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It’s a long jump back onto the travel bandwagon

Reading Time: 4 minutes

by Sharon Lam Reuters Breakingviews

 

It has never been truer that the journey is the destination. Travelling has proven resilient after previous crises, which suggests that once a Covid-19 vaccine, treatment or other solution is found, antsy globetrotters will pack their Samsonites in nearly full force again. Notable changes are likely to be in health checks and corporate flyers.

 

The pandemic’s effects will undoubtedly linger. Count Warren Buffett, whose investment horizon is longer than most, among those worried that some changes to travel habits will endure. The billionaire’s Berkshire Hathaway conglomerate dumped its big stakes in four U.S. airlines amid the crisis.

 

There’s reason for concern. It took nearly two years for North American flight demand to return following the 9/11 attacks, according to Morgan Stanley research. Overnight stays abroad this year are expected to fall by 20% to 30% from 2019, according to the World Tourism Organization, which would amount to a loss of up to $450 billion in receipts. After the global financial crisis in 2009, the comparable decline was a mere 4%.

 

Travellers probably will stay closer to home at first. Domestic driving vacations, for example, make more sense in many places while flights are grounded, and national borders closed. Before bigger vacations get planned, popular destination spots will have to reopen. With most of Walt Disney’s theme parks and other major attractions unavailable, there’s less incentive to embark on a journey anytime soon. Eventually, though, airlines, hoteliers and online booking sites should be able to start luring confined consumers back with tantalising discounts.

 

Costs will ultimately be on the rise, however. Airlines can expect lasting changes to their expense structures. Just as a single bomb threat forced passengers to remove their shoes before boarding, the virus is likely to usher in a mask-wearing era. Temperature checks, deeper cleaning of planes and new boarding protocols all will be more time-consuming and chew up money. Many middle seats also will be empty for a while, as Southwest Airlines boss Gary Kelly noted for his $16 billion discount carrier, forcing further financial recalibration. Roughly 77% of seats need to be filled for airlines to break even on an operating basis, according to the International Air Transportation Association trade group.

 

Some destinations also may fare better than others. Countries with better-developed healthcare systems, such as Switzerland and New Zealand, will be more appealing, providing even greater incentive to channel government stimulus funds into improving them now. At least some tourists are already thinking about their next itinerary. Embattled cruise operator Carnival , for one, said nearly half its passengers had opted for future credit instead of refunds on cancelled trips. The company is planning to restart some voyages in August.

 

There is other mildly encouraging evidence for the industry even though Expedia and others have withdrawn financial forecasts and Delta Air Lines boss Ed Bastian expects a recovery to take two to three years. Domestic bookings for China’s largest online travel agency, Trip.com, are on a rapid rise. Travellers in their teens and twenties are powering the $15 billion company’s first stage of a rebound in May, signalling that less risk-averse generations will help lead a post-pandemic age of tourism. Certain carriers, such as Ireland’s Ryanair, with more flexible cost structures also may be better able to navigate the crisis. More consolidation could be necessary and allowed.

 

Mobility will be more difficult, however. Countries wary of future contagion may tighten their borders and widen the scope of what constitutes non-essential travel. Leisure trips are also apt to become onerous. Health immunisation documents could become as vital as passports. Global air traffic, meanwhile, is expected to slow to a compound annual growth rate of 4.6% through 2028, from an estimated 5.1% before the crisis, according to UBS.

 

Business travel looks especially vulnerable. Such spending had been projected to reach $1.7 trillion worldwide by 2022, according to industry estimates. Serious concerns are evidenced, however, by two investors recently backing out of a proposed deal to buy a stake in a corporate airfare and hotel booking enterprise half-owned by American Express at a $5 billion valuation.

 

By the time the pandemic blows over, companies also will be more accustomed to remote working, and happy to keep costs down by using videoconferencing to meet with clients over first-class tickets and conference boondoggles. Even a modest 5% long-term hit to this segment of the market would upend many business strategies. For the beaten-up travel complex, this area will leave the most lasting scars.

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