Travel Weekly Insight Annual Report 2020/21

Recovery will come, we just don’t know how quickly

Foreword by report author Travel Weekly executive editor Ian Taylor

We have experienced a year like no other and a response to Covid-19 that has been extraordinary, not least by health and care workers and by scientists in pursuit of vaccines and treatments.

The effort required – politically, economically and socially – has demonstrated the order of response we will need to address climate change.

Deloitte chief UK economist Ian Stewart noted the transition to home working alone represented “a remarkable adaptation” made possible by technology” and suggested “the internet ‘just-in-case’ model of built-in excess capacity” may become a model for the future.

There are unique features to the pandemic. Comparisons with past crises – 9/11, the 2008 financial crash, the outbreaks of Sars (2003) and Mers (2012) which were contained without travel restrictions – can be useful but also misleading.

The financial crash, the most-useful comparison, brought travel’s long-term growth to a halt and travel in much of Europe did not return to the pre-crisis level until 2016. Global travel data does not reflect this because the impact on China was limited by its rapid economic growth.

September 11 barely triggered a crisis in Europe, certainly not in Britain where outbound numbers rose. There was decline in, to and from the US which affected global travel numbers at a time when Chinese travel was more limited.

"Research suggests

no significant

change in the

type of holiday,

no great switch to

the outdoors or

away from luxury

hotels, and no

shift away from

all-inclusive"

Sars and Mers were contained because, though more deadly than Covid-19, both viruses are more difficult to catch.

This is the fifth Insight report to appear since the Brexit referendum of 2016 and, at the time of writing, the shape of Britain’s future relations with the EU remained unclear. At least this one source of uncertainly will soon be gone.

The consumer research which runs through this report is of added importance this year, appearing at a moment when no one can judge with certainty what bookings will be like four weeks hence and with three major sources of industry data unavailable.

The survey behind UK Office for National Statistics’ outbound and inbound data is suspended, as is the GB Tourism Survey which supplies domestic data. In addition, GfK has unhappily ceased collating outbound booking data. There is search data, of course, but at a time of quarantine restrictions, destination searches are somewhat akin to a desert island castaway’s fantasies of a fabulous meal.

The research suggests a substantially reduced number of overseas holidays in 2021. But counter to some forecasts, it suggests no significant change in the type of holiday, no great switch to the outdoors or away from luxury hotels, and no shift away from all-inclusive. There also appears no great acceleration in embrace of technology, albeit this may simply be taken for granted.

I’m indebted to Tom Costley of Service Science for facilitating the research at a time when it would have been easy to mothball operations, and grateful to Deloitte and the many Deloitte contributors who gave their time and expertise. All mistakes are mine.


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UK travel market outlook

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Path to recovery remains uncertain

Approval of the BioNTech/Pfizer Covid-19 vaccine by the UK regulator, the MHRA, in early December sparked widespread optimism that an end to the pandemic and associated restrictions is in sight.

However, promising as the vaccine and others on the way are, a note of caution is necessary. Health experts stressed vaccination opened the way to a ‘less-Covid’ rather than a post-Covid world.

Karen Taylor, head of Deloitte’s Centre for Health Solutions, hailed the approval as “exciting” but said: “We are far from out of the woods.” She noted: “It will take some time to roll out even among those who are prioritised.”

In the meantime, the UK economy was estimated to have shrunk 11% during the pandemic. The UK Office for Budget Responsibility forecast a cumulative rebound of 12% by the end of 2022, with unemployment to peak at 7.5% rather than 12% as previously forecast thanks to the government’s extended furlough scheme.

Deloitte chief UK economist Ian Stewart declared this “remarkable”, noting: “That is a much lower peak than in the last three economic crises when GDP saw a fraction of the decline. The UK has been one of the most free-spending governments in the world. At the peak, the UK Treasury was supporting one-third of all jobs in the UK. That is staggering and unprecedented.”

Stewart pointed out “a dramatic deterioration” in the UK’s public finances left Britain with one of “the biggest budget deficits in the world” and UK government borrowing “at a level last seen after the First and Second World Wars”. However, he estimated the costs of financing the debt as “vanishingly low” and said: “Tax rises are going to be needed, but not until recovery is entrenched.”

