Travel turmoil
Global travel industry will be among the last sectors to fully recover from the pandemic. Many companies might not be able to hold on that long.
Famous for its resilience in the face of several crises in the past, the travel and tourism industry is now facing the toughest test it has ever encountered in the Covid-19 outbreak.
The pandemic has had unprecedented consequences, bringing international travel almost to a standstill. Thousands of passenger planes are grounded, and countless hotels and other hospitality businesses shuttered. Industry executives say the impact has been greater than the events of 9/11 and the 2008 global financial crisis combined.
According to the World Tourism Organization (UNWTO), international tourist arrivals will drop by 20-30% this year, equivalent to a loss of between US$300 billion and $450 billion in international tourism receipts
— almost one-third of the $1.5 trillion generated globally.
Global air passenger demand, measured in total revenue passenger kilometres (RPK), plunged 52.9% in March from a year earlier, according to the International Air Transport Association (IATA). The April figures are likely to be as bad or worse.
Even though some airlines in some countries have begun to resume domestic flights, huge job losses resulting from business closures raise questions about how many people can afford to fly. And lingering worries about the safety of travel will likely have a long-lasting effect on international tourism even after the pandemic is contained.
“We are confident that tourism will return, but it will be a slow process,” Dillip Rajakarier, group CEO of the Bangkok-based hospitality group Minor International, told Asia
Focus by email, adding that domestic tourism will be the first to resume, followed by regional markets.
“It will take some time for the long-haul markets to achieve the levels of 2019, and this is relevant for all the regions in which we operate.”
Minor founder Bill Heinecke said earlier that the company had furloughed thousands of workers and temporarily closed a majority of its more than 530 properties in Asia Pacific, the Middle East, Africa, Europe and the Americas. Some of the few still open have been repurposed as hospitals.
The pandemic, Mr Heinecke said, is going to transform hospitality as hotels come under more scrutiny for hygiene and health standards, raising costs of companies. “The travel industry will definitely be changed after this, but it won’t go away.”
Mr Rajakarier said the majority of Minor’s hotels globally are closed or are operating with limited facilities in line with government restrictions. In Vietnam, Minor recently reopened hotels for domestic travellers and it is working on relaunch plans for other locations.
“The situation is improving and we are starting to see some green shoots. There is pent-up demand for travel and we will see these guests travelling as soon as things open up,” he said.
Minor Food, which operates many wellknown brands including The Pizza Company, Swensen’s and The Coffee Club, has also been affected. In Thailand and Australia, the company closed most of its full dine-in restaurants since late March in response to local government directives.
However, outlets for delivery and takeaway, which account for about 60-70% of total outlets in the two countries, remain operational. “The situation is starting to improve and we are reopenning some stand-alone dine-in restaurants across Thailand in line with social-distancing regulations,” said Mr Rajakarier.
In China, over 90% of its 100 outlets reopened at the beginning of March. “We have seen sales continue to improve week on week, tracking ahead of the best-case scenario, which is very positive news.”
From Minor Hotels’ perspective, the magnitude of the impact can’t yet be quantified as it is still a rapidly evolving situation. “It is undeniable that this crisis has hit the travel and tourism sector very hard,” said Mr Rajakarier.
“Our current expectation is that things will start to recover at the end of the second quarter, and we should be in a position to take advantage of the high season by the fourth quarter.”
CLOUDY SKIES
Some airline executives have an even gloomier view. Qatar Airways CEO Akbar Al Baker said it could be years before travel revives to pre-pandemic levels. “I think I would be very surprised if things will happen before 2023-24,” he told Reuters last Monday.
The state-owned carrier last Wednesday announced it was cutting up to 20% of its staff as financial losses deepen. Qatar Airways Group employs about 46,000 people worldwide.
“The truth is, we simply cannot sustain the current numbers and we need to make a substantial number of jobs redundant — inclusive of cabin crew,” the CEO said.
At the same time, the carrier is looking to resume flying to selected destinations on its vast international network, likely starting with Australia, by the end of the month.
Mr al-Baker expects passengers to fill up to 60% of seats on some flights over the next two months as it gradually rebuilds its network, though a full recovery could be up to four years away.
People still want to travel. But they are telling us that they want clarity on the economic situation and will likely wait for at least a few months after any ‘all clear’ before returning to the skies
ALEXANDRE DE JUNIAC
IATA director-general
He also anticipates a sharp fall in business travel as people have become “accustomed to working remotely” during the pandemic.
A survey of travellers by IATA found 60% of respondents anticipate a return to air travel within one to two months of the containment of the pandemic, while 40% could wait six months or more. Another 69%, meanwhile, could delay a return to air travel until their personal financial situation stabilises.
The poll was conducted from April 6 to 9 among people who had travelled by air in the last nine months in Australia, Canada, Chile, France, Germany, Japan, India, Singapore, the United Arab Emirates, Britain and the US.
“An immediate rebound from the catastrophic fall in passenger demand appears unlikely,” said Alexandre de Juniac, IATA’s director-general and CEO. “People still want to travel. But they are telling us that they want clarity on the economic situation and will likely wait for at least a few months after any ‘all clear’ before returning to the skies.”
Representing 290 airlines comprising 82% of scheduled international air traffic, IATA estimates global airlines’ revenue will drop by $314 billion, or 55% this year. Airlines in the Asia Pacific region will see the sharpest revenue fall of $113 billion.
