Question

How do you think an appreciation of the Australian dollar is likely to affect the tourism and hospitality industry in the following situations?

a)  before COVID

b) under severe COVID-19 conditions.

Answer 1

A. Before covid

As the AU dollar increases, visitor numbers may decrease
If the value of the AU dollar continues to rise, the country will become less attractive to international tourists, who will find Australia (and Queensland) a far more expensive destination to visit than it was previously. Likewise, domestic tourism will also shrink, with Australians who would normally holiday at home deciding they can afford to go elsewhere.

In 2012-2013, when the AU dollar was frequently valued at over 1 USD, a similar trend happened, with Australian Bureau of Statistics data showing a much slower increase in visitor numbers than for the period 2013-2016, when the dollar began to decrease again.

B. During Covid

The scale of the relief packages that are being introduced to support and ensure a speedy recovery for tourism businesses and destinations is extraordinary, and applies to businesses of all sizes throughout the tourism supply chain. For example, Portugal has dedicated EUR 1.7 billion to support accommodation providers, restaurants and travel agencies, while in Australia the Aviation Relief Package provides refunds and waives a range of Government charges on the industry including aviation fuel excise, Airservices charges on domestic airline operations and domestic and regional aviation security charges – the total cost of the measures are estimated to be AUD 715 million.

Policy Responses to the coronavirus (COVID-19)
Open PDF Updated 2 June 2020
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The tourism economy has been heavily hit by the coronavirus (COVID-19) pandemic, and measures introduced to contain its spread. Depending on the duration of the crisis, revised scenarios indicate that the potential shock could range between a 60-80% decline in the international tourism economy in 2020. Beyond immediate measures to support the tourism sector, countries are also shifting to develop recovery measures. These include considerations on lifting travel restrictions, restoring traveller confidence and rethinking the tourism sector for the future.

Key messages: responding to the impact of coronavirus (COVID-19) on the tourism economy
The coronavirus (COVID-19) pandemic has triggered an unprecedented crisis in the tourism economy, given the immediate and immense shock to the sector. Revised OECD estimates on the COVID-19 impact point to 60% decline in international tourism in 2020. This could rise to 80% if recovery is delayed until December. International tourism within specific geographic-regions (e.g. in the European Union) is expected to rebound first.

Domestic tourism, which accounts for around 75% of the tourism economy in OECD countries, is expected to recover more quickly. It offers the main chance for driving recovery, particularly in countries, regions and cities where the sector supports many jobs and businesses.

The impact of the crisis is being felt throughout the entire tourism ecosystem, and reopening and rebuilding destinations will require a joined up approach. Tourism businesses and workers are benefiting from economy-wide stimulus packages, with many governments also introducing tourism specific measures. Governments and industry are focusing their efforts on:

Lifting travel restrictions and working with businesses to access liquidity supports, apply new health protocols for safe travel, and help to diversify their markets.

Restoring traveller confidence and stimulating demand with new safe and clean labels for the sector, information apps for visitors and domestic tourism promotion campaigns.

Preparing comprehensive tourism recovery plans, to rebuild destinations, encourage innovation and investment, and rethink the tourism sector.

These actions are essential, but to reopen the tourism economy successfully and get businesses up and running, more needs to be done in a coordinated way as tourism services are very interdependent. The travel and tourism industry and governments should continue to reinforce their coordination mechanisms to accompany the businesses, notably the smallest ones, and the workers. Particular attention should be given also to the most sensitive/vulnerable destinations in the recovery phase.

Looking ahead, the measures put in place today will shape tourism of tomorrow. Governments need to already consider the longer term implications of the crisis, while staying ahead of the digital curve, supporting the low carbon transition, and promoting the structural transformation needed to build a stronger, more sustainable and resilient tourism economy. The crisis is an opportunity to rethink tourism for the future.

Tourism is a significant part of many national economies, and the immediate and immense shock to the tourism sector resulting from the coronavirus pandemic is affecting the wider economy. As governments around the world have introduced unprecedented measures to contain the virus, restrictions on travel, business operations and people-to-people interactions have brought the tourism economy to a standstill. Many countries are now entering a new phase in fighting the virus while at the same time managing the re-opening of the tourism economy. This is a complex and challenging task, and quantifying the impact on the tourism economy is difficult.

Five months into the crisis, the situation continues to evolve and the outlook remains uncertain. Recovery is now expected to start later and be slower than previously foreseen. Travel restrictions and containment measures are likely to be in place for longer, and are expected to be lifted only gradually, with the possibility of reversal should new waves occur. Even when tourism supply chains start to function again, new health protocols mean businesses will be operating at restricted capacity. Demand-side recovery will also take some time, given the interlinked consequences of the economic and health crises, and the progressive lifting of travel restrictions, while consumer confidence and travel behaviour will be more deeply impacted the longer the pandemic goes on. This will have knock-on implications for many national economies.

Revised scenarios indicate that the implied shock could amount to a 60-80% decline in the international tourism economy1 in 2020, depending on the duration of the crisis and the speed with which travel and tourism rebounds. Maintaining the baseline that tourism flows have remained severely restricted up to June, these estimates are based on the revision of two earlier scenarios for international tourism arrivals for the OECD area, supplemented by a third scenario which would see any meaningful recovery essentially delayed until 2021:

Scenario 1 (revised): International tourist arrivals start to recover in July, and strengthen progressively in the second half of the year, but at a slower rate than previously foreseen (-60%).

Scenario 2 (revised): International tourist arrivals start to recover in September, and then strengthen progressively in the final quarter of the year, but at a slower rate than previously foreseen (-75%).

Scenario 3 (new): International tourist arrivals start to recover in December, based on limited recovery in international tourism before the end of the year (-80%).

In the near term, the expectation is that domestic tourism2 offers the main chance for driving recovery and supporting the tourism sector. The domestic tourism economy is significant and accounts for around 75% of the total tourism economy in OECD countries3. Domestic tourism flows have also been heavily affected by restrictions on the movement of people, but are expected to recover more quickly once containment measures are lifted. Nonetheless, it is unlikely that domestic tourism could compensate for the decline of international tourism flows, particularly in destinations heavily dependent on international markets. This will translate into significant macro-economic effects in countries, regions and cities where the sector supports many jobs and businesses.