This report appeared with the industry poised for a partial resumption of international travel. Details of the ‘test to release’ scheme to reduce quarantine in England remained to be clarified, but the option of paying for a Covid test after five days’ self-isolation should be available for arrivals from non-travel corridor destinations.

Travellers may have to wait for rapid tests and pre-departure testing which could open transatlantic and other longer routes. But however awkward and limited the initial easing of restrictions, there appeared to be momentum behind a reopening.

The government announcement in early December of a dispensation on quarantine requirements for “high-value” business travellers seemed guaranteed to annoy would-be leisure travellers and the ‘low-value’ majority in business, but it at least indicated the direction of travel.

Multiple announcements of testing trials by major airlines and airports added to the momentum. An industry source noted: “They are building a body of evidence to convince the government to allow rapid testing.”

We can expect further measures in line with recommendations by the cross-government Global Travel Taskforce in November. The development of a robust testing regime in combination with the vaccine rollout could open up travel for a significant return from the spring. Easter, which falls on April 2-4, looks a realistic date from which prospective travellers might book trips with some confidence.

That said, it is worth bearing in mind the taskforce recommendations came with a warning: “We must accept a risk that UK and foreign governments have to make changes to travel restrictions at short notice. Industry and travellers have to ensure they have adequate insurance and measures in place to mitigate these risks, including being prepared to stay overseas for longer than planned.”

Demand outlook

What does the economic contraction mean for travel? Alistair Pritchard, Deloitte lead partner for travel and aviation, said: “Some UK consumers may find themselves unemployed, others may have greater levels of financial stress than pre-Covid. That is going to have an impact.

“Yet parts of the economy have had a less torrid time and there is a greater level of security in the public sector. Not every consumer is going to struggle to go on holiday.”

Pritchard admitted “surprise” that there have not been more travel business failures, noting: “Many businesses managed to secure additional financing. The challenge now is where cost is still being incurred. January bookings will only result in an inflow of deposits. It will be three to six months into 2021 before the industry sees serious cashflow.”

He said: “The combination of testing, the taskforce recommendations and vaccines is helpful. Seeing these on the horizon gives consumers, lenders and investors more confidence. There is a way to navigate through the next months.”

However, he said summer 2021 “will still be difficult for some”, arguing: “One, we don’t know what impact the testing regime will have. Two, it is early days for the vaccines. It’s not just about vaccinating people in the UK. What is the approach of other countries going to be? Will restrictions still apply in some destinations? Three, there will inevitably be people who are more cautious.

"There is demand and that gives cause for optimism. The recovery may just be slow to start. Longer term, I see it being gradual and bumpy"

“We could start to see some improvement from April. There is pent‑up demand, evidenced by the first travel corridors when we saw a dramatic uptick in bookings. Some businesses managed to achieve 50%-60% of prior year bookings to Greece and Turkey, and we saw a spate of bookings when the Canary Islands opened. There is demand and that gives cause for optimism. The recovery may just be slow to start. Longer term, I see it being gradual and bumpy.”

Pritchard expressed more caution about business travel, pointing out: “Levels of corporate travel never got back to where they were after the financial crisis [of 2008-09]. Corporate travel policies will drive behaviour. While there is a strong desire for people to interact, there will be continued use of technologies which have cost benefits and allow a better work-life balance.

“A lot of companies have also made commitments around sustainability and their environmental footprint. Covid-19 has accelerated that and consumers have seen the impact. Business travel won’t go away, but it is likely to come back smaller.”

Impact on airlines

Obviously, that would have consequences for corporate travel companies, but the impact on airlines could reshape the industry more broadly.

Pritchard said: “Network carriers make a significant proportion of their profits at the front of the aircraft. If business travel is smaller it could mean a reconfiguration of networks.

“With vaccines and testing, consumers may be less worried, but there are likely to be route and network changes and an impact on profitability. Many network carriers will downsize and reduced business travel will have a bearing on city‑centre and airport hotels.”

