Is Recovery Doable?
The elected and appointed men and women working in Washington, DC, spend most of their time pointing fingers at each other, creating mayhem, dissention, confusion and ultimately disasters, wrecking (perhaps destroying) the world economy. One of the biggest losers in this “He said. She said” fiasco is the tourism industry and its partners, including (but not limited to) destinations, hotels and travel/transportation, restaurants, travel agents, tour operators, stadiums, and conference centers.
As of October 2, 2020, there were 34,567,664 reported cases of Coronavirus with 1,028,990 people dead from the disease ( www.worldometers.info/coronavirus/ ). After over nine months of acknowledging and dealing with this pandemic, leaders are no closer to corralling this virus then they were when it was first identified. It is about time to stop name calling and blaming and the perfect time to round-up the scientists, address the disease for what it is, take an inventory of the harm it has caused, and develop/implement solutions that will enable the world to reboot, creating new routes to economic recovery.
COVID-19 has disrupted both the demand and supply side of the tourism global value chain (GVC). Unlike previous natural disasters, global capacity (i.e., hotels, restaurants, stadiums, airlines, airports) are in place, but out of use, providing opportunities for a rapid recovery once the virus becomes neutralized.
A review of earlier natural disasters, from earthquakes in Japan to SARS in China, Hong Kong, Singapore and Taiwan, finds that quick recovery is possible when strong containment policies are in place and there is flexibility in the global value chain (GVC). The World Bank (2020) highlights the importance of early mitigation policies during the initial stages of pandemics as the costs associated with the crises will increase significantly as the virus spreads through several locales – all experiencing the pandemic shock concurrently. The expenses and risks associated with pandemics require coordination locally, with nearby cities/states, and internationally with countries, to mitigate pending economic disruptions in terms of unemployment, corporate bankruptcy, financial market fragility, collapsing infrastructures and fractured healthcare systems.
The World Bank study (2020) projected that global GDP would fall by more than 2 percent in 2020. The International Labor Organization (2020, ILO) projected that COVID-19 would lead to a 6.7 percent decline in working hours, which is equivalent to 195 million full-time workers in the world, including approximately 125 million full-time workers in Asia and the Pacific. Overall, the social distancing measures are affecting approximately 2.7 billion workers, which represents approximately 81 percent of the world’s workforce.
Health Linked to Economics
We are experiencing COVID-19 from two points – one is related to human health and well-being and the other is shock to the economy (along with the risk of a financial crises). All of this is taking place because of a poor (or non-existent) health policy response that has paved the road to a heavy disruption in the GVC on the supply and demand sides of production and consumption.
Place Thumb in Dike
The World Travel and Tourism Council (WTTC) (wttc.org/COVID-19/Government-Hub) urges governments to support the travel and tourism sectors by:
1. Protecting the livelihoods of workers, providing financial assistance and income protection,
2. Fiscal support in the form of interest–free loans to global, small and medium-sized businesses as a stimulus to prevent their collapse and the postponement of government dues and financial demands on these sectors for least the next 12 months,
3. Injecting liquidity and cash to support all industry participants.
4. Gloria Guevara, the WTTC President and CEO, in a letter to heads of governments, requested world leaders to get the industries, “out of the crises.” Summarizing the current situation, she stated, “We have reached a stage where critical action is urgently needed…. We need to transcend politics and put millions of livelihoods…front and center. This is not a binary solution or a choice between health on the one hand, and job, the economy and travel on the other. We can make strong progress on all these fronts if we follow the expert advice from science and learn from the past and positive experiences of others.” Guevara found that, “leaders…must come together and prioritize rescuing the world from this unprecedented crisis by acting…in a coordinated way to bring back more than 120 million jobs…” In the letter, signed by industry leaders, she identified four measures requiring a concerted international framework and leadership:
a. Masks should be mandatory on all modes of transport throughout the journey of the traveler, plus interior venues and in locations where there is restricted movement resulting in close personal contact and physical distancing cannot be maintained. This could reduce the spread by up to 92 percent.
b. Test and contact tracing. Governments must invest in and agree on extensive, rapid, and reliable testing in under 90 minutes, at a low cost, before departure and/or after arrival, supported by effective and agreed upon contact tracing tools and protocols. The test(s) should be repeated within 5 days and be used to replace blanket quarantine, reducing the negative impact on jobs and the economy.
c. Reinforce global protocols and standardize measures to rebuild traveler confidence, ensuring consistency aligned to the travel experience and reduce the risk of infection.
The WTTC has determined that even a small resumption of travel can have a massive economic benefit, bringing thousands of jobs back and provide assistance to the struggling business sector, generating GDP for economies struck by the pandemic.
Financial Help. Never Enough
To stem the economic hemorrhaging caused by COVID-19, some governments have implemented massive relief packages. The Chinese Ministry of Finance injected $16 million into the economic funnel and $261 billion for new government bonds to support provincial–level governments. The US Senate passed a $2.2 trillion relief package. The EU countries, Australia and East Asians countries also introduced financial assistance. The International Monetary Fund provided funding for low-income IMF countries including Morocco, Tunisia, Madagascar, Rwanda, Guinea, Gabon and Senegal, with Ghana receiving the largest sum of $1 billion (April 2020; iclg.com).
