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Published on Monday, April 20, 2020

Let's prepare to profit from the clock being set back now


 

The international tourism industry going back to the future will hold opportunities galore for those that want and can see them.

The world of tourism is about to change again, for better or worse - it's up to us.

Over the centuries tourism has grown quite slowly, based mostly on domestic and regional markets with a very few overseas and international visitors.

The international tourist numbers only went into overdrive in the 1960s and then into hyperdrive in the 2000s because of three factors -

  1. Feather-bedding of the airline industry after WW2 (including huge tax breaks) to empower globalisation
  2. Easy access to ultra-cheap finance for big accommodation providers
  3. Cash machine OTAs getting between the market and the suppliers to drive down prices, drive up numbers and get profits with no commitment.

But all this is about to transform fundamentally.

Why will these three factors not be available now to bring the travel and tourism industry back to top gear quickly?


Clearly we are heading for a massive recession/depression like the one last seen after the carnage that was WW2. Although many people will want to travel internationally only the relatively wealthy will be able to afford it.

Let's say it's like 1947- the last time the world had to get back to prosperity from such a devastating setback. It took years - even with wholehearted commitment and financing from the USA and their cooperation with the UN - definitely not a given today.


So that must mean a very reduced marketplace for travel and tourism.


OK, we all know that life will strive to get back to a near-normal upward curve when the pandemic is over. But what does this near-normal mean for the travel and tourism industry?


It will not be business as usual again for any years. Why?


First during this traumatic period of lockdowns the marketplace has changed. A recent survey in the UK indicated that people are already thinking very differently. We are all enjoying clean air, enjoying more fulfilling relationships with our habitat. This period of radical re-calibration will certainly mean a paradigm shift for the market - the millions of customers whose tastes we seek to fulfil.





And we are seeing a growing awareness of human activity - flying in particular - as a major factor in climate change. Already "Flight Shame" was one of the industry's major trends. The current situation will only make it more powerful.


Secondly there is certainly likely to be some fear of flying added to a fear of crowds. Why, after all, would EasyJet take out all the middle seats in its planes to avoid physical contamination? What does this all mean for iconic, once-crowded destinations too?


Uncrowdedness in hotels, restaurants, planes, destinations? High occupancy = low prices, right? The net effect is that prices are sure to increase - further reducing the size of the market.


The supply side is pretty challenged too. We are looking at a current situation where almost all travel industry companies - airlines, travel companies, DMCs, accommodation providers and OTAs - are technically, if not practically, insolvent.


It's easy to see that the river of cash has dried up, leaving them all exposed. Travel companies and airlines haven't even got the cash to pay back customers' pre-payments. They are offering vouchers instead of money.


My own quick sum would indicate that at least $3-$5 trillion will be taken out of the global tourism economy in 2020, more if this pandemic goes on much longer. Plus at least $1 trillion is currently outstanding in client refunds globally. Take TUI - my belief is that the $1.9 billion they borrowed from the German government was pretty much all swallowed up in refunds (to the customers they couldn't fob off with credit notes or vouchers). My reckoning indicates that their total client liabilities are in the region of $4 billion.


And the credit vouchers that travel organisations are desperate to give away instead of cash? What happens when these hit their P&L accounts in 2021?


The only - time-tested way out of this massive borrowing is a vast reduction in capacity. Better load factors on fewer flights, better occupancy rates in fewer rooms. A gradual climb-back to profitability and slow growth.


Personally I'd like to think that millions of clients would make the conscious decision to travel more responsibly and sustainably - but it hasn't happened in over 30 years… now it looks like there will be no option. There will certainly be fewer mass air tourists per annum for years to come.





This sudden dramatic transformation opens the door to a number of new opportunities including the following:

  • Slow Tourism
  • The Experience Economy
  • Virtual Tourism
  • Distressed assets
  • Commercial destination management


Over the next weeks I will examine these potential opportunities in much more depth.


Once upon a time travel was not only full of opportunities - it was truly beautiful and exciting too. Now it could be again...


Valere Tjolle


Valere is the author of 'You Lucky People' the story of travel - the world's most delightful and devastating industry. Find out more about it HERE

 

 


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  • Now is the time for a change and do what the industry has not done for the last 10 years

    I strongly believe that this is a once in a lifetime opportunity for the global hospitality and tourism industry to change for the better. There is a huge opportunity this sector will start out of the crisis better than they have entered it. We are all starting at the same line in a couple of months. Ground Zero. '¨Now is the time for a change and do what the industry has not done for the last 10 years and with that have become dependent and pay a huge toll.

    By Thomas Mueller, Monday, April 20, 2020

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