Beyond the tourism economy, the pandemic has triggered a global economic crisis, and many economies are falling into recession. Early OECD macro-economic estimates4 indicated that for each month strict containment measures are in place, there would be a loss of output equivalent to 2 percentage points in annual GDP growth. If the shutdown continued for three months, with no offsetting factors, annual GDP growth could be between 4-6 percentage points lower than it otherwise might have been. However, with the outlook becoming gloomier, this in turn will have consequences for the tourism recovery.

Coronavirus pandemic is an unprecedented crisis for the tourism economy
The coronavirus (COVID-19) pandemic is, first and foremost, a humanitarian crisis affecting people’s lives, and has triggered a global economic crisis. This has very tangible impacts for the tourism sector, which is critical for many people, places and businesses, with the impact particularly felt in countries, cities and regions where tourism is an important part of the economy.

Tourism generates foreign exchange, drives regional development, directly supports numerous types of jobs and businesses and underpins many local communities. The sector directly contributes, on average, 4.4% of GDP, and 21.5% of service exports in OECD countries5. These shares are much higher for several OECD countries. For example, tourism in Spain contributes 11.8% of GDP while travel represents 52.3% of total service exports, in Mexico these figures are 8.7% and 78.3%, in Iceland 8.6% and 47.7%, in Portugal 8.0% and 51.1%, and in France 7.4% and 22.2%6.

Figure 1. Direct contribution of tourism in OECD economies
Figure 1. Direct contribution of tourism in OECD economies
Note: GDP refers to GVA for Canada, Chile, Colombia, Denmark, Finland, Germany, Greece, Hungary, Israel, Italy, Latvia, Lithuania, Mexico, the Netherlands, New Zealand, Portugal, Sweden, Switzerland, United Kingdom and the United States.

GDP data for France refer to internal tourism consumption.

GDP data for Korea and Spain includes indirect effects.

Source: OECD Tourism Statistics (Database).

Figure 2. Contribution of tourism to service exports
Figure 2. Contribution of tourism to service exports
Source: OECD Tourism Statistics (Database).

Tourism is a labour intensive sector, directly contributing 6.9% of employment on average in OECD countries. The sector is a leading source of employment and job creation, providing a high volume of jobs for low skilled workers, together with higher skilled jobs. The sector employs many seasonal, part-time and temporary workers. With the impact of the crisis continuing over June-July-August and reduced capacity for many industry branches, many of these jobs will be directly affected. In normal circumstances, the sector can help provide diverse employment opportunities for migrants, women, students and older workers, not only in major cities but also in remote, rural and coastal areas, as well as other often economically fragile locations where alternative opportunities may be limited. For example the share of tourism employment represents 15.7% of total employment in Iceland, 13.5% in Spain, 10.3% in Ireland, 10.0% in Greece, and 9.8% in Portugal7.

Tourism is one of the most directly affected sectors in this current crisis and this calls for immediate and long term responses. With international aviation at a virtual standstill since March8, the closure of tourism sites and attractions, the cancellation or postponement of major festivals and events, and restrictions on public gatherings (indoor and outdoor) in many countries, the impact of COVID-19 on global tourism has been overwhelming and immediate. Furthermore, despite the sector’s proven resilience in response to previous crises, the sheer depth and breadth of COVID-19–related impacts on tourism and the wider economy means a quick recovery is unlikely. Reflecting the urgency of the situation, an extraordinary convening of the G20 Tourism Ministers was held on 23 April, with Ministers issuing a statement welcoming national efforts to mitigate the economic and social impact of the pandemic, and committing work together to provide support to support a sustainable and inclusive recovery of the tourism sector9.

The reality is that global tourism will be hard hit throughout 2020 and beyond, even if the spread of the virus is brought under control in the coming months. Tourism businesses were among the first to be shut down following the introduction of measures to contain the virus, as tourism necessarily involves people-to-people interactions and the movement of people travelling from their place of usual residence to destinations within their own country, and to other countries. Tourism activities are also likely to be among the last to restart, and on a phased basis. Even when these businesses do open, it will be under new operating procedures in the absence of a vaccine. The pandemic is also likely to have an impact on tourist behaviour, impacting the resumption and recover of domestic and international tourism.

Revised OECD estimates point to 60% decline in international tourism in 2020, rising to 80% if recovery is delayed until December. The last time the global tourism economy contracted was immediately following the financial crisis in 2008 when international arrivals decreased by 3.9%. This is in line with recent projections from other organisations, which similarly indicate a significant reversal from previous growth projections. Latest UNWTO estimates point to 22% decline on international tourist arrivals in the first three months of the year, while for 2020 a fall of between 58% and 78% is predicted, which would imply a loss of between USD 910 billion to USD 1.2 trillion in export revenues from tourism10. The World Travel and Tourism Council (WTTC), meanwhile, forecast on 24 April that 100.8 million jobs are at risk globally11. An ILO sectoral policy brief has identified tourism as one of the most vulnerable sectors that is extremely likely to witness a drastic fall in jobs as a result of the COVID-19 crisis12.

National level forecasts similarly reflect the scale of the expected impact on tourism in 2020, together with the challenges in making predictions in a fast-moving and uncertain situation. Countries including Chile, Finland and the United Kingdom have developed scenario-based approaches based on assumptions and simplifications, and which point to different possible outcomes. This will ultimately be determined by the how the economic and sanitary crisis evolves, and the interaction of a complex range of demand and supply factors (Box 1).

Attempts to forecast the likely impact of the pandemic on the tourism economy have quickly been overtaken by the speed the situation has evolved as the pandemic has spread. However, expectations are growing that recovery to pre-crisis levels may take two years or more. The International Air Travel Association (IATA)13 predicts that airlines are unlikely to see a return to pre-crisis traffic levels before the start of 2021, while hospitality data company STR estimates that return to pre-crisis levels will not occur before 202214.

