Who would have guessed that in a brief period of time, a market and a city would become known the world over, and the world would face a crisis as severe as or worse than the flu pandemic of 1918. Purportedly spreading from a farmer’s market in Wuhan, the local cluster of victims spread the COVID-19 virus beyond the city to the region, to the country and beyond the borders of China. The insidious virus has cast a pall of fear, gloom and death throughout the world, catching countries and regions without strategies to deal with the pandemic, and throwing international and local health organizations and governments into makeshift strategies, responding without national or international coordination at differing rates of speed to the spread of the virus.
At the macro level, the impact on economies and livelihoods has vaulted from severe to catastrophic. Such development was experienced by the U.S. when unemployment insurance claims increased by over 6 million in consecutive weeks. In countries with relatively large informal economies, government decrees exacerbate the crisis by dictating social distancing, self-isolation, the closure of all nonessential businesses, social distancing and self-isolation. The impact of COVID-19 has been particularly catastrophic for the travel and tourism sector. The statistics on international air travel show the industry coming to an abrupt halt. The cruise industry has been upended with media sources characterizing ships as "ocean-going petri dishes" while showing the trauma and human tragedy of the cruise ships Ruby Princess, Zaandam and the Rotterdam. And for many countries, travel and tourism (T&T) play a large and critical role in their economy.
With that brief background, we review T&T, the basic reality, and from that, what strategies can be implemented to mitigate the economic and employment impact of drastically reduced international travel, a reduction of uncertain severity and duration.
The Impact on travel
The coronavirus arrived and changed the way we live and the way we travel. The near-term impact is likely to trigger economic recessions around the world. COVID-19 has brought a foreboding feeling about the future. At least in the near future, T&T will be different. Once-busy airports with thousands of travelers arriving or departing are now ghost places with deserted hallways, empty parking lots and mostly blank screens showing arrivals and departures.
Before the arrival of the coronavirus and during the period between 1950 and 2019, international arrivals achieved annual growth of between 5.5% in the Americas and 12.1% in Asia Pacific.
During a comparable period, between 1961 and 2019, the world GDP grew at a slower pace, less than 6% except for 1964, 1968, 1969 and 1973, and even posted a year of negative growth as a result of the 2008 economic crisis. The T&T faster-than-GDP growth indicates a growing dependence on travel-related revenues. Although the world economy grew, T&T outpaced the world GDP growth. The coronavirus threatens both. The ominous cloud of the virus presages an economic downturn and a worldwide collapse of the T&T sector.
Countries, where revenues from T&T account for 7% of exports or higher, will experience sector-related bankruptcies and worse unemployment figures than countries where T&T is less significant.
Thailand, Portugal, Jamaica, Spain, Turkey and the Dominican Republic where the T&T sector provides between 16% and 50% of the GDP from exports are more vulnerable to declines in arrivals. Those six countries are expected to experience the more severe economic blow due to relative importance of the T&T economic sector, and may not be able to recover in the short or medium term.
The volume of international visitors has provided income to the private and public sectors, both at the macro and micro levels. Goods and services are purchased from international chains of stores and hotels and also from mom-and-pop businesses in each country. The data for the U.S. excludes arrivals from Canada, a country with a 37 million population and 22 million visitors to the U.S., and Mexico because the cross-border traffic would distort the data.
Arguably, exports of T&T may have a greater impact on a country’s economy than other exports with a similar share of the GDP. For example, let’s look at the cases of Turkey and Colombia.
Total exports from Turkey in 2018 were about $168 billion (TL 1.17 trillion), the T&T share of exports was 16.6%, or about $28 billion. Machinery and iron amounted to $26.4 billion, or about 15.4% of exports. We may, safely, argue that T&T has a greater impact on the economy given that expenditures on local transportation, souvenir shops, tourist guides, restaurants, etc. are distributed among many more entrepreneurs and operators than the exports of iron and machinery. In other words, more people tend to be employed in T&T than mining, and machinery.
Total exports from Colombia in 2018 amounted to $41.8 billion. The T&T share of exports was 12.3% or $41.8 billion. Exports of coffee, tea, spices, gems, precious stones, iron, steel and sugar also amounted to about $41 billion, or about 12% of exports. However, more Colombians receive income from T&T than from coffee, gems and iron combined.
Secondly, the overall impact of COVID-19 on T&T will be devastating, at least in the short run. A large share of the labor force employed in T&T will be out of work. Considering that the first waves of unemployment affect those with a very small, or zero marginal propensity to save, aggregate consumption will decline to lead to greater unemployment levels.
In addition, according to Okun’s law, each 1% decline in unemployment will compound the economic crisis causing a 2% decrease in the GDP. Of course, professional government administrators and financial pundits are aware of the policies, government intervention and steps required to rescue a country from economic depression. However, success requires the governments’ will to stimulate consumption and growth.
From recent research in the FM Global Resilience Index, measures of recovery and the resilience of some economies indicate that the journey to recovery will be far more difficult for some major countries than others, with the strength and reliability of supply chains being one of the significant contributing factors. The dependence of many countries on T&T for employment, economic development and growth makes the quest for options and strategies to mitigate and even overcome these challenges imperative. We examine opportunities that may be extracted and exploited during and in the aftermath of the devastating human and economic tragedy that is the COVID-19 pandemic.
