James Hepple, BA, PhD
Assistant Professor, FHTMS, University of Aruba
Updated: April 25 2020
As of April 25 2020, much of Aruba’s tourism industry has shut down as the Government attempts to slow the rate of infections from the COVID19 virus.
By way of background: -
Aruba has an official population of 113,000 persons. Of these, 24.3% are between 0 and 19 years old, 61.6% are between 20 and 64 years old, and 14.1% are 65 years old or older. This is significant inasmuch as those countries with a higher proportion of persons of 65 years old or older have seen relatively higher mortality rates.
The Aruban economy is almost completely dependent upon its tourism industry. According to the World Travel and Tourism Council in 2019 tourism accounted for 73.4% of Aruba’s GDP of US$ 2,876 billion and generated 84.3% of all employment. Aruba has a labor force of about 58,000 persons. The WTTC estimated that visitors spent US$1.876 billion in Aruba in 2019.
In 2019 Aruba received an estimated 1,113,840 stopover visitors and 832,001 cruise visitors. According to the Central Bank of Aruba these visitors generated an estimated total of 3.741 billion florins (US$2.089 billion) in tourism credits. (Tourism credits are defined as tourism receipts plus timeshare maintenance fees).
Stopover visitors stayed 7.3 nights on average while cruise ships typically spent about ten hours on average in port here in Aruba. Consequently, stopover visitors generated about 3.554 billion florins (US$ 1.985 billion and 95% of all tourism credits) while cruise visitors generated about 180 million florins (US$ 100.6 million and 5% of all such credits).
In 2019 75% of Aruba’s visitors came from the USA, with 4% coming from Canada and 4% from the Netherlands, with the balance coming from the rest of the world.
Again in 2019, 52% of Aruba’s visitors from the USA came from the five states of New York, New Jersey, Massachusetts, Connecticut and Pennsylvania. New York was by far the most important state, generating 20% of all visitors from the USA.
In 2019 on average 52% of our visitors stayed in a hotel when visiting Aruba, 27% stayed at a time share resort and 21% stayed in an apartment or in a private home, either rented or with friends and family.
Again, on average, 54% of our visitors were visiting for the first time with 46% having visited before.
Tourism credits have grown steadily since 2014.
Since 2014 Aruba has seen a relatively steady increase in tourism credits, seeing an average increase of 3.9% per year over those five years.
Government revenue averaged about 37% of projected tourist receipts.
Tourism receipts averaged between 59% and 65% of Aruba’s GDP in the six years of 2014 through 2019, with the overall average being 61.8%.
In millions of Florins
The recovery of the tourism industry will depend upon four things
We know: -
As of April 25, social distancing policies in the USA are to remain in place until April 30th and will only be relaxed by state governors once it is obvious the rate of infections has slowed. There are indications that certain states may begin to relax their restrictions in phases as of May 1st.
One model suggests however that by August 4th 2020 that, even if all procedures and regulations are followed exactly as required, about 66,000 Americans will die as a result of this pandemic.
It is important to understand however, even if the social distancing policies work, in the sense that the curve has been somewhat flattened,
There are three possible ways the global pandemic will be halted.
The economic consequences of the pandemic.The IMF has projected that as a result of the pandemic the global economy will contract sharply by 3.0 percent in 2020, a much larger decline than during the 2008–09 financial crisis. In a baseline scenario--which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound—the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support.
The IMF believes the risks for even more severe outcomes, however, are substantial. Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health. Because the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses domestically.
And internationally, the IMF believes strong multilateral cooperation is essential to overcome the effects of the pandemic, including helping financially constrained countries facing twin health and funding shocks, and for channeling aid to countries with weak health care systems.
Whether the advanced economies are willing to do this remains to be seen.
The US economy is already in a recession
Millions of people in the USA are now unemployed with no real sense when they will go back to work. In the four weeks since March 13th when a state of emergency was declared, the USA has seen 26 million persons file as unemployed, 16% of the labor force.
It is thought the USA has already entered a recession and could well fall into a depression. Some economists believe that the GDP of the USA will shrink by 12% in the second quarter (Bank of America) while other believe it could shrink by 30% (Morgan Stanley). The US Federal Reserve estimates unemployment in the USA could reach between 30% - 35%.