Box 1. Forecasting the impact of the COVID-19 crisis on tourism in selected OECD countries
In Chile, preliminary forecasts based on information available on 23 March 2020 point to an expected combined drop of USD 1.8 billion in absolute terms for domestic and international tourism in 2020, down 20.4% compared to 2019. This is equivalent to a loss of approximately 5.7 million of trips as a result of the COVID-19 pandemic, which began to expand in Chile in March 2020. International arrivals are expected to fall by 32.5% compared to 2019. These estimates are based on a moderate scenario that supposes a strong contraction during the second quarter of the year. A pessimist scenario with a contraction during the second and third quarters would mean a combined drop of USD 3.0 billion, or 32.2% in domestic and international tourism compared to 2019.

In Finland, a scenario model released in early May predicts a decline in tourism demand of between 60% to 70% in 2020, equivalent to EUR 10–11 billion. The model is based on most recent Tourism Satellite Account figures that were linked to inbound, outbound and domestic tourism monthly seasonality, and how those will be affected by the crisis. The forecasts have been developed by Statistics Finland in close collaboration with the Ministry of Economic Affairs and Employment, Visit Finland and the hospitality industry

In Korea, two scenarios on the impact of COVID-19 on tourism are informing the policy response:

Scenario 1: tourism flows remain shut down for 4 months, starting to recover from July. It is expected to receive 10.2 million international tourists (down 7.3 million or 41.7% compared to 2019) and USD 13.3 billion revenue in 2020 (down USD 4.5 billion or 25.3% compared 2019).

Scenario 2: tourism flows remain shut down for 6 months, starting to recover from September. It is expect to receive 7.5 million international inbound tourists (down 10.0 million or 57.1%) and USD 10.3 billion tourism revenue (down USD 10.2 billion or 42.1%) in 2020.

In the United Kingdom, several modelled scenarios developed by VisitBritain on the short term impact on domestic and international tourism reflects the uncertainty about the prospects for tourism. As of mid-April, the central scenario for international tourism is for a decline of 54% in arrivals and 55% in spend, or GBP 15.1 billion, based on a gradual recovery of inbound tourism from August 2020. An early estimate for domestic tourism, meanwhile, forecasts a drop of 24% in visitor spending (overnight and same-day trips), which is equivalent to GBP 22.1 billion and higher in absolute value terms than the forecast loss in international spending. This central scenario for domestic tourism is based on a re-opening of the tourism sector from early June under social distancing measures, and an anticipated bounce back in the last four months of the year from pent-up demand.

With more than 9 out of 10 people in the world living in countries which have put in place cross-border travel restrictions15, the current pandemic is more global and will cover a much longer period than previous health-related crises. By comparison, crises such as SARS in 2003, the H1N1 outbreak in 2009, and MERS in 2015 were of a smaller scale and the impact on tourism was more localised. While the experience of these crises show how eagerness to travel was recovered quickly, after health scares where under control and confidence restored, the widespread nature of the COVID-19 pandemic and the depth of the economic crisis it has triggered mean that the tourism recovery will be slower. WTTC estimates that the impact of this crisis on tourism will be five times that of the global financial crisis16, while STR data also shows the depth of the impact, with revenues per available room (RevPAR) plunging by 84.9% in April 2020, compared with a reduction on previous year of 28% following the financial crisis17.

UNWTO reports that COVID-19 related travel restrictions are in place in all countries worldwide, and on 1 June 2020 156 governments have completely closed their borders to international tourism. Such travel restrictions are likely to remain in place in the coming weeks, and possibly longer. In Europe, for example, the European Commission has called for external borders to remain closed for non-essential travel until 15 June at the earliest. Countries like New Zealand and Australia, which moved quickly to restrict inbound travel to prevent the importation of COVID-19 cases, are exploring the creation of a ‘travel bubble’ between the two countries. Other countries are also looking to permit travel with neighbouring countries, such as the creation of a Baltic travel bubble allowing tourism between Estonia, Latvia and Lithuania18, or ‘airbridges’ between countries where the virus is contained.

It is not yet clear when a more widespread re-opening of borders will occur, and under what conditions. Where borders are open, some countries have announced mandatory 14 day quarantine periods for people coming from abroad. However, the situation remains fluid, as countries look to find solutions to manage the virus while minimising the impact of the containment measures, including on tourism. Iceland is one country that has announced plans to re-open international travel starting 15 June, offering tourists the option of getting tested for the virus, or undertaking a quarantine period.

While much attention has focused on international tourism, not least because of the availability of more data, domestic tourism has also been severely impacted by the containment measures. Before the crisis, domestic tourism accounted for 75% of tourism expenditures on average in OECD countries. However this figure varies highly among countries (Figure 3).

Domestic tourism is expected to play an important role in leading the initial recovery phase, given the uncertain outlook for international travel. Countries where domestic tourism already represents a significant share of the tourism economy are thus likely to see recovery in the sector more quickly than countries that are heavily dependent on international tourism flows. Many countries, and the tourism sector, are moving to promote domestic travel and cater to visitors from their own country.

China has emerged as a global tourism powerhouse over the past decade, ranking first as a source of outbound tourists in 2018 (10.6%), fourth in international tourist arrivals (4.5% - behind only France, Spain and the United States), and eleventh in international tourism receipts (2.8%). As such, the sudden interruption of outbound travel from China in January had an immediate demand-side impact on destinations around the world. This was only the first indication of the potential threat the virus posed to international tourism, and as it has spread, it has had knock-on effects on other main markets and destinations around the world.

Figure 3. Relative importance of domestic tourism in selected OECD countries
Figure 3. Relative importance of domestic tourism in selected OECD countries
Source: OECD Tourism Statistics (Database).

Box 2. Green shoots and changing travel behaviours in the Chinese domestic travel market
As virus containment measures in China have been lifted, people have re-started travelling domestically, guarding a cautious mind-set. International travel is still constrained due to the presence of 14 quarantine days upon arrival from abroad. Driving and taking trains to regional destinations are the most used modes of transport, and people prefer to avoid group experiences and crowded tourist spots. Tourist sites and parks have capped their entrances at 30-50% of previous levels. Traveller demographics have changed to younger and non-family segment in the first wave after the crisis, while lower spending patterns have favoured midscale and economy hotels. Luxury hotels, business travel and conference demand have been slowest to recover due to the lack of international tourists. The peak of recovery is expected after September, more than 5 full months after the lifting of lock-down measures. Tourism businesses in China are responding to these trends through three main strategies: i) ensuring physical distancing and enhancing hygiene, ii) aggressive pricing promotion, iii) engaging customers through latest social media, targeting the younger segment.

