Rebuilding tourism for the future: COVID-19 policy responses and recovery

 Unprecedented scale of the tourism crisis, and outlook extraordinarily uncertain

The COVID-19 crisis has hit the tourism economy hard, with unprecedented effects on jobs and businesses. Tourism was one of the first sectors to be deeply impacted by the pandemic, as measures introduced to contain the virus led to a near-complete cessation of tourism activities around the world. The sector also risks being among one of the last to recover, with the ongoing travel restrictions and the global recession. This has consequences beyond the tourism economy, with the many other sectors that support, and are supported by, tourism also significantly impacted.

The unprecedented shock to the tourism economy is being compounded by the evolving sanitary situation. While positive news on vaccines has boosted the hopes of tourism businesses and travellers alike, challenges remain. Vaccine roll out will take some time, and the sector is potentially facing stop/start cycles for some time. This will further damage business and traveller confidence, and business survival prospects. Despite the proven resilience of the tourism economy to previous shocks, the sheer scale and combined economic and health nature of this crisis means that the road to recovery is highly uncertain. While there has been some resumption of international tourism activity, this remains very limited. Domestic tourism has restarted in many countries, but can only partially compensate for the loss of inbound tourism.

OECD now estimates international tourism1 will fall by around 80% in 2020. No meaningful recovery in international tourism flows is foreseen until well into 2021, and is likely to take some years. This is in line with recent projections by other organisations. Latest UN World Tourism Organization (UNWTO) estimates point to a 70% decline year-on-year in international tourist arrivals in the first eight months of the year, with the loss in export revenues from international tourism eight times that recorded in 2009 amid the global financial crisis.2 UNWTO now foresees a decline in international arrivals close to 70%, with recovery to pre-crisis levels not expected before 2023.

Domestic tourism is providing a much needed boost to help sustain many tourism destinations and businesses, and will continue to be a key driver of recovery in the short to medium term. There has been some pick up in domestic tourism activities since the middle of the year, due in part to displacement effects of international travel restrictions. However, this has been hindered as many countries face further waves of the virus, and domestic tourism is expected to end the year significantly down on pre-COVID levels. Spain and the United Kingdom, for example, are forecasting a decrease in domestic tourism by 45-50% in 2020. Also, not all destinations or businesses have benefited, due to ongoing restrictions on movement within countries and altered demand patterns and behaviours.

This is having very tangible economic and social consequences for many people, places and businesses, and the wider economy. Tourism generates foreign exchange, supports jobs and businesses, drives regional development and underpins local communities. Before the pandemic, the sector directly contributed 4.4% of GDP, 6.9% of employment, and 21.5% of service exports in OECD countries, on average (and 6.5% of global exports according to the World Trade Organisation3). However, these shares are much higher for several OECD countries, where tourism is a major driver of economic activities, such as France (7.4% of GDP), Greece (6.8%), Iceland (8.6%), Mexico (8.7%), Portugal (8.0%) and Spain (11.8%). The indirect impacts of tourism are also significant, exacerbating the size of the shock on national and local economies.

The halt in tourism is having a knock-on impact on the wider economy, given the interlinked nature of the sector. The OECD estimates that more than a third of the tourism value added generated in the domestic economy comes from indirect impacts, reflecting the breadth and depth to linkages between tourism and other sectors (e.g. food production, agriculture, transport, business services).4 UNCTAD, meanwhile, estimates that global GDP losses due to the crisis in tourism could amount to 2.8% of the world’s GDP (USD 1.2 trillion), if international tourist arrivals drop by 66%, with the consequences most marked in countries like Croatia (potential drop in GDP of 8%), Portugal (6%), Morocco (4%), Greece (4%), Ireland (3%) and Spain (3%). This could rise to a fall of 4.2% of world’s GDP (USD 3.3 trillion) if international tourism flows are at a standstill for 12 months.5

The crisis is putting millions of jobs in the tourism sector at risk. Tourism is highly labour intensive and provides a high volume of jobs for low skilled workers, together with higher skilled jobs. According to the International Labour Organisation (ILO), the accommodation and food services subsectors alone globally provides employment for 144 million workers, about 30% of whom are employed in small tourism businesses with 2–9 employees.6 Many of these jobs are customer-facing, exposing workers also to the health risks from the virus (e.g. waiters, air stewards, hotel receptionists).

