The travel industry was one of the worst affected by the global COVID pandemic. The closure of international borders and implementation of lockdowns in most countries saw a near complete reduction of business within the sector.
Post-COVID the travel sector has seen a strong recovery as people are once again able to travel, not just internationally but domestically as well. After two years of lockdowns and quarantines consumers are valuing travel more than in the pre-pandemic years.
However, travel companies are now facing a new challenge in the current cost of living and energy crises. Consumers are tightening their belts and have less disposable income for luxury expenditures whilst companies are experiencing skyrocketing costs.
A second industry slump will prove too much for many companies, especially smaller enterprises, and insolvencies within the sector will rise; but for those that can survive the current economic downturn the future is hopeful.
The Travel Industry, COVID and recovery
The pandemic years saw unprecedented actions taken to combat the spread of the COVID-19 virus. Companies in the travel industry were severely affected and left with very few alternative ways to make up for lost income.
The Office for National Statistics shows that air passenger arrivals in the UK declined from 6,804,900 in February 2020 to 112,300 in April 2020, a reduction of over 98% and by May 2020 average turnover in the travel industry was just 9.3% of what it was before the pandemic.
The industry experienced a brief reprieve between the two UK lockdowns, but this was short lived and hampered by many international borders remaining shut and a lack of flights.
Government Bounce Back Loans allowed many of the smaller travel companies and hotels to survive the pandemic years and the large companies had to absorb massive losses. It is likely that if the pandemic had continued much longer the industry would have seen a huge number of insolvencies.
Luckily, domestic and international travel restrictions eased and the enforced inactivity of 2020 & 2021 has awoken an increased appetite for travel and experiences in consumers. This has led to a strong recovery, with the tourism industry across Europe and the Middle East seeing revenues of around 50% of pre-pandemic levels and UK hotel room occupancy up significantly.
Trends within consumer spending have changed post-pandemic. People are willing to spend more and travel further afield to tick off ‘bucket list’ items as well as being much more likely to organize and purchase their trip through only digital channels. Meaning that high street travel agents have not seen as much of a recovery as online retailers.
New Threats to the industry
The outlook had been bright for the ongoing recovery of the travel industry but new and ongoing geo-political events have conspired to make 2023 likely to be an extremely tough year.
China’s ongoing lockdowns and quarantines continue to make a large part of the global consumer market inaccessible and has especially hampered recovery in destinations popular with Chinese tourists; for example, London’s hotels are seeing a lower decrease in vacancies as compared to the rest of the country.
The UK’s ongoing employment issues are also limiting recovery as UK airports and airlines continue to suffer with staff shortages. These workers saw some of the highest number of layoffs in the pandemic and are not returning to fill new vacancies as expected. As such, the UK is seeing far less flights leaving and arriving than should be possible and consumer confidence has fallen as flights are routinely cancelled.
These factors have served to slow the economic recovery of the travel industry but not necessarily to stop or reverse it. However, the rise in inflation, the cost of living and energy crises brought on by Russia’s invasion of Ukraine threaten to do just that.
The huge spike in energy costs and increases in the price of day-to-day goods mean that not only do people have less disposable income but they are much more likely to save that which they have. Recreational travel is one of the first luxuries people do without and the rise of video meetings and conducting business via digital avenues during the pandemic means the market for business travel is significantly reduced.
For travel businesses not only do they have to content with a once again reduced market but with increased costs and Bounce Back Loan repayments. Red Flag Alert shows 1 in 6 companies in the travel industry experiencing financial distress and at risk of insolvency. This figure is likely to rise if the current economic difficulties are protracted.
What is the outlook for the industry?
As mentioned at the beginning of the article, despite the recent and current challenges facing the industry the long-term outlook is hopeful.
Whilst people are less able and less willing to spend money on luxuries, such as travel, due to the current economic woes it is unlikely that the increased desire to travel the pandemic years brought on will be diminished.
The steep decrease in consumer spending we are currently seeing can be compared to the 2007 – 2008 financial crisis, where spending and consumer confidence showed similar trends. Whilst travel saw a tough few year then, the sector not only recovered but showed growth in excess of pre-crisis projections.
It is likely that the sector as a whole will once again see a strong recovery, but the issue is for individual businesses. After the 2008 crisis we saw the rise of internet travel agencies and the decline of the high street agency, which represented the largest shake up to the industry in decades.
It is likely that we will again see a large number of failing businesses within the industry, and the longer the economy takes to recover the more we will see, but those who survive should be poised to do well and take advantage of reduced competition.
Help is at hand
The coronavirus and recent economic struggles have revealed how tenuous an entire industry can be; many businesses are one negative event away from failure. That’s why companies should be using data insights from a business intelligence platform like Red Flag Alert to monitor clients and supply chains.
With Red Flag Alert, companies can track the financial health of their supply chain and customers in real-time to manage risk effectively.
For companies selling services into the travel sector, from hotels to recruitment agencies, Red Flag Alert provides a clear insight into the financial health of key travel companies.
The post-pandemic economy is challenging, but you can give your business the best chance of surviving by tightening up your company credit checks, finding the best clients, creating strong links, monitoring customers and improving your compliance.
Red Flag Alert’s data helps you to process and address your problems, and ultimately achieve your goals
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