Green or bust: what economic future lies in store for the battered travel industry?

Few sectors of the economy have been hit harder by the coronavirus pandemic than international travel companies. 

The budget airline easyJet announced a record loss for the year to September on Tuesday. Heathrow airport’s passengers in October were down 82 per cent on a year earlier – and now the UK’s largest aviation hub has the threat of strikes over Christmas to contend with.  

All this economic damage raises the question of whether some travel companies face an existential threat. 

And is the broader sector facing a permanent contraction, as people travel less in the wake of this pandemic?  

Or could a suite of new Covid vaccines ride to the industry’s rescue by enabling a return to pre-crisis travel patterns in the coming months?  

And what impact will decarbonisation policies, with many governments aiming for net zero emissions by the middle of the century, have on top of all this pandemic disruption?

There’s no question that 2020 has been a cataclysm for the global travel industry, as millions have stopped travelling either because of national lockdowns, quarantines or simple fear of infection among the public.  

The United Nation’s World Tourism Organisation warned in May of a $1 trillion fall in tourism revenues this year.  

With travel and tourism taken very broadly (including hotels, resorts and restaurants) accounting for an estimated $9 trillion of global output in 2018 – 10 per cent of the planet’s GDP – this hit on its own goes some way to explaining why this is set to be the worst year for the global economy on modern record.

In October the Organisation for Economic Co-operation and Development (OECD) projected that international travel will fall by 80 per cent over 2020, which it said was towards the more pessimistic range of its forecasts earlier in the year.

And the second wave of cases around the world this autumn and winter is threatening further damage.

The share price of airlines spiked on 9 November when Pfizer announced its vaccine had proven successful in trials, with easyJet gaining 40 per cent, Ryanair 20 per cent and IAG (the owner of British Airways) up 15 per cent.

This shows investors and speculators saw the potential of the vaccine to improve the economic prospects for these companies by allowing more travel.

Yet the share prices of most listed airlines, cruise operators and airports remain well down on their levels at the beginning of the year.

The aviation analyst John Strickland says it would be “premature” to say that the airline sector can now return to normal.

“A lot of the damage is already done,” he says.  

“We’ve seen airlines take out permanent capacity, particularly on long haul. It’s not going to be a miraculous return to normality next summer.”  

He thinks that some are likely to go bust as they run out of cash in the months ahead.

“Some airlines are not going to make it through. It is going to smaller, there will be fewer players.”

The OECD report was produced before this month’s vaccine announcements from Moderna and Pfizer/BioNTech, but it argued that even if tourism returns in 2021 it expects the recovery to be slow and for visitor numbers not to return to pre-pandemic levels before the middle of the decade.  

“A return to business as usual is highly unlikely, and the tourism sector will be a very different in 2021 to what it was in 2019,” it says.

And then there’s the climate problem. Carbon emissions from aviation rose by around 4-5 per cent a year in the decade after the global financial crisis in 2008.  

In 2018 the sector accounted for 2.5 per cent of all global greenhouse gas emissions. That might seem relatively small, but it was up from 2.3 per cent in 2000 and, with no breakthrough imminent in carbon-free aviation, the sector is set to be a growing driver of the climate change crisis.

The OECD also argues the pandemic is an opportunity to “advance the transition” towards a zero-carbon future for travel and suggests environmental sustainability may become more prominent in the choices of tourists.

A $1 trillion hit to global tourism revenues in 2020?

Elizabeth Becker, the author of Overbooked: The Exploding Business of Travel and Tourism, says new environmental regulation by governments is also likely to shape the future economics of the industry after the pandemic, possibly leading to policy innovations such as “plane-free days”.

“Some of us think the pandemic is not separated by the climate emergency. You can imagine the new [Joe] Biden administration says: ‘build back better’,” she says.

One source of optimism is the continued expansion of the middle class in developing countries, which some analysts think will continue to drive tourism to the US and Europe after the crisis.

“You’ve still got markets like China with a growing population and economic wealth, and also other Asian economies, which may outpace the cutbacks [in tourism] we see in places like Europe and the US,” says Mr Strickland.

And what about the place of travel in western leisure culture, the hyper-mobility of recent years where people would jet of for weekend breaks or weddings or stag parties in other countries?

Ms Becker says surveys show people want to take fewer trips for leisure and that the trips will last longer.

“This habit of just jumping on a plane and spending a few days hanging out in Barcelona – that’s not coming back, at least not right away,” she predicts. “The frenzy won’t return.”

If that proves correct, even with the rapid rollout of an effective vaccine, the travel industry will face a major restructuring and a considerable amount of economic pain over the coming years.