploration-and-first-class-conferencing…then, perhaps you need to stop reading now. The thing is, it will take a good while for urban travel and tourism to recover from the coma. It is certainly not a reopening next month. Nor will it rebound next quarter, and it might not be in 2021 either. Sorry.

RE-OPENING IS NOT A RECOVERY

As of today, May 22nd 2020, many industry analysts and observers are plotting the timeline of re-opening of international travel and tourism. SKIFT are living fully up to the meaning of their name with this great, constantly updated Global Travel Re-opening Timeline. But as we will argue in this article, re-opening is by no means the same as a re-bounce, nor a return to normal anytime soon.

Global travel and tourism industry have never been a sector in itself, even though it is often described that way. Instead, it is a mirror of economic and cultural globalization and the modern cityconomy transcending 75 years of constantly accelerating urbanization and connectivity. Cities have become vibrant hubs of economic activity, consumption, cultural expression and experiencing for a new global middle class – interconnected by trade, communication and hundreds of millions of travelling citizens in a seemingly unbroken up-ward pointing curve.

Until now. The pandemic has appeared as the unimaginable and instant showstopper – not just for the travel industry and destinations heavily dependent on tourism – but also for the entire world economy and perhaps for globalization itself. This is our fundamental understanding of the economic nature of travel and tourism which explains why we do not believe in the V-curve.

Again, as Group NAO, we do not pretend to have the answers nor that we can predict the future. But we work hard to maintain an overview of the relevant factors and trends that are likely to determine market trajectory and dynamics along with the strategic agenda of its major players.

10 REASONS WHY INT’L TRAVEL WON’T REBOUND ANYTIME SOON

What started out as an unexpected disruption from nature – “a bad flu season” – expected by many to go away with summer and the lifting of the political lock-downs, has now clearly evolved into a global crisis and looks more and more like a protracted, multi-dimensional and structural break down of the travel ecosystem altogether – perhaps even a temporary roll-back of globalization itself as discussed in this article in Politico. In fact, we see a number of reasons why international travel will not rebound any time soon:

1) The crisis is much more than a virus outbreak – it has quickly become a structural crisis with more than 39 million unemployed people in the world’s biggest economy – still counting – and many millions more to follow elsewhere. Plummeting world trade, fast rising debt and deficits, drop in private investments, depressed real-estate market, shrinking private consumption, volatile bear markets…The IMF anticipate the worst economic fallout since the Great Depression, and all of this hold dark promises for global travel, whether for business or pleasure, much like, but also more severe, other crises before this one.

2) Both airline and hotel bookings have cratered to near zero, and there is little sign of life in the foreseeable booking patterns. On the contrary, according to the excellent data monitoring by ForwardKeys, there are more cancellations than bookings in all regions of the world as of April 22nd. Europe is down almost 50% on YTD bookings compared to last year and there are no significant signs of recovery in the long-term forward booking patterns which have crashed with more than 84% from January. People still search and dream of travel, and according to the Brussels-based travel research and intelligence company, TCI, there are good signs that travel sentiment is gaining, but still, nobody is booking.

3) Thirdly, it is not just the demand side. Air-connectivity has dropped. Again, according to ForwardKeys, airline seat capacity between the cities of the world has dropped almost 90% compared to last YTD. Airlines are grounded all over the world and have suspended or laid off employees by the thousands. Some are already bankrupt or – like Norwegian – under financial reconstruction. SAS, Virgin Atlantic, Lufthansa and Air France-KLM, have begun to retire the biggest and oldest planes in their fleet. In any case, it will take time to rebuild operations and capacity. Yes, a number of airlines now say they will resume flights over the next month – among them Europe’s biggest airline, Ryanair, which announced they will be taking off with only 40% of their capacity in early July. However, according to Wired Magazine, this might not just be in anticipation of rebounding demand, but a crucial way to avoid additional refund claims to the millions which have already piled up. Looking further ahead, McKinsey recently released two new scenarios for the global airline industry – a “positive” one in which 2020 will be a bad V-shaped dip of 50% and a pessimistic one, where air travel demand drops by about 60% to 70% in 2020 and does not recover to pre-crisis levels until 2023 or even later.

4) Capacity utilization will go down: Airlines will most likely have to redefine their benchmarks for capacity utilization when the skies open again. As we write this, there are many scenarios at play in the industry as to how the airlines can maintain social distancing onboard and create the new perception of safe flying either with sectioned boarding, without the middle seat, with everybody wearing masks (as recommended by IATA), with increased turnaround and boarding times etc. It seems very unlikely, that yesterday’s capacity utilization can be upheld. Also, customers may react negatively, if the flight either is or seems full – as was seen recently on an Iberia Express Flight between Madrid and the Canary Islands.

5) …and of course, this means that the price of air travel will go up. Many airlines will try to stimulate demand with discounts, but the underlying determinant is still one of reduced competition and capacity which in turn means that operation costs go up, and so will the price of flying for travelers. The era of cheap air travel is over for now, and we speculate that millions of travelers will have to reconsider their long-haul destinations one more time as will the corporate flyers who have meanwhile been accustomed to both virtual meeting culture and cutbacks on corporate travel budgets.

6) Add to this the new hassles of travel – as if it wasn’t enough already, it will be a while before we see a fast track for corona-checks. Instead, industry strategists and developers speculate that we will have a new layer of epidemiological security controls – even passports documenting our immunity and health status when we embark the plane or disembark for migration; the UNWTO and the Canary Islands have already announced a pilot project with Digital Health Passports. For at full overview, see how Simpliflying predicts “The Rise of Santized Travel” in this creative illustration.