The simple fact is the situation is totally unprecedented and no one can know for sure what the economic impact will be although they do know it will be hugely significant.
McKinsey Partners have suggested nine alternative scenarios for recovery.
The firm currently expects one of four more optimistic scenarios to take place, (the scenarios A1 through A4 at the top right of the chart) with COVID-19's spread controlled and "catastrophic structural economic damage avoided." The outcomes range from sharp V-shaped recoveries to turbulent U-shaped trends, as global output slides to historic lows before activity swiftly returns to past norms.
Yet other, more dire situations can't be ignored, the firm said. A so-called "black swan of black swans" could bring lasting structural damage to the US as the virus rampantly spreads until an efficient vaccine enters the market (Scenario B3 at the bottom left).
A wave of bankruptcies and layoffs would spread economic chaos through the nation, leaving government policy ineffective and suffocating credit lifelines. These scenarios would result in W- or L-shaped GDP trends, bringing either short-lived bouts of recovery or dooming the US to years of suppressed activity, according to McKinsey.
Demand for Aruba comes primarily from the USA.
As has been indicated the USA is by far the primary source of visitors to Aruba. It could be argued that visitors from the USA generate 74% of Aruba’s GDP, while visitors from New York state alone generate 15% of the country’s GDP.
So, if Aruba continues to follow its existing business model, that is a strong focus on marketing to the USA, the recovery of Aruba’s tourism industry will be heavily dependent upon recovery in demand from the USA and particularly from the north-east USA.
It might be possible to diversify our source markets, but this will take aggressive marketing and having enough airlift in place and could take a considerable amount of time.
“When will things get back to normal?” is the wrong question.
Some hold the view that once the peak infection rate is reached and the infection rate begins to diminish, social distancing regulations can be relaxed and people will be allowed out of their homes, will go back to work, and will pick up the pieces of their lives. Some think this could happen as early as May 2020.
But there is an increasing number of experts who suggest there will be no “getting back to normal”, that the way communities operate will have to change substantially.
As one public health expert said “Everyone wants to know when this will end. That’s not the right question. The right question is: How do we continue in a COVID19 reality?”, that is how do we manage in this new environment?
Another, Stephen Kissler, the Harvard disease modeler, said “Over the coming months, we need to normalize COVID in the public psyche, and reinforce that this will be a part of our day-to-day lives. Many people I've spoken with are aghast at the thought. We thirst for a swift and decisive 'victory.' But I'm reminded of images from World War II as people in London walked to work, briefcases in hand, against a backdrop of bombed-out buildings. I think we are in store for a similar period in history, as we learn to make greater peace with the world's chaos and our own mortality.”
The coming months and years are completely uncharted territory.
No one really knows how this is all going to play out as this situation is truly unprecedented. It’s a combination of the aftermath of 9/11 (fear) and the Great Recession (financial constraints) with a new variable - Government restrictions.
So when will customers travel?
The U.S. Travel Association has engaged MMGY to conduct an ongoing survey to monitor the impact of COVID-19 on U.S. travelers. The online survey designed and analyzed by MMGY Travel Intelligence is conducted bi-weekly among 1,200 U.S. residents who have taken an overnight trip for either business or leisure in the past 12 months. The maximum error at the 95% level of confidence for a sample of 1,200 +/-2.83%.
These are the results for Wave II April 4-11, 2020
Between April 17 and 19 Destination Analysts interviewed 1,238 American travelers as to their travel intentions.
According to a recent survey conducted among U.S. consumers by McKinsey & Company, the coronavirus pandemic could indeed have a lasting impact on international travel. 37 percent of the 1,063 U.S. adults surveyed by McKinsey stated that they expect to reduce their international travels once the crisis has subsided compared to just 18 percent who expect to travel more.
And it must be noted that many customers will have been financially harmed by the consequences of the social distancing regulations imposed in March and April and Tourism Economics is of the view that the industry will show a substantial decline in 2020 with modest recovery in 2021 and full recovery not occurring until 2023 although the high end luxury market may bounce back more quickly than the overall market. They project a $519 billion decline in travel spending in the US in 2020 which will translate into a total economic loss of $1.2 trillion in economic output. This is more than nine times the impact of 9/11 on travel sector revenue.