Source: McKinsey & Company, The way back: What the world can learn from China’s travel restart after COVID-19, 11 May 2020

Many countries are now moving to ease restrictions, as the pandemic response moves to the next phase. Starting in China (Box 2) and spreading elsewhere, restrictions are progressively being lifted in most countries, as people return to work and start travelling again on a limited scale.

This is expected to be a gradual and non-linear process, as countries seek to manage a gradual return to daily life while containing the virus, and it is not yet clear when a full return to tourism activities will be possible. This is a situation which will be closely monitored, and governments have been keen to stress the potential need to re-introduce restrictions should the circulation of the virus rise again. This has been the experience in Singapore, for example, where having initially eased restrictions on the movement of people containment measures were reintroduced amid concerns of a second wave of the virus.

Table 1. Easing restrictions and re-opening tourism activities: country examples
Country

Re-opening timeline

Austria

From 15 May, all restaurants, cafes, bars, will reopen under certain restrictions, such as limited number of people at one table, while accommodation providers and tourism sites may reopen at the end of May.

Greece

From 1 June year-round hotels and campings will open, while seasonal hotels/resorts will open on 15 June. Flights from abroad will start in two stages: on 15 June flights to Athens will start from countries with good epidemiological features. As of 1 July, all Greek airports will be open to flights. There will be no test or quarantine.

Hungary

The first steps taken to ease the restrictive measures in the countryside as of the 4 May will favour the hospitality sector, with the re-opening of restaurants and cafés with open air areas.

Borders restrictions are being lifted, and Budapest Airport is resuming passenger services with strict security measures. From 4 May, KLM reopen the Budapest-Amsterdam flight with once a week frequency. Wizz Air will resume flights on 16 routes from Budapest in May.

Iceland

Since the 4 May, museums and Iceland’s main conference venue have re-opened. On 12 May the Icelandic Government announced that it expects to start easing restrictions on international arrivals no later than 15 June, while from 15 May some professionals arriving in Iceland including scientists, filmmakers and athletes will be eligible for a modified quarantine. No later than 15 June, travellers are expected to be given a choice between a two-week quarantine or being tested for the virus upon arrival.

Ireland

Under Ireland’s ‘Roadmap for Reopening Society and Business’, a phased reopening of the tourism sector aims at kick-starting domestic tourism in the third and fourth quarter of 2020. Phase 3 should see cafés and restaurants reopening on 29 June. Hotels (not including hotel bars), hostels, caravan parks and holiday parks are due to reopen under Phase 4 on 20 July, with Phase 5 seeing pubs, bars, nightclubs, cinemas and theatres reopening on 10 August.

Israel

Starting 5 May, activities and businesses have been allowed to open, including rural accommodations, hotels and lodges, nature reserves, heritage sites and national parks, under strict hygiene regulations of the Ministry of Health and the Ministry of Tourism.

Opening up the sector is going to be more difficult than shutting it down, and will require a balanced measured approach. While tourism has been heavily impacted by the pandemic, and the measures put in place to contain the virus, tourism flows are also a potential vector for spreading the virus. While the delay in re-opening and continued uncertainty creates further challenges for the sector, moving too quickly risks further dampening government and consumer confidence in getting the sector up and running for the longer term.

Eventual impacts will depend not only on the length of the pandemic, which will have ramifications for business survival, but also potential long-term changes in travel behaviour as a result of the crisis – will people be more cautious about travelling overseas in the future? The crisis is expected to have a permanent impact on consumer behaviour, accelerating the move to online, with a greater emphasis on hygiene and healthy living, and higher use of cashless and contactless payment methods19.

The impact on travel behaviour remains to be seen, but tourism businesses, such as cruise and aviation, are already preparing to improve health screening and hygiene measures, and there is strong recognition that much will need to done to restore travellers confidence. Such measures will need to be fully actionable by small and micro-businesses, and government has a role to play in working with peak national industry bodies to support these businesses. Businesses will also need to take steps to protect workers, who are at the front line in delivering tourism services.

Another issue will be how welcome visitors will be in destinations, as the negative perception of tourists as risk carriers by host community may also be a consequence of the pandemic, while local communities in destinations which before the crisis were experiencing issues associated with high visitor volumes and overcrowding have reclaimed their local areas.

Impact of the crisis is being felt throughout the tourism ecosystem
The pandemic has been disruptive across branches of the tourism sector, firms, and destinations, with some parts of the sector more affected than others, now and in the longer term. This has obvious connections with SMEs as most firms in the tourism sector are small in scale. Given their often-limited resources and existing obstacles in accessing capital, the period over which SMEs can survive a shock will likely be shorter than for larger firms. As the OECD Interim Outlook signals, there is a risk that otherwise solvent firms, particularly SMEs, could go bankrupt while containment measures are in force21. Tourism businesses that were viable before the pandemic may now be vulnerable. Costs associated with prevention and changes in work processes, such as the adoption of digital tools and implementation of new operating protocols, may also be relatively higher for SMEs.

The OECD Policy Note COVID-19: SME Policy Responses20, highlights that SMEs may have less resilience and flexibility to cope with the costs that such shocks entail, with a survey of SMEs indicating there is a serious risk that over 50% of SMEs will not survive the next few months. A widespread collapse of SMEs could have a strong impact on national economies and global growth prospects, and on the tourism economy. Governments have been quick to acknowledge the specific circumstances of SMEs, and have put in place policies to support them, with policy responses frequently followed this sequence of measures: health measures, and information on how to adhere to them, measures to address liquidity by deferring payments, measures to supply extra and more easily available credit to strengthen SME resilience, measures to avoid the consequences of unorganised lay-offs, and structural policies. These general SME measures have also been accessible to SMEs in the tourism sector.

In addition to being characterised by a very large group of small and micro-businesses, the tourism sector is also highly fragmented and diverse, covering a wide range of industries. The sector faces particular challenges due to this cross-cutting, multi-level, and fragmented nature. Tourism services are often interdependent and a crisis in one sub-sector, such as aviation, can have disastrous follow-on effects on the tourism value chain. A key challenge as the sector looks to re-open is how to get all these interlinked parts of the tourism supply chain working together again, to provide a seamless tourism experiences for visitors. Box 3 outlines a selection of impacts experienced by selected tourism industry branches.

