IATA

WTO reports a 30% decline in commercial services trade in 2nd quarter of 2020 — travel challenges through September will continue to put downward pressure on commercial services trade

Terence P. Stewart · November 4, 2020 · commercial services, COVID-19, travel and tourism · China, European Union, IATA, India, international air arrivals, Japan, Korea, United Kingdom, United States, UNWTO · No Comments

A press release from the WTO on October 23, 2020 was headlined “Services trade drops 30% in Q2 as COVID-19 ravages international travel.” https://www.wto.org/english/news_e/news20_e/serv_22oct20_e.htm. One of the charts in the press release shows travel down 81% in the second quarter of 2020, with transport down 31% and all other commercial services down 9%. Within other services, construction exports were down 24%; manufacturing and repair services exports were down 22%; telecommunications services exports were down 8%; insurance services exports were down 3%; financial services exports were down 1%; and computer services exports up 4%, with remaining categories of services exports down 9-14%.

The press release contained a link to monthly trade trends through August which looked at both imports and exports of merchandise and of commercial services. See WTO statistics, latest trends, https://www.wto.org/english/res_e/statis_e/latest_trends_e.htm. Commercial services were presented at an aggregate level and showed percent change for months on a year-on-year basis. For the European Union commercial services exports outside of the EU, the rate of decline from 2019 data declined 29% in May 2020, 22% in June, 21% in July and 20% in August. For the United States, exports of commercial services declined by 31% in May, 30% in June, 29% in July and 29% in August. China’s exports of commercial services went from a decline of 6% in May to a decline of 5% in June, and a !% growth in July and a 6% growth in August. The United Kingdom showed a decline of 27% in commercial exports in May, an 11% decline in June, a 9% decline in July and a 1% increase in August. India showed declines in each of the four months from May-August of 10%, 8%, 11% and 10%. Similarly, Japan showed declines each month in the four months from 24% in May, 23% in June, 35% in July and 36% in August. Korea was the last country shown and had declines each month of 30%, 24%, 27% and 26%.

Travel continues to be the major driver of the decline in commercial services into the third quarter, with the UNWTO reporting in its World Tourism Barometer (Volume 18, Issue 6, October 2020) that international arrivals declined 81% in July and 79% in August compared to year earlier figures. For the first eight months of 2020 compared to the same period in 2019, international arrivals are down 70.1%, with Asia and the Pacific down 78.8%, Europe down 67.7%, the Americas down 64.8%, Africa down 69.% nd the Middle East down 68.7. UNWTO World Tourism Barometer, Volume 18, Issue 6, October 2020, https://www.e-unwto.org/doi/epdf/10.18111/wtobarometereng.2020.18.1.6.

While travel restrictions through August had been being reduced in a number of countries, the huge increase in Europe of new COVID-19 cases in October and early November has resulted in increased restrictions in a number of European countries and will likely mean extended challenges for international travel to and from Europe, as well as cut backs in domestic travel for the remainder of 2020.

The International Air Transport Association (IATA) puts out various publications including an Air Passenger Market Analysis. The September issue shows that revenue passenger kilometers (RPKs) were down 88.8% in September 2020 for international air travel, bringing the January-September decline to 72.3%. Domestic air travel by contrast was down, but “just” 43.3% in September (51.2% for January – September). Thus, the total market (international and domestic) was down 72.8% in September and 64.7% for the first nine months of 2020. IATA, Air Passenger Market Analysis, The recovery in passenger travel slows amid elevated risks, September 2020, https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-monthly-analysis—september-2020/.

While the travel sector encompasses far more than air travel, the challenges facing the airline industry are similar to challenges faced by other parts of the sector, although other parts of the sector are often far more fragmented (restaurants, bars, hotels, entertainment venues) and without the resources to survive the prolonged depression in demand due to the pandemic.

IATA provided a powerpoint analysis by their Chief Economist, Brian Pearce, on the 6th of October 2020, entitled “COVID-19, Outlook for airlines’ cash burn,” https://www.iata.org/en/iata-repository/publications/economic-reports/outlook-for-airlines-cash-burn/. The powerpoint reviews the steep reduction in stock prices for airlines compared to other stocks, outlines the extraordinary level of aid the industry has received from governments ($160 billion) and suppliers ($20 billion), shows the timing when government support is ending, graphs the slow recovery in passenger revenues, and explores the challenge for the airlines to downsize costs sufficiently to deal with the drastic contraction in revenues, and shows an industry cash burn (expenditures exceeding revenues) of $51 billion in the 2nd quarter of 2020 and a projected further cash burn of $77 billion in the second half of 2021. The presentation also shows that many airlines can’t sustain for long the cash burn and ends on the sobering note that airlines are not expected to turn cash positive until 2022.

