May. 15, 2020
WILL TOURISM REBOUND?
WILL TOURISM REBOUND?
It will take time.
Those countries heavily reliant on tourism, like Costa Rica, are desperate to promote the return of flights, especially from richer countries like the US, Canada and those in Europe.
We have all seen: the closed borders, the lines of grounded planes, deserted airports, empty resorts and beaches.
Tourism is economically vital In many countries. It is heavily concentrated around popular destinations. Some towns are dying without tourists.
Tourist flights feed into so many areas of the economy that exact data is difficult to measure. Government statistics are a starting point for those interested.
Airports, hotels, car hire, hospitality outlets, gas stations, national parks, and a wide variety of other tourist related businesses are major employers and foreign currency earners. What economists call ‘the multiplier effect’, i.e. the way those taking tourist dollars spend them in the rest of the economy, makes this industry, even more crucial. The health of tourism also helps drive the real-estate industry and property values.
Distressed workers in tourism are interviewed nightly on the TV news.
Members of the Costa Rican government and legislature are red hot promoters of the industry. This could be due to family and funding connections to tourism and real estate. Less cynically the importance of votes from suffering families may interest them.
The only naysayers seem to be eco-warriors, happy about the return of wildlife and reduced pollution. I fall into that camp.
Eco tourism, may be environmentally friendlier, but seems unlikely to fill the vast void created by the pandemic. Much of the current tourist infrastructure is unsuitable for this niche.
So, why is a rapid bounce back for airlines unlikely?
There are two main factors,
-The sick state of Airlines.
-A tardy return of passenger volumes
The Sick State of the Airlines- There is an old joke about how to get a billion dollars. You invest $2 billion in an airline. Around the world, today’s endless rows of parked aircraft underline the point.
The industry grew to a million people in the air at any one time, from the days of slower but luxury travel for the very rich. Despite this, bankruptcies, desperation driven mergers and cost cutting have plagued the business, especially in the US and Europe.
Airlines rarely own, planes ground facilities and other assets. They lease them. High financial leverage means they have high interest charges and are especially at risk of shocks. They now face the biggest ever.
Unfortunately, inefficient operators are preserved to the detriment of the efficient. In the US, chapter 11 can wipe out the debt of an airline. It also allows airlines to override unions and force through radical cost cutting. Competing with airlines with lower costs makes it harder for others. This drives the next round of Chapter 11 filings.
On a global basis, National Flag carriers are subsidized or rescued as a matter of prestige and as important employers. This is currently happening in France, Italy and Germany to name just a few. There may well be trade disputes about subsidies to foreign competitors, especially from the US. The plane makers and airlines fund powerful political interests around the world. Arab oil-states seem obsessed with the status symbol of owning luxury airlines.
Getting mothballed assets back into service and re-configuring cabin seating for greater virus protection may take months and will raise both capital and operating costs.
As long as there is a risk of a second wave of Covid 19, borders will remain controlled and few passenger planes can fly. No one knows how long that will last.
A Tardy Return of Passenger Volumes- After a period when flights are restricted, there is always a short term surge of pent up demand. I traveled on the first flight to Milan from New York after 9/11. It was full. Thereafter, my other flights were nearly empty for months.
Several issues make lower volumes likely, in addition to remaining restrictions on flights. Recession impoverished consumers may need to rebuild their finances, before returning to foreign vacations. Long, slow queues, for flights and at immigration, plus quarantine issues will deter many travelers. New health insurance exclusions for viral infections are another problem.
Many of those at risk, especially the affluent elderly, may wait and see, whether it is safe to fly again. Uncertainty about potential cancellation and airline bankruptcies will also be a factor.
In conclusion, a rapid return to mass tourism is doubtful. It may take years rather than months, despite the best efforts of those lobbying for a revival.
Maybe more flights with La Negrita de Los Angeles, a supposedly miraculous Catholic Icon, as a passenger will be help.