He argued: “When we went into this, there were only about 30 profitable airlines around the world. If the pandemic had played out with no financial intervention you would expect the profitable airlines to survive. Governments have intervened in different ways. We may end up with some historically weaker airlines surviving and some historically stronger airlines that struggle.”

Retail fallout

Pritchard sees the Covid-induced uncertainty giving travel retailers a boost, but not necessarily on the high street. He said: “Given the uncertainty, the different rules for different countries, there will be consumers who want the comfort of advice from an agent. I see the role experts can play becoming more important.”

He sees this happening in tandem with “a reduced bricks-and-mortar footprint”, arguing “lower footfall on high streets is probably inevitable”. But he said: “Travel advice will be increasingly important for a portion of consumers, just delivered in different ways as people get travel advice via videoconferencing.”

This should also benefit tour operators. Pritchard said: “Consumers want confidence they can make amendments or get their money back. However, I would not be surprised if in six months consumers return to booking themselves because it is easy. People will still book unprotected travel arrangements.”

The increased debt burden on companies will have an impact. He said: “The costs of servicing debt and repaying it are going to be significant, meaning reduced profitability.”

Pritchard noted additional financing “has generally come from banks, investors or governments [which] have been aware of companies’ ability to repay and not wanted to create levels of debt that lead to ‘zombie’ companies”.

He said: “There will be failures, but businesses have generally tried to navigate the crisis in a way that leaves them not so stressed and strained that they can’t come out of it. But if vaccination is not hugely successful and there is a third wave of infection it could become much more difficult.”

“The thing we’ve seen most has been a return of ‘localism’, principally because the local high street is the only place we can go, but also because we’ve realised it’s something we value.”

The crisis on the high street saw the failures of Debenhams and the Arcadia Group in December. Deloitte real estate partner Simon Bedford noted: “Bigger cities are suffering from a lack of footfall because people have not returned to work. The businesses that suffered most have been department stores and fashion. Businesses that close have been replaced by things you can’t do online and that is the way we’re probably going to go.”

But Bedford also noted a counter‑trend, saying: “The thing we’ve seen most has been a return of ‘localism’, principally because the local high street is the only place we can go, but also because we’ve realised it’s something we value.”

Outside of major cities, it seems the pandemic may yet turn out to have given the high street a fillip.

Brexit impact

First, there is the issue of Brexit to contend with, the outcome of which remained unclear as this report appeared.

Speaking in late November, Deloitte Brexit adviser Raoul Ruparel stressed any deal would be limited, saying: “The main thing a deal will do is remove tariffs and quotas on goods.

“But 70%-80% of changes are going to be the same whether there is a deal or not. A deal would have an impact but it’s not as simple as a deal ‘good’, no deal ‘bad’.”

Arrangements on services would be “a patchwork” either way, he said. “On financial services, if we don’t have an ‘equivalence’ deal there will be restrictions but this is outside the negotiations and most in financial services have prepared on that basis. The impact on the City has not been as great as predicted.”

More broadly, he said: “Services will still take place across borders, but there will be some restrictions. A lot depends on regulation at EU and UK level.”

'70%-80% of changes are going to be the same whether there is a deal or not. A deal would have an impact but it’s not as simple as a deal ‘good’, no deal ‘bad'

He forecast “a fair amount of disruption”, saying: “It won’t be significant on inbound goods on day one but may increase over the course of 2021. There is potential for large-scale disruption on outbound.”

However, disruption to air traffic is unlikely. Ruparel said: “Both sides take a pragmatic view of air traffic. The question is, do they take temporary measures and hold out on an aviation agreement until there is a wider deal?”

He noted: “There are likely to be differences at customs and immigration [given] enforcement is down to individual states. There will be some flexibility if tourism is important.

“It’s a bit of a black box. We won’t really know until next year.”

Outbound

For analysis of other sectors download the report in full

Research confirms

underlying demand

The Insight 2019-20 report noted the outbound sector “had a difficult 2019” amid uncertainty about Brexit and significant short-haul overcapacity. The 2020 experience put that in perspective, with travel for the most part grounded.

