International travel outlook

The return of international travel – and of the business traveller – remains key to the return to profit of many hotels in most markets.  

With the new year has come a variety of insight reports and surveys, each attempting to mark out the likely path of travel during the next year or two. While domestic trips are set to return soon as vaccinations roll out, the bigger questions remain over whether international and business travel will return to previous levels, and the pace of that return.  

The UNWTO, which has declared 2020 the worst year ever for tourism with a 74% drop in international arrivals, has also been polling for a view of the coming months. Its Panel of Experts survey had 45% of respondents positive for 2021, but 30% expect a worsening of results this year, as prospects of a rebound appear to be worsening. When surveyed in October, 79% of respondents expected a 2021 recovery – this number has now declined to 50%, with more expecting the improvement to come more slowly.  

When asked their view on the timing for a return to 2019 levels of activity, 43% said this was likely in 2023, while 41% expect it to take a further year.  

As to the key changes in demand, the panel point to a likely increase in demand for open-air and nature-based tourism, with domestic tourism and “slow travel” experiences also likely to see greater consumer interest.  

However, a contrasting outlook comes from Tripadvisor, following a recent survey of traveller intentions. “It is no surprise that nearly two thirds (65%) of leisure travellers surveyed say they did not travel internationally at all in 2020. We anticipate a reversal of that behaviour in 2021. Nearly half (47%) of all respondents globally say they are planning to travel internationally in 2021.” 

Tripadvisor’s report on its findings, “The Year of Travel Rebound”, predicts the joy of planning a trip will be greater than ever for consumers. It says consumers are planning ahead: “22% of all accommodation clicks on Tripadvisor in the first week of January were for trips taking place after April.” 

The World Economic Forum, in a recent paper, noted that in order for international travel to really get restarted, countries will need to agree on a common protocol for checking the health of travellers. “Travel health requirements may soon start to resemble the past. In the 1970s, having appropriate vaccinations and health clearances was essential for travel to and from many countries.” Today, there is the hope that digital means, potentially one called Common Pass, may become an accepted method of health accreditation.  

The European Travel Commission says that consumer intentions for intra-European travel are on the rise, following the start of vaccinations. In its latest, fourth wave of research, it found 52% of respondents intending to travel within the next six months, a figure up 5% from the previous wave of the survey. Consumers now expect to be able to make that trip not in the immediate future, but are more optimistic about the second quarter of 2021. 

The research, which ETC has been doing in waves since September 2020, also shows increasing confidence in flying to destinations. City breaks look to hold an equal attraction to beach holidays.  

Based on the rising interest in travel, the research suggests businesses should start planning for a tourism recovery, first defining niche audiences. It says the April to June period is likely to see things moving – and warns that those businesses investing now in improving their digital assets and online reservation systems will be the early winners.  

Meanwhile, researchers at YouGov have been polling the changing attitudes towards travel, across UK and US consumer groups. In a summary of its latest results, Eva Stewart, global sector head of travel & tourism warned that a nuanced approach will be needed to reawaken audiences, some of which appear more switched off from travel during the pandemic than others: “Travel brands may have to adapt their strategies and campaigns to the unique situations in each market. As data points out it is vital to be front of mind of consumers to nurture their interest in travelling and wanderlust.”  

“Industry players may have to reignite some demographics’ passion for travel, and the US is a good example where demand for certain types of travel content is already higher than pre-pandemic levels. As the new year unfolds, keeping up with the perceptions of various traveler segments will prove critical in helping people explore the world again.” 

In the US, the American Hotel & Lodging Association warns that half of US hotel rooms will go unused in 2021. It expects business travel to only start picking up moderately during the second half of the year, though leisure travel intentions remain largely as a regular year.  

HA Perspective [by Andrew Sangster]: At the start of the economic crisis caused by the pandemic, it was clear that this was going to be a very different downturn and then recovery from “normal” recessions. It was less clear, however, just how different. 

After the 2008 Global Financial Crisis there was unprecedented levels of monetary intervention. The scale of how unusual the intervention was can be given by the simple statistic that prior to 2009, the Bank of England, in more than 300 years, had never lowered base rates below 2%. In 2009 they went to 0.5%. 

In addition to this, the hitherto unheard of policy of central banks buying their own government’s debt was widely adopted. This quantitative easing has now been accepted as everyday monetary policy. It is not, and is still a live experiment. 

The 2020 crash has seen monetary policy again ramped up but as it had barely started reversing there was limited room for manoeuvre. UK base rates have hit an all time low of 0.1% and the European Central Bank is at 0.00% with deposits on negative rates. QE has been increased too, albeit less dramatically than after the GFC as headroom is limited. 

The big switch in 2020 has been fiscal policy. McKinsey estimate the total amount governments have agreed to pour in during the first three months following the start of the pandemic as north of USD10 trillion. This is between four and 10 times the amount spent after the GFC with most high income countries spending at the upper end of this range.  