The airline industry will be very different in 12 months’ time.
It is also thought the airline industry will be very different in 12 months’ time from what it is today, with probably fewer airlines and fewer available air seats. Suggestions have been made that airlines will not assign passengers to the middle seat. For a typical 160 seat B737-800 narrow body jet that could account for a total of 48 seats. So, a flight might be restored but with 30% less capacity than under normal circumstances.
Several new forecasts see travelers beginning to return to the sky in considerable numbers as soon as June but as late as the fourth quarter that begins in October. However, those same estimates put a return to 2019 traffic levels, when around 926 million people flew in the U.S. alone, at least a few years off.
“We anticipate that traffic growth will improve beginning in [the fourth quarter of 2020], but not reach 2019 levels until 2022 at the earliest,” wrote Cowen analyst Helane Becker in a report on March 27.
Raymond James analyst Savanthi Syth does not expect passenger numbers to hit the previous peak until around 2023. She expects something of a “new normal” with passenger demand, at least in the U.S., holding at around 10-15% lower than 2019 levels by the end of 2020.
IATA recently commissioned a survey of recent travelers in eleven countries, including the United States, Canada, and Great Britain, and found 60% anticipate a return to travel within one to two months of containment of the COVID-19 pandemic but 28% of the respondents said that they will wait six months or more to travel, while 8% will wait at least one year and 4% answered that they are not even considering getting on a plane in the near future.
IATA is estimating that domestic flights will begin to recover in the third quarter of the year, but that the openings of international flights will be slower. 42% of passengers travel on international routes, while 58% do so in domestic markets, the strongest being the United States and China. IATA reports indications of this cautious return-to-travel behavior are seen in the domestic markets of China and Australia, where new coronavirus infection rates have fallen to very low levels:
Domestic market behavior is a critical indicator as the post-pandemic recovery is expected to be led by domestic travel, followed by regional and then intercontinental as governments progressively remove restrictions.
“In some economies, the spread of COVID-19 has slowed to the point where governments are planning to lift the most severe elements of social distancing restrictions. But an immediate rebound from the catastrophic fall in passenger demand appears unlikely. People still want to travel. But they are telling us that they want clarity on the economic situation and will likely wait for at least a few months after any ‘all clear’ before returning to the skies. As countries lift restrictions, confidence boosting measures will be critical to re-start travel and stimulate economies,” said Alexandre de Juniac, IATA’s Director General and CEO.
According to IATA most airlines operate with breakeven load factors of between 60% - 70%. Consequently, it is highly probable that airlines will require revenue guarantees to achieve at least breakeven before they reinstate and maintain service to Aruba.
As will the cruise industry.
And the cruise industry could well operate very differently in the future. Interviews with cruise line executives, longtime industry watchers, health officials and the destinations where cruises operate, suggest that key changes could occur when cruise vessels finally return to the world’s oceans.
Government restrictions will play a major role in the speed at which travel recovers.
And it should be noted that the US government may continue to keep its borders closed to foreign visitors and returning residents well into the second half of 2020, if not longer, to prevent the importation of the virus from other countries. This is the policy currently pursued by China in response to second wave infections being imported from overseas. This would mean that travel by Americans overseas would be severely restricted if not completely banned.
And it is possible that the US federal and state governments mandate that leisure trips can only be made within the USA to help revive the country’s own tourism industry.
It should be noted that New Zealand, which has a population of 4.8 million persons and received 3.9 million international visitors in 2019, has indicated that its tourism industry will pivot in the second half of 2020 and in 2021 toward catering to its domestic market and the Government will put in place substantial restrictions on accepting arriving visitors. Domestic tourists generated about 58% of all tourist related expenditures in 2019. Australia has indicated it will follow a similar policy and its citizens have been prohibited from traveling abroad until 2021.
International travel may begin to recover late in 2020.
Given these constraints, it would be reasonable to suggest that demand for international travel will probably not begin to become significant until well into the third quarter of 2020 and will begin to start slow recovery in the fourth quarter, provided there is no second wave of infection. This slow rate of growth could continue during 2021.
