The travel and tourism industries are major components of the global economy. In fact, combined, they account for 10 percent of the world’s entire GDP. Therefore, the impact that the current coronavirus pandemic has on these industries foreshadows the economic challenges that lie ahead. Certainly, many businesses and sectors are suffering from the coronavirus pandemic. But those in the travel and tourism arena top the list. Thus, examining how they are dealing with this crisis offers some insights for all businesses.
Economics of the Travel and Tourism Industries
In looking at specific figures, we can appreciate just how severely these effects are on the travel and tourism sectors. The Global Business Travel Association recently conducted a survey to assess the impacts of the coronavirus pandemic. Based on survey results, it was estimated that businesses in these industries are losing $122.5 billion a month in revenues. This is from business travel alone. That is equivalent to $1.5 trillion over the course of the year, if the pandemic effects last. While roughly half of those surveyed expected the pandemic to last 3 months or less, others were less optimistic. More than 10 percent suggested the effects would still be felt a year from now.
In assessing the effects of the coronavirus pandemic thus far, the numbers are rather staggering. In the U.S., roughly 94 percent of all travel has been either cancelled or suspended. Other global regions have even higher figures in this regard, with all major areas being 95 percent or higher. This is a major issue for the travel and tourism because these businesses are highly dependent on constant cash flow. And while larger corporations may have assets to leverage for the short-term, small and medium size businesses don’t. All of these factors require business in travel and tourism to devise some creative strategies to survive.
“We’re talking about at least six to eight months down the road before flying starts to resume at anything approaching normal. And even then, we’re likely to see a significant reduction. One way or another, we’re going to have a smaller airline industry.” – Mike Boyd, Professional Airline Consultant
Aviation’s Response to the Coronavirus Pandemic
In total, the airline industry generates $2.7 trillion in revenues globally. But with the coronavirus pandemic, roughly 96 percent of all flights have been cancelled. In fact, 43 airlines have completed grounded their entire fleet. In the U.S., major airlines have requested government assistance in the face of their current woes. And recently, Congress passed a bill that will award the industry $50 billion in total in grants and loans. Half of this money will be awarded in grants if airlines meet specific requirements. The other half will be in loans, which will naturally increase their debt and make them even less appealing to investors.
While this will certainly provide some short-term guarantees for the largest airlines, it may be insufficient for the long-term. In fact, many are suggesting a minimum of $1 trillion may be needed. With limited capacity to pursue other revenue streams, this unfortunately represents the airline industry’s best hope. In the process, it is expected that many smaller airline companies will be unable to survive. This will likely not bode well for businesses or consumers in the future.
“Airbnb is in the worst of the worst situations. Unlike other tech firms, like Uber which can do deliveries instead of driving people, it can’t diversify. There’s nothing Airbnb can do to make money.” – Richard Holway, Chairman of Tech Market View
Travel and Tourism Challenges for Accommodations
The hotel and travel accommodations sector has notably been impacted by the coronavirus pandemic as well. Boutique hotels are relying on staycations to keep them afloat. Other chains are cutting costs as best as possible while similarly encouraging domestic travel. In a recent analysis by Kantar, television advertising is down 94 percent for the travel and tourism sector. Thus, the more traditional hotel and motel chains indeed look to be taking an expense-reduction strategy to weather out the storm.
Perhaps, no travel and tourism business has faced more significant challenges than Airbnb in these current times. In total, Airbnb has about 700,000 hosts who use their service. Likewise, last year’s revenues were nearly $5 billion. But with the coronavirus pandemic, bookings have fallen tremendously. Airbnb responded by offering full refunds to guests, but this resulted in a backlash from Airbnb hosts. The compensation offered was far from enough to support many hosts in this time of need.
To alleviate these complaints, Airbnb created a $250 million Host Relief Fund to compensate lost bookings at a 25% rate. And this required the company to borrow $1 billion in loans from hedge fund investors. Not only are these loans at a high interest rate (10%). But investors will also receive warrants for share exchanges at half the company’s previous valuation. It would seem Airbnb is getting it from all angles.
“We are here always promoting being a tourist around the U.S., discovering a new city you might not have thought to visit, but what about the places that are right in your backyard, that you never take the time to visit?” – Lillian Rafson, Founder and CEO of Pack Up + Go
Creative Strategies During Tough Times
Clearly, for many businesses in the travel and tourism industries, opportunities for viable solutions are limited. The coronavirus pandemic has wreaked havoc throughout the world with countries closing its borders and enforcing lockdowns. But even with these barriers in place, some creative businesses are exploring their options. For example, Pack Up + Go, a travel agency specializing in surprise vacation planning, is promoting local vacations. Rather than booking travel in the country or abroad, the company is marketing staycation packages. Similarly, some Airbnb hosts have begun advertising their properties locally as “quarantine vacation escapes.” Whether or not this will be enough to keep them afloat remains to be seen.
Other countries, like Greece and Spain, are promoting “Till Then, Stay Safe” campaigns. These ads encourage safety among travelers but keep their travel and tourism offerings fresh in mind. In doing so, they hope travelers will think of their destinations first. And other businesses, such as those offering virtual travel really stand to profit from the coronavirus pandemic now and in the future. Without a doubt, the travel and tourism industries are taking a huge hit. And those that are strong enough and creative enough will likely be the ones to survive.