7) Regulatory lockdowns and border controls – In the western world, almost all countries have imposed severe travel restrictions, border controls, visa limitations and flight restrictions etc. which are effectively preventing people from both leaving and arriving. As we write these lines, only a little handful of the world’s nations have remained open for travelers (see map by Kayak here) and it is fair to assume that the gradual opening will not be symmetrical, nor irreversible, if local infection rates pick up again. Most likely, we are looking at a scenario of regional travel bubbles (as sliced by SimplyFlying here) or politically regulated travel corridors, which are now discussed at EU-level and between nations in the Asia-Pacific. The point is that the map of regulatory pandemic – the map of Covid-19 travel restrictions – is as red as CDC’s map of the pandemic itself, and travel will remain depressed as long as this is the case.

8) The BIG travel scare… and yes, this point needs to be much higher on this list – and is already evident in recent market research on the world’s biggest travel markets: Both US and Chinese consumers are scared of travelling and for various reasons: Fear of being contaminated, fear of being quarantined, fear of being stigmatized, fear of personal finances. According to Destination Analysts, almost 64% of Americans say they will not travel during the Corona-crisis and nearly one-third say they will change the types of destinations and travel-mode. We see the same picture in China, where the consulting firm Oliver Wyman reports a wide spread consensus not to travel before the outbreak is completely over (83%) – mostly explained by fear of new virus outbreaks, work related issues and personal finances. Also, in northern Europe, the surveys are pretty aligned across borders: In NorwayDenmark and Germany, the vast majority of consumers say will not travel internationally this year. Roughly 3 out of 10 say they are afraid of the virus – especially when flying.  Looking closer, the travel scare is somewhat unevenly distributed on gender and age-brackets with women and elderly most deterred. The epidemic also impacts the choice of destination (nature/urban and local/international) and mode of travel (self-drive, hiking, cycling) and not large group travel, public transport, planes or cruise.

9) Political blaming breeds travel deterrence: Political disruption of travel is nothing new. Early in the Trump presidency, the US saw a real impact of the so-called Muslim travel ban on visitor numbers, but it is not the only example. Also, Russian, Chinese and European travelers have from time to time shifted their travel patterns for political reasons.  However, the toxic political blame game over the virus’ origin and the different government’s handling of the crisis, have taken the political disruption of travel markets to a whole new level. As documented by both Oliver Wyman and Dragon Trail Interactive in association with China Academy of Social Sciences (see this Group NAO interview with Roy Graff at 23.41 min), political hostility is most likely a major concern of Chinese travelers and their list of desired destinations have been radically reshuffled during the crisis. Where the US was clearly on top of the list before Corona, the US is now not even on the bucket list.

10) Miscellaneous consumer uncertainties – adding to all of the above, there is finally all the miscellaneous uncertainties that might come to haunt you if you are considering a long-haul travel anytime soon.  Am I insured? Can I buy an airline ticket? Will I get a refund if they cancel? Can I get home? Will the destination let me in? Do I need a biometric passport? Will I get quarantined? Will I get paid from my employer if that happens? Can I get off the cruise ship once I am there? Are tourists welcome at my destination?… Again, according to Destination Analysts, more than one third of Americans would feel unhappy or very unhappy to see their local community advertised as a place for tourists to come visit, when it’s safe again, and there have been similar signals of unwelcome by local residents, for example in Wales, where signs with messages like “Your holiday, our lives – turn around” or similar less politely phrased messages have appeared around the community.

YESTERDAY’S WINNERS STAND TO LOSE THE MOST

So, what does it mean for destinations? Who will win and who will lose? Well, it seems fair to assume that the cities topping yesterday’s comparative rankings of air connectivity, international investment, visitors, events and meetings now stand to fall the hardest. Monofunctional cities – cities heavily dependent on tourism – like Las Vegas, Dubrovnik and Venice already lead the drop while the more diverse business communities and locally sustained economies will probably be more resilient – cities like Dresden, Hamburg, Lyon, Stuttgart and Göteborg to name a few.

The chart below is built on TOURMIS data from Modul University in Austria and shows the degree of internationalization among European cities, giving an indication of which cities may get hit the hardest. In any case, the average of 58% international bednights across all the cities is definitely set to crater for 2020.

Tourmis data – Modul University, Austria

WHERE DOES IT ALL LEAD?

Only good data and the future will tell. On the first note, Boston Consulting Group have created a fine tableau with key metrics that will allow you to monitor both the reopening and the speed of recovery. Analyzing the trajectory of consumers, we strongly recommend this essay by Mikkel B. Rasmussen, co-founder of Red Associates, which reminds us to not only focus on the immediate changes in consumer behavior, but instead analyze the disruptive shifts in the deeper social structures that format our values and belief systems, social interactions, use of space and much more.

In any case, humanity will travel again. We always have and we always will. We know this, because the world of travel and tourism have experienced other big setbacks before such as 9/11 2001 and the SARS outbreak, 2002-2004, which we thought for a moment would change everything – and actually did leave some permanent marks, for sure – but ultimately didn´t do much to rock the foundation of the travel ecosystem.

The good news is that we all now get a chance to see the world clearly. We are in the midst of a historic standstill; we are in it together and simultaneously as it engulfs the entire planet. It gives us a unique opportunity to rethink where travel and tourism was really heading even before the crisis broke out.  From the disturbing whelm of overtourism to severe undertourism. From mass tourism to meaningful tourism. We – the travel industry and those who regulate it – still need to warp the common understanding of tourism from “more tourism” as a goal in itself to tourism as a resource or tool to create better life in our cities.  We have responsibility to #BuildBackBetter, and the moment is… NAO.