However, flurries of demand when the travel corridors first opened in July and when a popular destination joined the corridors list demonstrated hopes of pent-up demand were not wishful thinking.

Consumer research for this report confirmed the underlying strength of demand with almost a third (31%) of a representative poll of UK adults ‘likely’ to take an overseas holiday in 2021. That is 22 percentage points down on the previous year, but represents an enormous vote of confidence in the circumstances.

There was a decline across all age groups, but with the sharpest among those 55 and over. Younger adults, aged 25-44, showed the highest propensity to book a holiday abroad, with 45% of parents with children intending to travel. About one in six respondents (16%) declared themselves ‘very likely’ to book a holiday, suggesting 8.5 million are bursting to go. Two in five (38%) expect to spend more on their overseas holidays in 2021 and half about the same.

Contrary to many forecasts, there is no significant change in the type of holidays consumers intend to take. As the accompanying charts show, two in five (42%) plan a beach holiday and one in five (19%) a city break – both on a par with a year ago.

Most strikingly, the popularity of all-inclusive arrangements appears undimmed, with more than half of those intending to travel planning an all‑inclusive holiday and a further one in five undecided. Two-thirds of respondents with children under 16 identified all‑inclusive as their preferred option.

There is no significant change in intended duration other than a continuing decline in 14-night holidays and rise in short breaks. Almost one-third intend to take a main overseas holiday of seven nights, 27% a shorter break, 17% eight-13 nights and 9% more than a fortnight.

The research suggests flexible booking conditions and confidence in the availability of a refund if forced to cancel will be critical considerations for many holidaymakers.

Outbound businesses still have to survive through to the summer season to take advantage of this demand, with the winter 2020-21 season sharply curtailed by pandemic restrictions.


Outbound: The Deloitte view

Danielle Rawson, head of Travel, Deloitte

No one could have predicted the pandemic and its impact on travel. Government data shows only 939,000 UK residents headed overseas in the three months to June, 96% fewer than the same period in 2019.

Deloitte has tracked consumer sentiment throughout 2020 to see the impact the pandemic has had on the intention to travel. At the start of the lockdown in early April, sentiment was at its lowest, with only 18% of UK consumers feeling safe to fly and, unsurprisingly, only 16% planning an international flight in the next three months.

We saw travel intention pick up in the summer as we emerged from the first lockdown, boosted by the summer break and demand in particular from the 18-34 age group. However, the second lockdown in England and Northern Ireland, the ‘firebreak’ in Wales and the five-level system of restrictions in Scotland dashed hopes of a quick recovery, with further restrictions on international travel and travel corridors.

"The younger generation is more likely to drive the rebound, and brands that offer transparency and protection will gain consumer trust. Consumers are more likely to select destinations closer to home which have adequate hospital facilities."

Our survey in early November showed that while 24% of consumers felt safe to fly, only 15% planned to take an international flight in the next three months. Consumers are likely to remain cautious about travel plans due to the uncertainties around travel corridors, quarantine and cancellation terms.

While demand for travel will eventually spring back, the nature of that demand may be different. The younger generation is more likely to drive the rebound, and brands that offer transparency and protection will gain consumer trust. Consumers are more likely to select destinations closer to home which have adequate hospital facilities.

But with pent-up demand being seen when travel corridors such as to the Canaries were announced, let’s hope news of a vaccine and testing options improve consumer confidence for the turn-of-year booking period.

Download full 56-page report for free

Access further data and analysis including outbound, inbound, domestic and business travel, cruise, hospitality, aviation, investment, health & safety, technology, sustainable travel, resilience and more

Some of the team behind this year's Travel Weekly Insight Annual Report
Alistair Pritchard
Alistair Pritchard

Deloitte lead partner, travel and aviation

ajpritchard@deloitte.co.uk

Ian Taylor
Ian Taylor

Travel Weekly executive editor

ian.taylor@travelweekly.co.uk

Tom Costley
Tom Costley

Service Science associate director

tomjcostley@gmail.com

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