The situation in Aruba.
The Government of Aruba is pursuing a policy of “flattening the curve”, that is slowing the rate of infections to allow its health care system to continue to function. To do this it has pursued aggressive social distancing policies which could remain in place until the end of April. Aruba is probably two/three weeks behind the USA which in turn is behind Italy and Spain so it is likely the rate of infections in Aruba will not peak until early/mid-May.
Should those policies succeed then the rate of increase of local transmission should be substantially reduced although clearly there would still continue to be infections.
But the Government of Aruba faces a huge challenge.
The economy of Aruba is almost completely dependent upon welcoming visitors from abroad. Aruba needs visitor spending to generate income and provide employment. So, there will be enormous pressure to re-open its borders to visitors.
However, once Aruba opens its borders it is inevitable that infected persons from overseas will enter the country and could infect members of the local population who will in turn infect other residents. It is worth noting that New York state generates 20% of all visitors from the USA and will, in all likelihood, have the highest level of infections of any state in the USA.
If the Government chooses to open its borders, as it must if it is to revive its economy, then it is going to have to accept that infections will continue to occur as will deaths resulting from severe cases of infection.
The Government will then have to decide what is an acceptable level of mortality for its population.
There could be a multi-pronged strategy to address this.
Various solutions are being explored to address this issue.
In the UK a platform is being developed which can be used in conjunction with a government approved Covid-19 testing kit that confirms and validates whether the holder has been tested negative or positive for coronavirus or has the antibody present. In future updates, it will include confirmation that they are vaccinated. Once the test has been completed, the results will be updated to an individual’s digital passport this creating a digital health passport. This approach is also being explored in Germany.
However, the World Health Organization has indicated it is strongly opposed to issuing such so-called "immunity passports" or "risk-free certificates" as a way of easing lockdowns and to facilitate travel. It said there was "no evidence" that people who had developed antibodies after recovering from the virus were protected against a second infection. Such a move could actually increase virus transmission, it warned.
Second, airlines themselves are testing systems to examine passengers at check in prior to allowing them to fly. Etihad could potentially become the first airline to implement a new technology that would screen passengers for dangerous medical conditions, like early stages of COVID-19. Emirates has also tested the idea of blood tests at check in to determine the health of the passenger.
If a passenger’s vitals indicate any potential illness, the self-service process would automatically stop and alert a qualified staff member on-site to further assess the passenger.
Third, it has been suggested that accepting visitors can only be mitigated by stringent testing at the airport and cruise port using procedures such as are currently in place in South Korea and Hong Kong as this will prevent further infections coming in from the outside. Such testing would have to remain in place for at least 18 months, that is until an effective vaccine is developed and distributed. Such tests need to be inexpensive, accurate and fast.
Fourth, a number of countries have implemented a system of quarantine for all arriving visitors and returning residents. Australia, New Zealand, Germany, Greece and Singapore are among countries that have already implemented such a system which is also being considered by the United Kingdom.
What impact that will have on the desirability of Aruba as a tourist destination is hard to say but it is likely that many other Caribbean countries will employ similar tactics to address this conundrum.
Our industry may well be smaller by the end of 2020.
At the same time, it is worth noting that the level of tourist plant inventory, the hotels, resorts, casinos, restaurants, attractions etc, could well be substantially reduced by the second half of the year. A number of resorts could close and not re-open. A number of hotels may close parts of their property and consolidate business into other parts of the complex. Casinos and restaurants may close permanently. Tour companies may go out of business. All of this will result in lower aggregate spending than in 2019.
At the same time, Aruba’s attractiveness is heavily dependent upon its beach experience. It may be that a relatively high level of infections will result in a public health policy that demands that social distancing be rigorously enforced on Aruba’s beaches. This could make our product significantly less attractive to visitors.
It has been estimated that unemployment in Aruba could reach at least 50% of the workforce with many persons out of work and who will be without their normal income for many weeks, if not months. A major concern has to be that crime begins to rise substantially as persons attempt to obtain income to support themselves and their families. It will be important in the long run that Aruba protects its image as a safe destination and that rigorous law enforcement practices are put in place to prevent any large-scale upswing in crime.