In August 2020 McKinsey (mckinsey.com) analyzed stimulus packages across 24 economies (totaling $100 billion dedicated directly to the tourism sector; nearly $300 billion with a heavy tourism focus). The stimulus sources included multiple entities and government departments with a few countries offering a single integrated view on beneficiaries and losers. In the survey of the effectiveness of public sectors responses, McKinsey found that two-thirds of tourism participants were either unaware of the measures taken by government or felt they did not have sufficient impact.
McKinsey found that most of the $100 billion was made available in the form of grants, debt relief and aid to small and medium-sized enterprises (SME) and airlines. New Zealand offered a $10,000 grant per SME to cover wages; Singapore presented an 8 percent cash grant on the gross monthly wages of local employees; Japan waived the debt of small companies where income dropped more than 20 percent; Germany allowed companies to use state-sponsored work-sharing programs for up to 6- months and the government offered an income replacement rate of 60 percent.
According to research conducted by McKinsey, it will take 4-7 years for tourism demand to return to 2019 levels; therefore, over-capacity will be the new normal in the medium-term. Prolonged periods of low-demand will require new financing schemes. Options include: development of revenue-pooling structures. Hotels competing in the same market(s) in the same locale(s) pooling revenues and losses while operating at reduced capacity. This would allow hotels to optimize variable costs and reduce the need for additional government intervention. Non-operating hotels could take stimulus funds and use the money to refurbish their properties or for other investments that would enhance the attractiveness of the destination. Governments would provide oversight through audits and escrow accounts.
Alternatively, government–backed equity funds could be made available to deploy private capital to ensure that tourism–related SMEs survive. This would reduce the overall risk for the investor and develop a standardized valuation methodology avoiding lengthy due diligence processes on each asset.
The American Hotel and Lodging Association (AHLA) has urged elected officials to pass relief measures before they leave on recess, ahead of the November election. Without a stimulus package the economy could move into a double-digit recession. In addition to the staggering human and financial losses in the hotel industry, thousands of pilots, flight attendant, gate agents and other airline personnel have been furloughed or fired. Chip Rogers, President and CEO of the AHLA stated, “millions of jobs and the livelihoods of people who have built their small business for decades, just withering away because Congress has done nothing.”
What will life after COVID-19 look like for the multi-sectors of the tourism industry? Most researchers and industry leaders agree that it will not look like 2019 (or earlier). Successes in the future will rely on embracing digitalization, leveraging new technologies and carefully monitoring shifts in consumer behavior.
The sectors, traditionally characterized by human interactions, will be replaced with touchless experiences involving robots and other tech-focused experiences. Sustainability will play an important role in building a resilient and flexible business model resulting in an enhanced economy, plus social and environmental viability in the long-term.
Changes in Consumer Behavior
From lock-downs, quarantines and children returning to the “family” home, to concerns about the economy, personal employment, plus health and wellness anxieties, consumer spending and behavior is in flux. Trends indicate there is a strong desire for domestic travel with destinations reachable by car that are paired with an increased interest in open spaces with fresh air, and private accommodations. Potential travelers have a desire to avoid high-density accommodations and activities, and do not want to mix too closely with strangers (especially on cruises and long-haul flights).
While there is a preference for active holidays involving fitness (i.e., hiking, cycling), there is a decline in consumption along with an increase in frugality, potentially leading to a fall in discretionary leisure spending. Consumers want to be seen (through social media images) as being responsible and safe, with travel plans evaluated through the lens of “what is safe,” rather than “what is popular.” There is a strong awareness of COVID-19 and its impact on small businesses and the livelihoods of local communities leading to prioritized spending with SMEs in order to support local enterprises (etc-corporate.org).
Industry Responds to COVID-19
Sif Gustavsson, Former Director, Visit Iceland USA; Currently CEO Iceland Cool stated that, “Tourism is Iceland’s largest industry.” In 2019, over 2 million foreign visitors visited Iceland with approximately 2 million arriving on flights through Keflavik International Airport, representing 98.7 percent of the total number of visitors. Because of the pandemic, the number of passengers arriving at Keflavik Airport, as of June 2020, declined by 96 percent. Overnight hotel visits decreased by 79 percent in June, and 87 percent in May (grapevine.is).
In order to maintain the tourism industry Gustavsson identified a few of the components of the Iceland Stimulus Package:
1. Abolishes hotel taxes
2. Covers part-time unemployment up to 75 percent
3. Provides funding for travel companies
4. Offered travel Vouchers ($35) to all citizens in March to motivate local summer travel
5. Makes contact tracing app available for residents and visitors
6. Develops plans for post-COVID-19 through an International symposium (September 30) hosted by the Prime Minister of Iceland.
At this time, Iceland’s borders remain open to select EU and Schengen states and Canada; however, there are restrictions; tourists violating quarantine restrictions (2 COVID-19 screenings; 5-6-day quarantine), are fined $1800. If you are considering travel to Iceland, review the official COVID-19 website for updates ( www.covid.is/english ).
