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The European tourism sector will be a laggard in recovery
following the COVID-19 virus crisis due to the sector's
vulnerability to re-intensification of infections and the need to
have international co-ordination.
Those countries that can attract visitors from nearby
population centres will be quicker to see a recovery of tourism.
Alternatively, countries with large domestic populations could
offset some of the negative impacts of lost international
arrivals.
Reliance on air travel and/or cruises will delay recoveries, as
those industries are likely to be slow in rebounding.
The global spread of the COVID-19 virus has devastated global
tourism. The United Nations World Tourism Organization (UNWTO)
estimated that total international tourist arrivals plunged by 65%
year on year (y/y) in the first half of 2020. Given the weight of
the tourism sector for many European countries, overall economic
activity will not approach pre-pandemic levels until this sector
recovers more substantially.
Returning tourism is dependent not only on domestic policy
decisions and limiting the impact of COVID-19 within a country's
own borders, but it will require a reliance on foreign countries'
policy decisions and elimination or limitation of COVID-19 as
well.
The South/Mediterranean region of Europe is most dependent upon
tourism as a share of total GDP. Hopes had been high in May and
June that relaxing restrictions, low infection rates, and the
release of pent-up demand would provide a boost to third-quarter
tourism activity. However, the recovery has not been strong for
several reasons.
Containment of COVID-19
The most basic assumption on which the return of tourism depends
is that the COVID-19 outbreak has been contained and that visiting
a destination is indeed safe. After having initial success in
limiting the spread, a resurgence of infections landed Spain back
on many countries' travel advisory lists. The Spanish case reflects
the risk of introducing large inflows of travellers to a region,
even if that region may have succeeded in driving down the
pandemic. Fresh inflows of arrivals bring fresh potential
transmission vectors, inevitably increasing the risk of a
reacceleration of infections.
Travel restrictions
Beyond just the threat of the disease itself, shifting
transmission data lead to dramatic changes in travel restrictions
and requirements across Europe. Portugal did not arrive on the UK's
travel corridor until mid-August, triggering a wave of new
visitors. Unfortunately, by the beginning of September, rumours
quickly spread that Portugal's stint on the UK's open list would
prove brief, and that the country could be moved back to a
mandatory quarantine list. Demand for flights out of Portugal to
the UK surged. Meanwhile, the increase in foreign tourism bookings
to Portugal that began in mid-August faltered by mid-September.
These problems reflect a lack of a clear, predictable, and uniform
process for applying border restrictions. To combat unpredictable
and confusing restrictions by myriad individual governments, the
European Commission is attempting to codify and unify the rules for
travel restrictions, but no agreement has been reached. The hope of
an even broader, global set of conditions for safe travel is even
lower.
Regional discrepancies within countries
Croatia's experience in 2020 is reflective of another
consideration as tourism recovers - the dichotomy of the rebound
within individual countries. While Croatia's northern coasts have
recovered somewhat in the third quarter, the southern coast lags
badly. Not only are the southern regions farther to travel for
central Europeans, but access to the region via road or rail
requires that the traveller also cross the Bosnia-Herzegovina
border. Typically, travelers to the south arrive via airlines or
cruise ships. With activity on the former still struggling to
return and the latter not yet beginning to revive, the southernmost
areas of Croatia will greatly lag behind the rest of the country's
tourist recovery. Elsewhere, other countries are reporting similar
variances.
Over-reliance on certain pockets of
arrivals
In Montenegro, a large share of its arrivals come from Russia.
Many of those came in via package deals. During the COVID-19
pandemic, however, Montenegrin tourism has been affected by the
fact that its borders were initially closed to Russia. Although
Russia finally made it to the "green list" on 15 August, Moscow has
not provided reciprocity. In fact, in a devastating blow to any
hopes of boosting late-season revenues, Aeroflot announced in
August that it was cancelling all flights to both Tivat Airport -
the busiest Montenegrin airport, located on the coast - and to
Dubrovnik Airport - also a key entry point to Montenegro - until
March 2021. Similar challenges are present for other tourist
destinations dependent upon a single large source of visitors.
Replacement of foreign tourists with domestic
travelers
One hope for rescuing the tourism sector is replacing foreign
visitors with a surge in domestic travel. In Iceland, the
government approved a package granting travel vouchers and other
incentives for domestic tourism. Iceland's remote location enhances
the importance of rescuing whatever domestic tourism income there
might be. However, to make up for lost foreign visitors, each
person living in Iceland would have to replace the spending of
nearly 13.5 foreign visitors. The gaps are substantial in many
other tourist countries as well, particularly the poorer economies
of southeastern Europe. The wealthier, larger economies will be
able to salvage a greater share of lost foreign arrivals by
increasing domestic travel.
The recovery in 2020-21 and beyond
The UNWTO looked at previous shock events to global tourism -
the 11 September 2001 attacks in the US, the outbreak of SARS in
2003, and the 2008 global market crash - and how quickly tourism
losses faded. Tourism was down from year-earlier levels for between
five and 10 months, only, in each of these shocks.
Our life sciences service maintains a current, baseline
assumption that fully approved, effective vaccines will not be
available to large parts of the global population until mid-2021.
If we apply the 5-10 month recovery time estimated by the UNWTO, a
return to more normal global tourism activity may not come until
the first or second quarters of 2022. This suggests that, while
there may be a rebound from the extreme contraction of tourism that
we have seen in 2020, any recovery in 2021 in the tourism sector
will be modest.
Posted 13 October 2020 by Andrew Birch, Associate Director, IHS Markit