15 February 2022

Tourism Industry Postcard – February 2022

• Introduction

• Tourism Collapse – Overview

• COVID-19 Risk Management

• Connectivity Key to Tourism Recovery

• International Tourism Environment – 2022

• A Smooth or Rollercoaster 2022?

After two lost seasons of overseas visitors the mood of the industry is one of cautious optimism as it faces into 2022. While COVID-19 still hangs like a cloud over the sector, the prospects for recovery look more promising than at any time within the past 24 months. All the evidence from latest research shows that the willingness to travel internationally remains strong, with bookings beginning to rally as Omicron restrictions are eased.

The tourism and hospitality industry has been scarred by the experience of the pandemic. The impact of COVID on Ireland’s businesses has been more severe than in most European countries as Government imposed travel restrictions effectively shut down connectivity with the outside world thereby closing the country to visitors. Businesses in travel and hospitality, predominantly SMEs, together with jobs in the sector have been sustained thanks to Government supports over the period as trading was shut down or severely restricted.

The legacy of the past two years presents significant challenges to tourism as travel resumes. The incidence of business closures to date has been surprising low, however the reality of the extent of business causalities due to COVID will only become apparent if the financial and fiscal state supports are withdrawn before demand recovers to a sustainable level. In addition, the sector struggles to retain and recruit staff as businesses ramp up to cater for a return of international visitors. Businesses in the sector find themselves in a difficult financial situation with reduced access to capital and limited liquidity.

The sector faces into 2022 in the context of economic, demand and supply shifts, increased international competition, and the ever present risk of the emergence of a new strain of the virus.

The reinstatement of airline connectivity will be key to Ireland’s tourism recovery. Currently the signs are good, with airlines planning to operate capacity at close to 80% of summer 2019 levels. The Government’s €93m fund to airports to incentivise airlines to reinstate service has been particularly welcome.

In the past tourism has proven itself to be a particularly resilient sector of the economy. While travel forecasting has never been an exact science, should all the variables favourably align for Ireland’s tourism over the coming months it is not unrealistic to project visitor arrivals, after a slow start to the year, to recover to at least 60% of pre-pandemic volumes, or more optimistically just over 70%. It is likely that the composition of that demand by source, profile, behaviour and expenditure, will differ from previous years. The industry that emerges from the pandemic experience will have changed to meet the new trading environment. The year ahead hopefully will see the start of the path to recovery with the industry supported to face the challenges and opportunities ahead. The industry is committed to working to ensure that the future of Ireland’s tourism will be more sustainable – socially, economically, and environmentally – than in the past, thereby opening new opportunities for businesses and employment.

As always, your comments are most welcome by emailing info@itic.ie.

Current best estimates (1) for 2021 would indicate visitor arrivals of the order of 2.2m. It is safe to assume that the demand over the period of the pandemic consisted primary of essential travel and those visiting friends and relatives, with only a minority visiting for leisure.

Note: (1) In the absence of CSO port surveys, discontinued in March 2020 due to COVID, ITIC has attempted to estimate the volume of visitor arrivals based on aggregate data on total passenger traffic into and out of Ireland air and sea ports provided by air and sea carriers. The estimates are based on a number of factors and assumptions with the output intended to be indicative rather than definitive.

The travel pattern for the year was clearly demarcated into two halves due to travel restrictions. These resulted in Ireland experiencing a significant loss of connectivity and a downturn in visitor arrivals which was more severe and prolonged than in most other European countries. The impact was most marked in the first half of the year, with an easing of restrictions and the reinstatement of airline services from mid-July – although Ireland lagged other EU countries.

The easing of regulations governing entry to Ireland saw the gradual reinstatement of connectivity. An overview of the airlines, routes and capacities shows a significant expansion on intra-European routes, with Ryanair the market leader aggressively adding services to resort and eastern European routes, while long haul services – North Atlantic and Middle East – continued to be curtailed due to ongoing travel restrictions.

As a result it is estimated that Irish originating passengers was the dominant demand over the remaining summer months, where typically visitor demand would have accounted for at least 55% pre-COVID. It is interesting to note that passenger demand recovery over the period July-November 2021 was highest on routes between Poland and Ireland reaching 80% compared to the same period in 2019, with sun destinations (Spain, Portugal and Italy) averaging between 45% and 50%, while the routes on the top inbound markets showed a markedly slower recovery – Britain (36%); Germany 33%; and USA (19%). (2)

Note: (2) Derived from CSO Air & Sea Travel Statistics

Domestic Tourism

Domestic tourism, which in pre-pandemic times accounted for just over one quarter of total tourist spend in the country, provided a welcome lifeline for many businesses over the peak summer months in 2020. In the first year of the pandemic spending on domestic holiday trips bounced by 52% to an estimated €843m. However, the COVID bounce would appear not to have been repeated in 2021 as outbound holiday options reopened, as the volume of domestic holidays fell to 10% below the 2019 level, although corresponding expenditure at €680m was 22% ahead of pre-pandemic level. Last year hotel demand from peak season domestic holidays fell back by was almost 25% on the previous year to an estimated 2.5m nights, almost the same level as in 2019.