Box 3. Impacts of COVID-19 on selected tourism industry branches
Transport and tour operators
Aviation. Airlines have had to drastically reduce and in some cases ground their fleets and cease their activities, with extreme impacts on the short-term on employees and dependant activities. International Civil Aviation Organization (ICAO) estimates, as of 8 May, indicate that the fall in scheduled international passenger traffic during 2020, will equate to a reduction of between 44 to 80% of international passengers21. Airports Council International, as of 5 May, estimates that the crisis will result in a reduction of 4.6 billion passengers in 2020. This will have a knock on effect on airports, which could face a global loss of USD 97 billion22. IATA expects recovery in air travel to lag economic recovery, with no uptick before 202123. Some airlines which had grounded flights, such as Ryanair, have announced plans to restart flight operations at a reduced capacity24, while Emirate is has introduced COVID-19 testing prior to boarding25

Cruise. Cruise lines have faced the double challenge of ensuring visitor and worker safety, as some cruises were not able to disembark and repatriate clients, and losses in bookings and revenues. In the United States, a no-sail order had been extended until July26. Following an extended period where a number of cruise ships remained at sea while seeking to secure permission to berth and disembark passengers, as of 6 April CLIA reported that only seven of its members’ cruise ships remain at sea on their way to port27.

Railways. As people movement is limited or discouraged, including in countries which are easing restrictions, railways are seeing significant drops in revenues and passengers.

Tour operators have reduced or halted operations until further notice as the pace at which the situation evolved increased organisational complexity, across administrative boundaries. Having suspended all activities from mid-March until mid-May at the earliest, TUI Group announced on 13 May it was ready to resume activities and indicated that forward-bookings for summer 2021 were performing strongly28.

Accommodation and food service
Hotels. Globally, hotels have reported having extremely low occupancy rates, or have experienced closures on a massive scale. Big hotel chains have seen their stock price plunge as a result. In Europe it was estimated that 76% of hotels were closed. According to STR, in the first week of May many countries had an average occupancy rate lower than 30%. Some shared accommodation categories, such as hostels or camping, may be impacted in the longer term.

Shared accommodation platform economy. The virus outbreak has put shared accommodation platforms under pressure, with reported declines in apartment bookings. In May, Airbnb cut 25% of workforce29.

Holiday resorts. Ski resorts were forced to end the winter season earlier due to increasing coronavirus spread, and those that have successfully diversified to develop an alternative summer season offer are increasing seeing this at risk. The future for beach resorts in the Northern hemisphere summer remains uncertain.

Restaurants. Food and catering service providers had initially been required in many countries to increase social spacing in eating establishments, limit their activity to delivery only in some instances, or entirely shut down activities. Even as restrictions are being lifted, food-related activities are still limited. In the United States, the National Restaurant Association estimates that the industry’s sales will decline by USD 225 billion during the three months from March, prompting the loss of between five and seven million jobs30. In France, lock down measures introduced in March resulted in the closing of 75 000 restaurants, 3 000 clubs, and 40 000 cafes, affecting 1 million employees, who have been temporarily laid off and placed on technical unemployment31.

Other sectors
Business, meetings and events travel. Around the globe, companies have cancelled or suspending business travel due to the coronavirus, in some cases until 2021. Events of all sizes have also been affected, including the 2020 Olympic Games. By 20 March, the Global Association of the Exhibition Industry estimated that more than 500 trade shows had been cancelled in the preceding weeks, with an estimated cost of up to EUR 23 billion in lost orders for exhibitors. On 20 March, UFI estimated that at least EUR 134 billion of contracts will not concluded if events do not take place as planned through Q2 2020.

Culture, sports and entertainment. Museums and cultural event organisers are facing huge financial losses as facilities shut down, and events have been cancelled. The International Council of Museums (ICOM), reported on 2 April, that in Italy, the cultural sector is expected to lose EUR 3 billion in the next semester; in Spain, EUR 980 million just in April. Major sporting and entertainment events are also being affected, including the Tokyo 2020 Summer Olympics which have been postponed. There continues to be increased uncertainty around the staging of other global events, while many smaller, more local festivals and events that are important to local destinations have also been cancelled.

Tour guides. Often working as freelancers, tour guides are seeing significant drops in their activities, placing significant constraints on their income.

Travel technology companies. Global distributions systems, online travel agencies and online booking platforms are also being hit by the crisis due to the significant slowdown in transactions.

Rebuilding destinations will require a co-ordinated approach
The effects of the virus outbreak on tourism are likely to be asymmetrical and highly localised within countries, with some destinations more exposed than others. Even under normal circumstances, some destinations tend to be disproportionately vulnerable to the effects of such crises due to their high reliance on the tourism sector. This disparity is likely to be significantly exacerbated following the pandemic. In addition, previous experiences suggests that the most affected local economies will not be able to bounce back quickly, and local labour markets could suffer for years to come, exacerbating regional disparities in unemployment, economic inactivity and job quality32.

Analysis by the European Commission’s Joint Research Centre highlights that the economies in tourism hotspots will be more vulnerable to travel restrictions, taking into account seasonality and the scale of tourism relative to the size of the local population. Coastal regions are expected to be the most impacted, and the cumulative reduction on GDP over the period April to June is estimated be between EUR 9.7 billion to EUR 24.9 billion33.

Tourism destinations often show the highest shares of jobs potentially at risk. OECD analysis indicates that a high share of jobs are at risk in European destinations such as the Ionian islands in Greece, Balearic and Canary Islands in Spain, and the Algarve region in Portugal, given the importance of tourism in the local economy. Similarly in Korea, Jeju-do is the region with the highest risk, while in North America, Nevada (which includes Las Vegas) stands out as the most potentially affected state, followed by Hawaii34.

Under strict containment measures, destinations in many countries have been essentially closed for business. The easing of restrictions is now taking place on a phased and uneven basis, with differences across regions and cities, reflecting the local context and sanitary situation. The interaction of these measures and the extent to which they impact tourism activities during key tourism periods will also have a bearing. The pandemic led to the premature curtailment of the ski season in some destinations, while the summer holiday season in the northern hemisphere is currently at risk.

