2.2 Tourism and hospitality hardest hit sector in the Irish economy

History will record 2020 as the industry’s worst financial year which continues to challenge the very survival of many businesses. Covid-19 prompted governments across Europe, including Ireland, to adopt a range of extraordinary measures from a public health perspective in an attempt to mitigate the spread of the virus. As a result, tourism businesses were forced to close or operate under commercially oppressive restrictions, including at times the almost total shut-down of international air service connectivity and the hospitality sector. This has effectively seen Ireland closed for international tourist business from early March 2020, when a Six Nations rugby fixture and St. Patrick’s Festival were cancelled. The impacts on the largest indigenous sector of the economy – comprised of over 20,000 SMEs (small and medium enterprises) supporting an estimated 260,000 direct jobs – have been devastating, forcing people out of jobs, and businesses struggling for survival. It is apparent that the travel, tourism and hospitality sector has been the hardest hit during the pandemic and urgent measures need to be taken to ensure it is not the last to reopen and recover.

“Apart from its overall economic importance, the importance of tourism to local and regional economies cannot be understated. In many rural areas, it is the only employer of note outside of agriculture. Analysis published by Ernst and Young (Potential impact of Covid-19 on Irish Tourism, April 2020) earlier this year indicated a significant proportion of jobs dependent on tourism in rural counties such as Kerry (18%), Donegal (13%) and Waterford (12%). In many such areas, there are no alternative sources of employment. It is also the case that the sector employs a higher proportion of young people. Almost one in two of those employed in the sector are aged less than 35, compared to less than one in three of the total workforce (CSO, Census 2016). It is also the case that the sector employs a higher proportion of young people on a part-time and seasonal basis providing them with their first experience of employment and valuable income to support further education.” (Source: Tourism Recovery Taskforce Plan, September 2020)

Demand from the domestic market for leisure trips and visits to friends and relatives (VFR) rebounded rapidly in Q3 2020 with the lifting of travel restrictions and the reopening of most hospitality businesses, other than non-food serving pubs. Irish residents taking home holidays, as well as visiting friends and relatives, provided valuable cash flow to accommodation and hospitality businesses, especially in coastal and rural areas outside of cities. However, it is evident from the official data that tourism-related businesses did not experience the level of recovery apparent in other sectors, despite the relaxation of restrictions over the summer. (Source: CSO retail sales & Central Bank credit card data)

2.3 The catastrophic impact on businesses and employment

The introduction of Covid-19 financial support schemes by Government have staved off widespread business failures and bankruptcies in the tourism and hospitality sector. The Pandemic Unemployment Payment (PUP) and the Employers Wage Subsidy Scheme (EWSS), together with business continuity grants, guaranteed soft loans, rates remission, warehousing of business debt and some taxes, and a reduction in VAT, have proved critical to the survival of many enterprises. However, in the absence of a recovery in international tourism over the coming months, the withdrawal of the support policies before there is a significant upturn in international tourist arrivals will result in large scale unemployment, income losses, and business closures. In addition to the impact on those directly engaged in tourism, the absence of over €5 billion in export earnings spend in the country by international visitors in 2020 has seriously impacted a range of supply chain businesses. Subventions and subsidies can never replace lost demand.

Fight to sustain employment in the sector

The starkest reality of the economic crisis in the sector has been the need to stand down thousands of people engaged in tourism. Official data shows that those working in the tourism, hospitality, arts and entertainment sectors have become most dependent on the PUP and EWSS supports to protect income, with more than two-thirds (68.9%) of tourism businesses availing of a state employment-related support at least once between March and September. Over two out of every three ‘Accommodation and Food Services’ businesses relied on state support to sustain employment, as did more than half (54.1%) of enterprises engaged in the Cultural and Creative sector. The loss of employment has been most severe in rural areas, especially along the western seaboard from Waterford to Donegal, and amongst the younger age cohorts. (Source: CSO: Business Signs of Life Series One: State Support, (Dec. 18, 2020)

With the sector currently under a closure order, a total of 111,872 employees engaged in Accommodation and Food services were in receipt of the Pandemic Unemployment Payment (PUP), far exceeding the number of wholesale and retail workers at 76,606. (Source: Dept. of Social Protection (release on February 8, 2021)

Based on official data, it is conservatively projected that over 160,000 people across the wider range of businesses dependent on tourism are currently in receipt of Government wage support, accounting for two out of every five PUP recipients, at an estimated cost to the State of almost €40m per week. The exposure to continued unemployment is evident in the tourism sector. While the total number of PUP recipients across the economy has fallen by a fifth from the peak in early May, dependency level in tourism and hospitality has remained intractably high due to continued restrictions on trading.

