YEAR -2021

Travel & Distribution Industry Review, Analysis, Outlook & Actions

TRAVEL INDUSTRY ANALYSIS

Global Travel Industry: Navigating through the covid-19 pandemic, for most of the players in the travel industry globally, has been like sailing into a storm. McKinsey & Company forecasts a cumulative drop of $3 trillion to $8 trillion before tourism expenditure returns to pre-covid levels, which could be as late as 2024.

The travel industry grew consistently in the past crisis but dropped significantly in this pandemic, making it the worst one ever.

The four most affected sector in the travel industry are Airlines, Hotels, Tours & Activities and Logistics.

AIRLINES:

Airlines have been worst hit because travel was completely restricted in all the countries. Globally, the governments have provided the airline industry with aid totaling $123 billion.

International

Air Transport Association (IATA) forecasted that air travel is not expected to reach pre-covid levels globally until 2024, although a faster recovery is possible in Asia (mostly China).

Asia Pacific region might recover by 2023 and North America & Europe might take till 2024 to recover.

Even in the most optimistic scenario where everything is settled and governments have responded effectively, things will still take up to 2022 to recover completely.

Over 18 airline companies have filed for bankruptcy in a matter of months globally. If 2020 been a normal year, it would have seen more than 40 million commercial flights take

to the skies carrying more than 4.7 billion passengers and 65 million tons of cargo. The maximum share of people opting for e-visa are from United Kingdom.

Source: Statista 2019

In the short term, the prices of the tickets haven been decreased to gather demand. But in

the long term, these prices would be pushed up in order to pay back the governments loans and take health related operational measures.

The post-covid experience for the passenger would be like – o Checking in without paper. Using biometrics to board the planes. o Proper health-care initiatives and hygienic environment. o Contactless payment methods everywhere. o Ordering food and beverages in the flights or airports online. o Reducing touchpoints wherever possible.

o Virtual public-service representative to guide you for directions.

Year on Year change of weekly flight frequency of global airlines from Jan 6, 2020 to Jan 4, 2021.

Challenges - Rationalization of corporate travel - After markets recover, the increase in adoption of

technology and work from home routines are likely to decrease demand for business travel significantly.

Drop in commercial revenues - The need for social distancing and personal hygiene during their travel has already hurt passenger spends within terminals significantly. Such as Duty Free.

Market distortions - Airlines have suffered heavy losses in revenue because of the pandemic, threatening the survival of many, especially due to the nature of the business.

Ways to move forward - Refocus on the cost-line - Solar powered airports, electric bussing, green buildings and

recycling can increase significant savings in operating costs and could become the standards for the best performing airports.

Collaborate -Sharing data could be the key to maximizing value and sharing gains from mutual benefits.

Innovate - Investing more in research and development.

HOTELS:

This sector’s revenue declined more than four times greater than the previous crisis combined. Hotels demand may not reach pre-covid levels until 2023 while revenue may not recover until 2024.

Leisure resorts and larger chains may see the fastest recovery because they have resources

to handle adverse situations better and also because they diversify. According to a survey by AHLA, 9 out 20 hotels have laid off staff. As the lockdown restrictions have been lifted, the hotels have been reopening. In London,

80% hotels and reopened, in Shanghai 88% and in Hong Kong 92%. The post covid experience for a customer would be like –

o Contactless booking, payments, food ordering, etc. o Proper health-care practices and hygiene maintained in the rooms. o No frequent room-service. o Sanitization of rooms after the customer has left.

TOURS AND ACTIVITES:

The travel & tourism industry is expected to lose more than $1 trillion in revenues this year, and close to 200 million jobs.

This sector has seen bookings decline by 85% year over year. This challenge largely stems from the sector’s focus on group travel, which was restricted

and is still highly avoided because of the nature of this pandemic. But this sector has seen one of the highest growth rates in venture capital investments,

implying strong post-pandemic confidence in sector.

