Monday, April 26, 2021 /05:40 AM / By Proshare Research / Header Image Credit: EcoGraphics
"The most important thing you can do is make the distinction between customer service and guest hospitality. You need both things to thrive, but they are completely different" - Danny Meyer
The hospitality sector was initially projected to record significant growth in 2020 and 2021 stemming from a sustained upward trajectory in the past but the massive decline in the demand for hotel services, airlines, and tourist arrivals forced analysts to revise and dramatically reduce their 2020 and 2021 projections. Most businesses in the hospitality sector were forecast to experience declines in their financial positions in 2020.
Understanding the state of the hospitality sector before and after the coronavirus pandemic would mean dissecting the hospitality ecosystem. The hospitality ecosystem consists of the aviation sector, tourism and hotels, and trade sectors. Therefore, contraction in these sectors and the overall economy would hurt hospitality service delivery while recovery and expansion of these interconnected sectors would improve the outlook of the sector (see Illustration 4).
Illustration 4: Hospitality Ecosystem
Various countries in a desperate attempt to halt the further spread of the coronavirus locked down their economies. The movement of individuals was restricted, and a limit was placed on the number of people that could stay in a single location together in line with social distancing rules.
The aviation industry suffered a major decline because of the restrictions in the movement of people. The global aviation industry was thrown into utter confusion as it recorded historic lows in passenger movement, revenues, profit, and passenger confidence, for example, United Airlines recorded a loss of $7.07bn in 2020 while Delta Airlines recorded a loss of $12.4bn. Furthermore, some airline firms furloughed their staffs while others sacked staffs. To help the sector stay afloat various governments came up with different interventions and bail-out schemes. According to the International Air Transport Association (IATA) "The COVID-19 crisis challenged the industry for its very survival in 2020. In the face of a half-trillion-dollar revenue drop (from $838bn in 2019 to $328bn in 2020) airlines cut costs by $365bn (from $795bn in 2019 to $430bn in 2020). Airlines cut expenses by an average of a billion dollars a day over 2020 and still racked up unprecedented losses. The impact could have been worse if not for $173bn in financial support by governments, bankruptcies could have been on a massive scale" (see Table 1).
Table 1: Global Aviation: A Fix on Numbers
IATA forecast that the industry losses would continue in 2021, as it expected performance to be poor for some years. It predicted that there would be a net loss of $38.7bn in 2021 (deeper than the $15.8bn loss forecast for June). Furthermore, it projected that the second half of 2021 would record improvements after a difficult first half. The body expects aggressive cost-cutting combined with increased demand for 2021 (due to the re-opening of borders with testing and/or the widespread availability of vaccines) to see the industry turn cash-positive in the fourth quarter of 2021 which is earlier than previously forecast. Despite airline's cost cuts by 45.8% in 2020, revenues were down by 60.9%. This showed that airlines had lost $66 for every passenger carried in 2020 for a total net loss of $118.5bn. It is projected that this loss will be reduced sharply by $80bn in 2021. But airline professionals note that the prospect of losing $38.7bn in 2021 was nothing to celebrate. It was expedient to get borders safely re-opened without quarantine so that people would fly again.
Nigeria's aviation industry was also adversely affected by the pandemic as both domestic and international flights were suspended to prevent the spread of the coronavirus. According to the director-general of the Nigerian Civil Aviation Authority (NCAA) Captain Musa Nuhu, the coronavirus pandemic cost the airline industry almost $1bn (Â£766m), while the projected loss to Nigeria's economy was $800bn. The restrictions in international flights had adverse consequences for the revenues of hotels that host international events and conferences while tourist companies that rely on international travels and domestic customers from long distances also suffered losses. The decline in air transport activities was very conspicuous as its growth rate declined in 2020 by -36.98% from a growth of +13.17% in 2019. Also, the sector's contribution to the GDP declined from 0.12% in 2020 to 0.074% in 2019 (see Chart 1).