The importance of the Employment Wage Subsidy Scheme (EWSS) is vital for Irish tourism and hospitality businesses providing a much-needed mechanism to retain experienced human capital. With demand set to be so low for the rest of 2021 the EWSS needs to be extended for the full calendar year for tourism-related businesses.

The Tourism Recovery Taskforce clearly highlights the importance of employment retention:

“Retaining tourism jobs and skills will be vital to tourism’s recovery. Implementing an upskilling and reskilling programme for tourism, linked to Government support funding to businesses, can mitigate the significant damage the crisis has had on the sector. Retaining vital skills and intellectual capital within the tourism sector will be critical to a strong recovery. This is aligned with the European Skills Agenda. Investing in the delivery of lifelong learning programmes through digital platforms will increase the quality of jobs in tourism and sustain jobs regionally. Apprenticeships and traineeships will provide employees with a vital career pathway into work and a career while also providing the employer with the opportunity to build a future workforce and develop a strong talent pipeline.

One of the features of the dramatic economic slowdown witnessed so far this year is the huge impact on youth unemployment. A revitalised tourism sector can offer job opportunities to this young workforce. Almost one in two of those employed in the sector are aged less than 35, compared to less than one in three of the total workforce.

The TRT recommends the development of a National Tourism Education Gateway (one-stop shop) for every tourism employee to access education from Level 5 to Level 10, (facilitating RPL, CPD, single subject certification, special purpose awards through to full awards).

This recommendation proposes to create a continuing professional development (CPD) pathway for all Tourism industry employees.”

Tourism businesses in fight for survival

Businesses are currently in a state of suspended animation. It is unlikely that a true picture of the scale of commercial damage within the tourism sector will become apparent before the middle of 2021.

The industry of over 20,000 enterprises, predominantly composed of SMEs and micro-enterprises, with a limited number of larger scale or macro enterprises, is in a perilous situation due to Covid-19. Historically, the tourism and hospitality sector has been heavily leveraged. It is safe to assume that many tourism businesses were included in the €5bn of business loans on payment breaks from Irish banks as at end September 2020. While larger enterprises can avail of the €2bn Pandemic Stabilisation and Recovery Fund, part of the Ireland Strategic Investment Fund, smaller scale businesses can avail of guaranteed credit schemes, distributed through the top three commercial banks, 80 per cent guaranteed by the State, at attractive low interest rates. The scheme is due to end in June 2021. However, perhaps not surprisingly, the take-up has been low as businesses are reluctant to take on more debt in an uncertain environment with only €66m distributed by end November.

The relief on commercial rates and the warehousing of some taxes has provided a valuable reprieve for many tourism businesses. The survival of many will depend on an extension of the life of these reliefs.

It is expected that the number of claims under the Covid Restrictions Support Scheme (CRSS), which began in November operated by Revenue, will rise. A more graduated qualification criteria with proportionate levels of support would greatly benefit tourism businesses.

Current best estimates suggest that close to 400 tourism and hospitality SME businesses have already ceased trading since the start of the crisis, notably restaurants, B&Bs, visitor attractions and adventure holiday operators. All sectors project an immediate decline in the number of enterprises and/or capacity as a result of COVID-19 with pubs, restaurants, hotels, and B&Bs particularly hard hit, with more marginal declines across most other sectors including car and coach hire, incoming tour operators, and attractions. Regrettably, more businesses may not re-open, while many face an uncertain future with an increased debt burden threatening their viability and severely limiting their investment capacity. (Source: ITIC survey of member organisations (December, 2020)

3.1 Evolution of Ireland’s tourism recovery from previous crises

The scale of disruption to international travel and tourism caused by the pandemic is unprecedented. However, it is perhaps informative to look at the recovery path of Ireland’s tourism following the most recent crises of 2001 (foot & mouth outbreak and terrorist attack of 9/11) and the global financial crisis of 2007-08.

