The pandemic has brought the travel industry to a halt. The development and distribution of vaccines are helping to get the virus under control, but until vaccination programmes are widely available, restrictions on international travel and tourism are likely to remain.
Prior to Covid-19, travel and tourism accounted for 10% of global GDP and over 320 million jobs worldwide, making it one of the most important sectors of the world economy. The pandemic – the first on this scale in the era of globalisation – has put millions of jobs in the industry at risk (United Nations World Tourism Organization, UNWTO, 2020).
One of the main policies deployed to contain the virus has been restrictions on mobility, both within and across countries. This has had a huge impact on the demand for travel, hotels, restaurants and other hospitality venues across the globe.
Indeed, the revenues of firms in the airline industry have plunged by around 60% compared with 2019 (International Air Travel and Tourism Council, 2020). Estimates suggest that if the pandemic continues for several more months, there could be a global loss of around 75 million jobs and $2.1 trillion in revenue (World Travel and Tourism Council, 2020).
While domestic tourism has resumed in some large countries, this can only offset a fraction of the losses from international tourism (UNWTO, 2020). For international travel to go back to pre-pandemic levels , several conditions will have to be met. For example, the vaccine will have to become available on a wider scale, countries will need to ease restrictions on international mobility and consumer confidence must return. These conditions hinge on the duration of the pandemic and the effectiveness of vaccination programmes.
Further, the extent to which the pandemic will prompt behavioural changes, and how government and international cooperation will be able to support the industry in the future, remain highly uncertain. In what follows, we explore some of the effects of Covid-19 on international travel.
What does evidence from economic research tell us?
Recent studies show that a continuation of travel disruptions for six months could cost 2.5-3.5% of GDP across the G20 countries alone (International Monetary Fund, IMF, 2020; MacDonald et al, 2020). This is particularly concerning as people working for airlines or travel companies, as well in those employed by restaurants and other hospitality venues, make up approximately 10% of jobs and about 9.5% of GDP globally.
With a third wave of coronavirus infections in Europe and the United States, it is now more urgent than ever that populations are vaccinated. But there is still a long way to go before vaccines are available in sufficient numbers for the whole world population (Duke Global Health Innovation Center, 2020). News of their rollout has raised expectations for recovery, but the tourism industry is set to struggle until at least the autumn of 2021 (Organisation for Economic Cooperation and Development, OECD, 2020).
While vaccination programmes have begun in several countries, new and more infectious strains of the virus have also emerged. The death rate has also been at an all-time high globally. Consequently, until vaccines are widely available around the world, restrictions on international travel and mobility are likely to remain (Hale et al, 2020).
How has international travel been affected by Covid-19?
Between January and October 2020, the pandemic triggered a 70% decline in international tourist arrivals compared with the same period in 2019 – see Figure 1. This was mainly caused by people not wanting to spend money on flights or not being allowed to fly by government restrictions. Based on these figures, the UNWTO expects international arrivals to have declined by 70-75% for the whole of 2020. This would mean that international tourism has returned to levels last seen roughly 30 years ago.
Figure 1: January to October 2020 international tourist arrivals (year-on-year percentage change)
Source: UN World Tourism Organisation (UNWTO), December 2020
Popular tourist destinations have been the hardest hit. For example, in March 2020, travel and tourism contributed almost 20% of Thailand’s GDP. According to one report, with losses in excess of $37 million, Thailand ranks fourth globally among the countries that have experienced the biggest tourism revenue losses due to Covid-19, behind the United States, Spain and France (US Electronic System for Travel Authorization, 2021).
But attempts to evaluate the overall impact of the pandemic on tourism remain challenging – particularly since the health conditions and ensuing containment strategies across countries are changing rapidly. Since lifting restrictions is contingent on a successful vaccine global rollout, there is a high level of uncertainty about how quickly countries will be able to re-open fully.
The pandemic’s impact on the travel industry and world trade
The impact of the pandemic on the travel industry can be considered along five dimensions: travel restrictions; commercial flights; hotel occupancy; industry profits; and jobs.
Since March 2020, a total of 217 countries have imposed some form of travel restrictions. Many governments recently reversed their efforts to ease restrictions on travel given the emergence of new variants of the virus. One in three destinations worldwide remain completely closed to international tourism, with restrictive travel regulations prevailing in most parts of Asia and the Pacific and Europe (UNWTO Report on Travel Restrictions, 2021; IATA COVID-19 travel regulations map).
To understand the importance of widespread vaccine distribution for economic recovery, recent research by the National Institute of Economic and Social Research (NIESR) examines alternative scenarios for the interaction between vaccine distribution and a re-opening of world tourism (Holland et al, 2021).
In the more positive scenario, a quicker-than-anticipated diffusion of the vaccine globally could provide a confidence boost and a pick-up in world trade. Trade would be 2.75% higher compared with the baseline of NIESR’s latest forecast scenario, and economic growth would be higher – particularly in countries and regions with a relatively high share of trade to GDP (such as the UK, Denmark, Greece, India and Singapore).
In the more negative scenario, a generalised opening of the global economy would not be possible before 2022 due to the failure to deliver a successful vaccine rollout, particularly in low and lower-middle income countries. This would cause world trade to decline by around 0.8% relative to the baseline. In this case, GDP growth is projected to be weaker in all countries, especially in countries that have not secured access to sufficient doses, such as large parts of Africa, Asia and Latin America.
