COVID-19 And Travel Industry Outlook

This is a highly subjective analysis written by Lukas Nevosad, co-founder of Sygic Travel. Published on March 18, 2020.

The purpose of this article is to try to predict what will influence the travel industry during and shortly post the COVID-19 crisis. Bear in mind that this is nothing more than my guess. I will be wrong. A lot of similar predictions will surely pop up and almost everyone will be wrong, apart from the guy that will just be lucky. There is no framework to base a guess on. I am trying to reason based on what I have read so far, what I believe are the possible scenarios and how likely they are.

How long will it last

The only country that sort of managed the disease so far is China. And in fact, China did an outstanding job. The disease emerged in the Hubei region with first cases of the new disease reported in the end of December. With still just a few suspected cases daily, China managed to identify the disease on January 7 and have a test kit by January 13 (!) Affected regions have shut down by January 24. On that day, there were still just 375 reported new cases in Hubei. However, as we learned later, more than 2000 other, still undetected people contracted the disease on the same day. The growth was already exponential.

Strict social distancing immediately started to bring down the number of newly contracted cases. It was however only visible about 11 days later, which is the average time between onset and diagnosis. Since then, the numbers only declined. China officially declared the war on COVID-19 over on March 12 and WHO stopped breaking down data for China on March 15. On that day, there were only 4 new confirmed cases in Hubei, and 27 in the whole China.

The Hubei region has a population of about 60M people. Yet they managed to more or less eradicate the disease with just about 68.000 confirmed cases total and 3000 deaths. It took about 45 days between shut down and declaring the crisis over.

But the thing is — 45 days does not mean the fight is over. It only means that you only get just a few isolated cases daily. That is when you can start easing the social distancing measures slowly. It will still take a significant time before the number of new cases drops to zero and once (and if) it ever gets there, you have to assure that you will never import another case. See the problem already?

Yes, this thing is going to last long. You cannot simply lift all restrictions, or a single case still hidden somewhere out of sight or imported from abroad could start a new wave. Obviously, you simply cannot keep the country in a lock-down mode for too long — but when you start lifting the restrictions in order to make the economy work again, leisure travel is the least of your worries — you first need to make sure that factories run, shops sell, people buy and kids go to school. Only after (and if) you manage to make that work again with no or little new cases, you can start worrying about the rest, like restaurants, movie theatres, sport events and leisure travel. And I mentioned travel as the last industry intentionally. It gets even worse.

Travel is a huge risk when it comes to diseases. A single infected person can seed the disease thousands kilometers away and flee the scene. Unlike at work or at home, it is currently mostly impossible to trace who he/she was and everyone who he/she met and infected on the way. And if that ever happens, you can start the lock downs all over again. Simply put: Before you allow travel, especially leisure travel, you will need to make sure that you can reduce the risk of that happening significantly. I’ll come to that later.

How hard will it hit the travel industry?

Absolutely massive. At the time of writing, both leisure and business travel are currently banned throughout most of the World. Travel essentially stopped — planes are grounded, hotels are closed, tours, or any gatherings for that matter, are prohibited. In the analysis below, I did not bother with any numbers. It is simply because in my opinion, the underlying problem is orders of magnitude too large for any kind of financials to even matter.

The first to be hit are businesses with massive shares of fixed costs. First in that line are airlines — where things are starting to look very very bad mere days into the crisis. But I suspect hotels will follow shortly. Employees need to be paid, financing of assets (leasing on planes or debts on properties) need to be paid. These costs cannot be mitigated quickly enough. Reducing costs by 20% is something you need to plan over a period of many months. Yet revenue dropped to virtually zero within a single month. No one could have planned for that, no one will be able to reduce costs fast enough. And there will be little will to lend money by anyone other than governments.

Airlines (as well as ferries etc.) are probably in a slightly better position here, since air travel is perceived as something strategic and essential by governments. Bailouts are to be expected, but this is hardly a win nonetheless. There will be virtually zero operations and massive costs to pay. The only difference is that governments can “print money”, moving the problem elsewhere (yes, I know that is a simplification, but I strongly believe that it will happen nonetheless). With both airlines and hotels, it doesn’t really matter how long will the crisis last. It surely won’t resume fully within 2 months and I doubt most could survive any longer than that.

With the rest of the industry, this is more of a question of cost structure, margins, cash-flow — and willingness to face the facts. Businesses must expect revenue dropping to virtually zero, coupled with massive cancellations of everything that could still be cancelled. Online businesses are usually in the best position to survive, since typically they operate with low fixed costs. But still — how long can they survive with revenue close to zero?