The extent of the economic impact at destination level will also depend on a number of factors, including the nature of the tourism offer, the impact of travel restrictions on visitor flows, the speed with which the economy picks up in main source markets, the scale and complexity of business operations, the size of the domestic tourism market and exposure to international source markets, and the place of tourism in the economy.

Destinations most dependent on international markets are likely to be most affected (particularly long-haul), as are urban destinations. More remote and rural destinations and natural areas are likely to be more attractive to visitors, at least in the short term. Tourism Economics expects domestic city tourism to recover in 2021, but recovery of international tourism is likely to take two years or more. Tourism to major cities is expected to recover first, with a more widespread recovery in international tourism to cities not expected before 202435.

Previously overcrowded destinations might see high reductions in tourism flows while smaller rural destinations may become more popular. Veneto Region (Italy) for example as part of its recovery plan wants to leverage lesser known UNESCO heritage sites, to shift volumes from Venice to different attractions. Popular destinations may also need to reconfigure their development model to attract people, while ensuring sufficient social distancing.

A key issue for destination recovery is whether the critical mass of services will remain operating after the crisis, to cater to visitors when they do come. A dynamic tourism economy depends on the availability of a variety of tourism services within destinations, from accommodation and food services to attractions, activities and events. In the meantime, destination management organisations (DMO), are faced with the challenge of providing timely and accurate information and communication to stakeholders. Moreover some DMOs are redeploying their websites to provide information to residents to discover local businesses and respond to current needs, this is happening for instance in Raleigh36, United States, and in Seignanx dans les Landes37, France.

Another issue will be how welcome visitors will be in local areas. There is a danger that tourism flows will become a vector for spreading the virus. Should this become the case, this may further dampen government, business and consumer confidence in getting the sector back up and running in the longer term. It may also lead to a backlash from local communities who may resist the arrival of visitors over concerns they may bring the virus and put pressure on local health services. There has been some evidence of this happening following the introduction of containment measures, as people left cities to travel to spending the confinement period in second homes, and also since the easing of travel restrictions, with some local authorities and tourism organisations issuing calls for people not to visit38.

Industry is taking steps to be ready for the restart
The current crisis continues to affect travel and tourism businesses of all sizes, from the largest international airlines to the smallest independent hotel owners. The immediate response by these businesses has understandably focused on proactively designing plans for short-term survival. As the crisis evolves, the industry is now working with governments to identify key priorities and to facilitate recovery in the medium to long-term.

A key concern and ongoing area of uncertainty for many tourism businesses across all parts of the sector are the conditions under which they will be allowed to reopen and operate, and whether it will be viable for the business to resume activities under these conditions. In response, industry actors have been proactive in proposing new operating standards and protocols, which seek to protect workers, restore travellers’ confidence, ensure social distancing, and put in place the necessary cleaning and hygiene standards. WTTC has presented new global protocols to restart tourism, named “Safe Travels”39 , while on 4 May 2020, the U.S. travel industry provided detailed guidance for travel-related businesses to help keep their customers and employees safe as the country emerges from the COVID-19 pandemic (Box 4).

Box 4. Allowing travel to safely resume in the United States
Developed in collaboration with medical experts and a broad array of travel businesses and organisations, “Travel in the New Normal” describes the types of vigorous measures the U.S. travel industry will need to adopt to reduce the risk of COVID-19, and help to communicate across each and every step of a traveller’s journey. The goal of the guidance is to allow travel to safely resume as states and municipalities relax physical distancing guidance.

The “Travel in the New Normal” guidance, is focused on six main areas where travel businesses should:

Adapt operations, modify employee practices and/or redesign public spaces to help protect employees and customers.

Consider implementing touchless solutions, where practical, to limit the opportunity for virus transmission while also enabling a positive travel experience.

Adopt and implement enhanced sanitation procedures specifically designed to combat the transmission of COVID-19.

Promote health screening measures for employees and isolate workers with possible symptoms and provide health resources to customers.

Establish a set of procedures aligned with official guidance should an employee test positive.

Follow best practices in food and beverage service to promote employee and customer health.

Source: U.S. Travel Association Press Release, U.S. Travel Industry Releases Guidance for “Travel in the New Normal”, 4 May 2020

The industry is involved in setting up dedicated task forces to ensure a co-ordinated response to the crisis. One example at the global level is the WTTC COVID-19 Taskforce, which is co-ordinating private sector representatives and international organisations to find common solutions to ease the pressure on tourism businesses. Annex B provides a list of some private sector organisations webpages posting regular updates and analysis on the crisis

The UNWTO-led Global Tourism Crisis Committee is a public-private initiative to co-ordinate the pandemic response, which on 1 April published recommendations for government action focusing on three key areas: i) mitigating the impact on employment and liquidity, ii) protecting the most vulnerable, and iii) preparing for recovery.40 Subsequently, on the 28 May, the Committee agreed a series of priorities for tourism recovery and endorsed the UNWTO Global Guidelines to Restart Tourism. At national and international level, the industry has also played an important role in communicating to governments the importance of focused initiatives to support the sector.

Businesses are still in survival mode in several countries. In response to the immediate and widespread effects on the sector, governments are being requested to immediately develop and introduce policy measures that will provide financial relief to suffering businesses. Measures to support workers are advocated, as distressed tourism companies have been forced to make job cuts, freeze hiring, introduce job sharing, and asking staff to voluntarily draw on annual and sick leave. Another key area identified by the private sector is the provision of crucial and timely data and guidance on how to react to rapidly evolving regulations. Industry associations are also active in providing data. Although tourism businesses fully recognise that the crisis is first of all humanitarian in nature, they are calling for governments to ease financial constraint to businesses and ensure a continuous dialogue between policy makers and industry. For example, the Ministry of Tourism in Greece set up an Open Communication Line for tourism operators, businesses and market representatives to address emerging issues.