The scale of job losses is not yet apparent, as government supports have protected workers from the full impact of the pandemic. However, the World Travel and Tourism Council (WTTC) estimates that that up to 174 million job are at risk globally in 2020.7 The European Commission’s Joint Research Centre forecasts that between 6.6 - 11.7 million jobs in businesses operating and/or dependent on tourism-related activities could be at risk of reduction in working hours or permanent losses in 2020, representing between 3.2% and 5.6% of the total active population in the European Union.8 Women, young people, rural communities, indigenous people and informal workers are disproportionately affected – groups that are more likely to be employed in micro or small tourism businesses.

National level estimates similarly reflect the scale of the impact on tourism, together with the challenges in making predictions in a fast moving and uncertain situation. Quantifying the current and future impacts of the crisis on the tourism sector is challenging, with the crisis exposing shortcomings in tourism statistical information systems, including a lack of robust, comparable and timely data to inform policy and business decisions. Available evidence highlights the precipitous drop in international travel flows and tourism spending, as well as the contraction of domestic tourism activities.

Attempts to forecast the impact of the pandemic on the tourism economy have repeatedly been overtaken by the rapidly evolving sanitary situation, and changes to containment measures. Traditional forecasting methods are unreliable in the current environment. Box 1 presents forecasts for domestic and international tourism performance in 2020 from selected countries. As with the OECD projections, scenario-based approaches provide some directions for tourism recovery, but are necessarily based on assumptions and simplifications, and subject to ongoing adjustment and revision.

The outlook for tourism is extraordinarily uncertain, and recovery will depend on the interlinked consequences of the economic and health crisis on demand and supply side factors. These include the evolution of the pandemic, availability of a vaccine (or alternative control measures), and the lifting of travel restrictions, as well as the survival and readiness of businesses throughout the tourism ecosystem to meeting demand, impacts on consumer confidence and travel behaviour, and developments in the wider economy. The global scale and extended duration of the crisis, continued uncertainty, and the interlinked economic and health nature of this crisis makes it unlike any previous shock to the tourism system.

Beyond the tourism economy, the pandemic has triggered a global economic crisis, and this in turn has consequences for tourism recovery. OECD predicts that global GDP will fall sharply by 4.2% in 2020, before returning to pre-pandemic levels by the end of 2021. The road ahead is brighter as progress on vaccines has lifted hopes, but challenges remains and recovery will be uneven across countries, and across sectors. Growth has rebounded in many parts of the economy, but tourism and other sectors have been slower to bounce back, and this is impacting recovery in many countries9.

It is too early to say what the long term implications of the crisis will be for tourism, but a return to business as usual is highly unlikely. The tourism sector will be a very different in 2021 to what it was in 2019. The longer the crisis continues, the more businesses and jobs will be lost, the greater the implications for traveller behaviour, and the tougher it will be to rebuild the tourism economy. This brings challenges for the sector, but also opportunities to encourage innovation, drive new business models, explore new niches/markets, open up new destinations, and move to more sustainable and resilient tourism development models. Box 2 presents some of the potential long term impacts which may arise, and their policy implications.

The crisis is a call for governments at all levels to take strong and co-ordinated policy action to mitigate the impacts and support the recovery. It is also an opportunity to take advantage of new technologies, implement green recovery strategies, and shift to policy and business practices that better balance the environmental, social and economic impacts of tourism. Policy makers should leverage the opportunity to reboot the tourism economy on a stronger, fairer and more sustainable footing. The crisis, and the recovery plans that are being put in place, are a once in a lifetime opportunity to move towards more sustainable and resilient models of tourism development.