What will follow?

Essentially eliminating the travel industry worldwide will hit economies, no doubt. Add to it other industries, especially services (restaurants, culture, sports, wellness) that face similar issues and you have a recipe for a deep recession. Universally dubbed Black swan, this will hit especially hard the countries that live off tourism. Expect massive unemployment, abandoned properties and collapsing local economies.

In some areas, the demise of AirBnB and the like will likely devalue properties — if you cannot find guests for a short stay, you will seek long term tenants. And putting massive amounts of flats on offer will no doubt spiral down prices. In extreme cases, devaluation may mess with mortgages the same way as in 2008, with similar results.

With interconnected economies, this is not something that will go away fast. And to make matters worse, coronavirus will still likely be around, complicating everything, everywhere.

How will it end?

Humanity has proven rather indestructible over the thousands of years. As bad as it seems, this is not the end of the World and we will, one way or another, get over it. Let’s explore hypothetical scenarios:

It will go away with summer
Maybe. The best scenario is of course that the disease will pass as temperatures rise and never return. But summer does not really affect all continents, at least not at the same time. Chances are, unfortunately, that COVID-19 may still return, just as the flu does. Still, it may give us a few more careless months.

Vaccine is invented
Creating and testing a working vaccine is super hard. Once you have it, you need to be 100% sure it works without side effects, or you can easily make matters worse. I am not making this up. Then you need to have enough of it. No matter how we rush, this is not likely to happen in 2020.

A treatment is invented
This seems more likely as there are at least treatments that are already being tested and testing will likely be far easier that with a vaccine. But still it is not something to rely upon and it is still not likely to arrive soon enough. This is however in my opinion still the industry’s best hope for 2020.

Herd immunity
Remember the 68k infected out of 60M people in Hubei I mentioned earlier? And remember the disaster it caused? To put that in perspective, that is 0.11% of the population, or 1 in 999. If you live in Hubei, most likely you don’t even know anyone who was infected. A herd immunity threshold is expected to be in the range of 70%. Imagine a disaster almost three orders of magnitude worse!

Although, until a few days ago, this seemed to be the strategy of some famous World leaders, I strongly believe it is simply impossible to achieve. This is simple Maslow. When people start dying around you, your only strategy is to not be one of them. In non-totalitarian countries, it does not really matter what your leader’s will is. People would organize themselves behind government’s backs and do whatever they see working elsewhere. Kids would skip school, people would stop going to work. And they will do that in an uncontrollable fashion. So not only will you have massive amounts of dying people, you could easily start to lack food and essential services like electricity or even law enforcement. And you will still end up with not enough immune people in order to achieve herd immunity.

Some people think that achieving herd immunity is still an option, only that we need to control the amount of concurrent cases in order not to stretch the health care system. Please read again the stuff I wrote about 68k infected out of 60M in Hubei. Infecting 0.11% of the population over the course of 30 days overloaded the system not only in Hubei, but in most of China, as doctors and equipment were rushed there. Even if you take that as a threshold of system overload, infecting 70% of the population would take 636 months, or 53 years. That is not even theoretically possible, given human lifespan. Would quarantining old people help? No. I don’t even need to do that math, if it improved the numbers by an order of magnitude, it would still be way too long.

One important thing to mention here is also that there is no guarantee that once you have COVID-19, you cannot contract it again. Again, I am not making this up, these coronaviruses seem to be serious villains.

We will eradicate the disease
I think this is unfortunately highly unlikely now that it is so widespread, not without the help of a vaccine, treatment or weather, as had already been discussed.

It will become endemic
Well, this is not optimistic, is it… But I possibly cannot think of any other scenario than the 5 above. And until none of them works, we have a disease that — just like the flu, hepatitis, malaria or Dengue fever, is here to stay. So we have to anticipate this. Now the real question is — can we resume travel with COVID-19 still around?

Resuming travel with COVID-19 around

I already discussed why travel will be perceived as non-essential and high risk by the authorities. But there is hope. People will still want to travel, especially as the curves flatten and other restrictions will be carefully lifted. If we manage to keep the number of cases low and steady, people will soon perceive the risk of contracting COVID-19 the same as airplanes falling from the sky — as something that could theoretically happen, but most likely will not.

For the authorities however, the risk assessment will be dramatically different. The risk of uncontrollable growth of cases due to an infected traveller is currently so high that it is very clear travel cannot resume in the same form as before. So what could be done? Well, here are some ideas worth of pursuing:

Make sure sick people do not travel
Even before, we used to see health checks at some airports — mostly a simple thermal camera, spotting for people with fever. Obviously, this is not enough, but it is also something that can be relatively easily improved.

