Tourism is bad and will get worse…Before it gets better!

The other day, at lunch with a friend in the usual restaurant, we noticed that there was sea bass. My friend thought it was weird. Being a good restaurant it is not normal to have sea bass for lunch and as a dish of the day. The restaurant owner explained to us that in recent months he has had access to much more fish than usual.

It may not explain everything, but this is certainly a side effect of tourism.

Tourism is, in fact, bad and will get worse…before it gets better. This could be the motto for a bubbling economic activity.

In an August article in the FT, Rana Foroohar wrote that the collapse of tourism could trigger the next phase of the economic crisis.

Tourism is a multi-sector and transversal activity that directly represents at least 10% of the European economy.

Alongside the pandemic, the green and sustainable revolution underway will accelerate a paradigm shift in tourism.

 

Fonte: União Europeia

 

If we take into account the industry classification benchmark, ICB, the activities most directly linked to tourism are integrated in the consumer discretionary industry, travel and leisure sector and include airlines, agents, operators, cruises and tourist activities, casino and gaming , operators and management of tourist developments, events and entertainment services and restaurants and bars.

However, there is a whole set of industries and sectors that, indirectly, are also related to tourism, such as commerce, real estate, transport and rent-a-cars, and also health, through health tourism , and education.

The truth is that tourism needs to reinvent itself. Even before the pandemic, there were already consolidation movements and a growing presence of technology in tourist activities. Now, a comprehensive restructuring of the entire value chain seems inevitable, given the prospect of slow and uncertain recovery.

In the chart below we can see a comparison between the Stoxx Europe 600 (SXXR) and the Stoxx Europe 600 Travel & Leisure (SXTR) index.

 

Tourism as an advanced indicator (Leading indicator)

The economic indicators, in a nutshell, can be grouped into lagging, coincident and leading indicators. In Portuguese we can call them lagging, coincident and advanced indicators. For example, a lagging indicator is GDP growth as it represents the past economic situation.

A coincident indicator might be the weekly claims for unemployment benefits.

For advanced indicators, we can give as an example the evolution of stock indices such as Stoxx Europe 600 in Europe or the S&P500 in the US.

Tourism activity can also serve as an advanced indicator of the state of an economy. In particular in terms of booking flights, hotels, shows and other cultural or leisure events.

An increase in reserves for the coming months means an increase in consumer confidence and an indicator of an improvement in the economic situation.

This even seems to be being analyzed in relation to the Chinese economy.

In this article by the Economist, and taking into account the difficulty and some distrust in the statistical data of the Chinese economy, other indicators are standing out. Tourism is one of those indicators. With amusement parks, tourist attractions and the frenetic movement in terms of transport, it's not hard to believe that the economy is strong and growing fast.

 

Travel without a destination

The sector, and the activities related to it, will be restructured, but people have not lost interest in traveling, exploring, discovering and resting.

Just see the recent trend towards flights to nowhere, a kind of sightseeing flight, with gastronomic experiences and guide included.

Imagine the following experience (staycation):

- A flight to nowhere that leaves and arrives at the same airport a few hours later. During the trip, they can enjoy everything that is normal on a long-haul trip.

- Upon arrival, a transfer will be waiting for you to take you to the hotel.

- During your stay you will have a set of activities such as going to museums, restaurants and even a cruise

- In the end, you make another trip, this time by train, with departure and destination in the same place.

All this in the same city where you started and where you will arrive.

Examples of these are in this article by CNBC, where some companies in the sector in countries like Singapore or Japan present these innovative and bold alternatives.

 

The position of the governments of the countries most dependent on tourism will also influence the economic future of those countries.

Continuing to support and subsidize activities with low added value, very seasonal, without technological innovation and environmental sustainability, and highly dependent on factors that we cannot control, can be an expense rather than an investment.

 

We must restructure rather than postpone. Innovate rather than subsidize. With these premises, we can once again have a strong and predominant tourism economy.

 

For all these reasons tourism is so important. It's bad, but it has to get better.