In this environment, tourism is high on the global policy agenda, and similar calls have been made by other international institutions, including the United Nations10, World Bank11 and World Trade Organisation12. The G20 Tourism Ministers, in the Diriyah Communiqué13, recognised that COVID-19 may result in a paradigm shift for the travel and tourism sector, and committed to continue to work together to support those most impacted by the crisis, and support a sustainable and inclusive recovery of the tourism sector14.

 Drawing initial lessons and charting a way forward for tourism policy

The COVID-19 crisis has been a huge shock to the tourism economy, severely impacting people’s livelihoods, neighbourhoods and businesses. As the pandemic continues to evolve, the full consequences are not yet clear. However, a return to ‘business as usual’ is unlikely. Policy makers will need to learn from the crisis to build a stronger, more resilient tourism economy for the future. While it is still too early to say with any certainty what these will be, a number of initial lessons are outlined:

• Crisis has been a call to action to governments, at all levels, to respond in a co-ordinated way, and has highlighted the importance of integrated tourism policy approaches to support recovery. Delivering well-targeted and accessible supports as quickly and efficiently as possible to vulnerable tourism businesses, workers and tourists has and continues to be crucial. Government at all levels, and the private sector, need to be better prepared and have the capacity to react and adapt quickly. This requires more robust risk assessment and crisis response mechanisms, and closer co-ordination – at local, national and international level.

• Strengthened multi-lateral co-operation and robust support is essential to reactivate tourism. Countries need to work together, as the actions taken by one government have implications for travellers and businesses in other countries, and for the global tourism system. Countries need to develop collaborative systems across borders to safety resume travel, restore traveller and business confidence, stimulate demand and accelerate tourism recovery. More efficient international co-ordination systems are also needed to respond to future shocks

• Sector-specific supports are needed to address the particular needs of tourism workers, businesses and destinations, and support wider economic recovery. Tourism has benefited significantly from general economic stimulus measures. However, it is one of the most heavily impacted sectors, and will have an impact on wider macroeconomic recovery in many countries. Those parts of the tourism ecosystem that are not yet open for business and where demand is likely to be depressed or constrained for some time will require particular attention, as will destinations and small businesses that have been most severely hit and are most vulnerable.

• Continued government support should already start to build toward more sustainable and resilient tourism economy. Destinations and tourism businesses need help to be ready to provide tourism services to meet demand when the recovery comes. It will be important to work with tourism businesses so they are sustainable beyond the end of the supports, and already starting to address the long term implications of the crisis. Measures should be increasingly conditioned on broader environmental, economic and social objectives.15

• Providing policy clarity and taking steps to limit uncertainty (to the extent possible) will be crucial to support tourism recovery. The outlook for the tourism economy remains extraordinarily uncertain, and business and travel confidence has taken a big hit. Clear communication, well-designed information policy and clarity on the epidemiological criteria will be particularly important where there is a need to change travel restrictions and containment measures in response to virus outbreaks and the shifting sanitary situation.

• Improving the evidence base to inform policy and business decisions will be key, through information gathering, research and data analysis. The crisis has highlighted shortcomings in the availability of timely, comparable, granular data in quickly evolving situations. Reliable and consistent indicators are needed to evaluate the effectiveness of programmes and initiatives, and monitor progress on tourism recovery and resilience. Risk-based solutions to safely lift travel restrictions and get the international tourism ecosystem back up and running must be based on sound scientific evidence. These solutions also need to be feasible to implement, with sufficient capacity available to ensure these systems are can function reliably.

• Crisis is a once in a lifetime opportunity to move toward fairer, more sustainable and resilient models of tourism development. The pandemic has once again exposed structural shortcomings in the tourism system and the vulnerability to external shocks. There is an urgent need to diversify and strengthen the resilience of the tourism economy, to better prepare for future shocks, to address long standing structural weaknesses, and encourage the digital, low carbon transformations that will be essential to shift to stronger, fairer and more sustainable models of tourism development.