One significant effect of travel restrictions is the fall in the number of commercial flights. By the end of 2020, commercial flights were down 41.7% compared with 2019, having plunged by 74% back in April 2020. For the early part of 2021, flight traffic has continued to follow seasonal trends, though commercial flights remain well below 2019 levels – see Figure 2.
Figure 2: Number of commercial flights (seven-day moving average)
Source: Flightradar24 – Flight tracking statistics (2021)
Hotels have also been hit hard by the travel reductions (STR, 2020). The proportion of people staying in hotels fell dramatically across all regions in March and April 2020. To date, Europe’s hotel occupancy rate is the lowest on a rolling seven-day average, with only 14% of available rooms occupied. The Middle East currently has the highest occupancy level (58.9%), followed by China (49.8%) and the United States (40.1%).
SImilarly, global passenger revenue for airline companies in 2020 is estimated to have plunged by around $118.5 billion compared with 2019 levels (IATA, 2020). Some markets, are expected to perform better, largely propelled by a recovery in China, but overall industry losses are expected to continue well into 2021 – see Table 1.
Table 1: Travel industry demand, capacity and profits
|Region||2020 Demand vs 2019||2020 Capacity vs 2019||2020 Profits||2021 Demand vs 2020 (vs 2019)||2021 Capacity vs 2020 (vs 2019)||2021 Profits|
|World||-66.3%||-57.6%||-$118.5 billion||50.4% (-50%)||35.5% (-43%)||-$38.7 billion|
|North America||-66.0%||-51.6%||-$45.8 billion||60.5% (-45%)||36.4% (-34%)||-$11 billion|
|Europe||-70.0%||-62.4%||-$26.9 billion||47.5% (-56%)||35.5% (-49%)||-$11.9 billion|
|Asia Pacific||-62.0%||-55.1%||-$31.7 billion||50.0% (-43%)||38.4% (-38%)||-$7.5 billion|
|Middle East||-73.0%||-64.5%||-$7.1 billion||43.0% (-61%)||23.6% (-56%)||-$3.3 billion|
|Latin America||-64.0%||-60.0%||-$5.0 billion||39.0% (-50%)||34.3% (-46%)||-$3.3 billion|
|Africa||-72.0%||-62.8%||-$2.0 billion||35.0% (-62%)||21.5% (-55%)||-$1.7 billion|
Source: IATA (2020)
One in four of the world’s new jobs over the past five years were generated by the tourism industry (World Travel and Tourism Council, 2020). Globally, the total jobs lost during the pandemic amount to 142.6 million in 2020 alone, down approximately 40% compared with the previous year – see Figure 3.
Figure 3: Travel and tourism jobs lost in 2020 (percentage)
The European Commission’s Joint Research Centre (2020) confirmed that between 6.6 and 11.7 million tourism-related jobs were at risk of a reduction in working hours or lay-offs in 2020, representing ‘between 3.2% and 5.6% of the total active population in the European Union’.
Because of its interconnectedness with the broader economy (from accommodation, food and transport to wool and silkworm cocoons), the tourism sector risks being among one of the last to recover, with consequences going beyond the industry itself (see OECD, 2020; United Nations Conference on Trade and Development, UNCTAD, 2020).
What else do we need to know?
While the situation may improve for the travel industry towards the end of 2021, the road to recovery is not easy. A return to 2019 levels in terms of international arrivals could take up to four years, and this recovery will depend on widespread vaccination programmes and the adoption of comprehensive test-and-trace regimes. These systems may themselves be challenging and will take some time to achieve (Holland et al, 2021).
So far, the survival of businesses reliant on international tourism has been down to continued government support. This includes financial aid received by companies such as American Airlines, Delta and United in the United States, and by Air France, KLM and Singapore Airlines in Europe and Asia.
The IMF has increased its lending facility by about $90 million – equal to 2% of global GDP – to support tourism in countries that have experienced higher fiscal deficits as a result of lower firm revenues and rising Covid-19-related spending (IMF, 2020). In Europe, there are calls for part of the EU budget and coronavirus recovery fund to be spent on helping tourism ‘emerge more resilient from the crises ahead’.
The crisis provides an opportunity to reconsider the future of tourism and accelerate longstanding priorities such as addressing climate change and promoting a renewable energy transition (OECD, 2020). Governments must encourage the structural changes required to transform the tourism industry in line with future health and environmental challenges. Addressing these challenges also calls for international organisations to use the full extent of their resources to restore traveller confidence, while helping the tourism industry to adapt and survive (Kara et al, 2020).
Where can I find out more?
- Once the dust settles, supporting emerging economies will be the challenge: This LSE blog from 2020 by Amit Kara, Corrado Macchiarelli and Renato Giacon sets out how best the international community can support emerging economies in the aftermath of Covid-19.
- A simple guide to estimating the impact of Covid-19 on travel and hospitality activity: This IMF report by Margaux MacDonald, Roverto Piazza and Galen Sher presents an estimate of the damage caused by Covid-19 to travel, tourism and hospitality.
- Rebuilding Tourism Competitiveness: This World Bank report sets out the case for protecting firms most severely hit by the pandemic, including airlines, tour operators and small and medium-sized enterprises that rely on tourists.
- Trade and the unequal race to the Covid-19 vaccine: This NiGEM Topical Feature from 2021 by Dawn Holland, Corrado Macchiarelli and Xuxin Mao examines alternative scenarios for the interaction between vaccine distribution and a re-opening of world tourism.
Who are experts on this question?
- Corrado Macchiarelli (NIESR)
- David Roberts (ONS)
- Dawn Holland (NIESR)
- Donald Houston (University of Portsmouth)
- Simeon Djankov (LSE)