A wide-spread phenomenon is also voluntary co-operation between the tourism and the health sector to support the containment effort. In several instances, businesses have made available excess hospitality capacity to support the medical system, by providing meals to medical personnel, or older people, or by providing spaces for people needing quarantine. Vouchers for holidays are also being provided for medical staff. For example, the Four Seasons Hotel in New York transformed into a home for medical workers.41 Accor opened up 40 of its hotels in France for nursing staff, vulnerable populations and anyone fighting the spread of coronavirus.42 Hotels have also been transformed into medical care spaces to absorb the escalating demand for hospital treatments. Spain’s Madrid-based hotels offered hospitals 9 000 extra beds for Coronavirus-infected patients43, while Carnival cruise operator offered a number of its ships as makeshift hospitals.44

One area where the pandemic is providing an opportunity for potential development of the sector, is in the area of digitalisation. Initial indications are that the current crisis is accelerating the digital transformation of the sector. Digital solutions are being developed to create ‘live remote45’ tourism and/or virtual tourism experiences, as is the case for several museums who are opening their virtual doors to tourists worldwide in an effort to support those experiencing extended periods of social distancing. The move to digital is also changing work trends in the sector.

In the longer-term, social distancing requirements, as well as broader shifts in business and risk management strategies, and consumer demand for contactless, self-service, and personalised experiences, could further the uptake of cloud-based property management systems, and automatic check-in/out kiosks in hotels, transport terminals and attractions. The use of autonomous robots to clean or undertake back of house activities may also become more prevalent.

Governments are moving from crisis response to preparing for recovery
Government support in the first phase of the crisis has been focused on immediate response and mitigation efforts to protect visitors and workers and ensure business continuity following the imposition of containment measures. Supports have largely focused on getting financial aid out to the widest possible net of workers and businesses, as quickly as possible. As the containment measures start to ease, the next steps will be to get travellers moving, tourism businesses back up and running, and people back to work. This is an important, but complex and challenging task.

While the medium and long-term tourism impacts of COVID-19 will vary between countries, destinations, and segments of the sector, it is clear that in order to open up while the virus is still circulating, governments will need to take balanced, measured and co-ordinated policy action at the local, national and international level, in order to protect people, while minimising job losses and business closures in the immediate and long-term. The OECD has created a map of country-by-country COVID-19 economic measures, available at the link https://oecd.github.io/OECD-covid-action-map/ .

Countries have taken exceptional steps to respond to the crisis (see Annex A). While country response measures continue to focus on public health issues, governments have also moved quickly to introduce extraordinary initiatives to mitigate the economic impact of the coronavirus on businesses and workers. These have most often taken the form of economy-wide stimulus packages, often including some liquidity injections and fiscal relief (e.g. through loans, tax holidays or postponements, guarantee schemes). For example, the European Commission’s EUR 37 billion Coronavirus Response Investment Initiative came into force on 1 April to provide liquidity to small businesses and the health care sector.46 This initiative has been complemented by the Coronavirus Response Investment Initiative Plus (CRII+) package, designed to enable all non-utilised support from the European Structural and Investment Funds to be mobilised to the fullest47.

The tourism sector is greatly benefiting from these general economic stimulus and support measures, which are relevant and accessible to workers and tourism businesses of all sizes. In some countries, tourism is also earmarked as a target sector for support within these frameworks, in recognition of the extent to which the sector has been impacted. Given the dramatic pressures the tourism economy is facing, and as the situation evolves, many OECD countries are also taking steps to introduce tourism-specific measures to address the immediate impacts on the sector, and to facilitate its recovery. Governments are also adjusting the measures put in place to take better address the needs to tourism businesses, and the sector as a whole.

Most initiatives in the emergency response and mitigation phase are intended to provide some income continuity for tourism workers, and ensure that tourism businesses are in a position to restart operations when containment measures come to an end, as well as assisting tourism workers. While workers have been protected in many countries (e.g. some governments are paying the salaries of more than half of the workforce), in the long-term this is not sustainable – once businesses are able to re-open, the full scale of job losses will become more apparent. Likewise for businesses, the fight to stay open will not end with the lifting of travel restrictions.

More specifically, financial relief to tourism business is being supported through exceptional legislation and rule changes, to for example allow businesses to offer vouchers to consumers in place of cash refunds, which may then be claimed by consumers if vouchers are not used after a pre-determined period. Policy makers are taking steps to protect tourism consumers and provide timely information. Other measures being implemented include the establishment of COVID-related cabinet committees or taskforces (e.g. Canada, France, Ireland, New Zealand) to ensure a whole-of-government leadership and co-ordination across policy areas, and to serve as a platform for industry engagement and the development of effective recovery plans.

An overview of country policy responses to the COVID-19 pandemic, highlights three major response categories and types of responses, which continue to evolve:

Supporting people, businesses (particularly SMEs) and destinations through the crisis
Governments have been taking unprecedented steps to respond to the crisis through general economy stimulus packages, however, much more needs to be done, and quickly, at a sectoral level with creative solutions to support tourism businesses and workers, restore travellers confidence and be ready to stimulate demand once containment measures are lifted. The crisis is also revealing the crucial need for tourism policy to adopt an integrated governmental approach so that response measures are consistent and complementary to general economic stimulus packages (e.g. support measures for SMEs and for workers).

Visitor protection. Tourists outside their normal environment often suffer from an information deficit and countries are taking steps to provide assistance and information in multiple languages and formats.

Worker and business support. The tourism sector benefits from cross-sectoral measures introduced by governments to provide flexibility and relief for workers. Some countries have introduced measures specifically aimed at the self-employed, which is particularly relevant for many micro and small tourism businesses. In countries where the impact of the pandemic on tourism businesses has been particularly significant, many have focused on providing financial relief to tourism SMEs, such as postponed VAT payment. Non-financial supports are also provided, including information provision and advisory services to comply with new rules.

Destination support. The impact of the pandemic on destinations varies depending on a variety of factors, with those most dependent on international markets likely to be most affected (urban, rural and natural areas). Other key factors include the nature of the tourism offer, the impact of travel restrictions on visitor flows, the scale and complexity of business operations, the size of the domestic tourism market, and the place of tourism in the wider economy. Tailored responses will often be required.

Government assistance efforts include communication campaigns to help prevent the spread of the virus, supports to provide flexibility and relief for companies and workers in the reduction of working hours, temporary lay-offs and sick leave, liquidity injections and other financial instruments (e.g. tax relief, guarantees, grants), to ensure business survival in the immediate term, measures regarding procurement and late payments, and actions to help SME adopt new work processes and find new markets. Examples of specific country initiatives are outlined in Box 5.

