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.