Opinion: When will Aruba’s tourism industry recover?

By James Hepple, BA, PhD, Assistant Professor, FHTMS, University of Aruba

In the following editions of Aruba Today we will publish an opinion article by James Hepple, today we share Part II. Part I was published Thursday, April 9, and is to be read on our website.

What we do not know: –

  • How many people are infected? The numbers are skewed by the rate of testing. As testing gets better and more widely administered the number of cases will increase but that does not mean we know how many persons overall are infected. The number of infections at the moment is grossly underestimated.
  • We do not know how many deaths are ascribed to COVID 19 or ascribed to other causes such as pneumonia or some other respiratory ailment, so the mortality rates are inexact.
  • We do not know if an individual having tested positive for the virus, and having recovered, is immune to a second bout of infection or for how long they will be immune.
  • We do not know if social distancing works. This should be clearer by the end of April.
  • We do not know whether or not there will be a second or possibly third wave of infections.
  • And we do not know how long it will take to develop an effective vaccine.

Recent estimates suggest that peak infection levels for the USA will come in mid-April. AS of April 1, social distancing policies in the USA will remain in place until April 30th and will only be relaxed once it is obvious the rate of infections has slowed.

It is estimated that by September 2020 that even if all procedures and regulations are followed exactly as required about 200,000 Americans will die as a result of this pandemic.

However, even if the social distancing policies work, in the sense that the curve has been somewhat flattened, the pandemic does not go away. People will continue to get infected; people will continue to die.

There are three possible endgames for the pandemic

  1. Every nation on earth bring the virus under control at the same time . This is not at all likely.
  2. That the virus infects so many people that a “herd immunity” is established whereby the majority of the population is immune. This can only come at the cost of many millions of dead.
  3. That governments use the test and trace approach stamping out outbreaks until an effective vaccine is produced. This could take a year to 18 months.

Given the above, in simple terms, the effects of the pandemic will be prevalent for at least another 18 months, with social distancing having to be reintroduced when there are deemed to be outbreaks which need such a response.

The economic consequences

Social distancing has come at an enormous economic cost. The airline industry and cruise industry are to all intents and purposes no longer functioning. The hotel industry likewise. Offices, restaurants, bars and shops have been closed. Millions of people in the USA are now unemployed with no real sense when they will go back to work.

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.

The long-term costs of borrowing huge amounts of money to provide aid and offset revenue losses will impact the economies of countries for years to come resulting in lower levels of investments in necessary infrastructure and higher taxation levels.

When will things get back to normal for the travel industry?

There is a view that once the peak infection rate is reached and the infection rate begins to diminish, social distancing regulations will be relaxed and people will be allowed out of their homes, will go back to work, will pick up the pieces of their lives. This could happen as early as May.

This could mean that some locations where there is little risk of significant person to person contact could re-open However large sporting events such as baseball or football games, music events or crowded beaches will continue to be banned.

Travel could be allowed but, in all likelihood, it will be by car and will avoid places where crowds gather such as airports, on trains or on planes.

And it may be that a second wave of infections develops in the fall which requires the reintroduction of more strict social distancing policies.

Now leisure travel is discretionary. It is not essential.

MMGY, a leading travel and tourism marketing agency, believes that demand will rapidly increase in the latter part of the second quarter, that is in June, and the number of trips will increase substantially in July and August. They are of the view that domestic leisure trips by car will the first to show growth, with international trips following. Airlines will offer extremely low fares to get people to travel again, while the cruise lines may find it much more difficult to generate demand.

This may be too optimistic.

It does not allow for the fact 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.

This is a similar pattern to what happened after the September 11 2001 terrorist attacks where it took the industry close to three years before it fully recovered. 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. The cruise industry may also shrink.

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. 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.

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.