And remember this was just what was committed in the first three months – more has now been added, notably in the US with President Biden’s stimulus package set to dwarf anything that has been implemented previously. 

We now have ultraloose monetary policy and ultraloose fiscal policy. We also have consumers who, on average, are better off than they were at the start of the pandemic. 

The Centre for Economics and Business Research, the UK think tank, estimates that in the UK consumers have saved almost GBP200bn during the shutdown. This averages at more than GBP7,000 per household. When we come out of lock down these people are going to want to spend. 

Further, we are set to have economic growth at levels not seen for a generation. While ongoing lockdowns mean 2021 is off to a bad start, towards the end of this year, most highincome countries are forecast to be growing in the high double digits. 

This all bodes well for a strong recovery but supply issues could well remain for the travel and tourism sector. In particular, it is looking like international travel may be off the agenda for much of this year. Even if it does restart, the uncertainty around it is creating its own set of problems. 

The depth of the challenge was laid bare at Ryanair’s Q3 results (which runs to the end of December). Europe’s biggest carrier (by passenger numbers) saw a 78% drop in numbers and it is forecasting an even tougher Q4 (to the end of March). 

In the full year to the end of March 2020, Ryanair carried 149 million passengers. The following year it expects to carry less than 30 million. It is forecasting a sharp rebound for the year to March 2022, of 80 to 120 million passengers. And by March 2023 it expects to be exceeding pre-pandemic passenger levels. 

My own view is that in its next financial year (starting April 2021), Ryanair is going to struggle to hit even the bottom of its 80 million range. But it could easily surpass its forecasts for the following year. 

Ryanair’s confidence is built on the success of the vaccine programme and the difficulties in implementing effective border controls. While the UK rollout of vaccines is delivering at the upper end of expectations, the rest of Europe is struggling. This is going to make travel in Europe hard. 

The political mood music is particularly depressing right now. The forthcoming French presidential election in April next year is likely to result in a cautious approach to border controls, particularly as Marine Le Pen, the main challenger to incumbent Emmanuel Macron, is strongly critical of what she alleges is a weak existing regime. 

There is political pressure in Germany too as a result of public perceptions of a failed EU vaccination strategy. This again is likely to see Germany be cautious at relaxing border controls in the run up to its federal election at the end of September. 

EU governments in general are favouring a restriction on any travellers from outside the Schengen bordersWhile southern European countries are likely to push for a relaxation by this summer, it is by no means a given and this would mean that UK travellers will have limited short-haul holiday options. 

As discussed in previous Hotel Analyst Perspective articles, closed borders would be a temporary fillip for the UK hotel sector as the roughly 50 million net balance of overseas inbound versus UK outbound are spent in the UK, potentially more than doubling UK domestic demand. 

How big the demand boost proves depends hugely on whether borders to southern Europe open. There is no clear line of sight right now. But it is certainly the case that UK domestic holiday accommodation prices are currently rocketing. The Financial Times had a report this week quoting data from Guesty that showed average nightly rates for short-term rentals and independent hotels were up 59% for June this year compared to the same month a year ago. The rise in August was 38%. 

This looks promising but the long-term growth of the hotel business requires international travel, and particularly international business travel, to return. The big Meetings, Incentives, Conferences and Exhibitions market, for example, requires people to be able to flow freely across borders. 

The Global Business Travel Association is not expecting a full recovery until 2025. In the 12th edition of its BTI Outlook, weighing up 75 countries across 48 industries, 2020 is predicted to result in a 52% decrease in global spending on business travel to hit USD694bn. Hardest hit is North America and Western Europe. 

This year, business travel is forecast to increase 21%, with the bulk of the increases coming towards the end of the year. Of course, this rapid growth does not make up the lost ground of 2020 and early 2021. 

It is 2022 where it gets interesting. The GBTA believes that there will be a further acceleration in business travel, including a significant pick up in group meeting activity and international business travel. 

The question is how significant is this going to be? My own view is that the GBTA is being too conservative and is under playing the likely boomerang style rebound. With economic growth at rates not seen for decades, it is hard to see corporates unwilling to increase travel budgets to ensure they have a slice of this market. 

The truth is that nobody is quite sure. The virus may yet mutate into another pandemic (a long shot, I hope) or the economic rebound might falter due to inflation fears and premature tightening by central banks. 

Alternatively, the tailwinds of recovery might be even stronger than forecast and we enjoy a roaring twenties. The challenge is creating a business plan that caters for both scenarios. 

Analysts at Bernstein captured the position in a note looking at the case for and against pent up demand in travel. “The situation is likely to be nuanced: pockets of demand and changing consumer requirements,” they said. 

Domestic, rural and drive-to destinations outperforming and a likely bias towards the higher end. Accommodation that offers greater cleanliness and is newer is preferred along with flexibility. 

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