Travel industry: between pandemic shock and slowdown worries

International tourism showed robust performance in January-September 2022, with arrivals reaching 62% of pre-pandemic levels in the first nine months of 2022. An estimated 700 million tourists travelled internationally between January and September, more than double (+133%) the number recorded in the same period of 2021. International arrivals could reach 65% of pre-pandemic levels in 2022, in line with UNWTO’s initial scenarios. Despite growing challenges pointing to a softening of the recovery pace in the coming months, export revenues from tourism could reach USD 1.2 to 1.3 trillion in 2022, a 60-70% increase over 2021, or 70-80% of the USD 1.8 trillion recorded in 2019. The global vaccine campaign has made a significant contribution to the recovery of the travel industry, and probably, all other things being equal, would help the industry to fully recover in 2023.

Most likely, a looming global recession and high inflation in many parts of the world will affect consumer spending and tourism demand and, in turn, delay recovery of international tourism. In Europe, an energy crisis and anticipation of a difficult winter are hitting the wallets of citizens and changing consumption patterns, resulting in a decrease in the number of people who are ready to make reservations for the next summer. In the US, savings accumulated during the pandemic have largely been spent, and further demand growth in 2023 will depend more on the disposable income structure, which is declining due to rising prices. Despite a strong USD, which can become a stimulating factor for travel from the US, most likely we will see the growth of domestic tourism at a more confident pace than international tourism.

Sooner or later, China will ease lockdown restrictions, and tourists from mainland China will boost the tourism sector around the world. This factor may offset the decline in demand from travelers from the US and Europe, as if China opens up, the industry could get a huge boost from pent-up demand from Chinese travelers. In the pre-pandemic years, China was a leader in tourism spending and was also among the top 5 countries in terms of popularity for tourism. As a result, China reopening can fuel industry performance and soften the recession impact.

In an increasingly difficult environment, companies in the sector will look for opportunities to optimize:
  • Travel companies can use technologies that increase the effectiveness of operations and reduce costs to fuel revenue and long-term growth. For example, many travel companies today have duplicated booking or accounting systems, it is often required to synchronize them between each other manually. During slowdown, they have to optimize their processes.
  • Media and social networks offer travel companies a source of incremental bookings and can "digitalize" the customer experience. Advertisements by customer can take a role of additional recurring revenue, when followers of customers want to experience the same destination.
  • Travel companies can expand ways for implementation and promotion using their loyalty programs.

As a result, after an economic recession, we will likely see a transformed and more efficient travel industry as it was after the Global Financial Crisis 2007-2008, with higher margins and more crisis-resistant businesses.

See full article on Seeking Alpha: