Coronavirus: Deloitte warns of long-term impact on travel sector

The travel sector is expected to bounce back but must be prepared for significant long-term impacts of the COVID-19 crisis, according to global accountancy giant Deloitte.

Speaking in a weekly coronavirus webcast yesterday, Alistair Pritchard, lead partner travel and tourism at Deloitte, said the industry is at a “critical juncture” and needs critical government support.

He said in the short-term management of cash is vital for all firms with the sector finding itself at the forefront of the impact of the global pandemic.

Looking forward to when the virus is brought under control, Pritchard said a different sort of travel sector could emerge, with reduced business travel and concern about overseas travel.

He said the cruise sector would face a particular challenge in recovering due to the media focus on the sector during the COVID-19 outbreak.

Pritchard said: “Some business travel will have been lost completely, some will have been delayed.

“The question is how much will come back. This period of isolation and working from home is likely to have a number of impacts.

“No doubt everyone will become much more savvy with making use of virtual meeting technology and this may drive the continued use of such technologies.

“Combined with corporate travel polices that will be increasingly focused on the other issue of the moment, the climate agenda, business travel bounce back may not recover to the level seen pre COVID-19.

“However, there will also be a desire and recognition of the importance of social interaction along with the resumption of the interconnected global trade so I would still expect significant return of business travel.

“In leisure travel there will be pent up demand for holidays, particularly in light of the enforced social distancing for those who have lost the opportunity to go away in this shut down period, depending how long this lasts. For instance, will people be able to get away on holidays this year?

“Some parts of the sector, I think, will have a bigger challenge than others as situations that have arisen during the crisis might have a longer term impact on consumers perceptions and concerns, for example in the cruise sector.”

The “misaligned” curve of the growth of the pandemic in different destinations and source markets globally, could serve to elongate the crisis, said Pritchard.

“One concern derives from the global nature of the industry. You will have all seen the curves of the impact of the virus and, of course, the industry has source markets and it destinations people go to.

“Because the timing of the impact across the globe is different it’s likely that the impact of the virus in different destinations will me misaligned.

“That’s likely to result in a sort of elongated impact to the sector. Businesses need to prepare for that longer term disruption to operations.”

Pritchard added: “The most immediate focus for the sector is on short-term cash.

“As an industry many companies are at the forefront of the impact of COVID-19 and there will be many businesses both large and small that will need to carefully manage the situation and likely require government intervention.

“Longer term I could see business models evolving depending on what the new normal is. For example, will people’s experience of virtual meetings and concerns about the climate have a longer term impact on demand for airline capacity?

“Will pandemic fears linger and depress that appetite for overseas holidays and cruises? Businesses will need to carefully consider changing consumer demands as we emerge from this and modify their capacity and business models accordingly.

“The actions of governments, industry leaders, airlines and travel companies take during this period will influence how deep the crisis reaches how long the affects last and how quickly the industry will recover and to what extent the industry will transformed and which companies will emerge stronger than their peers.

“Given the criticality of travel and aviation to the world these actions will have a profound impact on all the employees across the travel eco-system and the viability and health of individual companies and their supporting value chains and the health and wellbeing of customers and communities across the world.”

Pritchard said productivity in the second half of the year could be impacted following a sharp economic shock in the first half as people will look to use unspent holiday entitlement.

He praised how many travel companies are looking to respond to the crisis by putting their customers first and said this will be paid back in the future with increased loyalty.

But he warned as a result many firms are at a critical juncture financially and require the promised government assistance to come in soon to survive.

“Many companies in the sector have responded with their customers front and centre, which is excellent to see.

“Many have relaxed cancellation and amendment policies hoping to retain that customer loyalty but at what cash cost in the short term?

“For many business across the travel and tourism sector, they really are at a critical juncture right now. Not only are future bookings fallen off a cliff but existing bookings being cancelled impacts cash.

“Airlines across the US and Europe have indicted the urgent need for governmental support to survive.

“Rishi Sunak, the chancellor, earlier this week has announced that he was considering the needs of the airline industry although there was no specific mention, unfortunately, of the broader travel eco-system.

“There was reference to possible regulatory forbearance, which would be particularly helpful for the regulated part of the sector.

“support for the travel and aviation sectors, to be honest, cannot come soon enough at this absolutely critical time.”

Pritchard advised travel firms which are laying off staff to make sure they have the right skills in place for when business returns.

“Many of the people employed in our sector are highly skilled. While there are recruitment freezes and short term lay offs it’s important for businesses to have an eye on the future and have an appropriately skilled workforces to benefit from that improved position we expect to see.”

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