Aruba, like many other destinations, will have to spend considerable sums of money on marketing to bring back business. At the same time, it may well have to invest large sums of money to guarantee airlift at a time of reduced demand. Whether those funds will be available in sufficient quantity is debatable.
Finally, it is possible that many of our best and brightest may emigrate from Aruba to the Netherlands or elsewhere in search of work, leaving us with diminished skill levels in our work force.
The local tourism industry has mixed opinions when it will re-open.
A survey of eight local hotels, resorts and tourism businesses conducted over the weekend of April 18th determined that: -
Aruba Hotel & Tourism Association conducted a survey within its hotel members during the second week of April to gauge the current expectations for occupancy rates for the rest of 2020. These current expectations are based on the possibility that Aruba’s borders and of other countries could open back up by June.
There is little knowledge at this point about the ability of various countries to get the virus under enough control to open their borders, or of the number of seats that airlines can offer to Aruba. Another aspect that shall affect the volume of visitors is the immense financial toll this crisis shall take on individuals worldwide.
The new normal of travel with new social distancing and safety rules, as well as new tourism strategies to ensure a more sustainable and responsible approach, will also influence the volume of tourists.
With these factors in mind, coupled with perceived demand for travel and vacationing, the current projection for the average occupancy for Aruba’s hotels is a very gradual trajectory of recovery that culminates in 55% occupancy by December of 2020.
These levels of occupancy fall under the break-even point for the industry and many local businesses that depend on tourism for revenue shall be operating at a loss during the recovery trajectory the rest of this year and beyond.
Should these projected occupancy numbers come to pass this would result in between 60% - 65% fewer hotel visitors in 2020 than in 2019.
Previous incidents such as 9/11, SARS, the Holloway Incident, and the financial crisis of 2008/2009 all suggest that it will take two/three years for the volume of arrivals to get back to previous levels, in this case to the levels achieved in 2019.
Key concerns for Aruba
First, our dependence on the US market. 75% of Aruba’s tourists come from the United States. If our tourism industry is to recover it will because we are able to rebuild our US business. But and this is a very big but, it is widely thought the USA has handled management of the pandemic crisis extremely badly and will continue to do so. To quote Joseph Stiglitz, the noted Nobel prize winning economist, “We were unprepared but, even given the degree of unpreparedness, Trump’s decision to make this about politics rather than about science has meant we have responded far more poorly.”
And Andrew O'Hehir, the executive editor of Salon, wrote “It isn't just that the U.S. response to the pandemic has been among the worst of any major nation — let's make that clearly the worst — utterly bereft of coherent national leadership. With barely 4% of the world's population, the U.S. has by far the largest share of COVID-19 cases (33%) and deaths (27%) and is apparently about to risk a second upward spike in both statistics”
The concern for Aruba has to be when we open our borders to visitors from the USA there is a high likelihood that we will be allowing infected visitors into our country and we will have to manage the consequences of that. Secondly, because of the way the crisis has been mishandled, the likelihood of a severe economic recession which depresses customers’ ability to purchase travel is far more likely.
Second, the demographic profile of Aruba’s tourists skew towards the elderly, with 41% of Aruba’s visitors being 50 years old or older. The fact that the elderly are thought to be more vulnerable to the disease may well disproportionately reduce their willingness or ability to travel.
Third, on the positive side, 27% of Aruba’s visitors use timeshare accommodation with these visitors being particularly loyal to Aruba which could result in higher than expected visitation numbers.
These factors suggest that the projected rate of recovery for Aruba’s tourism sector will skew more towards a pessimistic rather than optimistic outcome.
Three possible scenarios are suggested:-
This assumes the following
With regard to tourism she generated three scenarios, best, likely and worst case. Her assumptions were: -
Thierry Breton, the European Union’s (EU) commissioner for internal market and services, stated “Tourism was the first sector to be hit by the coronavirus, and I am sure that it will be the slowest to recover and come out of this phase,” Breton told a European Parliament committee via video-link on Tuesday (April 21).
International trade groups have told Breton that an estimated 275 and 400 billion euros ($300 to $435 billion) will be lost for the tourism and travel sector because of the coronavirus. When all of the data are in, Breton said he expects global travel to be off by nearly a third and that the EU’s tourism economy could take a hit of between 45 percent and 70 percent.