The tours & activities sector is the third largest in travel industry after flights and accommodations, accounting for around one-tenth of global travel revenue.

According to Arival, the whole sector consisting of one million operators, was valued at $254 billion in 2019.

This includes leisure and business travel. Both of these have been affected because of the safety concerns and restrictions. Business travel is also affected because now meetings are being held online.

These are the factors cited as influencing travel decisions -

LOGISTICS:

Logistics are very critical to an economy because even if there are finished goods ready for consumption, if they are not transported, it will not make any sense.

Logistics firms, which are involved in the movement, storage, and flow of goods, have been directly affected by the COVID-19 pandemic.

Freight and Logistics organizations have been on the frontline since the very beginning of the COVID-19 crisis, keeping shelves stocked and critical production lines running.

Different logistics subsectors have recovered from previous crises within 12 months but the shape and timing of this recovery remain uncertain.

Getting future ready – o Respond to e-commerce surge as these companies are striving to increase their

market share. o Automate physical processes and facilities. o Rethink people-heavy processes and try to automate them. o Build virtual branches. o Build partnerships and collaborate.

Even in the most optimistic scenario, the top 10 countries (measured by domestic and outbound tourism spend 2019) might lose $3,7 trillion in cumulative 2020-2030 tourism spend. This scenario assumes containment of the spread of the virus, effective government stimulus, rapid lift of travel restrictions.

In a more pessimistic case, the damage might be $7.4 trillion, mostly driven by sower macroeconomic growth.

The travel industry can seek to improve this rate of recovery through –

Improving perceptions about the safety concerns that people have by actively promoting the measures that are being taken for a safer and hygienic experience.

Actively promoting domestic destinations is the key because domestic tourism is expected to return to pre-crisis levels one to two years earlier than the rest.

Ensuring proper access to health care and insurance, to customers and employees, as these are the most important factor in decision making.

Indian Travel Industry

India is among the worst hit nations by the pandemic. There is no reference data to look at to check the recovery reports. No sector or country is immune to the impacts and consequences of the pandemic. Travel and Tourism sector is the worst hit sector.

Source: Statista

India is a 365 days tourist destination.

Employment in Travel and Tourism sector contributes to approximately 8.1% in the total employment in the country and approximately 42.7 million jobs.

Travel and Tourism sector contributes directly USD 108.3 billion towards the economy.

Indian citizen’s safety perception towards staying in a hotel or flying. 38% feel safe about staying the hotels as of now and approximately 43% feel safe while flying right now, that is higher than the average.

Citizen’s spending intent is on the moderate part when it comes to travel and restaurants and on the higher part when it comes to entertainment.

Jobs in the Travel and Tourism sector are expected to diminish by 10 to 15%, because of the pandemic.

India is a major hub for medical tourism, people coming to India for medical treatments and other issues related to health, and spiritual tourism, travelling to visit spiritual and religious places.

India is ranked 34 in Travel and Tourism competitiveness report 2019 by World Economic Forum.

The total spending in the travel and tourism sector was 15.24 lakh crores, it is expected to rise to 32.05 lakh crores by the end of 2028.

The Union Budget for the tourism sector in 2020-2021 is 1200 crores.

There are many government initiatives currently working for boosting of travel and tourism sector such as Incredible India, showing various tourist places, and Atithi Devo Bhava, meaning guest is god.

In April, 20 Ministry of Tourism started a series of webinars to boost tourism after the pandemic under the name Dekho Apna Desh Initiative and already conducted 48 webinars till Aug, 20.

Ministry of Tourism started another initiative, SAATHI, in Oct. 20, to provide references to Hotels and Restaurants related to Covid-19.

Many government initiatives in India takes place to boost tourism each year and various new destinations are inaugurated such as Arogya Van in Gujarat was inaugurated by Prime Minister of India in Oct. 20.

In the tourism sector 100% Foreign Direct Investment is allowed.

Logistics in India:

Since the manufacturing industries were severely hit due to the shortage of labour and the restrictions being imposed on the movement of goods and businesses, the supply has been disrupted.

