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Travel curbs last for years: Barclays

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Travel may never be the same again post-pandemic, says a Barclays report released on Tuesday. Restrictions such as testing requirements and vaccine passports may make travel more expensive and bureaucratic for many years to come, even after developed economies have achieved “herd immunity”.

Countries dependent on mainland Chinese travellers – including Thailand and Vietnam, within the South-east Asian region – could be especially affected, as tourism earnings from China are likely to be structurally reduced. Emerging markets that follow a tourism-led growth model may face long-term disruption.

women talking to each other while shopping together

The setback will leave deep scars, with global mobility – namely, travel and tourism – having directly powered about 10 per cent of global GDP (gross domestic product) before the pandemic, said the report. The ICAO (International Civil Aviation Organization) has projected that pre-pandemic levels of travel are unlikely to return until 2026.

The damage will also be felt most acutely in the emerging economies, most reliant on international mobility; meaning a starker divide between the developed and the developing world.

The IMF (International Monetary Fund) estimates that the medium-term output loss is likely to be as high as four percentage points in emerging economies, relative to less than one percentage point for advanced economies.

Emerging economies with a high share of their workforce in the travel and tourism sectors (over one-fifth, for the Philippines and Thailand) could see a rising natural rate of unemployment, with fewer job opportunities to fall back upon compared to workers in developed economies.

aerial view of airport with lots of airplanes during daytime

“We think it is very likely that mobility restrictions will remain even after the developed economies have achieved herd immunity,” wrote the Barclays team. “In other words, the risk of a ‘persistent pandemic’ is real.”

As at February this year, some 142 economies had their borders either completely or partially closed to foreigners, according to figures by the World Tourism Organisation. This figure was as high as 189 in June 2020, and had fallen to as low as 93 in September 2020, before increasing again.

Even where borders have not been closed, many economies have imposed quarantine requirements – a key impediment to travel, since the standard quarantine period of 14 days (or even 21 days, of late) is likely longer than most pre-Covid travel.

Such controls cut both ways, discouraging outbound as well as inbound travel. This makes it important for both source and destination economies to open their borders and remove quarantine requirements at the same time.

But with the pace of vaccinations likely to remain uneven around the world, together with substantial uncertainty over the efficacy of vaccines against new variants, the analysts said governments are likely to remain cautious even after fully inoculating their people.

Vaccine passports, which offer proof of an individual’s vaccination status, may become visas of the future. This suggests that developed economies, which are further ahead in their vaccine rollouts, will be among the first to restart travel; while emerging economies lag behind.

Even then, there are multiple vaccine passports being considered worldwide – a piecemeal approach that risks incompatibility. And the need for vaccination will add complexity and cost to travel.

person getting vaccinated

There is also the matter of which vaccines will be recognised by the various passports. China, for instance, announced in March that visa applications for foreigners will be simplified – but only if they have taken Chinese-made vaccines.

“A continued impasse on vaccine recognition would raise the risk that future travellers are required to obtain multiple Covid-19 vaccines to satisfy the requirements of their itinerary,” the analysts highlighted. “The traveller’s ability to do so would then be subject to whether the vaccines are approved in their places of residence – and whether there is sufficient supply.”

Tourism-dependent economies will be more affected, especially emerging market economies that have seen tourism-related receipts contribute a rising share of GDP over the past two decades. Specific to Asia, the report highlighted Thailand, Indonesia and Malaysia as economies where tourism-related services have grown especially rapidly due to outbound Chinese tourism.

Chinese visitors accounted for some 11.3 per cent of the 1.5 billion international tourist arrivals recorded in 2019. That same year, the 169 million Chinese outbound travellers accounted for about US$254 billion, or 19.5 per cent of the global tourism spend – nearly double of the next-highest spender, the US, according to data by Haver Analytics and Barclays Research.

Mainland Chinese travellers’ spending accounted for 52.2 per cent of Macau’s GDP that year, 6.2 per cent of Hong Kong’s, 4.0 per cent of Vietnam’s, and 3.0 per cent of Thailand’s. For Singapore, the share of GDP was 1.0 per cent.

China’s outbound travel expenditure almost halved to US$131 billion in 2020, with spending diverted into domestic tourism. As at this month, China’s domestic travel has outperformed, having recovered to just 4 per cent below pre-pandemic levels. But international flights are still down by 71 per cent.

The grim outlook extends beyond leisure travel to business travel, which contributes disproportionately to tourism-related spending. Corporate travellers make up just 12 per cent of airline passengers, but are twice as lucrative as other passengers, and can account for nearly 75 per cent of airline profits in some cases, said the analysts.

“The travel sector’s partial return, when it occurs, is likely to see a more permanent structural shift impacted by a change in behaviours, and higher restrictions around crossing borders,” they wrote. “Business travellers will likely reassess how much flying they need to do, balancing health risks associated with intermingling compared to virtual meetings from the comfort of their office.

“Work-from-home and the swift adjustment of many work categories to video conferencing has led to behavioural changes that may be difficult to reverse. Increased productivity, with less time, energy and money spent on travel is an added advantage.”

With the deep damage dealt to the travel and tourism sectors, the Barclays team expects second-order effects to be seen in key sectors like financial services, business consulting, and higher education, which rely on the ability of staff to travel.

“While Web-based connectivity tools have allowed business to continue, the loss of air travel, hotel lodging and any ancillary tourism activity like retail services creates risk of scarring,” said the team.

“(This is) especially the case in countries that act as international travel hubs, or have large service sectors with international reach (especially in finance, technology and other international business services) and high share of migrant labour and expats, who are typically upwardly mobile.”

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