In looking at the impact of the COVID-19 pandemic across the economy, one broad sector stands out for the extent of the damage inflicted on businesses and their employees: tourism and travel services.
Closed borders, the collapse of international travel, the cancellation of conferences and conventions, the near evisceration of the airline and cruise ship industries – these developments sound a temporary death knell for what, prior to 2020, had been one of British Columbia’s most vibrant economic sectors.
Globally, tourism accounts for almost a tenth of world GDP and generated some US$9 trillion in spending in 2019, according to management consulting firm McKinsey. COVID-19 has created an unprecedented crisis for virtually all segments of the industry. Cross-border travel is expected to slump by up to 80% in 2020, and many analysts believe that core metrics of tourism-related spending won’t return to pre-2020 levels until 2023 or 2024.
Business travel will be slower to recover than leisure tourism, as companies look to trim costs and step up efforts to leverage digital platforms to engage with customers and suppliers without the need for in-person meetings. This could have a sizable economic impact. New research from Harvard University’s Growth Lab finds a direct link between a jurisdiction’s incoming business travel and the performance of local industries that are connected to external markets. For B.C., this could include film and television production, much of the high technology sector and commercial services that are traded internationally. The absence of business meetings, conferences and conventions will also hit the province’s economy hard.
Last year, Canada was basking in the glow of a decade-long international travel boom. Fuelled by the wanderlust appetite of a steadily growing global middle class, a competitive Canadian dollar and surging inflows of both permanent and temporary immigrants, international visitors flocked to B.C. and other parts of the country. The good times came to a shuddering halt with the arrival of the coronavirus in March. Unfortunately, there are few signs that things are about to normalize soon.
Nationally, the hotel occupancy rate plummeted to 24% in June 2020, compared with 76% 12 months earlier. Slightly better – but still dismal – numbers have been reported in B.C., as international tourists have disappeared and fewer people from other regions of Canada visited our province over the summer. True, the resulting loss of customers for the tourism sector has been partially offset by more locals vacationing within the province. The Okanagan and Vancouver Island, in particular, have benefited from this trend. However, from the perspective of the tourism and travel sector as a whole, the loss of lucrative international tourists and business visitors far exceeds any gains from more British Columbians holidaying closer to home.
Meanwhile, the airline business has been devastated by the dramatic declines in travel and visitors. While most other advanced economies have taken significant steps to support domestic air carriers and key airports, Canada has done little to assist the beleaguered sector, whose survival will be in doubt if the pandemic persists well into 2021.
Amid the chaos, what’s the best path forward to minimize the long-term damage to the overall tourism and travel sector – a longtime pillar of the B.C. economy? Continuing to promote domestic tourism makes sense given that international restrictions are likely to remain in place for several more months at least. Another way to restart tourism would be to establish “travel bubbles” with jurisdictions that have successfully managed the rate of COVID-19 infections and have strong health protocols. Canadian policy-makers should also be encouraging safe air travel, following the approaches used by other advanced economies and building on Canada’s Flight Plan for Navigating COVID-19 released by Transport Canada last month.
Even if these measures inject some life into tourism and travel, to sustain the industry’s capacity and B.C.’s international reputation as a top-tier destination additional government support will be necessary. To this end, a coalition of tourism operators is seeking financial aid of almost $700 million from the province, as part of the government’s forthcoming economic recovery plan. The key proposal is for a new “working capital recovery grant” to help maintain solvency for tourism-related businesses that have solid prospects of returning to profitability over the medium term. This represents a very ambitious ask, particularly given the fiscal pressures the province is grappling with. But it’s also clear that tourism should be at the top of the list for government aid to business during such difficult times for many consumer-facing industries.
Jock Finlayson is the Business Council of British Columbia’s Executive Vice President and Chief Policy Officer; Ken Peacock is the Council’s Chief Economist.
As published in Business in Vancouver.