Predictions on recovery from a consultant who has an eye on it all
As the head of travel and tourism for Boston Consulting Group, Jason Guggenheim is used to troubleshooting on behalf of airlines and hotel companies when the road gets bumpy. Typically that means rethinking operations and carrying out restructuring efforts for sprawling resorts, cruise lines, online travel agencies, or big names in air travel. But even for someone whose job it is to fix the industry’s most complicated problems, there’s never been a year as turbulent as 2020.
Clearer skies may be ahead in 2021, but that’s relative. Boston Consulting Group predicts that travel won’t rebound to 2019 levels until 2023 or 2024. So Guggenheim is likely to be just as busy next year—and the following, and the following.
That’s because the tourism business is driven by the great intangible of consumer confidence. Regardless of therapeutics or vaccine availability, second or third waves, or the efficacy of safety protocols, the industry won’t fully recover until travelers and service providers do so psychologically. Even then, the industry varies greatly, ranging from the already booming roadside hotel sector to unable-to-operate cruise lines.
Here’s what to expect in the medium to long term, from an expert who has an eye on it all.
Staying Near vs. Going Far
The 2020 trend of vacationing within driving distance is here to stay—or at least some semblance of it. “Our research tells us that across demographics, wealthy or not, people still miss the unique experiences that travel provides,” Guggenheim says. But when it comes to the once-in-a-lifetime, long-haul trips that were gaining enormous popularity in the before days, “that sort of travel is going to take a longer time to come back.”
Instead, Guggenheim predicts that travelers will find the same unique experiences within a smaller radius of their home. In the U.S., he says, that will mean a continued reliance on domestic travel and short-haul destinations like Costa Rica that provide a large range of options for adventure and pampering.
“Being many time zones away from home and in remote locations in jungles or islands—people will worry, ‘If I get sick, I’m 14 hours from home in a country that may not speak my language or offer me medical treatment to the standards I get at home,’ ” Guggenheim explains. That line of logic only deepens for destinations that require multiple flights, including those on small or regional aircraft.
This inverts the formula of what was selling in pre-pandemic days. Safaris, Robinson Crusoe-style getaways to private islands, and cruises to arctic climes will carry newly significant risks, while trips that lacked exoticism or far-flung romance now feel safe and exciting in their own ways.
All this gets amplified by the trends of who books big-ticket trips. The 55-plus set, which has driven the high-spending multigenerational travel trend, has now become the most high-risk and safety-conscious.
“They will not travel [that way] for a number of years or maybe ever again,” Guggenheim says, making exceptions for very experienced travelers. That’s why he believes long-haul business travel will actually eclipse long-haul leisure in the short term. “Age is definitely an influencer of the return of long-haul leisure—and long-haul cruise, that market is going to be slow for a while.”
Trusty Hotels vs. Private Airbnbs
The definition of luxury has shifted to prioritize private space over personal service. Statistically, Guggenheim says, “only about 9% of people [we’ve surveyed] are worried about catching Covid-19 in their homes, whereas about 48% are worried about catching it from traveling.” Airbnb, which offers maximum control over environment and minimum contact with strangers, ranks lowest among those travel-related worries, while flying and cruising are much higher.
But that doesn’t mean Airbnb will reign supreme forever. “Airbnb gets a benefit of feeling more like home than a hotel,” he says. “But for the wealthy, there are a lot more options.”
Among them are exclusive house-swapping clubs like Third Home or membership-based models that offer time-shares, such as access to mansions in Los Cabos or Breckenridge. “These services were gaining in popularity pre-Covid, and I suspect we will see more of that—especially at the ultrahigh end.”
Where does that leave hotels? “Many are going well above and beyond to keep people safe, beyond what is purely regulated,” Guggenheim says. But there’s still fear, particularly around lobbies and elevators. With souped-up RVs encouraging traditionally upscale travelers to swap nationally renowned spas for nationally protected forests, a full recovery may be several years away.
Small Companies vs. Big Boxes
If the entire travel industry has become one big season of Survivor, the winners and losers of this narrative may be as unpredictable as those on TV.
“It’s true that large corporations have more financial flexibility and options at their disposal in terms of raising capital, while small, locally owned businesses are more at risk,” says Guggenheim. But it can be hard to tell what’s what.
Your favorite hotel may have a Marriott flag at its entry but be owned by a local family that’s struggling to pay the mortgage or staff salaries, he explains. (Like many global hotel companies, Marriott manages its properties while remaining asset-light.) This is especially true of five-star hotels under such brands as Marriott’s Luxury Collection or Hilton’s Autograph Collection; the benefit their individual owners receive from big-box affiliations tends to rest largely with marketing muscle and business-boosting loyalty programs.
Then there’s the question of location. Beyond hard-hit cities, businesses will generally struggle to keep the lights on in beach towns and tourist towns where the economy relies disproportionately on vacationers.
“If there’s nobody coming to the businesses around them, and their locations are being decimated, hotels [of all kinds] will feel the strain,” says Guggenheim. In those cases, survival might rely on access to public funding or debt and equity markets—tools more likely available to the big fish in the pond. (A large convention center hotel, perhaps.) But even the biggest fish in a deserted pond will be on shakier ground than small fish in a sought-after one.
Deal or No Deal
Desperate times call for desperate measures. But Guggenheim says that while hotels may goose demand with promotions in certain leisure markets, that won’t translate to bargain-basement pricing—especially not where airfare is concerned.
“People who are comfortable with traveling right now are probably less price-sensitive,” he says, “and those who are choosing not to fly will probably not be influenced just because there’s a good deal on a ticket.”
“The majority of travelers will tell you—the number is well into the 60% range—that a vaccine is really what’s necessary for them to truly travel again.” Hopefully that happens before next summer. That peak travel season, Guggenheim explains, could be a watershed moment in which travel companies may need to seek bankruptcy protection or find other ways to protect liquidity.
But it’s about more than just a financial impact. A down summer in 2021 “would have a damaging effect on the psyche of the workforce, who would have gone two summers without operating at their best,” he says. “It’s a financial make-or-break, yes, but also a psychological one.”
“Right now any signal of normality is desired and needed,” Guggenheim continues. “It’s hard to put wins on the board right now, so having any step change will feel psychologically very important for the industry as a whole.”
Jim Hepple is an Assistant Professor at the University of Aruba and is Managing Director of Tourism Analytics.