Travel sector ‘will struggle to invest while recovering’

The economy recovered rapidly from the pre-vaccine phase of the Covid-19 crisis but the recovery was already slowing before the Omicron variant struck late last year.

As part of the Travel Weekly Insight annual report, Deloitte senior economist Debapratim De explained: “This has been a crisis like no other, with a deep downturn followed by an extraordinary recovery.

“It took five years for the economy to recover output lost in the financial crisis. The downturn caused by the pandemic has been far worse but the recovery much quicker.”

Access the 2021/22 Travel Weekly Insight Annual Report

However, De noted the recovery “lost momentum” amid supply and labour shortages. He said: “There were a number of reasons for the slowdown, but the key one is Covid-19 hasn’t gone away, slowing normalisation.”

Outbreaks in China and Southeast Asia fed into supply shortages, he said, and the pandemic “exposed acute labour shortages in certain sectors across the world. One could argue Brexit is a factor, but I’m not sure it’s the primary explanation. The transformations brought by the pandemic made matching workers to jobs more complex.”

De warned before Omicron appeared that “the risk of vaccine-resistant mutations means we could go back to restrictions”. But he said: “We saw industry adapt to the lockdown during winter 2020-21. The hit to activity was weaker than during the first wave because the corporate sector was better prepared.”

However, he noted variant outbreak are likely to continue because “the developing world is nowhere near vaccinating the majority of the population”.

Deloitte lead partner for travel and aviation Alistair Pritchard noted: “There have been fewer failures than expected, largely helped by furlough and the other support despite the lack of industry-specific support.”

At the same time, he said: “Those in work have more confidence of retaining their jobs. [So] consumer demand is not an issue.

“Undoubtedly travel businesses will be much more leveraged [with higher debts] than before in a sector that generally operates on low margins.”

That debt “will take a long time to pay down” unless companies can raise prices, which seems unlikely.

Yet businesses will also “need to invest in technology and sustainability”, according to Pritchard, “and that is going to be hard as they try to navigate the recovery.”

One sector Pritchard previously envisaged struggling to recover, he now sees rebounding strongly – cruise. He said: “The UK allowing domestic cruises had a really positive effect. It saw ships moved to the UK and gave people an opportunity to try cruises for the first time. New-to-cruise numbers were north of 40%.

“The challenge for cruise is that there could be restrictions on visiting destinations for some time.”

But he is less optimistic about corporate travel, arguing: “Business travel probably won’t come back to the same level as before as corporations revisit the amount spent travelling. The technology to allow meetings to happen online will make it challenging. The implications are significant. Airlines are going to carry smaller volumes of business travellers.”

Access the 2021/22 Travel Weekly Insight Annual Report

Picture by Ringo Chiu / Shutterstock

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