SINGAPORE (May 29): Covid-19 has turned the travel industry upside down and the Asia-Pacific is first in the firing line. The UN World Tourism Organisation (UNWTO) projects that global tourist arrivals could decline by up to 80% y-o-y in 2020 while the International Air Travel Association (IATA) estimates that 25 million jobs are at risk in aviation-related sectors.
“International and domestic travel restrictions have resulted in the suspension of flights across the world, putting airlines at serious risk. This, as well as weak demand and cancelled bookings, has placed airlines at risk of a liquidity problem,” says a report by research firm Fitch Solutions Group (FSG).
Latin America’s two largest airlines LATAM Airlines and Avianca filed for Chapter 11 bankruptcy in May. Industry giants have not been spared -- Qatar Airways is operating at only 25% capacity and only expects demand to recover to pre-Covid levels in 2022/23. FSG sees total airline takeoffs in Hong Kong and the US falling from around 10 million each in 2019 to just 100,000 in 2020.
With travel restrictions set to ease, however, airlines may be able to salvage some demand as travellers slowly begin to once again take flight. Cathay Pacific hopes to increase flying capacity to 5% at the end of next month as Hong Kong International Airport resumes transit air travel from 1 June. It will offer five weekly flights to London, Los Angeles and Sydney and daily flights to Beijing, Tokyo and Seoul. Italy’s Alitalia is also looking to operate 30 routes both domestically and abroad in June.
FSG research highlights that the Asia-Pacific -- Singaporean’s favourite travel destination -- has been the worst hit by the Covid-19 headwinds. Arrivals to Japan for instance fell by 99.9% y-o-y in April 2020 amid expectations of an Olympic-led tourism boom. Japan has imposed entry restrictions on over 100 countries, suggesting that demand is likely to remain weak in 2Q20 despite a gradual lifting of lockdown measures in five prefectures including Tokyo.
Singaporean investors should be particularly aware about the disproportionate effects that Covid-19 may have on the local hotel industry. March occupancy rates averaged just 58% in 1Q20 relative to the 86% occupancy rate in 1Q19. Low occupancy rates threaten the survival of many local hotels as well as revenues per available (RevPar), making hospitality REITS particularly vulnerable to Covid-19 headwinds.
Europe -- a favoured prestige travel destination for Singaporeans -- has also been badly affected by the pandemic. Normally swarming tourist hotspots like Paris and Barcelona have seen occupancy rates fall as low as 4% and 9% respectively. Hotels in these countries are banking on pent-up demand for survival as Italy, France and Germany intend to reopen to international travel in June. Spain has already eased lockdowns nation-wide and plans to reopen on July 1 with no 14-day self-quarantine required, making it more appealing to tourists.
The US travel market -- the world’s largest tourism market -- has faced 15.8 million job losses since Covid-19 restrictions were introduced in different states in March and April 2020, with travel-related unemployment hitting 51% by the week ending May 23. A 5% contraction y-o-y in the US economy in 1Q20 could also reduce demand for tourism in destinations outside of its borders as American tourists stay away. Latin America has also seen a steep drop in tourism, with Argentina encountering a nearly 60% drop in arrivals in 1Q20 ending in March 2020.
More exotic locations in the Middle East and Africa have been relatively less affected, though even they are feeling the effects of the Covid-19 shock. Occupancy rates in the Middle East and North Africa (MENA) areas has fallen by 58% y-o-y to 31% in April 2020 while RevPar is down 72% y-o-y, with 79% of hoteliers partially or closing properties due to low demand. Saudi Arabia’s strong religious tourism market is also likely to suffer from the continued suspension of Hajj and Umrah pilgrimages to the Holy City of Mecca.