Press reports show challenges for airlines in many parts of the world. See, e.g., South China Morning Post (Bloomberg article), November 3, 2020, Asia airlines seen staving off pandemic ruin for now as troubles head West, https://www.scmp.com/news/asia/article/3108066/asia-airlines-seen-staving-pandemic-ruin-now-financial-troubles-head-west; BBC, November 3, 2020, Covid threatens to ground India’s aviation industry, https://www.bbc.com/news/world-asia-india-54729074.

The U.S. has seen tens of thousands of airline employees furloughed or dismissed since October 1st as government support came to an end in September, and Congress and the Administration have not been able to agree on a further package of supports for the industry or the nation more broadly as the pandemic continues to grow in size in the U.S. The surge in new cases in the United States is also resulting in various states imposing restrictions on bars and restaurants, and the hotel and entertainment industries continue to be severely affected by declines in demand.

Similarly, much of Europe has been reimposing at least some restrictions that affect the travel sector in an effort to regain control over the pandemic.

All of the above is simply to point out that the decline in commercial services trade reported by the WTO last month for the second quarter of 2020 is likely to continue through the remainder of 2020, led by the devastating contraction of the travel sector.

COVID-19, EU move to permit some international travel in addition to intra-EU travel, effects on tourism

Terence P. Stewart · July 1, 2020 · COVID-19, travel and tourism · Algeria, Argentina, Australia, Brazil, Canada, China, EU Council, European Union, Georgia, IATA, India, Indonesia, Japan, Malaysia, Montenegro, Morocco, New Zealand, Nigeria, Russia, Rwanda, Saudi Arabia, Serbia, South Africa, South Korea, Thailand, Tunisia, UNWTO, Uruguay · No Comments

Many countries have imposed travel restrictions on visitors from other countries during the COVID-19 pandemic. The International Air Transport Association (“IATA”) reports that there are 163 countries that have some travel restrictions and that 96 countries impose quarantine requirements. See IATA, COVID-19 Government Public Health Mitigation Measures, https://www.iata.org/en/programs/covid-19-resources-guidelines/covid-gov-mitigation/.

Travel and tourism is one of the most seriously harmed economic sectors from the global COVID-19 pandemic for many countries. The UN World Tourism Organization has created “the first global dashboard for tourism insights”. https://www.unwto.org/unwto-tourism-dashboard. The dashboard indicates that COVID-19 will result in the reduction of some 850 million to 1.1 billion tourists with a loss of US$ 910 billion to US $ 1.2 trillion in revenues from tourists with the potential loss of as many as 100-120 million jobs in the sector. These are obviously staggering figures for a sector that has contributed to global economic growth over recent decades. The dashboard has ten slides which shows data for tourism through April 2020 with some projected figures for full year 2020 under various assumptions. Data are presented both globally and for some slides by regions and in a few within regions by country. Thus, in slide 2, global tourism grew 2% in January 2020, declined 12% in February, declined 55% in March and declined 97% in April for a January-April total decline of 43.8%. By region, Europe declined 44%, Asia and the Pacific declined 51%, the Americas declined 36%, Africa declined 35%, and the Middle East declined 40%. While data for May and June are not yet available and may be less severe in terms of contraction than April, the decline in global tourism through June will likely exceed 50% and possibly be even more severe. For data through April 2020 see the link, https://www.unwto.org/international-tourism-and-covid-19.

In prior posts, I have provided background on the sector and the likely toll from the COVID-19 pandemic. See April 30, 2020, The collapse of tourism during the COVID-19 pandemic, https://currentthoughtsontrade.com/2020/04/30/the-collapse-of-tourism-during-the-covid-19-pandemic/; May 3, 2020, Update on the collapse of travel and tourism in response to COVID-19, https://currentthoughtsontrade.com/2020/05/03/update-on-the-collapse-of-travel-and-tourism-in-response-to-covid-19/.

As many countries in parts of Asia, Oceania, Europe and a few other countries have seen significant declines following first wave peaks of COVID-19 cases, restrictions within countries and increasingly on international travel are starting to be relaxed.