The impact of the events in 2001 was short lived. Foot & mouth disease in the early months of the year was confined in its market reach, while international travel from the USA returned relative speedily post 9/11 as security concerns were addressed. Ireland, in common with most other destinations, saw international arrivals recover to 2000 levels by 2003, with VFR rebounding within a year while holiday traffic recovered by 2004.

The global financial crisis had a far more reaching impact on tourism to Ireland with overseas visitor numbers and revenue only returning to pre-crisis level in 2015 – a 7 year recovery path, lagging global and European recovery achieved by 2011. Ireland’s recovery was challenged by a number of factors including the extent of economic downturn, lack of investment, but most especially by a loss of connectivity.

However, tourism made an important contribution to Ireland’s economy recovery as employment in the sector returned to pre-crisis levels by 2014, while overall employment recovery was not achieved until 2018. Government policy supports for the tourism sector, including a reduction in VAT and the suspension of air travel taxes, were proven to be important drivers of the return to work for thousands of people and a boost to regional economic recovery.

3.2 Today’s challenges to business recovery

While the industry anticipates an improved performance in 2021 compared to 2020, the road to recovery is expected to be long and difficult. Pandemic restrictions of varying severity are expected to endure until at least Q3 2021. The first half of 2021 represents a serious challenge to the survival of many businesses. The current resurgence of the virus has forced businesses to recalibrate their sales and budgets expectations for 2021. Cash burn will continue with positive cash flow position for many businesses unlikely before 2022. The risk is that many more businesses will run out of cash before the vaccine boost kicks in. Hence continued ‘life supports’ from Government and banks remain critical to ensure the survival of tourism enterprises.

Priorities for tourism businesses

The reopening of markets and resumption of trading is the industry’s top priority and challenge. Businesses are focused on generating revenues to stem cash burn and to speedily achieve a return to levels of business with improving yields. It is widely anticipated that the initial resumption of trading will be focused on generating sales volume rather than yield as in the immediate term liquidity will be key to survival.

Further Government support will be required to save jobs and kick start the recovery. Bridging tourism businesses to the recovery is one of the most important investments that the Government can make in the indigenous economy. It will save jobs and kick-start the recovery in the broader hospitality, arts and entertainment sectors.

Bridging for businesses is key for business survival, but may be too late for those with insufficient reserves. Many businesses in the sector face a struggle with debt burden for some years to come although low interest rates may ease the burden somewhat. However, as an industry already significantly leveraged before the current crisis, it is cautious about taking on more debt with supports in the form of grants or tax breaks preferred.

The industry also expects to struggle to maintain experienced employees, having already lost a significant number who have found employment in other sectors. As a service industry, tourism relies on a highly trained and competent management and workforce.

Marketplace challenges facing the tourism sector

The good news is that consumers’ desire to travel remains incredibly resilient, and that pent-up demand bodes well for the travel and tourism industry in the long run. Research over recent months consistently shows that travel remains a key part of consumers’ lifestyles and travellers are keen to indulge their wanderlust again. It is clear that the deployment of vaccines will further boost the nascent recovery and the industry can start to look forward to brighter days ahead.

The roll-out of a coronavirus vaccine will undoubtedly support a return to international travel bookings, as people look forward to the reopening up of destinations. However, the vaccine will not deliver an immediate and universal re-opening of international travel. It is likely that many of the restrictions and behaviour changes will remain in place for some time to come to safely manage infections. For international travel to fully re-open will require that both Ireland and each source market from which we attract visitors will have to have effective vaccination programmes in place, supported by effective test and trace procedures. Ireland is well positioned with Dublin and Cork airports offering comprehensive onsite testing facilities.

The approval and rollout of vaccine(s) has been a game changer as it has boosted consumer sentiment as travellers become more comfortable with the prospect of travelling. This has been evident from the reported web searches and booking surge as experienced by airlines, tour operators and OTAs in recent weeks. Positive consumer sentiment can be expected to improve as vaccine and inoculation rates evolve, supported by effective test and trace procedures.

Travel sentiment is fluid and changes by the day reflecting latest news on the vaccine, infection rates and travel regulations.

