A fast-changing world: The massive challenges facing international tourism

July 20, 2022 International Insights Oban International

Covid-19 disrupted most industries, but especially travel and tourism. In 2020, worldwide aviation passenger numbers dropped by 60% compared to the year before. 2021 saw some recovery, although numbers were still about half of 2019’s figures. After 9/11, it took six full years before airline passenger numbers returned to their pre-crisis peak.

The pandemic has changed consumer behaviour in ways which are still playing out. There is the possibility of new variants causing short-notice border restrictions in the future. Aside from Covid, international travel remains hampered by confusion, concern and unpredictability. Here, we look at the giant challenges facing travel and tourism in a fast-changing world.

Inflation and the rising costs of travel

2022 has seen increasing inflation around the world – in the UK, it’s currently 9.1%, which is the highest rate since 1982. Product shortages resulting from supply-chain disruption caused by Covid-19, high consumer demand driven by historically robust job growth, plus rising fuel prices partially caused by the war in Ukraine have created a perfect storm of increasing prices.

From a travel point of view, this means:

Airfares are at record highs
Lodging prices – for hotels and motels etc – are volatile
Car rentals have seen big increases – as of May 2022, prices were around 70% higher than in May 2019

At the same time as rising prices, the economic backdrop – staff shortages and continued supply chain difficulties – means that service-providers often have to offer a reduced service. For example, many hotels are cutting back on amenities including daily housekeeping and room service. The Guardian recently labelled this phenomenon – of businesses simultaneously increasing their prices and reducing their service – as skimpflation.

Brands need to do this to protect their margins. But with a cost of living crisis, the risk is that skimpflation will deter leisure travellers from expensive vacations. There is also the potential for brand damage as well, if consumers don’t feel they have received value for money.

Short staffing affects ability to meet customer expectations

Many travel businesses laid off or lost staff during the pandemic – reportedly, a total of 62 million tourism-related jobs were lost worldwide in 2020. Now that leisure demand is building again, businesses have struggled to hire enough replacements. Short staffing explains the scenes of airport chaos we’ve seen, not just in the UK but around the world (although Europe seems to be the epicentre). Once staff leave a sector – Deloitte reported 300,000 fewer hotel workers worldwide in October 2021 than two years previously – it can be hard to replace them.

As with rising prices caused by inflation, staff shortages make it harder to meet travellers’ expectations. The chaotic scenes at airports like Heathrow and Gatwick this summer went viral, acting as a possible deterrent for some travellers. Guests may be unwilling to accept a hotel’s housekeeping-by-request service if they are still paying full price.

In the short term, labour shortages are hard to address. Deloitte states that longer term, automation could help with some aspects of hotel services – for example, contactless check-in reducing the need for reception staff – but cleaning rooms and operating restaurants still requires human labour. If staff shortages persist – and there are indications that they may do – hotels may start to experiment with itemised charges for amenities such as housekeeping. As these once-standard parts of the hotel experience become unbundled, they could potentially form part of loyalty programmes.

Corporate travel’s slow return

Before the pandemic, about 20% of travel was work related. Business travellers accounted for about 12% of airline passengers but thanks to business class fares, typically generated twice as much money per person as non-business class passengers. A key question post-pandemic was the rate at which business travel would resume.

Whilst business travel has resumed to some extent, there are headwinds:

CEOs and CFOs are likely to continue to scrutinise travel spend and ROI after operating successfully throughout the pandemic with fewer business trips.
Businesses are under pressure to reduce their carbon footprint. Less travel means less emissions. Many companies are reviewing their business travel policies to support sustainability goals – this seems likely to result in reduced trip frequency, limits on long-haul travel, and more meetings online.
Companies have learned in the last two years which meetings really do require face-to-face interaction, and which can be carried out successfully using video conferencing. Whilst trips to visit prospects and network at conferences will probably endure, it seems likely that routine or internal meetings and training will continue to rely heavily on virtual connection.

