Tourism has endured a horrid period since the COVID-19 (coronavirus) outbreak. Continuous travel restrictions globally have created an unprecedented challenge for one of the largest sectors in the UK economy that supports millions of jobs. Due to setbacks in the fight to contain the disease, being able to easily book a holiday abroad feels in the distant past. Following the latest nationwide lockdown , which included a ban on non-essential travel, a largely successful vaccine roll-out has led to the UK’s first step towards a return to normality, with international travel having partially resumed from 17 May 2021.
Slump in tourism
Figures released by the Office for National Statistics show that visits by overseas residents to the United Kingdom and visits abroad by UK residents both fell by a staggering 96% over the second quarter of 2020 compared with the same period in 2019. This highlights the significant impact of the coronavirus-related restrictions, with travel bans resulting in international tourism largely coming to a standstill.
Unsurprisingly, airlines have been one of the most affected industries from the collapse of international tourism. IBISWorld expects revenue in the Scheduled Passenger Air Transport industry to have declined by 89.4% in 2020-21.
Ryanair, Europe’s largest budget airline, has reported a record loss of £702 million and traffic declined by 81% over the 12 months through March 2021.
The picture for the Airports industry has also been bleak. Heathrow, the UK’s largest airport, recorded just 22 million passengers in 2020, down from 80 million in the previous year, with more than half travelling in January and February 2020.
Additionally, operators in the Hotels industry, which relies mostly on international tourists, has also suffered. The largest industry operator, Whitbread, which owns Premier Inn, revealed that Premier Inn’s UK revenue dropped by 71.8% and operating losses reached £415.7 million over the 12 months through February 2021. Nevertheless, hotels have benefited somewhat from staycations over the past year.
The collapse in international tourism has led to operators in the aforementioned industries suffering huge losses and many have made use of the government’s economy-wide support schemes. Airlines easyJet, British Airways and Virgin Atlantic have also received state-backed loans to stay afloat. Nevertheless, many businesses have collapsed, while thousands of employees have lost their jobs. For example, Norwegian Air has announced that it is liquidating its UK arm, while travel agency TUI has cut 8,000 staff and British Airways has cut 10,000 employees.
Cautious reopening
A traffic light system has been introduced for the safe return of international travel from 17 May 2021, ranking countries into green, amber or red. Only countries on the green list allow for passengers to travel without having to quarantine upon return. Currently, just 12 countries have been classified as green. Out of those 12 countries, Portugal is the only highly popular outbound tourist market, accounting for just over 3.3 million visits by UK residents in 2019.
The government has faced a backlash from the travel industry, which has labelled the list as overly cautious. Heathrow Airport’s boss has warned that 500,000 UK travel jobs could be at risk if the green list is not expanded this summer. The most popular countries for UK tourists – Spain, France and Italy, which accounted for a combined 33.5 million visits by UK residents in 2019 – have been placed on the amber list.
Prime Minister Boris Johnson has stated that people should not be going on holiday to amber list countries, but some holiday firms have refused refunds for those destinations. This is expected to dent consumers’ confidence in travelling and deal a blow to travel firms.
Outlook for demand
Nevertheless, the easing of restrictions is anticipated to improve confidence in many consumers and unleash pent-up demand from those seeking holidays abroad, particularly for sunny destinations. Additionally, UK consumer savings have risen strongly, as people have spent a lot of time at home and leisure activities have been limited due to restrictions, which could allow consumers to spend more on travel. Ryanair states that there are signs of recovery, with bookings rising to 1.5 million a week in the week prior to 17 May 2021, from 500,000 a week in early April 2021.
However, currently passenger numbers remain far below pre-pandemic levels.
Gatwick Airport and Heathrow Airport expect less than 15% and 10% of pre-pandemic traffic respectively by the end of May 2021.
The restrictive green list offers consumers limited choice, constraining the growth in demand for international travel. There is still high uncertainty regarding travelling abroad, as countries can be moved on the traffic light system countries with little notice. In an attempt to boost consumer confidence, some travel firms and hotels are offering free cancellations and greater flexibility with travel bookings.
Despite consumers’ savings increasing, many have become unemployed and disposable incomes have fallen since the outbreak. A major barrier to consumers wanting to travel has been the high cost of the required coronavirus tests that have to be taken prior to departure and upon return.
The International Air Transport Association (IATA) states that the United Kingdom is one of the most expensive places in the world to take a PCR test, with prices ranging from £70 to over £250.
Although some firms, such as TUI, have slashed prices. This increase in the cost of travel, added to the already fairly high prices of holidays abroad compared to staycations, is expected to subdue demand and drive many consumers to opt for UK holidays.
Premier Inn owner Whitbread expects a boom in UK holidays in the summer months as restrictions ease, with hotels having reopened from 17 May 2021. Additionally, online travel agency Expedia has said that domestic breaks are still preferred by UK consumers, with 80% of interest in May 2021. The part reopening of international travel also opens up the possibility of inbound tourism, although it is likely to remain very subdued.
Visit Britain forecasts a 10% year-on-year rise in visits to 11.3 million in 2021, representing just 28% of the 2019 level.
Recovery outlook
Having one of the best vaccination rates in the world, the United Kingdom is well-positioned to benefit from a relaxation of travel restrictions from other countries, particularly from Europe. In the near term, consumers are more likely to choose trips to countries that are closer and cheaper rather than gamble on more expensive holidays.
Bookings for countries such as Spain and Greece have risen strongly in recent months, as UK consumers hope these countries will be moved to the green list later in the summer. Barring any further setbacks, this would give a strong boost to tourism, with the summer season being the most important for the travel industry.
Ryanair forecasts an ambitious recovery, stating demand for flights would return to 80% or 90% of pre-pandemic levels from October 2021.
However, all the factors that have to be considered by tourists before travelling have waned the excitement for booking a holiday abroad and many may delay booking until there is more certainty and costs are lower. Therefore, it is likely that there will be a more gradual recovery rather than a quick, full recovery in the near term. It may well be that there is a much stronger rebound in tourism in 2022, due to the current lower vaccination rates around Europe and globally, as well as dangerous variants of the coronavirus, such as the latest Indian variant.
Eliminating expensive tests, greater vaccination rates and the reopening of borders would allow for a return to normality in international tourism. However, according to IATA, global passenger traffic will not return to pre-pandemic levels until 2024. Nevertheless, the partial reopening of international travel is a step forward in the right direction.
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