Since we all have a bit more time available to us than usual, I have written a rather long opinion piece. Logically, the below is my personal opinion and I have to admit that my crystal ball has been slightly out of sync for the last six weeks, so I look forward to hearing from you if you agree with my views and logic and, just as importantly, if you don’t and where you think I got it wrong.
From a Tourvest Destination Management (TDM) perspective, our priorities during this period have revolved around evacuating well over 25 000 passengers from eight countries on the African continent, a task that was most complex, and our teams delivered a phenomenal result, with fewer than 30 of our clients stuck somehow somewhere.
The next challenge was preparing a business that employs well over 800 staff in 11 offices around the world to be able to work in a decentralised home office fashion.
Then we needed to create a view of the future through endless discussions with key stakeholders globally to allow for a balanced opinion on the short-, medium- and long-term impact of this crisis, which, in truth, only started recently when WHO declared COVID-19 a pandemic on March 11. Unbelievable, it feels like months ago.
Based on an amalgamation and analysis of many opinions, internal discussions and our personal experiences we have formed our own view of a likely scenario on how this will pan out in most of, if not all, our destinations, namely Namibia, Botswana, South Africa, Mozambique, Kenya, Tanzania and Uganda.
Not all of the below applies equally in every destination we service, but we believe that the principles are identical across the board.
Source market developments
In our view, all source markets will have a very similar reaction. The only difference will be timing and the absolute impact of COVID-19 on a country and its population. For the purpose of this letter I will focus on Europe and the United States, which in our expectation will behave in a very similar fashion.
It is expected that many civil liberties, including domestic and international travel, will remain severely curtailed for a prolonged period of time, but unlikely to exceed September 2020. The travel industry experts in those countries anticipate a reluctance to book long-haul holidays for the balance of 2020 as a result of the trauma experienced, reduced disposable income, nervousness in terms of ‘moving target’ travel restrictions and many more.
In our view, these mainstream source markets will start making purchasing decisions on a long-haul exotic holiday no earlier than second quarter 2021, effectively creating the new volume reality no earlier the third quarter 2021.
A further contributor to the delayed return to some form of normality is the anticipation that governments in those countries will continue to manage imported infections. Hence, once you go on holiday to a country that still has a comparatively high level of infections you might have to self-quarantine for a two-week period on your return, which nobody will want to do. The consequence is a higher demand for domestic and regional holidays in our source markets for the period preceding consumers being ready to apply their minds to long-haul again.
There are a few wildcards here. Some European countries, such as Holland and Sweden, have, to date, taken a more liberal approach to managing this disease and one can rightfully assume that those countries will be early adopters of long-haul travel. The other relevant unpredictability derives from the ‘voucher system’ that some countries have legislated. In essence it aims to keep liquidity in the market and to force travel within 12 months. Currently this system applies in a few markets only, but if and when volume source markets adopt the same process we might see a switch-on earlier, despite the above-mentioned dampers.
In our view it is highly unlikely that airlines will return to their full capacity within the first 24 months after global travel restrictions are lifted. In the context of our destinations the bulk of the capacity was created by the Middle East hub carriers, in addition to the point2point carriers from most core source-markets. Of course, there is a consistent question about the likelihood of insolvencies and survival of many airlines. The overall result in our mind is clear: Reduced supply = Increased cost to travel long-haul.
Our destinations throughout Africa have been hit by the coronavirus wave approximately two months after our source markets, and the full extent of the impact is still unclear. Hence, our logic is that if we went into this challenge two months delayed, we will exit from it both from a health management and from a civil liberty perspective around October this year. Infections will have subsided, borders will have been opened and airlines will start to arrive, but because of the above-described impact on our source markets, volumes will be severely reduced compared with the last four months of 2019.
Our current expectation is that September 2020 will be 40% of the previous year and October to December around 50%. Now, interestingly enough, we currently hold these percentages of bookings in our system already. The interesting part will be what component of those bookings will cancel and are we able to replace the cancellations with new bookings.
Bringing us to 2021, the question revolves around the February to April 2021 high season in Southern Africa as well as July to September 2021 in East Africa. No doubt the source market influences will still impact these periods materially. How much is anybody’s guess.
Our view: January to March 2021 will be at no more than 40% of the same period in 2019, April to June 2021 around 50% of the same period in 2019, July to September 60% and then 80% in the last quarter of 2021.
Again, many wildcards such as the elections in Kenya, economic recession leading to social unrest, escalating crime rates as a result of higher unemployment, and reduced distribution ability/product choice through insolvencies are the downside.
Weakened currencies leading to more competitive destinations, government focus on tourism switch-on and corresponding investment, changed supply-and-demand principles leading to declining prices, and streamlined DMCs are the upside.
Let us not forget that we will, more than ever, fight with other destinations over the same, and now rarer, consumer who wants to travel long-haul. Logically, these have taken as much of the bloodbath as we have and I am talking about the US, Australia, New Zealand, most of Asia, and Brazil, to name a few that attract a similar consumer.
As a result of our part-ownership in GoVacation Africa, where our partner DERTOUR has a DMC network throughout the world, we have a clear line of sight of what is happening in most of those destinations. It is very clear that most, if not all, of them are already now positioning themselves to gain maximum traction when life as we knew it returns at least to some extent through creating extraordinary marketing funding, product development and, above all, an extremely aggressive pricing philosophy.
Without rehashing the above detail we expect a wipe-out to August, a trickle of business from there to the end of 2020 and a very slow recovery to a reduced new reality during 2021. Getting to our destinations will be more expensive and our competitor destinations will want to grab our passengers. In our view, the upper market will return more quickly as we see those customers to be more selective in terms of vacation choices; the mainstream tourist will take longer.
But much will change for the better. The traditional distribution channel with DMCs and overseas wholesalers working in tandem have proven themselves through service. We will see a period of reintermediation that will accelerate digital developments, the competitor landscape will change, and interesting contractual challenges will be resolved to name a few.
Getting product, availability and pricing into our source markets is critical at this time. The quicker this can be done for the longest possible period, with the most lenient terms and conditions and at the most aggressive price level possible, can be the only conclusion if you agree with our synopsis above.
Now, what that pricing level is the million-dollar question. If you approach this question purely from an economics standpoint, where supply and demand determine the price of a commodity, I think it is fair to assume that we will ultimately see a substantial reduction in achievable rates, even below 2019 levels.
Our recommendation, however, is to use the 2020 rates also for the 2021 period and ideally extended to April 2022 and hence protect the rate in some fashion in the static distribution world. Dynamic rates can then take care of the discounting that, in our view, will no doubt happen.
In this context, please remember that we are a margin-driven business and we would not give recommendations that are detrimental to ourselves if we did not believe that they are the correct way forward.