That said, the pandemic has contributed to a growing trend of ‘bleisure’ travel. This refers to travellers who mix business trips with leisure. Newly flexible work arrangements, including the opportunity for knowledge workers to work remotely, have created opportunities for extended travel, no longer limited by a Monday to Friday 9-til-5 workweek in the office – which leads us to…

Remote workers have created a new travel niche

The increase in remote working and digital nomads has created a new travel niche. With workers untethered from the office, they now have scope to work from other locations. These travellers have a particular set of attributes or requirements:

Above average buying power
Greater flexibility on travel dates
A need for a quiet, comfortable space to work – perhaps away from crowded tourist areas
Fast and reliable Wi-Fi
Access to wellness-related amenities, such as gyms or healthy meals on the go
The flexibility to reschedule leisure activities to accommodate work

This traveller niche might mean that subscription models – which have historically struggled due to low frequency of travel – may get a second look. For example, the Mandarin Oriental in Washington offers a service called MOBase, aimed squarely at travellers who blur the lines between work and leisure. This is available on a subscription basis, which can be shared within organisations. In the face of reduced corporate travel, higher-spending remote workers and their particular demands could attract more attention in the years ahead.

A trend towards short-term rental accommodation

Before the pandemic, there was a trend toward short-term rental accommodation as an alternative to hotels. The pandemic saw this trend accelerate – with health concerns being a major driver of demand. The greater space and privacy in an Airbnb-style apartment allows for more social distancing. Deloitte estimates that more than four in 10 rental travellers said they had been introduced to the accommodation type for the first time during the pandemic. Three-quarters say they plan to continue choosing rental accommodation even as the pandemic recedes.

The shift towards remote work and the rise of the ‘bleisure’ traveller seem likely to increase rentals’ popularity – as remote workers take longer trips and need space to work. In turn, increased interest in this accommodation type could push hotels to evolve their offerings per the Mandarin Oriental example above – for example, by offering home-like amenities such as kitchenettes, adjoining rooms and study areas.

Consumers are increasingly concerned about sustainability

According to Sustainable Travel International, tourism is responsible for about 8% of the world’s carbon emissions. Businesses are under pressure from both consumers and governments to become more sustainable. The tourism industry faces the challenge of adding decarbonisation to its value proposition. In practice, this means re-examining what travel should look like and how sustainable practices can be incorporated. This will require collaboration across the whole industry.

On a marketing level, as climate change and its effect on natural resources become more salient for travellers, sustainability will become a more dominant theme. Younger consumers in particular want to see businesses stand for something. In practice, this means:

Businesses showing what steps they have taken to reduce their carbon footprint
Businesses offering customers tools and information about what they can do on an individual level to make their travels more sustainable
Countries and destinations playing up themes like conservation in their marketing

For example, Ryanair offers a carbon calculator on its website which allows customers to understand the carbon emissions of each flight, so they can offset if they so choose. Other travel brands taking positive action include:

Hilton Hotels has installed energy-efficient lighting in all its buildings and will also be sourcing from local suppliers.
Royal Caribbean’s ships have purification systems to remove 98% of sulphur dioxide emissions from their exhausts.
British Airways is committed to cutting CO2 emissions in half by 2050 and is building a plant that produces fuel from household waste.
Virgin Atlantic is partnering with manufacturers to create a jet fuel that will create 50% less carbon than fossil fuels.

The industry will need to look at the end-to-end travel journey – i.e. all touch points, not just air travel. The hope is that sustainable travel can be achieved without creating additional pain points for travellers.

Disasters – both man-made and natural – are an ever-present threat

As any tourism business knows – especially those with operations in major cities – security risks such as terrorist attacks or political unrest are a grim reality, alongside threats from natural disasters such as pandemics, tsunamis, earthquakes, floods, volcanoes, avalanches and so on. For example, last month TUI cancelled all holidays to Sri Lanka because of the ongoing political unrest and economic instability. This month, Sydney suffered its fourth major flood in two years, with the city receiving in one single weekend more rain than would typically fall in London in a year. The twenty first century is shaping up to be a volatile one.

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Oban has a long track record of helping tourism and attraction businesses grow internationally. Previously, we have won Best Digital Marketing Campaign and Best Use of Search Engine Marketing at the UK’s prestigious Travolution Awards. To find out how we can help your travel business, please get in touch.

Oban International is the digital marketing agency specialising in international expansion. Our LIME (Local In-Market Expert) Network provides up to date cultural input and insights from over 80 markets around the world, helping clients realise the best marketing opportunities and avoid the costliest mistakes.