5 ways the coronavirus has locked down summer-break spending

July 10, 2020 9:39 AM

Traditionally, consumers take summer vacations to recharge from the hustle and bustle of daily life, as well as to reconnect with families and friends, before moving on to the next phase of their lives such as the restart of schools or going back to work – but not this year.

The Johns Hopkins Coronavirus Resource Center reports that more than 11.6 million people have been infected globally, with almost 3 million in the U.S. alone, giving consumers pause before spending money on a vacation — a situation made worse by the travel restrictions implemented at the state and national levels.

“This has been a devastating blow to the travel sector,” said Peter Keenan, co-founder and CEO of APEXX Fintech Limited, payment platform provider. “On the consumer side summer 2020 is all but cancelled, and travel companies have not just lost future revenue, but also had to refund many of the sales made for summer 2020 due to the pandemic.”

CORONAVIRUS IMPACT: ADDITIONAL COVERAGE

On a sustained basis for almost the last four months, over two million daily U.S. air travelers have stayed grounded. According to data from the Transportation Security Administration (TSA), travel volume started to drop in early March, accelerating after President Trump declared a national emergency mid-month. The lowest figures came in mid-April with just 90,510 passengers traveling on April 12 – 3.6% of the April 12, 2019 volume of 2.45 million.

While passenger volume has recently started to pick up, it is still at just 26% of 2019’s level, based on TSA data. This is an issue with both tourism and business travel.

“For corporate travel it has been very hard as well, down over 80% during the key lockdown months,” added Keenan.

Between July 1 and September 30, Americans are expected to take roughly 707 million trips, down from over 828 million for the same period in 2019 (a trip is defined as an individual person traveling). The drop of over 100 million trips will largely be felt in the airline, cruise and rail industries, according to the travel and insurance agency American Automobile Association (AAA). In fact, as the CDC currently maintains a “No Sail Order” for all cruise ships leaving from U.S. shores, it is unlikely that there may be any Americans on cruises at all this summer.

AAA reports that it is seeing more Americans make travel bookings at the spur of the moment, a habit which tends to favor less expensive and less complicated vacations. It is also the first decline AAA has seen in summer travel since the last major recession in 2009.

The type of vacation Americans are likely to take will also be changing due to this “wait and see” approach to booking. AAA indicates that this behavior will lead to consumers booking more long weekend trips that could include a road trip or RV excursion instead of extended vacations that are more often reserved to international travel such as a European or Asia Pacific destination vacation.

Confirming this trend is the peer-to-peer RV rental marketplace, RV Share, which in May reported that it had achieved its highest recorded booking numbers in company history, with a 650% rise in RV rental bookings since early April. The bookings surge comes amid the ongoing pandemic, which has halted most other forms of travel. RV Share also stated that its record-breaking numbers show that RV travel is on the rise as consumers are prioritizing their safety.

In the last few years, many countries have seen the rise of Chinese tourism as both a cultural phenomenon and an economic boost.

In fact, Chinese tourists were the single largest travel buyer in the U.S., spending over $35 billion in 2017, according to the U.S. National Tourism and Trade Office. Other countries have benefited as well from Chinese tourists traveling internationally, as they accounted for the single largest group of foreign visitors in 2018, according to the latest data available from the UNWTO.

But today, the Chinese government — along with many other countries around the world — have put severe travel restrictions in place to control the spread of the coronavirus. So what was once the largest group of international travelers has largely disappeared. U.S. travelers were the second most prolific group of international travelers, but that has changed as well.

When the European Union reopened its borders to allow citizens to enter any of the 26 member countries in the Schengen border-free travel area on July 1, several large countries currently grappling with the COVID-19 pandemic were noticeably absent from the entry list, including the U.S., Brazil, Russia and India.

This ban follows the U.S. ban on European travelers to the U.S., enacted back on March 12 by President Trump in an attempt to keep the virus from spreading into the U.S.

The impact of sharply curtailed tourism, whether it’s a summer vacation or merely a long weekend getaway, is expected to have a drastic impact on countries that are particularly dependent on foreign tourists for a large portion of their GDP. According to the Travel Commission of the European Union, Croatia is one of the most tourism-dependent European countries, with the sector accounting for 25% of its total GDP. Greece, which has been plagued with financial troubles for years could see life get worse for its citizens if tourism dries up as it is reliant on tourism for 21% of its total annual GDP.

The impact comes down to individual restaurants, family-run hotels and tour operators that ultimately bear the burden when fewer tourists visit their countries. While staying home and being safe is a medically practical course of action for consumers to take, the resulting effect on small merchants and companies catering to the tourism industry has been quite dramatic.

“It has been devastating for them. With revenue gone and having to refund existing clients, acquiring banks are asking for more collateral or bonds in place to cover losses should the company cease. Everyone is very nervous at the moment about travel,” said Keenan.

The world can expect a loss of over $1 trillion in tourism payments, if borders are largely reopened and travel restrictions are lifted by September 1, based on data from the UN World Tourism Organization (UNWTO). If restrictions and closures continue, the losses could even be greater.

The UNWTO developed three scenarios to help governments, trade organizations and travel-related companies assess the potential impact of COVID-19 based on the borders being reopened and travel restrictions universally lifted on all international travelers.

Scenario one, which was the best case, predicts international travel to fall to only $570 billion in total receipts. This would be a loss of about $910 billion from the 2019 record of $1.48 trillion. However, that scenario required countries to reopen borders and lift travel restrictions by the start of July — meaning that scenario is now longer viable.

The second scenario shown in the chart above predicts international travel to drop to $410 billion, down over $1 trillion from 2019. This is based on a September reopening date for international visitors. Given the current rate of infections and lack of a near-term vaccine or cure, this scenario is hopeful at best.

The third and final scenario has a potentially more realistic timeline, with a December reopening of global borders and lifting of travel restrictions. In this scenario, the international tourism market would reach only $310 billion for 2020, down over $1.17 trillion for the year.