The logistics industry provides significant macro contributions to the national economy by creating employment and generating foreign investment influx.

It currently contributes more than $200 billion to the economy and employs more than 40 million people.

During the lockdown, according to the Indian Chamber of Commerce (ICC), the logistics sector lost Rs. 50,000 crore, more than 9% shipments were stuck and 21% orders delayed.

Role of logistics sector to revive the economy – o Rapid technological advancements, changing consumer preferences due to e-

commerce, government reforms, are expected to lead the transformation of the Indian logistics ecosystem.

o For small-sellers (MSMEs) who want to take their business online and increase their customer base, logistics aggregators have become the one-stop fulfilment solution.

o According to the National Skill Development Corporation (NSDC), the logistics sector has emerged as the top employment-generating sectors in India in the aftermath of the coronavirus disease.

o Strong growth supported by government reforms, transportation sector development plans, growing retail sales, and the e-commerce sector is likely to be the key drivers of the logistics industry in India.

Plans of Action:

Government’s role is very important in reviving an economy or a sector. Government can reduce taxes and duties for the tourism sector. Additionally, reduce GST on the items in these sectors such as reduce GST on aviation turbine fuel.

Financial Support – More credit allowance and funding should be provided for the companies in distress. Giving cash grant or decreasing the rate of interest on their debts.

New and innovative financing techniques

Leveraging Assets – The companies in distress could leverage these not in use assets for short term funding and meeting its short-term obligations. The company should ask its creditors for relaxed credit terms so that it could have ample time for the utilization of those funds.

Revenue Pooling—The companies should think about the betterment of the whole community rather than thinking about only themselves. For example, hotels should come together and form a syndicate, where they will divide their customers and their revenues accordingly.

Digitalization— The advancement of Artificial Intelligence and Machine Learning in the field of tourism will create wonders. For example, with the help of AI and Virtual Reality, people can easily experience travelling to far away destinations by just sitting in a room. It will be really good experience and people could stay safe in these strange times.

Medical Tourism – Many people visit India for medical treatments, the main hub for medical tourism in the country is Chennai, approximately 40% of medical tourists come to Chennai, known for its high-quality treatments. Also known as the health capital of India, Chennai receives nearly 200 international patients for a bone marrow transplant, cardiac bypass, eye surgery, hip replacement and alternative medicine treatments. The fastest growing medical tourism destination in India, Mumbai has several super specialty hospitals, Research and Diagnostic centre for orthopaedic, and weight loss surgeries. Mumbai is famous for its cosmetic surgery and Ayurveda treatments. Top notch treatment facilities and several private hospitals have made Mumbai the fastest growing destination for medical treatments.

Consumer choice models need to be updated – The consumer choices should be updated according to current variables such as lockdown, travel restrictions, social distancing and many other factors.

Need flexibility and agility – The company need to be a bit more flexible when it comes to earnings, as in these times situations were changing every now and then. The factors need to be analysed and then act accordingly. For example, the airport authority needs to analyse the restrictions

Customer Preference – The company need to build new consumer focussed models that will work according to the needs of the consumers. For example, leaving adjacent seats vacant on the buses to ensure social distancing on buses, thus work for the safety of the public.

Rebuild demand, then enhance value – Need to decrease prices in order to increase demands. As it is evident from the curve that as the price decreases, the quantity demanded increases.

Focus on Domestic Tourism— The company should think of domestic tourism as a major business. The domestic tourism is in great demand as people are in need to spend some peaceful time.

Reopening Gradually— As every sector in India is recovering slowly, the companies need to focus on slow and steady growth. For example, Indian railways is recovering slowly and increasing number of trains gradually.

Disclaimer & Sources: McKinsey & Company Reports, Deloitte Reports, Accenture Reports, KPMG Reports, International Financial Corporation Report, Indian Transport and Logistics News, Graphs from Statista.com and Mckinsey & Company