All indications suggest that COVID-19 will become an endemic condition, where mutually recognised policies on vaccination will be critical to avoid barriers to free travel.  In a world where travellers, with very few exceptions, will present no greater risk than that exists in the general population, it is disappointing that, as yet, there is no universal recognition of vaccines or alignment of the length of vaccine validity, while large scale imbalance in global distribution of vaccines will continue to represent a risk.

Recent independent research (3) concludes that travel restrictions imposed by many European governments, including pre-departure testing requirements for vaccinated/recovered travellers, proved to be ineffective in mitigating the risks to public health posed by COVID-19 or limiting the spread of the virus. Conversely, the impact of these restrictions resulted in significant and unnecessary economic hardship, not just for the travel and tourism sector but for the whole European economy. In short, based on the research it is difficult to find any meaningful correlation between travel restrictions and the suppression of the virus.  In most instances under examination the virus was already established and spreading in the country before the restrictions were introduced.

Omicron dented future travel booking during December resulting in airlines cutting flights to/from Ireland in Q1 2022 resulting in a slowdown of any inbound tourist recovery over the early months of 2022. Airlines and airports are reporting a slight uptick in overall passengers on routes to/from Ireland over the past 2 to 3 weeks, driven mainly by traffic on UK and Spain routes.
In recent weeks while Ireland is reporting a sharp decline in COVID incidence rates, Germany, Poland and the Netherlands are showing an increase, while the UK, Spain and USA appear to be on the downside of their peak.

Note: (3) Source: Impact of travel restrictions on Omicron in Italy and Finland, Oxera/Edge Health Research (Dec. ’21-Jan.’22)

While recovery in international travel has been slow to date, the airline industry worldwide is cautiously optimistic about passenger recovery in 2022, despite some short term impact of Omicron. However, the pace of recovery varies across the globe with Asia Pacific lagging other regions due to border closures, while Europe is expected to see a significant recovery over the year ahead as restrictions on travel are relaxed and removed.

Aggressive resumption, and even expansion, of intra-European services is being led by LCCs, with Ryanair to the forefront, while the pace and timing of travel recovery is unpredictable. Ryanair’s aggressive resumption of routes includes an 11% more departures from Dublin airport this summer compared to 2019.

Travel will become more expensive, despite initial low fares to stimulate demand, due to higher fuel costs and airlines seeking to repair their battered balance sheets. Furthermore, in Europe there is a risk that demand could outstrip capacity during the peak pushing fares even higher.

The industry faces a challenge in the face of political, regulatory and consumer pressures for change. For example, airlines and the broader the travel industry struggle to try to stay ahead of regulation on carbon emissions with a series of ambitious environmental promises, including an airline industry-wide 2050 net zero carbon emission pledge announced at COP26 in Glasgow.

IATA’s latest survey of airlines show that a majority reported an improvement in passenger traffic and diminished pressure on profitability in the last quarter of 2021 that is expected to continue in the year ahead. However, the outlook was one of caution due to Omicron impact, soaring jet fuel prices and rising market competition that put pressure on yields.

The correlation between the level of connectivity and tourism performance is irrefutable, as evidenced from the impact of deregulation and expansion of airline and ferry services driving visitor arrivals over recent decades, while the withdrawal of services has resulted in the collapse of tourism demand. Ireland is fortunate in having two home based major airlines – Aer Lingus and Ryanair – which pre-pandemic jointly account for over 80% of tourist arrivals in the country.

In recognition of this interdependence the Government has provided almost €93 million in non-capital funding to Dublin, Cork, Shannon, Donegal, Ireland West Airport Knock and Kerry airports to assist in the roll out of discounts on airport charges, with a view to supporting the recovery and restoration of strategic connectivity lost over the past two years.

The impact of incentives on airlines’ summer schedules from end March through to October is already evident, including ambitious reinstatement of routes and capacity by Aer Lingus and Ryanair.

An overview of planned air services for summer 2022 include;

Britain

Almost full reinstatement of routes connecting Dublin, Cork, Shannon, Kerry and Knock to 25 British  airports on offer from Ryanair, Aer Lingus, Aer Lingus Regional operated by Emerald Airways, and BA. Routes lost following the collapse of Flybe and Stobart has been replaced. While the number of routes is expected to show full recovery, while capacity compared to 2019 will vary by carrier and route, with Ryanair the dominant carrier.

Continental Europe

Ryanair and Aer Lingus together with major European carriers plan to serve all markets of interest to inbound tourist traffic thus restoring connectivity. The frequency and capacity will lag 2019 levels on some routes.

