Despite a return to growth in 2010 there is a solid case for caution in looking at global travel expectations in the coming year, according to the International Council of Tourism Partners. This is a time for measured analysis and focused response. The 2008/9 global financial crisis fundamentally changed the economic and consumer landscape.
The post-recession market and consumer are different and smart destinations will have to pro-actively find new offerings for new consumers in new markets, and adopt new ways of communicating with those value-conscious consumers. In doing so, they should take advantage of unique national selling points and a limited number of international collaborative opportunities.
The global economy, which is the main driver of travel and tourism, is slowly regaining momentum. The recovery is fragile and uneven, and markets are shifting.. At 6% economic growth, China, India and other emerging markets are expected to recover faster than traditional source markets.
The European Union’s working population is declining, as is Japan’s. Yet, despite the strong growth prospects, emerging economies, particularly in Asia, face new inflation tendencies as well as potentially disruptive currency and trade pressures. Industrialized countries in North America and Europe, which account for more than 75% of global GDP, are expected to grow their economies at some 3%. And here unemployment has reached unacceptably high levels; responses to budget austerity and country bail outs in Europe threaten dramatic disruption in economic and particularly social stability; political gridlock in the US makes decisive national intervention more difficult, and hence significant G20 economic adjustment is becoming more complex.
In addition, geopolitical tensions in key hotspots are volatile and natural disasters and/or extreme weather events remain a constant uncertainty, with only negative impact potential (the 2010 Ash Cloud and the disruption caused by snow and ice storms to air travel on both sides of the Atlantic in December 2010 representing prime examples).These underlying conditions will affect travel and tourism in ways that increase the challenges but also open new opportunities. Industry prospects for 2011 should be viewed in this broad context.
On the negative side of the balance sheet, it is important to put 2010’s growth into a valid context of the previous steep declines. We are now back to 2008 performance levels. Moreover, the full return of business and consumer confidence will be slower than expected. Most consumers are still rattled after the financial crisis and household budgets have not yet recovered to the extent required. In hard times companies will continue to look to tight travel controls and with high unemployment it is easy to rationalize putting off a vacation, staying closer to home or trading down in price or length of stay. And revenue generation will remain tough. This was already the case in 2010 where yields grew everywhere at a slower pace than arrivals.
There is no basis for expecting this to change in 2011. Airlift is an important enabler of tourism. Despite travel demand being pretty robust, consumer confidence in the aviation sector has not recovered in the same way as business confidence. Analysts expect headwinds in leisure travel to continue for up to another three years, especially from Europe, and a mid-cycle market slowdown in passenger numbers has also been forecast for 2011. Global exchange rate volatility, oil prices and fuel hedging costs affect airline profits and tourist volumes alike. Although jet fuel prices are still significantly below the 2008 peak, they are rising steadily.
There are also significant cost increases looming on the horizon – unilateral travel taxes, which have begun to spiral in Europe, are likely to become a bigger issue as governments scramble for fast revenue to plug budget gaps and as carbon pricing spreads. In addition, there are strong pressures on fuel prices and security costs which are increasingly important elements for the entire travel and tourism value chain, not just the pivotally important transport sector. Global security concerns continue to trigger cumbersome visa requirements and intrusive airport security systems, which in turn affect the quality of the traveller’s experience.
The positive side of the balance sheet is the changing recognition of the role of Travel and Tourism in key strategic economic areas. It is increasingly seen as part of the solution and a key sector to help the world avoid a jobless recovery. This is recognized, politically, by the T20 Tourism Ministers platform inaugurated by South African Tourism Minister Marthinus van Schalkwyk in 2010, the World Economic Forum, UNWTO, WTTC, OECD, UNEP and various regional bodies and national governments. The value of investment in travel infrastructure - the modernized airports, high speed trains and superhighways that were at the heart of many stimulus packages - have already created new jobs in construction, design and engineering and will enhance the long term growth and quality of our products.
Similarly the intensifying competition to host mega-events is another sign of the same value add, as well as the massive global nation branding, infrastructure development and travel export promotion that comes with it. The realization of the value in trade terms of the booming outbound traffic flows from emerging markets in Asia, where China is on course to become the largest domestic, inbound and outbound travel market in the world during the next decade, as well as the strong tourism flows from Eastern Europe and Russia, and the market of one billion consumers in Africa, is at the heart of response to globally shifting markets. This does not render the traditional markets insignificant, and income per capita in these markets will still overshadow those in the emerging markets for some time.
However, pre-financial crisis market segmentation and the indicated product diversification need to be continually reviewed. A risk management approach with domestic tourism as the mainstay of sustainability is required to hedge against currency volatility, external economic shocks, disasters and terrorism. So too the increased domestic and regional travel has demonstrated how our sector primes local economic development, supports small and medium enterprises and encourages consumer confidence, irrespective of the major long haul traffic flows. We have also begun to establish our place in the green growth agenda, by the growing commitment of travel and tourism companies and communities to carbon neutral operations in line with the evolving climate change mitigation and poverty reduction imperatives.
