Factors Driving the Recovery of the Travel Industry
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Below we discuss the factors influencing the companies in our travel industry ETF.
Factors Driving the Recovery
In the short run, the demand for
travel services will be driven by:
speed and extent of the COVID-19 vaccine rollout
resulting relaxation of government-imposed travel restrictions
of extra pent-up demand from resulting trips not taken during the pandemic
of disposable income and savings
- Size and
pace of the economic recovery
The ongoing rollout of several
COVID-19 vaccines has been welcome news for would be travelers and the
industries that serve them. The vaccine
rollout has coincided with a significant decline in infection rates, which has
led to governments relaxing some travel restrictions, as well as a growing
public belief that it is safe to travel again.
At least 191 countries and
territories have administered about 1.2 billion doses of a Covid-19 vaccine as of
early May 2021.
The number of vaccine doses administered daily has increased steadily, as shown
in the chart on the left.
Progress towards vaccinating enough
of an individual country’s population to significantly limit the spread of
COVID-19 gas been uneven, as the figure to the right illustrates. The figure shows the top 10 countries in
terms of their vaccination rates.
data collated by Our World in Data
Israel is the global leader, with
nearly 60% of the population fully vaccinated.
The United States ranks third, with 34.2% of the population fully vaccinated. Outside of the top 10 countries, progress has
been very uneven, down to as low as 9.1% in some advanced countries such as
Germany, 2.5% in India, and 0,1% in Trinidad and Tobago.
Relaxation of travel restrictions
It is also becoming easier to cross
some international and internal boundaries.
Some countries have relaxed their restrictions on international travel over
the last year. In April 2020, 95% of 215
destination countries worldwide had completely or partially closed their border
to international travel. By February 2021, the percentage had shrunk
to 66%, with most other countries relying on a combination of testing and
mandatory quarantines to control the spread of COVID-19. A scant 2% of all countries had lifted all
travel restrictions by February 2021.
Evolution of Global Travel Restrictions,
April 2020 to Feb. 2021
Source: UN World Tourism Organization
While international travel was till
severely restricted when this report was written, there has been a clear trend
towards relaxing restrictions, and it is expected that this trend will continue
as the vaccine rollout continued and the COVID-19 infection rate comes down in
In addition to closing their
international frontiers, many larger countries responded to the pandemic by
imposing restrictions on domestic movements.
For example, as of March 2020, an estimated 17 U.S. states had
restrictions on visitors entering from other states. By April 2021, the list had shrunk to only
In 2020, the American Society of
Travel Advisors (ASTA) participated in a survey which asked respondents, “If the pandemic suddenly ended tomorrow,
what one large discretionary purchase would you make”? Of those who said they
would make a large purchase, 46% said they would take a trip, with the
next-highest responses being remodel their home (20%) and purchase a new
vehicle (19%). 
The desire to travel, to visit with
family and friends, to experience other environments, is obviously
deeply-rooted. The risk of COVID-19
infection appears to be declining in many countries, due to a combination of
public-health measures and vaccines. Now that quarantine requirements and
travel bans are gradually being relaxed, people and businesses are looking
forward to being able to travel again.
In China, an estimated 230 million
Chinese travelled during May 1-5, and spent three times as much on flights,
hotels, and other travel as they did during the same period a year before and
30% more than they spent in 2019.
In the United States, jet fuel
consumption is expected to increase by 30% in summer 2021 compared to the
previous quarter as a growing number of Americans start to take the trips they
have been forced to postpone since the pandemic started. Other countries are also experiencing upticks
in domestic leisure travel.
Domestic travel has substituted for
foreign travel as quarantine requirements and travel bans have kept most people
from traveling outside their own country.
Meanwhile, business travel remains severely depressed, as fiscal
austerity, health concerns and the availability of virtual meeting platforms
like Zoom have combined to keep most employees at home. To get the travel industry truly moving again,
the recent surge in domestic leisure trips will have to turn into a recovery
for international and business travel, developments which seem further away.
International and business travel are
recovering more slowly than domestic leisure travel. International tourist arrivals dropped by 900
million or 72% in the first nine months of 2020 compared to the same period of
2019, and have stayed there ever since. Now there is guarded optimism that international
leisure travel will start to grow significantly in the second half of 2021, as
more governments feel their countries’ progress in combatting COVID-19
While domestic leisure traffic is
nearly back to 2019 levels for many airlines, U.S. business traffic remains
nearly 80% below pre-pandemic levels, holding back a broader rebound. Unfortunately for the airlines, it is not yet
clear when, or even whether, business travel will rebound.
founder Bill Gates generated a lot of attention in November 2020 when he
predicted that over 50% of business travel will not come back after the
pandemic. Southwest Airlines CEO Gary Kelly has predicted it could take 10 years
for business travel to bounce back. CNBC surveyed a group of technology company
executives, 20% of whom said they did not expect their company’s employee
travel budget to ever return to pre-pandemic levels.
CNBC survey, this one of chief financial officers, found that more than half of
US and Europe-based CFOs believe that their business travel budgets will
“never” return to a pre-pandemic level. Asia-Pacific-based
CFOs alone expected a rebound to pre-pandemic levels of business travel within
Growth of disposable income and savings
During the pandemic, millions of
people lost their jobs and income. Somewhat
paradoxically, total personal income in the United States and other countries
actually increased during the same period, due to government stimulus payments,
enhanced unemployment compensation and publicly provided benefits.
The US government sent out three
rounds of stimulus checks (for up to $1,200, $600, and $1,400 ) in 2020-2021
and chipped in to enable states to offer much higher-than-normal unemployment
benefits. Other countries that sent money
to all their citizens included Hong Kong ($1,280 equivalent per adult), Japan
($930 per adult) and Singapore ($422 per adult). European nations largely avoided the one-time
payments, instead boosting funding for social services, but many countries enhanced
Change in Disposable Income Q1-Q3 2020 and Breakdown of Use
Source: Federal Reserve Bank of New
York, “What is behind the Global Jump in Personal Saving during the Pandemic?”,
Liberty Street Economics, April 14, 2021.
h limited opportunities for consumers
to spend money in their locked-down coronavirus economies, the government
transfer payments boosted personal savings.
As a result, many consumers and coming out of the pandemic with more
money to spend on big-ticket items like travel.
This increase was not evenly distributed across the population, of
course, but has had the greatest proportional impact on the personal incomes of
people with the highest propensity to travel.
Size and pace of the economic recovery
2020 was a turbulent year for the
global economy, with lockdowns, sharp trade contraction, accelerated job
losses, and supply-chain disruptions. The
first, tentative signs of a recovery began to appear in the second half of the
year with the easing of COVID-19 restrictions, but the global economy contracted
by an estimated -3.3% in 2020.
The recovery should accelerate in 2021
with the vaccine rollout, the relaxation of social and economic restrictions,
and reviving demand. The International
Monetary Fund (IMF) is projecting an economic growth of rate 6.0% in 2021,
moderating to 4.4% in 2022 and 3.3% in 2023-2024, raising incomes and boosting
the demand for travel services.
Annual GDP Growth, 2020-2024 (%)
World economic Outlook, April 2021 https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april-2021
The pace of the recovery will be
uneven among different counties and regions.
Among the advanced economies, the United States is expected to surpass
its pre-COVID GDP in 2021, while many others in the group will return to their
pre-COVID levels only in 2022. Among
emerging market and developing economies, China had already returned to
pre-COVID GDP in 2020, whereas many others are not expected to do so until well
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