On April 14th the UNWTO estimated that in 2020 global international tourist arrivals could decline between 20-30%, down from an estimated growth of 3% to 4% forecast in early January 2020.
And Tourism Economics is projecting a decline of 54% in international tourist travel to the USA in 2020 assuming the partial opening of borders in the second half of the year.
The likeliest scenario is that Aruba re-opens its borders sometime in May of 2020. Airlines will be slow to provide service as demand for international travel will remain weak. June through September will see some visitor traffic but probably at levels 70% - 80% below those of the same months of 2019. Demand should begin to pick up in October and continue to grow throughout the balance of the year but probably at levels about 60% - 70% below those for the same three months of 2019. 2021 will see slow growth in demand with recovery not coming until the latter half of 2022.
As previously indicated eight senior managers of local hotels and tourism businesses familiar with these projections were surveyed in mid-April. Of the eight, two thought they were too optimistic, three thought they were about right, and one thought they were too pessimistic. One thought they would change almost daily depending upon developments while one had no opinion.
Given the above it would seem: -
Clearly this is a crisis of huge proportions. Aruba depends almost completely upon its tourism industry for its way of life and our tourism industry must be revived as quickly as possible. We need : -
Tourism Industry Aotearoa chief executive Chris Roberts indicated there needed to be a rethink of the industry and believed there was an opportunity to make it "better than what it was before".
"While we're in this quiet period, there's a chance to address shortcomings with infrastructure and come up with ways to avoid congestion.
"Our industry already had a very strong commitment to sustainability, but there's an opportunity to make it even more sustainable, and focus on the needs of the environment and the wider community.
"We have a chance to think about tourism in the long term. We have to deliver for everyone, but not at the expense of the environment."
Despite the grim short-term outlook, Roberts said he was still hopeful for the future.
"I am optimistic that we can come out the other side of this, but the industry will be different."
Number of Positive Cases as of April 25 2020
For regular updates on the state of tourism in the Caribbean
How the Pandemic Will End
All the Coronavirus Statistics Are Flawed
The Four Possible Timelines for Life Returning to Normal
The Crisis Could Last 18 Months. Be Prepared.
This Is Just the Beginning
The fight against the coronavirus won’t be over when the U.S. reopens. Here’s how the nation must prepare itself.
If the flu and coronavirus hit at the same time this fall, America might have a longer, more severe lockdown.
The Millennials are the new lost generation.
How the country must prepare itself to live with COVID 19
Fauci says the government is considering giving out COVID-19 'immunity cards' as part of push to reopen the economy
The psychological implications of lockdown
The best guess for the future of travel is just a guess
Travel Bookings Will Return ‘More Quickly’ than Predictions, MMGY CEO Says
How the Airline Industry Will Transform Itself as It Comes Back from Coronavirus
Analyst expects high-end travel to make a rapid recovery
Marla Dukharan: COVID 19 Caribbean Economic Impact Report.
Possible future of air travel.
Emirates Tests passengers at check-in
These four Governments got it right
Britons likely to be banned from the Balearic Islands
Screening of all passengers arriving at Hong Kong Airport
Australians may not be able to travel abroad until 2021
The Impact of COVID 19 on the US Travel Economy: Tourism Economics.
Residents of Hawaii want no more tourists
COVID Free zones to stimulate travel
The cold calculations America’s leaders will have to make before reopening
With no vaccine or cure, the president, governors, mayors and county executives will have to decide how many deaths would be acceptable to restore a shattered economy.
Top economist: US coronavirus response is like 'third world' country
New Zealand taking the opportunity to rethink tourism
McKinsey: How to restart a national economy.
McKinsey/Statista: Coronavirus to Have a Lasting Impact on International Travel?
How Coronavirus Will Forever Change Airlines and the Way We Fly
IATA: Slow Recovery Needs Confidence Boosting Measures
Delta CEO raises prospect of ‘immunity passports’ for air travel
Passengers entering UK could be quarantined for 14 days
Coronavirus: Immunity passports 'could increase virus spread'
Jim Hepple is an Assistant Professor at the University of Aruba and is Managing Director of Tourism Analytics.