Chart 1: Nigeria Air Transport Growth (%)
Source: NBS, Proshare Research
The tourism industry is an integral part of the hospitality ecosystem. The coronavirus pandemic also left the tourism sector in a state of crisis as countries that depend on tourism as their main source of foreign earnings were hurt by the crisis. Countries such as Seychelles, Thailand, Fiji, Cape Verde were battered by the pandemic. Tourism accounts for about 10% of the global GDP. According to the Mobility Market Outlook on coronavirus, the global revenue for the travel and tourism industry would be 17% lower than from 2019 (see Chart 2).
Chart 2: International Tourist Arrivals, World (%change)
According to the UNWTO World Tourism Barometer, international tourist arrivals (overnight visitors) declined by 72% in January-October 2020 compared to the same period in 2019. The decline was attributed to the slow virus containment, low travelers' confidence, and restrictions on travel put in place to curb the spread of the virus.
The decline in the first ten months of 2020 represented 900m fewer international tourist arrivals compared to the same period in 2019 and translated to a loss of US$935bn in export revenues from international tourism, more than 10 times the loss in 2009 under the impact of the global economic crisis. Asia and the Pacific region saw an -82% decline in arrivals in January-October 2020. The Middle East recorded a -73% decline, while Africa saw a -69% drop in ten months. International arrivals in both Europe and the Americas declined by -68% (see Illustration 5).
Illustration 5: International Tourist Arrivals January-October 2020
Data on international tourism expenditure continues to reflect a very weak demand for outbound travel. However, some large markets such as the United States, Germany, and France have shown some shy recent signs of recovery.
While demand for international travel remains subdued, domestic tourism continues to grow in several large markets such as China and Russia, where domestic air travel demand has mostly returned to pre-COVID levels. Based on current trends, UNWTO expected that international arrivals declined by 70% to 75% for the whole of 2020. The estimated decline in international tourism in 2020 was equivalent to a loss of about 1bn arrivals and US$1.1trn in international tourism receipts. The plunge in international tourism could have resulted in an estimated economic loss of over US$2trn in global GDP, more than 2% of the world's GDP in 2019. Looking ahead, the roll-out of vaccines is expected to gradually increase consumer confidence and contribute to an easing of travel restrictions. UNWTO's extended scenarios for 2021-2024 point to a rebound in international tourism by the second half of 2021. Nonetheless, a return to 2019 levels in terms of international arrivals could take two and a half to four years.
Experts project that recovery in the tourism sector to pre-pandemic 2019 levels would not occur before 2023. But they see a rebound in international tourism by Q3 2021, while around 20% project a recovery only in 2022 (see Chart 3).
Chart 3: Projected Recovery for International Tourism
Source: UNWTO, Proshare Research
For countries that have recorded rebounds in tourism such rebounds have been primarily driven by domestic tourism but in most cases, it has been partial, not being able to compensate for the decline in international demand. For example, as domestic travel in China gradually regained momentum, leisure seekers were cautious and preferred destinations closer to home (see Illustration 6).
Illustration 6: The Chinese Shift; Working the New Destination Paradigm
Scenarios for 2021-2024
In the outlook beyond 2020, international arrivals are expected to rebound in 2021, based on the assumption of a gradual reversal of the pandemic, the roll-out of COVID-19 vaccines, improvement in traveler's confidence, and lifting of travel restrictions by the middle of the year. The expected rebound is also a consequence of the large pent-up demand after months of closed borders and travel bans. The extended scenarios presented here are in terms of yearly totals, not growth.
The rebound is expected to continue in 2022 as travel conditions normalize and the pandemic is contained globally. The recovery times for each scenario are summarized below:
Chart 4: The New Travel Spider Web
Downloadable Version of Proshare Confidential: Hospitality Post-COVID-19: Making the Future Count
1. Full Report: Hospitality Post-COVID-19: Making the Future Count - Apr 23, 2021
2. Executive Summary: Hospitality Post-COVID-19: Making the Future Count - Apr 23, 2021
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