First of all, you want to screen people before they board, not after they disembark. Second, you want to catch asymptomatic cases (or people that cheat the thermal camera by taking a paracetamol pill). We already have tests that indicate the disease within minutes after taking a swab. They are scarce, they likely cost a lot now and they might not be 100% reliable. But hey — they emerged within 3 months! I am sure that in 6 months, we will have a fast, reliable and cost-effective solution.

So the idea is to test anyone taking any kind of long distance travel as soon as they arrive at the terminal, just like we scan their belongings. Checkpoints can be made on roads between countries or states. In the end the swab test is not that much more, considering people already accept TSA scanners. There are practicalities to work out, like yet undetectable cases etc. But overall, this would decrease the risk significantly.

Improved hygiene standards
This sounds obvious, but this is in fact the core of the problem. How many of you used to wash hands thoroughly before having any meal? Sometimes, especially with street food, you don’t even have that option. One side of the equation are people, the other are institutions. There are simple measures to implement: In restaurants, you can have compulsory sanitizers on every table and create physical barriers between parties. Make the use of a hand sanitizer and wearing a face mask compulsory before entering a movie theatre. Taxis can have barriers between the driver and passengers. Public transport vehicles can use UV lights to automatically sterilise while at the terminus. Dozens of little things can significantly improve the probability of not getting sick or infecting others. You get the idea.

Quarantined resorts
This is something that could be done relatively fast — read in time for summer. You can dedicate planes, resorts or even cruises to certain groups only. If you make sure a resort will only accommodate people from say Bavaria, that will arrive on dedicated planes from Bavaria only and never mix with other travellers, you dramatically improve their chances of not contracting a disease while on holidays.

Yes, it sounds horrible, it is highly inconvenient and impractical, but it is surely better than nothing, which is what you get otherwise. Travel will not be the same anymore. Ever.

Know social contacts
Undetected cases may and will still pass through. When they do, you must be able to react fast. One way is to be able to trace all contacts — you should know who sat in the adjacent seats on the flight, taxi drivers, room service — everything and as much as possible. Apart from the obvious things — like compulsory assigned seating on planes and trains — there are technical solutions that could be quite easily implemented. You can track phone location for once, you can even use bluetooth to automatically record signatures of other devices that came in near contact with you. Indoors, bluetooth beacons can be used to know what shops or restaurants you visited.

This would help generally, but is somewhat essential if you want to loosen travel restrictions really. And yes, undoubtedly, this will violate privacy. We will need to accept that. But heck, if I cannot have both, I’d definitely rather stay healthy than private.

Meaningful treatment of suspected infections
I hope there will soon be a more sophisticated way than quarantining everyone that was in contact with someone infected for 14 days. Maybe just make them take a compulsory test every day? The more we know about the disease, the smarter we will be about it.

Nevertheless, hotels, airports, cruises, resorts should be prepared for the eventuality that somebody is quarantined, or sick even, and be able to isolate such a person or a group in an effective (and humane!) way.

DON’T PANIC?

Actually — as a travel business, it is definitely time to panic now. But don’t worry — the travel industry will be reborn. It’s just super hard to estimate when right now.

I still hope that we will still see some kind of summer season in 2020, at least at some places around the Earth. My bet is that in most countries the crisis will be under control by summer and hopefully summer itself will help somewhat. I think it is very unlikely though that you will be able to travel just about anywhere as nearly as easily as before. Likely, not countries but regions will close and re-open dynamically and unforeseeably according to recent data and both outbound and inbound journeys will be somewhat uncertain as a result of that.

Even if destinations re-open, the total volume of travellers will be reduced dramatically. There will also be a lot of uncertainty due to airlines, hotels or travel agencies going under, with nothing left to compensate clients with. There will be less people willing to travel. There will be recession and less income to spare. And there will be added costs to travel to make it safe(r).

If anything will profit, it will be local holidays — short stays somewhere close, on a reasonable budget and accessible by a car. Spending holidays locally will reduce the risk both for the traveller and for the hospitality provider.

As always, the current crisis also presents an opportunity to those that can change fast. If uncertainty is in the cards, mitigate the risk for the customer — offer flexibility to change time and destination. Play the safety card with guarantee of enough personal space. Focus on individual experiences rather than large tours. Offer a sound insurance that ensures that the customer will never lose.

Actually, when you read that paragraph again, this sounds like an opportunity to make travel fun again.