In most countries, tourism businesses are benefiting also from economy wide stimulus measures. In the United States, the travel and tourism sector will benefit from a USD 2 trillion economic stimulus package open to all businesses, which includes funding pots earmarked for those hardest hit industries, including airlines, airports, and travel agents. The package will be delivered through a mix of measures including cash payments, loans, grants and guarantees.

In most countries, tourism businesses are benefiting also from economy wide stimulus measures. In the United States, the travel and tourism sector will benefit from a USD 2 trillion economic stimulus package open to all businesses, which includes funding pots earmarked for those hardest hit industries, including airlines, airports, and travel agents. The package will be delivered through a mix of measures including cash payments, loans, grants and guarantees.

Box 5. Focus on supporting visitors and workers: selected COVID-19 tourism policy responses
The Japan Tourism Agency will spend JPY 3.6 billion to provide timely accurate information to international travellers and make tourist destinations more attractive in order to attract tourists soon after the end of the pandemic.

In Ireland, Fáilte Ireland is currently finalising detailed guidelines for the sector, in consultation with the tourism industry and the relevant authorities, to assist tourism businesses meet social distancing and cleaning requirements in line with the national ‘Return to Work Safely’ protocol.

In Italy, after the temporary measures introduced on 19 March to support the tourism sector, new measures are planned, including to extend up to the end of July layoffs to seasonal workers, and allowing closed sea and outdoor resorts to make ordinary maintenance works.

In Korea, tourism was designated as a special employment support sector, and is eligible for employment support providing up to 90% of annual leave allowance for 6 months to support job retention in the sector.

In Norway, the VAT rate, which applies to passenger transport, accommodation and the majority of cultural events and attractions, has been reduced from 12% to 8% until 31 October 2020.

In Poland, the Department of Tourism has developed a Q&A guide for travellers and tour operators. This guide points to regulations which define the rights of tourism market entities, with particular emphasis on those regulations that may apply in the current situation.

Spain, has developed guidelines by i) the Ministry of Labour and Social Economy on how to operate in labour related aspects in the context of Coronavirus, and ii) the Ministry of Industry, Trade and Tourism on good practices for businesses and workers in the tourism sector.

The United Kingdom has introduced a Coronavirus Job Retention Scheme where small and large employers will be eligible to apply for a government grant of 80% of workers’ salaries up to GBP 2 500 a month. The scheme will be backdated to 1 March. On 12 May the Chancellor extended the scheme until the end of October 2020 and more detail will be shared by the end of May.

The scale of the relief packages that are being introduced to support and ensure a speedy recovery for tourism businesses and destinations is extraordinary, and applies to businesses of all sizes throughout the tourism supply chain. For example, Portugal has dedicated EUR 1.7 billion to support accommodation providers, restaurants and travel agencies, while in Australia the Aviation Relief Package provides refunds and waives a range of Government charges on the industry including aviation fuel excise, Airservices charges on domestic airline operations and domestic and regional aviation security charges – the total cost of the measures are estimated to be AUD 715 million48.

Box 6. Focus on businesses survival and destination support: selected COVID-19 tourism policy responses
In Australia, an SME Guarantee Scheme will support up to AUD 40 billion of lending to SMEs with turnover of less than AUD 50 million, including sole traders and not-for-profit organisations, with the Government guaranteeing up to 50 per cent of new loans issues by eligible lenders until 30 September 2020. In addition, the COVID-19 Export Capital Facility is a AUD 500 million Facility to assist previously profitable Australian exporters whose businesses have been impacted by COVID-19. Exporters will be able to access loans from AUD 250,000 to AUD 50 million under the Facility.

Croatia implemented a set of measures to support tourism businesses including: postponing payment of fees, tourism taxes, and increasing the liquidity. Besides tourism specific measures, general economy interventions support the sector by including tourism in the scope of the Export Guarantee Fund with the aim of enabling the issuance of guarantees for loans to banks for additional liquidity.

In France, the government modified the conditions for cancellations of travel (and similar) bookings, to allow refunds to be replaced by a credit or voucher of an equivalent amount on a future service. The aim is to avoid an immediate cash outflow and help businesses get through a very difficult phase, with customers eligible to request a refund after 18 months if the voucher is not used.

In Greece, an Open Communication Line has been established to enable tourism operators, businesses and market representatives to contact the Ministry of Tourism to address emerging issues, while key information is also disseminated via the Ministry’s website.

In Iceland, payment and collection of the tax on overnight stays (bed-night tax) will be suspended from 1 April 2020 through 31 December 2021, while residents over 18 years of age will collectively receive ISK 1.5 billion worth of travel vouchers from the Government, to spend domestically.

Korea will be relaxing regulations to support the tourism sector in the COVID-era. These measures include simplifying the hotel classification system, legitimization (institutionalisation) of sharing economy accommodation platforms, and promoting forest recreation and tourism, and implementing special relaxed regulations for the camping industry.

In New Zealand, the Tourism Transition Programme will deliver advice and support to pivot businesses towards domestic and Australian markets, hibernating a business, or other options. Tourism New Zealand (TNZ) will provide customer insight and views of overseas market conditions.

Turismo de Portugal provided a specialised online support service, provided by a team of 60 trainers from the Hotel and Tourism Schools, who provide advisory services to businesses in dealing with specific operational issues, helping to design Contingency Plans for COVID-19.

In Spain, economic measures introduced to respond to the COVID-19 crisis, include suspension of interest and principal payments of loans previously granted by the Secretariat of State for Tourism, and the postponement of payments interest and/or principal of loans by regions to companies and self-employed workers affected by the crisis.

In Sweden, as part of a SEK 300 billion crisis package to help struggling businesses, the government has offered credit guarantees for airlines in 2020 amounting to a maximum of SEK 5 billion, of which SEK 1.5 billion is intended for SAS.

The Swiss Society for Hotel Credit grants amortization deferrals on loans of up to one year to existing customers.

EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Member States can compensate companies for the damage directly caused by exceptional occurrences, including measures in sectors such as aviation and tourism.