When asked to rank the challenges to the resumption of attracting overseas tourists to Ireland, the unanimous agreement that the removal of travel restrictions was the ‘sine qua non’ to resumption of trade. The re-opening of borders and the abolition of quarantine requirements, under protocols which allow for the safe resumption of international travel, are key to tourism’s future.

5.1 The current context

News of successful vaccines in the closing months of 2020 provided a much-needed boost to the industry with the hope that international travel could begin to recover in 2021. However, a massive surge in infections, the emergence of new strains of the virus, and the re-imposition of lockdowns and border closures around the world, has forced a recalibration of expectations for travel in 2021 and lengthens the time line for a recovery to pre-Covid levels.

The immediate short term is looking bleak. It is now more difficult to imagine a transition to the reopening of Ireland to international visitors before the second half of 2021. This timeline could be pushed out by a number of factors including new more infectious strains of the virus, unexpected vaccine safety considerations, manufacturing and supply chain issues, and a shorter than anticipated duration of vaccine-conferred immunity.

Ireland’s tourism businesses face a myriad of challenges in 2021, but by far the most pressing is the question of when will international visitors begin to return in significant numbers. Only when numbers begin to flow again can businesses start to exit survival mode and transition to recovery, generating cash flow, securing jobs and reducing dependency on state supports. Tourism businesses in Ireland had expected to see the start of a reopening of international tourists in 2021, with the majority not expecting to see green shoots before the second half of the year or early in 2022.

5.2 Economic outlook

By any measure the global economy has rebounded more quickly than many forecasters initially expected. The extent of fiscal stimulus, including supports for businesses and employment subsidies in many economies, played a key role in offsetting the damage from the pandemic.

Global economy is at a critical juncture, according to the latest report from the IMF. While rollout of vaccines will boost growth, economic recovery will be shaped by the extent of further policy support, the roll-out and effectiveness of vaccines. Renewed waves and new variants of the virus represent the principal threats to a return to economic growth.

Global GDP which contracted by -3.5% in 2020, it is projected to return to growth in 2021 by 5.5%, with more modest 4.2% growth in 2022. While trade rebounds as economic activity picks up, recovery is expected to be uneven and unequal across the globe.

The economic outlook for Ireland’s tourism main source markets is positive, with evidence of increased savings in most developed economies boosting the prospect of a rebound of consumer spending as restrictions are lifted.

5.3 Pent up demand for travel

All research points to the fact that the consumer is eager to return to travelling, but feel restrained. However, the timeline of re-opening international tourism is far from clear. The key metric, identified by research, is the level of comfort consumers have with undertaking a trip. The roll out of vaccines underway in the UK, the US, across EU member states and in other countries, undoubtedly make a significant difference in terms of travel confidence, as will protocols and international travel requirements.

Almost one in three (32%) of Europeans indicated that they intend to take a trip in Q2, 2021, with just over half (52%) planning to travel in the next six months, according to the latest poll from the European Travel Commission (ETC). Both indicators show an improvement on the previous survey in November. The survey shows a strong preference for intra-European travel – the top choice for 40% of respondents. The findings show that strict health and safety protocols build trust and peace of mind and make travel more enjoyable. (Source: ETC: “Monitoring Sentiment for Domestic and Intra-European Travel – Wave 4” survey across 10 European countries in December 2020)

Encouraging findings from Tripadvisor show that nearly half (47%) of travellers surveyed globally said they are planning to travel internationally in 2021, including 45% of US travellers. In fact, one in ten (11%) global respondents had already booked an international trip for 2021, including 14% of respondents in the US. The most eager to venture abroad are German and UK travellers – in the first week of January, 85% of hotel clickers on Tripadvisor in either country were planning international breaks for later this year.

Ireland’s attractiveness as a holiday destination remains unchanged, but the overall comfort levels towards taking a European trip remained low, according to the findings of the most recent research from Tourism Ireland. The key conclusion of the research was that while vaccine brings optimism, consumer sentiment currently doesn’t indicate a speedy return to travel as normal. The main findings included:

• The fundamental desire to travel remained with over half of outbound holidaymakers expected to take of short break or holiday in Europe by end of 2021. Two in five Europeans expected this to be between April and September 2021.
• The majority expected to have vaccine available to them by June 2021. The attitude to vaccine take-up differed by market, with most in Great Britain and the United States keen to take vaccine as soon as it is available, Germans were cautiously positive, while in France fewer than half intended to take the vaccine as soon as it was available to them.
• The majority of holiday makers expected vaccinations to be a mandatory requirement for travel within Europe in future, although support of this isn’t universal. Some form of testing for travel within Europe was also acknowledged by a majority of respondents.

