An Industry on Life Support: Covid-19’s Impacts on International Travel

By: Julia Manso


Over the past decades, travel has seen consistent growth, even when hit with financial and health crises, as the below graphic from a Skift Research study highlights: international travel, even in the post-9/11 period, during the SARS outbreak, the MERS and Zika outbreaks, and the swine flu outbreak, has been on a fairly steady upward trend. Yet, with the outbreak of Covid-19, the number of international tourists pitched sharply downwards; the immediate impact was significant and jarring, with the United Nations World Tourism Organization reporting that international tourist numbers were down 65 percent in the first half of 2020. Indeed, the latest projections expect a full-year decline in international tourist travel between 58-78 percent, and according to McKinsey’s Covid-19 global tourism recovery scenarios, this translates to a decline of 35-48 percent of global tourism expenditures compared to 2019, a monetary loss of $1.4-1.9 trillion in 2020 alone. Correspondingly, domestic travel pitched downward as well, largely catalyzed by a fear of the virus and stringent stay-at-home orders.


Source: McKinsey


As expected, recovery for the travel industry is intrinsically intertwined with an effective government-led approach to tackling the virus as pharmaceutical companies push towards producing and distributing vaccines; in the meantime, however, short-term aid and government support have been essential in staving off several of the demand side shocks that have rocked the travel industry.

In the U.S., the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020 as one of the first rounds of Coronavirus relief, included the Payroll Support Program, giving passenger carriers nearly $25 billion in loans and $25 billion in grants. Yet, these programs come with requirements regarding the maintenance of employment levels, and they also limit employee compensation, dividends, and share repurchases. The act also includes an additional $4 billion in loans and $4 billion in grants for cargo carriers, $3 billion in grants to airline contractors, $10 billion in economic relief for eligible airports, and approximately $377 billion in small-business aid, including franchisees and individual hotels.

The Payroll Support Program did indeed play a key role in supporting carriers during the summer months, helping stave off layoffs during a time when over two-thirds of the world’s aircraft fleet was parked and nearly 20 airlines filed for bankruptcy. The global airline industry estimates a $315 billion loss in passenger revenue for 2020, and individual carriers announced massive losses in quarterly revenue in mid-2020, with Delta reporting an adjusted pre-tax loss of $3.9 billion, in addition to $3.2 billion of “items directly related to the impact of Covid-19” (a figure that already includes losses offset by CARES Act support) for quarter two. After CARES Act loans to commercial carriers closed September 30, carriers were forced to lay off more than 35,000 workers as passenger numbers dwindled, but the recent omnibus spending bill passed December 27, which included $900 billion in Covid-19 relief, also contains some measures of support for the travel industry, extending $15 billion in payroll protection to aviation workers. To receive funding, airlines are required to bring back furloughed workers and keep them on payroll until March 31, 2021.

By all signs, though, a slow recovery for the travel industry is on the horizon, even with consistent government support. According to recent International Air Transport Association forecasts, air travel demand will likely not recover to 2019 levels globally until well into 2024. Going forward, it will be especially interesting to examine when consumer tastes and preferences shift enough to see the revival in air travel—what level of saturation of the vaccine will make most consumers feel “safe” travelling internationally? Furthermore, the division between the ease of producing and distributing the vaccine in developed vs. developing countries will be an additional factor to watch: wealthy nations in Europe and North America have secured the bulk of the limited supply of vaccines while developing countries have been largely left in the dust (some may wait until 2024 to fully vaccinate their populations). As we enter 2021, we will not only be forced to grapple with the implications of hierarchical vaccination practices in the travel industry, potentially facing a sharp misalignment between supply and demand for travel in vaccinated and unvaccinated populations, but in global markets more broadly. As the travel industry’s plight highlights, there is no substitute for vaccination in restoring consumer support and demand, and until vaccination is universal, the travel industry is far from alone in grappling with the economic consequences of the pandemic.



0 comments