Turbulence In The Travel Industry
Coronacation gone wrong
As expected, the travel industry has significantly suffered as a result of the COVID-19 breakout. The ripple effects that followed the enforcement of travel restrictions has catastrophically impacted various businesses and economies. In today's post, we will be diving into the impacts the decrease in global travel has had on specific businesses.
Airlines have taken the biggest hit in 2020. People are wary of traveling via airplanes. The limited air supply in the aircraft raises concerns for how easy the virus is able to spread in the confined spaces. The U.S. airline demand plunged more than 95% this year alone. Many of these companies are relying on federal subsidies to continue operation, but with the lack of demand, these airlines are struggling to stay afloat. “American Airlines warned employees on Tuesday that it would cut up to 19,000 workers on Oct. 1, saying that there was little sign that the pandemic-induced reluctance to travel was diminishing.” Additionally, numerous airline companies have declared bankruptcy; for example, Virgin Australia, Flybe, and Compass airlines have filed for bankruptcy.
Many economies are dependent on tourism for cash flow and the inability to attract potential clients has shocked many countries.
Local Businesses and Economies
Countries like Costa Rica and Mexico are heavily reliant on tourism for their economy to function. The IMF estimates “losses in tourism proceeds exceeding 3 percent of GDP” in these countries. Nations whose economies were >50% reliant on tourism bore the brunt of the global recession this year. As the world closed up in the name of public health, the primary drivers of these nation’s local economies have dissipated. In turn, this led to tremendous financial troubles in these nations, inevitably pushing them to either reopen early or bypass full border closures altogether.
Have you seen the peddlers wandering around the town, seeking business from tourists? These people have no one to offer their services to. These small businesses weren’t even prepared for a recession, let alone a global pandemic.
You may be wondering why the car rental sector is taking a hit. Roadtrips are the safest way to get out of the house nowadays and people would be renting cars to go on their adventurous trips. Potential customers are choosing to use their own cars It’s important to recognize the high density of car rental companies herding around major airports, knowing that their customers are car-less tourists. The decrease in travel across the board has effected car rental companies drastically.
Hertz, arguably the most renowned car rental company, filed for bankruptcy protection on May 22nd, 2020. They are currently in the process of selling off 180,000 cars in hopes of liquifying their assets.
As you can imagine hotels have been immensely affected as well. Large hotels have had to incentivize staying at their properties. For example, deals like "stay two nights and the third one is free" is just one of the tactics hotel owners are using.
Airbnb is a unique lodging service that may have benefited from the pandemic. You are able to view and rent properties on their platform. They guarantee a thorough cleaning of the properties they manage. Additionally, since you are renting a house, you are away from the publicly used facilities offered at hotels. Many eager investors are looking forward to Airbnb's
initial public offering later this year. Especially with the current state, it will be interesting to see public financial reports from the rental service.
Clearly, COVID-19 has dramatically changed customer habits when it comes to travelling. Fear of how safe travelling via commercial airlines has affected all the other travel sectors. Is this the new normal? And what does it mean for the future of the Travel industry?