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Ready for take-off

The travel industry has been one of the worst-hit during the pandemic, with lockdowns grounding flights, keeping cruises in docks, and tourists at home. A year into the COVID-19 pandemic, travel companies have made huge losses and they are yet to see revenues flooding back in. However, the success of vaccines is offering some optimism to the travel industry. A spur in bookings is already beginning, with customers hoping they will be able to take the summer holidays they missed in 2020 this summer. 

The year of the staycation

At the end of last month, Royal Caribbean disclosed a loss of $1bn for the fourth consecutive quarter. This marks the end of a year since a COVID-19 outbreak onboard its Diamond Princess cruise ship brought the industry to a standstill. In the third quarter alone, the three largest cruise companies reported combined net losses of almost $5bn. With all revenue sources being eliminated, the three largest listed operators have needed to raise almost $40bn in debt and equity since March 2020 in order to stay afloat. One day after Royal Caribbean announced its results, rival operator Carnival revealed it was undertaking a $1bn share issue to raise more funds. This will leave many cruise operators with hefty debts to pay back. 

The aviation industry has also massively felt the effects of the pandemic. IAG, the owner of British Airways, Iberia, and Aer Lingus, has announced a €7.4bn full-year loss — this is the biggest loss in the corporation’s history and one of corporate Britain’s worst pandemic-era results. Because of restrictions, the group flew just a third of its normal flights last year. Heathrow also reported a £2bn loss, as passenger numbers fell back to 1970s levels. 

It has been more of a mixed experience for hotel chains and rental sites. Results from international hotel chains Accor and IHG have shown the negative effect of the pandemic on their finances, amid warnings that business travel is likely to take years to recover, if at all. However, Airbnb has said they have seen an increase in bookings, with trips to rural destinations outpacing those to cities; demonstrating the resilience of its business model as opposed to more traditional hotels. 

Fasten your seatbelts 

Following the UK Prime Minister’s announcement on how the country is going to return to ‘normal life’, the travel industry has seen a boost in consumer confidence. Thomas Cook reported a 60% leap in traffic to its website as a consequence. TUI, Europe’s largest travel company, reported a 500% week-on-week rise in bookings for holidays in Greece, Spain, and Turkey from July onwards. They also revealed more than half of its 2.8 million summer bookings had come from the UK — not surprising since it is their strongest market and the market with the best vaccination programme. 

A similar story has been seen for cruise companies. Investors pushed up the share price of Royal Caribbean almost 12% after the firm revealed a bump in bookings spurred by fresh confidence around vaccines and lockdown easing. “Despite the lack of marketing spend, we have seen a 30% increase in new bookings since the beginning of the year when compared to November and December,” said Jason Liberty, Royal Caribbean’s chief financial officer. Another leading cruise line said its UK bookings leapt 300% following the government announcement of reopening dates for hospitality and travel. 

The aftermath of previous global crises is often characterised by a willingness to spend and enjoy life: such as the ‘roaring twenties’ that followed World War I and the Spanish flu pandemic. Airline, hotels, and cruise companies alike are hoping that pent-up demand will bring a post-pandemic booking spree. Pierfranceso Vago, chairman of the industry body CLIA, is optimistic this will happen. He believes 2019 profit levels will be seen in 2022 as the population will react bullishly and want to spend on all the things they have not been able to do so for the last year. 

Risk of turbulence 

Things may take a while to be exactly like they were before COVID-19. When going abroad, you won’t just need to remember your usual passport, but also your vaccination passport. Ursula von der Leyen, the European Commission president, this week announced plans for a “digital green pass” aimed at reviving the bloc’s traumatised tourism industry. Israel has already implemented its own programme, giving privileged access to gyms, concerts, etc. for those with proof of vaccination. Saga Cruises in the UK has stipulated that their passengers must be fully vaccinated before embarking. The airline Qantas also expects passengers to need vaccine proof before flying internationally. 

It seems like a form of vaccine passport will be necessary to revive the industry, but it will not come without its challenges. Despite passenger traffic at 15% of pre-COVID levels, at airports, the number of workers on the ground is the same as it usually is during peak summer months. This is due to the huge amounts of paperwork needed to check if a passenger has been vaccinated or had a test at an accredited lab. Heathrow has revealed check-in was taking 20 minutes for each passenger due to the necessary requirements for safe travel. As passenger numbers begin to increase, this will simply not be sustainable. This problem needs to be solved before capacity can return to normal and the industry once again becomes profitable. Many private companies are rushing to take on this challenge, spotting an opportunity for profit — hopefully there will be a solution before people jet off for their summer vacations. 

Don’t get the suitcases out too soon

Despite most tourists being able to see the sun beginning to creep out behind the clouds, the travel industry cannot expect a smooth take-off. With issues such as vaccine passports, potential new strains, and the large uncertainty around recovery, there still may be a while before tourism returns to its former glory. The UK government themselves have warned against booking holidays less than six months in advance. But with a spur in bookings, it is clear there is not a lack in consumer confidence for travel companies to worry about. The recovery of the travel industry is more likely to be like a slow cruise rather than a high-speed flight. 

Sources:

https://www.ft.com/content/93c189a8-7336-431f-b949-2d00d91ed715

https://www.ft.com/content/4e20c648-8f25-4afa-89ae-8331bfb0f540

https://www.ft.com/content/3995af05-6bde-47f7-9f43-8eacc4600b43

https://www.ft.com/content/943df032-90b9-4007-b709-c022d5ac27b6

https://www.ft.com/content/b56b502b-e86f-4531-9292-8ae9a69d6f64

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