By Marwan Bejjani, Camil Tahan, Alessandro Borgogna, and Vivek Madan
In recent years, GCC governments have made progress in building the region’s travel and tourism sector lately, as part of broader agendas to grow and diversify national economies. However, the COVID-19 crisis has halted most travel worldwide. That is a significant disruption, but the long-term fate of the industry is still largely within governments’ control. There are specific steps that transportation and tourism ministries can take to create a stronger travel industry when the crisis ends and the recovery starts.
The economic impact from the crisis will be severe. The tourism industry, which accounts for roughly 10% of the world GDP, could have up to 50 million jobs at risk, according to the World Travel and Tourism Council. Within the GCC, we estimate that tourism revenue could decline by $14 billion to $17 billion (excluding airlines), assuming the pandemic lasts for two quarters, a drop of over 30%. In addition, up to 400,000 tourism-related jobs in the GCC region could be lost, at a time when unemployment levels are already high.
To mitigate that damage, adapt to changing consumer preferences, and prepare the industry for the rebound, government authorities and regulators should focus on five measures.
Governments should adjust national policies to facilitate travel—for example by digitizing and enhancing the processes to issue travel visas. Authorities can also introduce new health and quality standards for tourism providers. Doing so will rebuild confidence in the industry and can boost demand.
Governments should coordinate with all stakeholders (particularly those within the industry) to build a library-in-waiting of marketing and promotional campaigns that can be launched at the first sign of the crisis ending. As part of this process, authorities should reassess upcoming business and leisure events, and consider how different scenarios for the end of the crisis and the recovery could affect demand. In addition, as the lock-downs are lifted, domestic campaigns could accelerate the support and recovery of tourism establishments by making them more attractive for travelers within the GCC. This is particularly important given that international air travel may take longer to recover.
Governments should consider making investments in travel assets now that valuations might be low. Prices will rise again after the crisis ends as the global travel industry remains structurally sound. Possible acquisitions include travel distribution assets such as travel agencies, both in-person and online, that can direct passengers to target destinations. Authorities could also invest to strengthen the technology capabilities of their destination management companies to enable greater tourism revenues and more efficiency in managing incoming tourist flows. Technology investments should focus on serving all tourism services across the entire value chain (including tours and excursions, accommodations, air travel, and dining) and offers these services to online travel agencies, tour operators, travel agencies, travel consultants, and retail travel outlets.
Given the scope of lost revenue during the crisis, governments need to offer immediate fiscal support, such as suspending taxes and levies on tourism operators. Authorities can also provide debt relief and expand access to credit. Both measures will keep organizations afloat until demand returns. As part of this process, regulators and authorities should engage with all stakeholders to monitor the financial impact of the crisis on the tourism industry, and prioritize the right type of support.
Although all components of the travel industry need help right now, airlines, which have typically limited liquidity, are the most critical economic enablers for a country. According to the International Air Transport Association, most airlines worldwide went into the crisis with about two months of cash on hand. If substantial financial support is required, governments need to focus on the most strategically important assets to ensure the region’s future travel connections. In doing so, governments need to be sure that airline leaders develop and deploy a sustainable restructuring plan.
The travel and tourism industry has felt the impact of the pandemic more than others. Given the importance to GCC economies of developing this industry, governments must intervene. The steps that the authorities take today will have a significant impact on how the industry recovers. Viewed in that light, the current crisis, though daunting, represents an opportunity.
This article originally appeared in April 2020 on Hospitality News.