Tracking the Return of Travel and Hospitality
A look at the present and future of airlines and hotels
The ongoing COVID-19 pandemic has proved especially difficult for the travel and hospitality industries. With travel restrictions, shelter-in-place orders, and consumers’ unwillingness to travel, airlines, hotels, and public transportation (among other industries) have all seen heavy declines in revenue. These industries will have to reimagine their pricing and marketing strategies to account for lower demand and cater to available consumer segments.
In my earlier article on key economic and financial indicators, I discussed the Bloomberg Economics Recovery Tracker, which chronicles the performance of various industries. Below is the tracker until August 28th, signifying the continued struggles of airlines and public transportation. The number of airline passengers dropped to a five-week low, and although the amount of new COVID-19 cases continues to decline, unemployment remains at over 1 million claims per week and consumer comfort continues to stagnate.
Airlines’ Troubles
Consequently, the airline industry has and will continue to suffer heavy losses. According to the Wall Street Journal, US Airlines could cut around 75,000 jobs in the fall. Furthermore, the International Air Traffic Association (IATA) predicts that the industry will lose $100 billion this year.
Moreover, the number of travelers at TSA checkpoints started to increase from dramatic lows in April, but has remained static from July till the time of writing. Data for September 1 shows a -65.1% year-over-year decline, suggesting that recovery will be a long and drawn-out process. IATA announced that global air travel is expected to return to pre-pandemic levels until 2024 due to the weak upturn being buoyed by domestic travel.
Hotels See Stagnation
The US hotel industry saw slight occupancy decline for a second consecutive week, although occupancy continues to follow a general upward trend since April. Occupancy measured at 48.2% for the latest week, a 27.7% decline year-over-year, whereas RevPAR (revenue per available room, measured as occupancy * average daily rate) declined to $47.38, a massive -44.5% drop from 2019.
Out of the top 25 markets, Norfolk/Virginia Beach, Virginia saw the highest occupancy at 60.6%l. On the other hand, Oahu Beach, Hawaii had the lowest occupancy with 26.6%. Hawaii is especially suffering from the pandemic’s weakening of tourism, as the tourism industry comprises 17%, the largest portion, of the state’s GDP. While tourism saw some improvement after the interisland quarantine was lifted on June 16, demand again plummeted when the ban was reinstated on August 11.
However, on a more positive note, Airbnb has seen a revival from reporting $400 million in adjusted losses for Q2 2020, recording a 22% year-over-year increase in consumer spending in July. With the stock market having recovered from its March lows, the online rental company filed to go public in late August, a dramatic turn from having to lay off 25% of its workforce in May.
Return of Different Travel Segments
Understandably, domestic travel is returning quicker than international travel given governmental policies restricting travel and decreased demand for travel between countries. Consumers and companies will continue with trips over drivable distances until their comfort with traveling with their families and employees over flights returns.
Additionally, McKinsey predicts that leisure travel will return before business travel. In past downturns, corporate travel has been slower and more volatile than leisure travel in its recovery. After the 2008 Great Recession, international leisure travel from the US took two years to recover, whereas international corporate travel took five years to return.
Furthermore, industrial sectors, such as construction, real estate, and machinery, are expected to be early rebounders for corporate travel. In contrast, service and knowledge sectors like science and technology could take longer, partially however due to their better ability to replace travel with telecommunication. Sectors such as energy and retail, which saw heavy financial blows, may also take years to return to pre-pandemic corporate travel levels. The US and Europe, which have higher proportions of business travel for service sectors, may see their corporate travel rebounding later than China, where industrial sectors are showing early signs of encouragement.
Looking Into Travel’s Future
The pandemic presents difficulties for travel and hospitality businesses, but also new trends that they can capitalize on. Overtourism in big cities has met its halt, but smaller rural towns have risen in popularity in an irreversible trend, according to Airbnb CEO Brian Chesky. Smaller areas allow travelers to explore and relax without worrying about the dangers that population density can bring in these times.
Moreover, the relative strength of domestic travel demonstrates humans’ need to explore. Pico Iyer, author of 15 books, including “The Beginner’s Guide to Japan,” predicts that “we will be traveling in June 2021 much as we did in June 2019,” as “cultural curiosity cannot be expunged.” International travel will also survive due to people seeking out family, according to Rolf Potts, author of “Vagabonding: An Uncommon Guide to the Art of Long-Term World Travel.”
The travel and hospitality industries will continue to experience significant lows compared to pre-pandemic levels for the foreseeable future. Businesses affiliated with these industries must reimagine marketing campaigns to cater to available demand segments. For example, hotels can target repeat customers and offer “book now, stay later” packages.
Among travel segments, domestic leisure travel will be the quickest to rebound, with families preferring to travel drivable distances and companies increasingly switching to telecommunications. Airlines may not reach pre-pandemic levels until 2024 due to the severe decline of international travel for both families and corporations. However, airlines and hotels have both seen upturns from their lows, and multiple experts are optimistic about new trends that the pandemic may give rise to, indicating that the industries have started their path to recovery.