North America

Aer Lingus is scheduled to operate from 10 airports in the USA and Canada – New York JFK, Newark, Boston, Chicago, Philadelphia, Orlando, San Francisco, Los Angeles, Seattle and Toronto from Dublin with up to 99 departures per week in the peak, together with daily service from Shannon to JFK and Boston.

US carriers – American, Delta and United will maintain at daily services from Philadelphia, JFK and Newark, augmented by selected seasonal services to Dublin and Shannon, including services from Chicago, Boston, and Washington. In addition, Aer Lingus has expanded its code share arrangements with American Airlines and JetBlue which will provide more convenient access to Ireland from a greater number of non-gateway departure points across the USA.

Air Canada plan service from Toronto and Vancouver, together with WestJet and Air Transat resuming service to Ireland.

Middle East and beyond

Emirates, Etihad and Qatar continue to serve Ireland providing connectivity to a range of destinations beyond the Middle East in Australia, Asia and Africa. Air services between Ireland and China, which operated for a brief period pre-pandemic, remain suspended.

Uncertainty as COVID becomes endemic

As the Omicron wave continues it is expected that it will have peaked and begin to decline by the end of Q1. As the Omicron variant sweeps through the world with large incidence of infection, and increasing levels of population immunity, forecasters are suggesting that barring a new variant, the Northern Hemisphere should enjoy a period of relatively low transmission through the summer months. Of course, a new variant with immune escape can come along and change this scenario. A possible outcome is greater international competition for visitors as consumers choose safe, healthy, and familiar destinations, with businesses facing a new, and perhaps more difficult, operating environment.

Changed economic environment

The economic outlook is largely positive with continued but moderated GDP growth in most advanced economies; inflation is on the increase and projected to remain above pre-pandemic levels. Interest rates are likely to rise in a number of key source markets. Meanwhile household savings are at an all-time high leading to pent up consumer demand, with a rapid rise in wealth amongst the more affluent.

Business face a difficult financial situation as a result of the pandemic, exacerbated by rising costs, most notably the price of energy, and labour shortages.

Climate change

A growing awareness of the urgency of addressing climate change and the implementation of new ambitious environmental targets by 2030, together with more frequent extreme weather events, will not only shape new sustainable operating practices but also impact the marketing messaging. Realisation of climate targets could impact competitiveness including costs to be borne by tourism and travel businesses.

Digitisation

The pandemic has accelerated the adoption of new technologies with consumers becoming more tech savvy. Travellers now have an increasing expectation of a frictionless travel experience through a streamlining of the customer journey. Recent studies suggest that the pandemic has advance digitisation by 10 years. This requires businesses to respond by investing in more customer centric technologies.

Travel demand shifts

All recent consumer research report a pent up demand for travel, although still some hesitancy surrounding COVID, health and safety. Travel demand values, including wellbeing, self-enrichment, authentic experiences, the outdoors, and responsible travel, appear to be on increasingly important for the discerning tourist in the post pandemic world. There is an expectation of a boom in demand for affluent travel offerings.

The accepted current wisdom is that the VFR sector can be expected to show the most rapid recovery, followed by leisure travel. The rate of recovery of business travel to pre-pandemic levels is projected to lag other sectors of travel demand with customer facing business trips expected to outpace the return of internal company travel.

Predictions as to what will happen this year may be unwise. However, the limited vision on the expected demand and supply landscape allows for some extrapolation at this time of what is likely to happen. The principal caveat is that due to volatility in the wake of the pandemic airlines and businesses will maintain a flexibility to respond to events as they unfold throughout the year. While a smooth recovery path is desirable it would be surprising if there were not some bumps along the road.

International travel and tourism is poised to rebound strongly once the Omicron wave subsides, suggesting a slow recovery Q1 with demand ramping up from Q2 onwards. While most forecasters are cautious, 2022 is seen as the year when international travel will once again be normalised in the Europe and North America.

Globally air travel is expected to grow by close to 50% this year compared to 2021, with international passenger numbers increasing more rapidly. [IATA].

The latest outlook from Eurocontrol suggests that air traffic is still on track to recover by end 2022 to 70% – 90% of 2019 levels. The evolving virus situation currently suggests the outcome is more likely to be closer to the baseline (70%) than the most optimistic scenario (90%).

daa is projecting passenger traffic at Dublin to reach 70% of 2019 record volume by end year with demand over the Q3 peak reaching as high as almost 80% of 2019 traffic. If achieved, the annual passenger throughput for 2022 would top 23m compared to the pre-pandemic high of 32.9m passengers.

A review of ITIC’s recovery scenarios would suggest that international visitor arrivals this year could be in the range of 6m to 7.2m, with the base projection reaching 60% of 2019 levels and the optimistic reaching almost 75%.