(Source: Research amongst 4,000 experienced travellers in Great Britain, USA, Germany & France conducted 04-17 December 2020)

Visiting friends and relatives (VFR)

An important component of international travel worldwide is the large cohort visiting friends and relatives. In recent years just under 30% of tourists to Ireland fell into this category. While the importance of this segment has been in relative decline, it continues to accounts for just over half of all visitors from Britain.

The continued strength of the segment by source market mirrors inward and outward migration over the years and represent a sizeable opportunity as travel reopens. It is expected that pent up demand for visiting family and friends will be particularly keen to travel as soon as it is feasible, as already witnessed with travel spurts particularly this past Christmas. VFR travel is an especially important year-round market for access carriers. Past experience has shown how responsive this market segment is responsive to staged events, including The Gathering in 2013 in the aftermath of the global financial crisis.

Leisure visits

Holiday or short break visitors accounted for just over half (54%) of all arrivals, and 60% of revenue in 2019. The segment is most susceptible to destination and event marketing and has been the driver of growth in Ireland’s inbound visitor number and, more importantly, revenue in recent years. Mainland Europe is the top source market, ahead of North America and Britain. Significant growth in holiday trips from outside of Europe has provided high value holidaymakers resulting in significant incremental increase in overall receipts.

Ireland’s attractiveness and competitiveness as a holiday destination has not diminished as a result of Covid-19. However, in the short term, demand may be curtailed by a real or perceived perception of any limitation on things to do and see at the destination due to ongoing public health regulations.

Recent indicators would suggest a growing preference for open spaces and less congested locations – factors which have the potential to work in Ireland’s favour. Major tour operators in Germany and the USA report that clients, with booking deferred from 2020, are keen to travel as soon as it is safe to do so and restrictions are lifted. A number of tour operators have programmes on offer for later this year.

Business travel

Historically business travel has made up a significant portion of global travel and tourism revenues, traditionally a high yield segment of the overall market of importance to airlines, hotels, Irish based PCOs/DMCs, restaurants, car rental and meeting venues. Business trips have accounted for 15% of tourists to Ireland in recent years; a segment with a higher than average per diem expenditure, especially conference and incentive travel visits.

When Microsoft co-founder Bill Gates said that “over 50% of business travel and over 30% of days in the office will go away” (Speaking at New York Times’ DealBook conference, November 06, 2020) it may have come with a little personal bias – the owner of Teams videoconferencing platform had a fourfold increase to 115 million daily users in 2020. However, the statement highlighted the question as to the extent to which more extensive use of technology would impact corporate travel. Just how much of a shock Covid-19 has caused to the corporate travel sector is unknown. The incidence of business travel is expected to fall with face-to-face meetings with clients, suppliers and distributors taking precedence over internal corporate meetings. The expectation is that business travel will be slow to recover with annual expenditure unlikely to recover until late 2023 or in 2024.

Despite the success of virtual conferencing over recent months, conferences will come back with a hybrid model gaining in popularity. The market may be slow to re-open, with immediate demand limited to deferred bookings for events with new forward bookings experiencing a lag time of 2 to 3 years.

Cruise tourism

The US Centers for Disease Control and Prevention, while it has lifted its ‘no sail’ order from US ports, continues to advise deferring travel on cruise ships, including river vessels, worldwide. New recommended health and safety protocols require cruise operators to carry out simulation cruises before restarting passenger carrying voyages. Most major cruise lines have postponed re-start dates to at least May 2021, with most cruises sailing at a reduced capacity on limited itineraries of shorter duration.