Potential opportunities
The coronavirus pandemic poses a massive threat to the health and lives of citizens across the world. Uncertainty of its duration has cast gloom on the world economy as reflected in dramatic declines in employment and the GDP, as exemplified by the U.S., and with worse to come.
In such a scenario, the short- to medium-term outlook for the tourism industry, as currently configured appears dire and demands an examination of possible, effective solutions.
Initially, the crisis affected Chinese tourists who are the biggest spenders in the world, far ahead of the Americans, with $277.6 billion in 2018, of which $4.4 billion was in France. Subsequently, the virus attacked the world’s top tourist destination, Europe. In 2018, the continent welcomed 672 million tourists, half of the international arrivals in the world. A third of European tourists travel to Italy, France and Spain. Thus, it is no coincidence that the three countries are also in the top six of the countries most affected by the coronavirus.
Europe has already lost at least 2 million hotel nights since January, and airlines have suffered a drastic downturn in activity, fly empty, and as a result, are already putting in place emergency plans to deal with potential bankruptcy.
Nevertheless, this unprecedented pandemic episode may also offer an opportunity to question the meaning of globalized tourism, inviting us to rethink a new start for the tourism industry, and unexpectedly, COVID-19 may allow us to analyze and compare old and post-virus pollution levels.
The pandemic, albeit temporarily, has stopped the "over-tourism," defined as the level of visitors that negatively impacts the local population. The negative impact may include pollution, over-crowding, rapid decay of infrastructure, destruction of cultural icons and ecosystem degradation.
Certainly, the causes of overcrowding are varied, among the more relevant culprits are low-cost air travel, the proliferation of cheap lodging, the elimination of intermediaries, seasonal tourism, the increase in standards of living across the world and the “must-see” inexpensive marketing phenomenon facilitated by the internet, especially on the likes of Instagram, travel advisors and tourist forums.
Will the coronavirus crisis be able to move the world toward responsible, sustainable and socially innovative tourism?
As a response to the need for sustainable and socially innovative tourism, the trend of “staycation” and “slow tourism” is growing. More and more destinations are promoting local tourism. For example, France already leads the way in establishing visitors’ programs such as #ExploreParis, Loire à Vélo and Un air de Bordeaux.
In addition, high-end hotels in Paris are now offering, to only the local population, large discounts for overnight stays. This form of staycation offers a new and local experience to area residents offering prized services and activities that allow area travelers to maximize vacation time, avoiding long travel times.
For the growth of staycations and slow tourism, the role of governments in providing the necessary infrastructure and in promoting the private sector’s commitment to invest in local tourism spots is expected to be critical.
Slow tourism seems to offer an alternative to both the hurried traveler and to the sun, sand and sea mass tourism initiated in the 1960s in the Mediterranean. Slow tourism requires acceptance of a slow pace, and greater personal interaction with the locals and their culture.
Advocates of this type of tourism promise a more authentic travel experience, a greater consumption of local products, preservation of heritage, use of clean energy, an ethical vision of tourism, and a deeper concern for the ecology and for the quality of life of locals and visitors alike. In addition, slow tourism in inland rural and urban areas could reinforce the local and autochthonous culture. The new approach to tourism could generate new businesses such as artisan and zero-kilometer markets; new micro museums.
From medium to long term
The digital world of computers has revolutionized the tourism industry at its core. The tourists have become highly digitalized and new business opportunities have emerged in the tourism industry.
In 2020, we no longer indulge in leisure activities as we practiced them just a few decades ago. Thanks to the digital world, consumers may now visit new and exotic places without leaving the comfort of their home – not to dismiss the economic impact on resorts, hotels, and employment at such destinations.
Indeed, if the rapid growth of the web-mobile continues as expected, consumers may use cell phones and tablets to surf the web, to find travel information, to plan vacations, to make reservations, and to pay for travel goods and services. The mobile web will be the pillar supporting and promoting e-tourism. In the medium term, the digital world is expected to be an engine of T&T growth dominating all aspects of the industry.
Therefore, to embrace the digital change and to grow, the tourism sector must be social, local and mobile. This approach emerged as a result of the growth of smartphones and the greater local precision they provide.
Although COVID-19 is probably the worst threat T&T has ever faced, there is some room for optimism. International tourism is resilient and new alternatives such as the staycation tourist, and the digital and virtual tourist, will assuage the concerns of investors in the T&T industry and of governments around the world.
Of course, a successful T&T future will see new types of traveler. However, a more proactive partnership between the government and the private sector will be indispensable. Overtourism may not be caused by unsuspecting tourists landing at airports and train stations too small to accommodate traveler volume.
Due to a lack of adequate infrastructure notwithstanding government revenues, the T&T sector may be labeled as an undesirable economic player and, in some cases, may kill a major contributor to economic growth. As COVID-19 runs its course, attacking health and economies, there is now an opportunity for potential hosts and guests to better prepare for a richer and more rewarding tourism experience.
*Ph.D. holder, Founder&General Manager at STRATEKO Economic Research & Consulting
**Founder of Ajupa Associates
***Senior partner at The CrossBrook Organization LLC