Policymakers and financiers are increasingly understanding that travel and tourism - including air transport - can deliver on any package of carbon reduction measures that governments are able and willing to implement themselves. In far less than a decade, a low-carbon value chain for the tourism sector in all its dimensions will be an important driver of competitiveness. Industry is already repositioning as Governments across the world start to put in place a tighter regulatory framework and introduce economic instruments that price carbon. There are many micro ways to strengthen the Travel&Tourism balance sheet in 2011 and beyond, including focused marketing, creative product streams, new media and technology integration.
These will mostly be played out at the national level where the fight for the new tourist flows from emerging markets will intensify, the competition to host mega events will hot up and the focus on national and regional promotion programs will deepen. We are entering the age of the so-called ‘digital natives’ with technology increasingly replacing the traditional travel agent as the channel between consumers and travel offerings. In future, technology and e-marketing will increasingly drive the choice of destinations, the tailoring of holidays rather than the packaging of holidays, and new ways of booking and paying for travel. Consumers will also expect technologies to “take the hassle out of travel”, inter alia through online visa applications (e-visas), mobile maps, meta-search engines, blogs and podcasts. Besides being more price conscious, the new consumer is also seeking more authentic product offerings. Significance in travel experiences are being redefined by consumers. The demand for mass-based leisure tourism is being replaced by a desire to connect emotionally with destinations, local people and local cultures. The customization of authentic cultural and nature-based experiences becomes critically important. New technology could help to facilitate this shift from generic product offerings to platforms where tourists tailor-make their desired experiences.
There are two macro areas where we need to develop collective and coherent positions as a sector in the short term. Firstly, we must respond to the potential plethora of discriminatory travel taxes, where the UK APD has set a dangerous precedent that was touted as a fair green tax but is in fact an unfair, anti-trade tax on exports and imports. We should make this a collective public policy issue, establish a game plan for non-discriminatory fair travel taxes and demand that all monies collected by any government for so called green taxes be earmarked and used for those purposes with full involvement of the sector’s stakeholders.
Clearly, these new trade barriers hit developing countries the hardest. Ironically, developing countries are taxed on precisely the service exports that give them a comparative advantage. These taxes also render the tourism sectors in the countries imposing them less competitive and impact on bottom lines in the airline industry. Of particular concern is the absence of a multilaterally agreed regime for managing international aviation emissions. Aviation emissions were excluded from the Kyoto Protocol and to date there has been very little progress towards agreeing a global regime for aviation emissions in a post-2012 climate regime under ICAO or the UNFCCC.
Rather, the landscape is now characterized by a patchwork of unilateral and minilateral policies and measures aimed at pricing aviation emissions. One cannot escape the impression that many of these national/regional initiatives are designed in a way that prioritises fiscal objectives over environmental effectiveness – while presenting the opposite position. The UN Secretary-General’s High-level Advisory Group on Climate Change Finance’s (AGF) report on sources of climate funding published in November 2010 has provided some new momentum to efforts to frame a global solution. The report covers potential sources of funding to meet the political commitment in Copenhagen to raise US$100 billion annually by 2020 for financing climate change mitigation and adaptation. The AGF estimates that some US$10 billion annually by 2020 could be raised from pricing emissions of international transportation, i.e. aviation and shipping, on the understanding that there will be “no net incidence on developing countries” and “between 25 and 50 per cent of total revenues” will be earmarked for climate funding.
Besides the broader question on the architecture of the global climate change regime after 2012, key questions as this concept evolves include: could it become a single multilateral source of revenue raised from travel, thereby replacing the patchwork of opportunistic taxes levied on non-voting consumers; how will it fit into a broader global climate change regime that covers all economic sectors; how could the revenue be recycled to support green growth in travel and tourism; and what are the cost-benefit trade-offs from a broader welfare and socio-economic development perspective?
The industry must seek rational and reasonable answers before the framework becomes embedded in policy and law. Secondly, strategically, we should solidify our recognized role as the major job creation industry in the world, at a time when unemployment will dominate media headlines and political decision-making. Social inclusion and decent work are key elements. And in the related area of incentives for green growth, climate response and poverty reduction we should firmly establish our credentials as the catalytic sector for building climate resilient tourism infrastructure, adapting to unavoidable climate change, and decarbonising our economies – whilst at the same time building new opportunities for small entrepreneurs and community development.
These are areas where the potential contribution of Travel and Tourism equals or exceeds any other area of the economy as an agent of change. In conclusion, it is up to each destination to develop and leverage its existing platform, to reinforce its brand and competitive positioning, and to create the best possible strategic fit between where they are going and where the future is going. In doing so, they have to put consumers first in a sustainable way, and facilitate greater alignment across government and industry. And they have to get the message across that travel and tourism is an important driver of inclusive/shared economic growth, rapid job creation, service exports, happiness/well-being of individuals and communities, and social development, and, as such, that there is massive social good embedded in the sustainable development of the sector.