5.4 Current outlook for international travel recovery

International Air Transport Association (IATA)

IATA’s baseline forecast for 2021 is for a 50.4% improvement on 2020 demand that would bring the industry to 50.6% of 2019 levels. However, currently there is a severe downside risk if more severe travel restrictions in response to new variants persist. Should such a scenario materialise, demand improvement could be limited to just 13% over 2020 levels, leaving the industry at 38% of 2019 levels. (Source: IATA release February 03, 2021)

Eurocontrol

The current ‘most likely’ scenario would see flight traffic returning to 92 per cent of 2019 volumes by 2024, with 2019 levels only reached fully by 2026. The most optimistic scenario, which would see a full recovery by 2024, is not now viewed as likely, while the least likely scenario envisages a much slower return to 2019 by 2029 (Source: Eurocontrol: Think Paper #8, January 01, 2021).

Airports Council International (ACI)

European airports expect very low levels of demand in Q1 & Q2 2021 with some recovery as of Q3 yielding a ‘significant summer peak’ as pent up demand is released. This is based on the assumption of an effective vaccine roll-out and, at least partial, lifting of travel restrictions. This scenario would see Q3 traffic reaching up to 60% of 2019 levels, followed by a slowing down of recovery in Q4 to 55% of 2019 levels. ACI’s pessimistic scenario sees peak traffic in summer 2021 not exceeding 40% of 2019 levels (Source: ACI: Traffic forecast & Financial impacts (Revised 2021 forecasts), January 20,2021).

UN World Tourism Organisation (UNWTO)

The extended scenarios for 2021 to 2024 point to a rebound by the second half of 2021. Nonetheless, a return to 2019 levels in terms of international arrivals could take between two and four years.

World Travel and Tourism Council (WTTC)

The global body’s best case scenario predicts a strong summer of travel ahead for worldwide tourism from late March onwards, based on WTTC’s latest economic forecast. This scenario factors in widespread vaccination programmes and a swift adoption of comprehensive test-and-trace regimes, together with continual, strong international coordination from the private and public sectors (Source: WTTC Release, London January 19, 2021).

HSBC Global Research

Despite the near grounding of aviation in Q1’21, “recovery in H2, while not guaranteed, continues to look quite good”. Vaccination roll-out could see intra-European and transatlantic travel re-open in the second half of the year. An international consensus on health protocols and border regimes will be essential, “without a stable international framework it will be hard for travel to resume” (Source: HSBC Global Research: European Aviation, January 18, 2021).

Visit Britain

Latest forecast for 2021 shows a very small increase in inbound tourism during the early part of the year, followed by a recovery in Q2 as restrictions start to ease, and then a gradual increase throughout the rest of the year. European inbound markets are forecast to recover quicker than long haul markets, with 2021 demand from Europe expected to be in the region of 50 per cent, and long haul at 24 per cent, of 2019 volume levels (Source: Visit Britain: Forecast last updated December 2020, published early January 2021).

5.5 Three recovery scenarios

Foresight v. forecast

With more unknowns than knowns it is likely that the future will not be business as usual and the speed and shape of recovery is unlikely to be universal across Ireland’s source markets. Envisioning possible paths to the re-emergence of tourism demand for Ireland – VFR, leisure and business – is complex and will be largely determined by external factors.

Under these circumstances the approach adopted is one which provides foresight on possible scenarios, and guidance to businesses, rather than the traditional forecasting approach which tends to predict one future.

Three scenarios – Optimistic, Base and Downside – present a set of possible or plausible paths to recovery based on current available information, assumptions and risks.

The following dimensions have been taken into account in developing the scenarios:

• Current infectious state of the third wave of the virus, including mutated variants identified, as at end of January 2021.
• Extent and duration of public health and travel restrictions.
• Projected roll-out of vaccine and likely timeline to achievement of herd immunity in the developed world.
• Findings from a compendium of surveys on consumer sentiment and demand for travel.
• Projections for short to medium term recovery paths from international inter-governmental and industry sources.
• Economic outlook in key source markets.
• Inputs from a series of in-depth interviews with key stakeholders in the travel and tourism industry.

Scenario A – OPTIMISTIC: Travel restrictions be removed by July ’21, following effective and on schedule vaccine rollout in Ireland and main source markets, together with coordinated multilateral agreement and implementation of safe travel protocols including testing and vaccination verification.

Scenario B – BASE LINE / MOST LIKELY: Based on current conditions – no international tourist flows before Sept./October ’21 with mixed market response due to uneven vaccination rollouts, and delays in establishing universal safe travel protocols. Effective recovery delayed to 2022.