IATA, together with the International Transport Workers’ Federation, has called for governments to support airlines, as passenger demand globally is now down 80%, threatening as many as 25 million jobs directly and indirectly.
The most dramatic impacts are expected in Europe where infections and deaths caused by the pandemic are higher than in Asia. The budget giant Ryanair earlier this month announced 3,000 job cuts. Brussels Airlines, Belgium’s biggest carrier, said last Tuesday that it plans to slash a quarter of its workforce or around 1,000 jobs.
“The extremely negative impact of the coronavirus” had compelled the subsidiary of the the German flag carrier Lufthansa to take “substantial and indispensable measures to guarantee the survival of the company”, it said in a statement.
In Thailand, meanwhile, authorities are even said to be thinking the unthinkable as Thai Airways International has barely enough cash left to pay salaries this month. Some senior officials have signalled that the flag carrier might be allowed to declare bankruptcy, wipe the slate clean and start over as a very different and slimmed-down business.
Some other big names are already operating under bankruptcy protection, including South African Airways and Colombia-based Avianca, the second-largest carrier in South America.
Some carriers, however, have managed to retain their staff. VietJet, Vietnam’s international low-cost airline, said its top priority amid the crisis is to preserve jobs for all employees in the safest conditions.
The airline has been feeling the heat since late January when the Chinese government suspended international inbound and outbound travel. “We quickly convened a risk assessment committee to devise business plans in the worst-case scenario to promptly prepare action plans,” VietJet
Group vice-president Nguyen Thi Thuy Binh told Asia Focus by email.
More than 80% of the carrier’s fleet is not in operation and a maintenance programme has been under way. “The same as many other airlines in the world, total passenger transport revenue in April decreased by 86% compared to the normal period,” said Ms Binh, who is also the chairwoman of Thai VietJet.
But 100% of the employees volunteered to cut their income in various ways to help the company.
“All of our staff are looking forward to the day we resume more flights and serve more passengers. They have created a great motivation for us to find the best solution to recover the business in the most sustainable future,” she said.
In the meantime, the carrier has even found some new business opportunities. A pickup in cargo transport in line with the jump in e-commerce in locked-down economies helped the company increase other ancillary revenue to 40% of total income, said Ms Binh.
GOVERNMENT AID
As a key revenue generator for several economies including that of Thailand, tourism is also a leading job creator. Many of those jobs are held by economically vulnerable segments of the population, including a high share of low-skilled immigrants. More women and students are employed in tourism than in other businesses, making it particularly sensitive to economic shocks.
The World Travel and Tourism Council (WTTC) forecasts that up to 75 million jobs are at risk in the sector.
While Mr Rajakarier of Minor International declined to comment exactly on job cuts, he said the group had undertaken contingency planning and temporary measures to support the business and ensure long-term success for the benefit of all stakeholders.
Staff across the globe have been very supportive of the contingency measures with a focus on coming out of this crisis even stronger than before, he said.
However, more government support is needed for the sector to survive the current crisis.
“The governments of the countries within which we operate have provided diverse levels of support to the tourism industry and other affected sectors,” he said.
“The current impact is far larger than anyone could have imagined and most relief measures are still largely insufficient. At this point, the tourism sector is fighting for survival.
“We would therefore like to see a more aggressive steps from global governments to support the hospitality sector and its employees. Our proposals are in accordance with the policy recommendations proposed to global governments by the WTTC.”
According to Mr Rajakarier, financial assistance to protect the income of workers in the sector is the priority. A sizeable fund of interest-free loans must be established to support the cash flow needs of tourism companies of all sizes, prevent short-term insolvency and mass layoffs.
As well, the industry proposes waivers of all government taxes and financial demands for at least the next 12 months. “This is necessary to reduce liquidity pressure, particularly in the face of a prolonged lockdown,” he said.
“Over the course of many years, the tourism sector has consistently proven its resilience and its ability to not only bounce back as a sector, but to lead the wider economic and social recovery. Nevertheless, this depends on adequate political support and recognition.”
In India, tourism business operators are also seeking assistance from the government. IATA expects revenue of Indian airlines alone to decline by $11.2 billion compared to a year earlier.
Indian tourism organisations estimate that over 30 million jobs are at risk. The sector comprises about 130,000 tour operators, 53,000 travel agents, 5,300 hotels, 500,000 restaurants and 1.9 million tourist transport operators.
“The hospitality industry is the hardest hit by Covid-19. Airlines are closing down. The second most impacted is cruise tourism. Then come hotels and restaurants,” said Raji Rai, chairman of Swift Group and former president of the Travel Agents Association of India.
“We will have to gain back the confidence of the travelling public. Practices of social distancing and hygiene will have to be enhanced. Public-private partnership has to increase while government should waive all taxes,” he told Asia Focus.
Shubham Verma, senior sales executive of Red Carpet, said hotels and airlines were the most affected by the lockdown. “The situation is so bad that airlines are unable to refund cancellations. Most of the travel companies are not paying salaries,” he said.
The tourism industry to-do list for the government includes a holiday on all taxes, immediate return of income tax refunds and advances, and 10-year soft loans.
Operators also requested the government to pay half the salaries of staff in the industry, with all statutory payments and bank loan interest deferred for nine months.