By miltongroup, July 12, 2020Coronavirus has inflicted untold damage on multiple sectors and geographies. With government action oscillating between stimulus and knee-jerk resumption of normality, everyone has been left confused. Not only confused, but fearful. Fearful there is no meaningful co-ordinated response at international level, and uncertain as to what this means for both developing and mature economies. If this has hit all sectors, it has been particularly pronounced for global tourism. With skies left virtually devoid of aircraft and hotels eerily silent, the world has changed beyond comprehension. Everybody has their own prophecies and carefully articulated projections. But the truth is nobody really knows what it all means.
The United Nations World Tourism Organization (UNWTO) has released preliminary figures as to the early effect of coronavirus. Between January and April 2020, there was a 44% decrease in international tourist arrivals, leading to a fall of US$195 billion in revenues.[1] These headline figures, though, disguise a more nuanced reality, where regions have been hit unevenly. Asia Pacific fell 51%- reflecting its early exposure to the virus- followed by Europe (44%), the Middle East (40%), the Americas (36%) and Africa (35%).[2] This has led the UNWTO to outline three possible scenarios for the year- none of which are pretty. It anticipates a drop in international tourist numbers of between 58% and 75% and a loss of between US$910 billion and US$1.2 trillion in export revenues.[3] Most alarmingly, there are thought to be between 100 and 120 million direct jobs at risk.[4]
Countries most dependant on tourism, of course, will suffer disproportionately. There are a number of metrics which can be interpreted. Forbes undertook analysis in April to look at jobs dependent on tourism by state.[5] It found nine jobs were supported per tourist in Bangladesh, ranking it first in the world.[6] If you interrogate this information a little further though, it provides a distorted picture. The next highest is India at only two jobs per tourist, which is more a reflection of critical mass of population, than actual dependency.[7] Gross Domestic Product (GDP) generated by direct travel and tourism is a more universally applicable standard. These data show those countries most vulnerable to a downturn, especially if a recovery is muted. The top ten are dominated by island nations, foremost, the Maldives, where 33% of GDP derives from these industries.[8] The remainder fall in the Caribbean, except for the Seychelles (26%), and Macau at top spot with 50%.[9] If Macau can expect a resurgence in mainland Chinese traffic given its unique status as a Special Administrative Region (SAR), the fate of its paradisiacal, palm fringed contemporaries, is much less certain.
At Milton Group, we foresee a resurgence in local travel in established markets in the short term. Our partners report this trend throughout the globe, as people have already begun to book nearby. Vietnam has swung back into action following decisive action by the government, staving off mass job losses, at least for now. Occupancy in prime hotels in Dubai is high, and Omani destinations are gearing up to take advantage of pent-up demand in the Gulf. In coastal Mozambique there are signs the overland market from South Africa is considering bookings for later in the year in the three star segment. Meanwhile Europe- which once look disunited- has even welcomed its estranged British siblings, to Tuscany and Provence, Bavaria and Catalunya. In the US, we continue to speak with Asian investors looking to tap into strategic locations accessible from California and the affluent Eastern seaboard. And only yesterday, our founder, took calls about establishing a nature-based tourism platform. Aman’s latest opening in the Grand Circle region of Utah, couldn’t really have been better timed.[10]
Typically, we work in the luxury segment of the market- whether at Islas Secas in Panama or Singita in Tanzania. The same goes for development projects from Pomene in Mozambique to Ngarra in Tasmania. This is not commoditised luxury, but bespoke experiences with tangible community and environmental outcomes. We work this way, because low density, high value product best serves this agenda and is demanded by our founder investors. As we move beyond 2021, we anticipate an acceleration of trends witnessed pre the trauma of the global pandemic. People travelling less but for longer. The growth of experiential travel- whether meditation by a majestic water system or communion with mountain gorillas. A heightened awareness of space and place, and a growing appreciation of the fragility of our natural resources. The rebalancing of global travel toward the last untouched and preserved wildernesses. The decline of airline capacity and reduction in routes, will likely increase private air travel, making remote areas no less accessible.
Singita Kwitonda Lodge, Rwanda
A major determinant of the future performance of global hospitality, especially in the ultra-luxury segment, will be the response of markets in Asia. Tourism’s seemingly inexorable growth from major population centres such as China, India and Indonesia, cannot be understated. No area of the globe offers the potential for outward tourism to this extent. Analysis suggests 32% of Chinese luxury travellers have a budget greater than US$800 a night, and if this group alone continues to recreate internationally, it will be a welcome boon to many investors and operators.[11] In Africa- where many of our projects are located- this assumes particular importance. Prior to Covid, 37% of the Chinese luxury segment had stated the continent to be a preferred destination, and it is our job to assuage concerns and deliver this market.[12]
There is reason for optimism. The top of the market has historically been insulated from harsh economic realities, such that in 2008/9 luxury disposable spending held up. Likewise, with a compressed market, and inevitable distress, innovation often follows. Predicting the future- as this year amply demonstrates- is fraught with difficulty. But just as our investors take a generational view, we believe macro trends supportive of our tourism niche, are likely to continue, even if confronted by short term disruption.
Oliver Nicoll, Financial Strategist