Scenario C – DOWNSIDE: Further delay to restart due to virus surges or tail-risk fears; vaccine effectiveness compromised by new variants; and/or failure to establish universal safe travel protocols.

Reference sources: IATA; EuroControl; ACI; McKinsey; UNWTO;WTTC; HSBC; Bain & Company; Tourism Economics; OAG. In-depth interviews with 10 top industry executives (mid Dec.’20-mid Jan.’21); ITIC survey of member organisation (mid Dec.’20)

NOTE: As the situation remains very fluid and unpredictable, the scenario projections are apt to change as the pandemic, vaccinations and travel protocols evolve.

6.1 The Irish economy

Despite Covid-19 exerting a contradictory impact on Ireland’s domestic economy, most sectors registered a significant recovery in economic output in Q3 2020, as consumption, investment, savings and exports rebounded. GDP is estimated to have grown by over 3% in Q4.

The economic impact of Covid-19 showed a marked dichotomy between the performances of the indigenous and the multinational sectors. The strong performance of the tradeable sector, including the multinationals, is in stark contrast to that of the non-tradeable sector (NACE classification) with a negative growth rate of just over 19% in Q2 2020, compared to over 2 per cent expansion in the tradeable sector. The impact of the current crisis was more marked on the non-tradeable sector, including travel and tourism, than in the global financial crisis of 2008 when decline in performance peaked at 10% (Source: CSO).

Unemployment in 2020 reached 30% just two months into the crisis, this compares to peak of 16% over four years of the financial crisis over a decade ago, albeit when emigration was an option.

While the scale of negative shock for most key economic indicators is much more significant than during the previous crisis, the economy is expected to bounce back more rapidly.

Disposable income

Irish households were significantly less leveraged going into the current crisis, with debt to disposable income ratio at half the 2008 level, as the credit gap had closed (Source: ESRI/Central Bank).

Household savings stood at “extraordinary level” in Q3 2019 with gross savings ratio – the proportion of gross disposable income that went unspent – of 21.4%, compared to 14.5% a year earlier. Household disposable income was sustained in spite of the closures of many businesses due to Covid-19. Household disposable income meanwhile was supported by Government intervention (Source: CSO Quarterly Institutional Sector Accounts Non-Financial, 18 December 2020).

2021 Outlook

Assuming a vaccine is successfully rolled out for the latter half of 2021, following the negotiated Brexit trade deal, Irish GDP is set to increase by 4.9% compared to 3.4% in 2020. Personal consumer expenditure is expected to grow by 11.7% following a 9% contraction in 2020.

Unemployment at 5% at the beginning of 2020 finished the year at a level of 20%, is forecast to fall to around 14% in 2021 (Source: Quarterly Economic Commentary Winter 2020, December 2020).

6.2 Domestic tourism

Assuming a lockdown of at least 6 to 8 weeks in Q1 2021 with a vaccine rolled out extensively amongst the general population from Q3 onwards, and the absence of another spike in the infection rates, it is projected the demand from the domestic market could be very significant in the latter half of 2021 – the best case for the outlook for domestic tourism demand. A strong rebound in demand is projected on the back of easing of restrictions and the continuing roll-out of vaccine(s), as households unwind excess savings, as well as substitution for overseas travel.

The domestic market is likely to be a lifeline to many businesses in the sector again in 2021.

The lifting of restrictions during the summer of 2020 saw a spike in demand for domestic holidays in certain parts of the country, which helped to provide much needed cash flow for many tourism businesses securing future viability and employment. All the indications are that as the threat level diminishes and the roll-out of vaccinations get underway that there will be a level of pent-up demand for domestic leisure travel.

Domestic demand for holidays and day trips is an important component of the tourism economy. Most recent data shows that Irish residents spent €2.15bn on 11.6m trips (excluding day trips) in 2019. Spending on holiday and leisure breaks amounted to €1.3bn (Source: CSO Household Travel Survey, September 2020). Domestic demand is critically important to the viability of many businesses in the sector, particularly in providing sustained income year-round. Key to recovery will be the reinstatement of events – culture, sports and entertainment – which drive a significant share of demand for domestic short breaks and day trips.

Survival Recommendations

Revival Measures

Sustainable Recovery

Recommendations – a little more detail…