The European Union is a large tourist destination and on June 30 announced recommendations for member states to consider in opening up for tourists from both other EU countries and for travelers from outside of the area for nonessential travel. Specifically, the Council of the European Union adopted Council Recommendations on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction on 30 June 2020. See https://data.consilium.europa.eu/doc/document/ST-9208-2020-INIT/en/pdf. Intra EU travel, travel from Norway, Iceland, Switzerland, Liechtenstein and certain other countries is not part of the third country nonessential travel affected by the recommendations (to the extent adopted by EU members).

The EU Council selected third countries whom the Council recommended have access based on criteria which “relate to the epidemiological situation and containment measures, including physical distancing, as well as economic and social considerations, and are applied cumulatively.” Page 6. The Council lists three critieria: (1) whether the number of new cases over the last 14 days per 100,000 inhabitants is close to or below the EU average (15 June 2020); (2) whether the trend of new cases over the prior 14 day period is stable or decreasing; and (3) considering “the overall response to COVID-19 taking into account available information aspects such as testing, surveillance, contact tracing, containment, treatment and reporting as well as the reliability of available information and data sources and, if needed, the total average score across all dimensions for International Health Regulations (IHR).” Page 6.

Based on these criteria, the EU Council recommends that 15 countries (with China being subject to confirmation of reciprocity by China to EU travelers) “whose residents should not be affected by temporary external borders restriction on non-essential travel into the EU” (Annex I, page 9): Algeria, Australia, Canada, Georgia, Japan, Montenegro, Morocco, New Zealand, Rwanda, Serbia, South Korea, Thailand, Tunisia, Uruguay and China. The Council may review every two weeks whether the list should be modified.

Annex II to the Council recommendations provides an identification of travelers with essential functions for whom the restrictions should not apply. These include healthcare professionals, health researchers, and elderly care professionals, frontier workers, seasonal workers in agriculture, transport personnel, diplomatic personnel, passengers in transit, passengers traveling for “imperative family reasons,” seafarers, third-country nationals traveling for the purpose of study and a few others. Annex II, page 10.

The EU Council Recommendations are embedded below as is a Council press release on the recommendations.

ST_9208_2020_INIT_EN

Council-agrees-to-start-lifting-travel-restrictions-for-residents-of-some-third-countries-Consilium

Obviously many countries are not included on the list of third countries where loosening of restrictions on travel is recommended. The United States, Argentina, Brazil, India, Indonesia, Malaysia, Nigeria, Russia, Saudi Arabia and South Africa are just a few for whom nonessential travel restrictions are not recommended to be lifted. For most of these countries, either the number of new cases has not peaked or has not receded significantly.

For the EU, getting agreement among its members to lift travel restrictions for other EU countries and to start lifting restrictions for travelers from thrid countries has been important as the summer holiday season of July-August arrives. Data from EU tourism statistics showed 710 million international visitors in 2018 (when there were 28 EU members, including the UK). 81% or 575 million visitors were intra-EU, that is traveling from one EU country to another. Thus, for the EU, the biggest return of tourism business involves reopening to travelers from other EU countries. By contrast, visitors from third countries in total were some 19% of the total or 135 million visitors. The US accounted for 11.6% of third country visitors in 2017, some 15.7 million in number. While an important source of third country tourists, The U.S. was just a little over 2.2 percent of total EU global visitors. See http://www.condorferries.co.uk (tourism in Europe statistics). Thus, for tourism, the EU’s reopening recommendations will not return travel and tourism to pre-COVID-19 levels. But the partial reopening could result in a significant rebound in its tourism sector which will be good news for EU businesses involved in the travel and tourism space. Time will tell just how much of a rebound actually occurs.

For other nations, the more countries who get COVID-19 under control and are thus able to open international travel and tourism responsibly, the greater the likely rebound in global travel and tourism will be. However, because many businesses in the travel and tourism space in any country are small businesses, the risk for many countries (whether in the EU or elsewhere) is that the rebound whenever it occurs will happen with a much smaller business base to serve customers. While governments can provide targeted assistance through legislative initiatives, operating conditions for many such businesses post opening do not permit profitable operation where social distancing and other important steps remain critical to safe functioning. So unlike other global crises in the past, there may be large and permanent job losses in the travel and tourism sector flowing from COVID-19.