The Effect of Covid-19 on Tourism

Whilst Covid-19 seems to have plunged the world into a global recession, not all sectors have been affected equally. Sectors that involve commerce or travel have been hit especially hard in this interconnected globalist economy we currently live in. Despite this, whilst the international supply chain is sure to reactivate in order to restore economic activity, the travel and tourism industry finds itself in a serious predicament. Aside from the current travel restrictions which will be lifted in the near future, the industry faces two main issues:

1. The lack of confidence.

2. Spill-overs from the economic recession.

Whilst the situation is undoubtedly dire there is still hope for the tourist sector, the pandemic may be an opportunity to undergo transformation towards a more sustainable model. Moreover, whilst in the short term we may see a reduction in their performance, there are some approaches and policies that governments may pursue in order to palliate the effects of the pandemic.

First, we must understand the relative importance of tourism in service lead economies, such as the Mediterranean countries. Despite Alberto Garzón’s unfortunate declaration that tourism in Spain was “precarious and of low added value”, this sector has long been one of the flagships of the Spanish economy. Constituting almost 15% of the Spanish GDP it is the largest sector in the economy yielding the comments by the Minister of Consumer Affairs incomprehensible. In Italy tourism amounts to 11% of the GDP and goes as high as 18% in Greece. It is therefore a critical moment for these economies who will foreseeably take a massive dive if the current situation persists, especially during summer – traditionally their busiest period. The estimated cost to the Spanish treasury from the reduction in tourism is around 124 billion euros if the situation lasts until the end of the year.

The main issues facing tourism can largely be explained by the travel restrictions which have affected 90% of the world as of 31 March 2020. The problem is accentuated by the fact that a large proportion of the tourists to the Mediterranean economies are internationals, predominantly from northern Europe. As the situation evolves and the so-called ‘new normality’ is achieved the travel bans will be lifted, but despite this the psychological toll may be detrimental for the reactivation of the travel industry. The possible customers may still fear infection in high risk areas such as airports, meaning that until a vaccine or a reliable medication is developed the number of tourists may remain relatively low. Furthermore, the incentives to travel to these countries may be adversely impacted by policy measures which ban large congregations of people, limit establishments’ capacities and which may close off public areas. After all, most of the more risk taking customers will be younger people whose main interest would be the more social elements which, due to social distancing, may no longer be fulfilled and, even in the case that they still decide to come, these tourists tend to be less affluent and thus leave behind less money. Similarly, a foreseeable trend is that with the contraction of the global GDP due to the closing of many smaller and medium businesses, many people find themselves unemployed or with precarious employment. This will eventually feed into the problem faced by tourism; an economic recession usually means a reduction in the disposable income of the average citizen who is most likely going to avoid unnecessary expenses such as holidays and travel. In the aftermath what seems most likely is that whole communities and certain regions will suffer tremendously as most of their economic activity is somehow linked to tourism. Moreover, it is likely that SMEs (small and medium enterprises) will be most negatively affected since their liquidity and resistance is smaller than that of large corporations. Unfortunately, many small hotels and restaurants will be unable to afford the cost of reopening as they may not be able to cover their variable costs.

Whilst the situation may seem bleak, international tourism is a juggernaut that will roll on. In the short run it will obviously suffer as afore mentioned but in the longer run as the Covid-19 virus becomes a thing of the past it will recover. In the near future however, there are things that may be done to alleviate the effects of the pandemic. It may be wise for countries such as Spain, Italy and Greece to make greater pushes to encourage internal tourism. Whilst borders remain closed or restricted and confidence on international travel remains low due to health concerns, the internal tourist may become invaluable. An increased number of internal tourists, whilst not being able to cover the gap caused by the lack of the more spendthrift international tourists, may be able to drastically reduce the impact on the sector. Another possible solution that the tourism industry may want to consider is a transformation towards more sustainable and ‘higher quality’ tourism. Whilst some locations may choose to reduce prices to increase demand, the pandemic means that this sort of massified tourism is not an option especially in the more developed European economies, where legislation on social distancing and capacity limitations will be more stringently enforced to avoid more peaks of transmission. 

Fortunately, countries like Spain, Greece and Italy can depend on a diversified tourist attraction. In the immediate future eco-holidays and cultural tourism may be more sustainable and compatible with the current situation. By selling their more sparsely populated areas and attracting tourism towards nature, these states reduce the risk of large masses and can reactivate the economies of relatively unknown areas that have touristic appeal. Finally, the governments will play an instrumental role in determining how large the impact is through their policies regarding economic support to the tourism industry and their legislation regarding international travel. The first one is evident; the industry has been clamouring for economic support to avoid a large-scale closure of businesses which includes policies such as employee wage aid and tax deferrals. The second piece of policy will depend on the trade-off governments are willing to make between economic recovery and safety. For example, Italy is lifting the travel ban and welcoming international tourists from 3 June whereas the Spanish cabinet believes they should wait longer. Strategies such as quarantine periods may be also considered, but this has an adverse effect on tourism as demanding a two-week quarantine to someone paying to go on vacation may deter tourists, and it may lead to retaliations from other governments.

In conclusion, the economic downturn is inevitable and, given the nature of the virus, a sector such as tourism was, predictably, most vulnerable. Whilst the tourism industry will undoubtedly take a hit there are also measures that may help alleviate the situation. Government help and stimulation packages coupled with sensible policy and a shift in the focus to internal and sustainable tourism may be the industry’s greatest hope. Ultimately, there is little reason to despair as the tourism industry is simply too large to fail and with enough time it is likely to fully recover as Covid-19 becomes a distant memory.