Tourism deals lingering blow to global economy

The blow that coronavirus has dealt to the global travel and tourism industry is set to do lingering damage to the world’s growth, economists warn, as areas that are dependent on visitors for their income struggle to reposition their local economies.

Tourism’s contribution to the global economy has risen over the past decade as the expansion of the middle class in emerging economies, particularly in Asia, translates into a rise in spending on leisure activities, including travel. The growth of low-cost travel has also boosted tourist numbers.

Globally, tourism accounts for one in four of all new jobs created over the past five years, on a net basis, and about 10 per cent of economic output, according to the World Travel and Tourism Council.

“The coronavirus pandemic triggered an unprecedented crisis for the tourism economy, which has significant implications for international service trade, jobs and growth that support many local communities and regional development,” said Lamia Kamal-Chaoui, director of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities.

Although tourism has long been a boon for some advanced economies, such as Greece, Italy and Spain, it has become a particularly important source of growth in recent years for many developing economies.

Column chart of Current $bn showing Asian spending on international tourism has surged

In some parts of the world, including South Asia, southern Europe and Central America, tourism contributes up to 30 per cent of the economy.

But with international tourism this year expected to put in its worst performance since 1950, both in terms of the number of travellers and revenues, that source of growth has turned into a vulnerability.

Globally, the number of foreign visitors fell by 57 per cent in March compared to the same period last year, according to data from the UN World Tourism Organisation (UNWTO) — that means there were 67m fewer tourists. In April, passenger demand plunged 94 per cent compared to April 2019, according to the International Air Transport Association (IATA).

Bar chart of % of GDP* (2019) showing Travel and tourism account for large share of some economies

Economic forecasts for tourism-dependent countries have been revised sharply downwards this year, and now they face losses of up to 10 percentage points of gross domestic product compared to pre-pandemic estimates.

The IMF has warned that tourist-dependent areas such as the Caribbean face their deepest recession in more than half a century.

But as countries scramble to help their devastated tourism industries, some areas have begun to develop potential solutions, starting with domestic tourism.

Bar chart of showing Tourism-dependent economies hard hit by economic downgrades

The beach town of Sanya, on Chinese holiday island Hainan, points the way. Hotel occupancy rates in Sanya are rising faster than in other Chinese tourist areas, according to data from STR, a hotel research company.

“The suspension of international flights makes Sanya one of the best options for China’s beachgoers,” said Susan Zhang, an official at the Ritz-Carlton Sanya.

Although the hotel’s bookings are still down on normal levels and it is offering promotional discounts to lure customers, the occupancy rate has “at least doubled” since it bottomed out in February when pandemic-related shutdowns in China peaked, she said.

A series of charts, one per region, showing how tourist arrivals fell sharply - between 41% and 64% - across the world

“China has started to see a recovery as lockdowns have lifted and hotels reopened across the country,” said Thomas Emanuel, STR director. “This is being driven by domestic demand, predominantly from the leisure traveller.”

Other countries, including Mexico, are also trying to boost domestic tourism in an attempt to replace the international visitors they have lost.

There are signs it is beginning to work; globally, visits to websites of hotels and other accommodation rose by 11 per cent in the last week of May, compared to the previous week, according to SimilarWeb, a company tracking internet unique visitors — but visits to airlines’ websites were up only 1 per cent. The number of global domestic flights increased more than international flights in May, according to IATA.

“Due to the number of international travel restrictions that remain in place, a domestic trip will be viewed [by many] as a more convenient option . . . More remote and rural destinations are likely to benefit, at least in the first stages of recovery,” said David Goodger, an economist at Oxford Economics who said the pandemic’s impact was “like nothing the modern [travel] industry has experienced before”.

That means regions which rely more on foreign tourism are likely to find it harder to recover, analysts warn.

“Both the US and destinations in Asia enjoy more domestic travel than international, meaning they are better placed to recover than destinations in Europe where international travel accounts for the lion’s share,” Mr Goodger said.

Column chart of % of foreign tourism by destination showing International tourism is largely regional

The next step in recovery is regional tourism, and again Asia is leading the way. A number of east Asian and Pacific countries are negotiating to form corridors or “bubbles” which visitors might be allowed to travel within without undergoing quarantine. 

In Europe, there are also hopes for a domestic tourism revival, and the EU is pushing for the return of intraregional travel, which accounts for about 85 per cent of European arrivals.

“We are starting to see some bookings, but the recovery is slow as there are no foreign visitors,” said Marina Lalli, president of Italy’s national association of travel and tourism. “This summer Italy’s tourism will be mainly local . . . We are not expecting international tourist arrivals to go back to 2019 levels until 2023.”

Even if countries succeed in boosting domestic and regional tourism, the travel industry will not regain its former strength in the short term, analysts warn.

The pick-up in domestic tourism helped boost occupancy rates in May compared to April, but hotels are still operating at less than half their capacity in China, one-third in the US and just above one-tenth in Europe, according to data from STR.

That leaves places like Hainan, where tourism has already begun to return, needing to adjust to a smaller number of visitors.

Line chart of Occupancy rate, % showing Hotel occupancy shows signs of recovery in China and US

“Sanya needs to change mindset that the purpose of the tourism industry is to have as many visitors as possible,” said Tang Xiaoyun, deputy director of China Tourism Academy, a think-tank under the Ministry of Culture and Tourism.

The continuing need for social distancing and potential for new cases will have a lasting impact, he said: “Given the lingering concerns of a second [coronavirus] outbreak, [the] local authority needs to control the number of visitors and focus on creating a better travelling quality.”

Additional reporting by Sun Yu in Beijing and John Reed in Bangkok