Kim Gauthier, Senior Vice President, Asset Management, hotelAVE and President of the Hospitality Asset Manager Association finds that the American Hotel Lodging Association, “is on the front lines advocating for the industry.” The organization, “recently launched Safe Stay, an industry-wide initiative to help educate the public on the protocols being taken within the hotel industry.” Gauthier stated that the association was, “instrumental in extending the PPP covered period from 8-24 weeks….and, “serving as an exemplary model for the industry.”
Gauthier recommends the industry explore new areas for growth including, “flexcations or schoolcations” are “specifically for luxury resorts where guest engagement is high and the property’s expansive grounds allow them to be creative.” Identifying other trends, Gauthier notes, “longer-term leisure bookings and requests for multi-bedroom suites as guests are looking to turn their vacations into temporary homes.” Noting an increase in the use of technology, Gauthier cites “touchless experiences like digital keys and chat functions,” to make the guest feel safer. She also finds that guests are inquiring about the “change in cleaning processes and frequency of associate testing,” making “higher standards and protocols” mandatory, “telling guests is not enough; they want validation.”
Bruce Rosenberg, President of the Americas and Chief Operating Officer of HotelPlanner, acknowledging the COVID-19 shake-up of the travel industry, has determined that the nature of travel is changing. “A new normal is emerging which includes lower demand,” combined with increased costs linked with the need to lower rates in order to drive demand. With COVID-19 there is, “a perception that travel creates anxiety and stress that outweighs the need to get away to rest, recover and have new experiences.” Rosenberg addresses other management challenges, “dealing with all the different COVID restrictions at the federal, state and local levels for hotel operators. For consumers/travelers keeping track of COVID infection rates in a specific city, quarantine requirements and other regulations is increasing the overall hassle of travel.”
Rosenberg is optimistic about the future, finding that people want to travel and there is demand for vacations along with visits to friends and family, plus a desire for group travel to specific events like youth tournaments. Rosenberg finds that, “People feel travel is a right and want to exercise this freedom.”
Initially travel demand will be local with “International travel slow to bounce back.” For domestic travel Rosenberg recommends creating a website that acts as a clearing house for accurate information including government regulations (city, state and federal levels), steps initiated by specific providers to reduce and manage risk, infection rate updates, destination profiles that includes safety based on measurable data points and other incident outbreaks (i.e., flu, colds) and data from providers on the actions each is taking to insure safety and security. According to Rosenberg, every vendor website should include facts, “prescribed by the government so…information is front and center.”
Greg Tipsord, CEO of ViaClean Technologies, suggests the industry focus on the “demand for enhanced cleaning and sanitization procedures. Pre-COVID-19, cleaning was a behind–the–scenes tactic. Now, cleaning procedures are at the forefront…when travelers are considering booking a trip.” Tipsord recommends that hotels, “adopt enhanced technologies,” and be “transparent about the products being used that ensure…health and wellbeing…” He notes that hotels and travel organizations will, “see more bookings and revenues…as travelers…feel safe…”
Tipsord cites the airline industry, referencing the challenges they face as they try to fill seats, addresses the fact that among consumers, “many still fear being in crowded spaces.” Pointing to the private jet industry he notes that there is a surge in demand due to, “enhanced procedures and safety precautions…” He stated, “Jet Linx adopted the Bioprotectus System to sanitize its jets and terminals for up to 90 days,” and makes proprietary hand sanitizer available for all staff and clients. Because of the sanitizing protocols, the company reported increased reservations.” Tipsord finds that, “People want to get back out there and travel, they just need to feel safe to do so.”
No Going Back
In the “Before Time” (pre-COVID) the industry was on a successful trajectory and there were no signs or signals to suggest that growth would not continue. Unfortunately, COVID-19 has moved the industry into a new dimension. What will the future present? Reality is likely to be unpleasant as country borders may not be fully open for many months thus restricting or halting the movement of people. Business travel will be reduced as online meetings have become “normal.” Most multinational corporations are not approving travel for their employees even to the point where they are cutting the number of staffers commuting to their workplace. The MICE market is comatose and will remain this way for the foreseeable future. Global events (conferences, launches, festivals, seminars, conventions, sport events) might slowly begin to emerge (in smaller – lite versions), in mid-2021 if/when a viable vaccine is introduced.
Future considerations will focus on:
1. Sanitation and Hygiene. New standards for cleaning, regulated by governments.
2. Health. Checks may be mandatory at airports, prior to entering a hotel or restaurant, with on-going monitoring through electronic surveillance. Access to medical facilities, and telemedicine technology should be featured in destination and hotel promotions.
3. Brands. Enterprises associated with high standards for health and hygiene will win as the most desirable properties shift from location and design to safety and security.
4. Visible Value. Guests must be able to clearly identify the link between quality and price, established on a personal level and able to be validated.
Perhaps, Maya Angelou, the American poet, memoirist and civil rights activist is our best guide.
Maya Angelou, I Know Why the Caged Bird Sings
© Dr. Elinor Garely. This copyright article, including photos, may not be reproduced without written permission from the author.