Travel companies are fighting for their lives. Being at the bleeding edge of the storm has violently thrown us from a predictable risk environment into the deep uncertainty of uncharted waters.

Nobody has a playbook, and only with a clean-sheet mindset and the proverbial “out-of-box” thinking will we manage to find our path out of this mess. We might not come out stronger from it, but hopefully faster, leaner and a little wiser.

This piece aims to forward-engineer four possible scenarios for how the travel industry will emerge once this pivotal crisis is over.

A peek into the future

The potential scenarios that unfold are narratives of four plausible outcomes in travel of the current COVID-19 catastrophe. Each future substantially differs from one another, highlighting profound trends this crisis has unleashed and that might play out in very different ways.   

To bring the scenarios to life, I created a matrix that addresses the uncertainties around traveler behavior and economic recovery.

  • Y axis: “to which degree will travel behavior change after the pandemic?” This axis reflects a wide range of collective shifts in societal attitudes about the why and how we travel.
  • X axis: “how long will the economic crisis last and how fast will the world recover?” This axis illustrates the depth and length of the economic downturn and the degree that it will impact companies across the entire travel industry.

Depending on how the economic recovery and the changes in travel behavior play out, a very different travel industry landscape will emerge out of this crisis. The different outcomes can be distilled in four distinctive scenarios:

Game-changing trends that will dictate the outcome

Among all the moving pieces unfolding in the current seismic shock, a number of consumers, health protection, regulatory and macroeconomic trends stand out.

They will all shape either the economic recovery on the X-axis or the travel behavior on the Y-axis.

Let us look at these potential game-changers:

  • Consumer shifting towards online shopping and experiences
  • Virtual becomes business as usual
  • Health and hygiene standards go mainstream
  • Social distancing while traveling

Health and economic drivers impacting travel

With the entire world was brought to a crashing halt to help control the spread of the virus, there was simply no historical precedent on when and in which shape the economy will rebound. 

Economists traditionally sketch three broad possible recovery scenarios, which are described as V-U-L:

  • V-shaped
  • U-shaped 
  • L-shaped

How long it takes the world economy to get back on its feet will profoundly shape the future of our travel industry.

  • Virus severity and spread
  • Government economic policies
  • Border barriers and travel restrictions

The scenarios, beginning with the first below and in further articles, outline four ways the interplay between the economic crisis and travel behavior shifts might unfold and its ripple effects on the transport, accommodation and travel distribution sector.

Scenario 1:  Travel swings back to normal in 2021

If history is any lesson, recent epidemic outbreaks have enjoyed a classic V-shape GDP recovery, as these charts from a Harvard Business Review paper clearly illustrate:

Containment efforts in all countries made the outbreak peak in April 2020. The rapid drop in new cases and mortality from May onwards is allowing governments to gradually start relaxing social distance measures following the successful playbook of Asian nations. And now, it appears public sentiment and business confidence starts moving up again.

On the economic front, governments and central banks across the world opened up the financial floodgates, pumping a jaw-dropping $8 trillion of fiscal stimulus into the global economy.

This unprecedented effort in postwar history allows industries to absorb most the shock of the economical shutdown for both businesses and workers hit by the COVID-19 sledgehammer, preventing larger structural damages to the economy.

Looking forward, the fear of a second wave in the fall of 2021 does not materialize, thanks to a world much better prepared to selectively contain the virus.

In Q4, most of the world enjoys a strong economic rebound reaching pre-crisis metrics in early 2021 and triggering a new growth cycle for years to come. 

The miracle of traveling

Recent crises have shown us that travel is one of the world’s most resilient of sectors – and this time will be no different. The industry’s underlying demand economics of a growing global middle class, with the financial means and the desire to discover the world, remains untouched.

Glimmers of hope can already be spotted in China, where four months after the initial outbreak, with the easing of movement restrictions, traveler confidence bounced back.

In April 2020, Chinese airlines added approximately 600,000 seats back each week into scheduled services, mainly on domestic routes.

Even if the shock-recovery time takes longer in the Western world, travel bans are gradually being lifted from May onwards and consumer travel sentiment is starting to rise again.

The pent-up demand during the lockdown period, the eagerness to visit friends and family and millions of credit vouchers issued by airlines in exchange for cancelled bookings are strong drivers to bring travelers back to road. 

Most nations focus on bringing domestic travel back to life for the summer season to protect themselves from potential second-wave outbreaks from overseas and to support their local tourism infrastructure. 

Tourism levels during the summer peak season are still a long way from pre-crisis levels, but it sows the seeds for a progressive ramp-up of most of the worldwide transport and accommodation industry.

During fall and winter, with seasonal outbreaks under control thanks to laser-focused social distancing measures, travelers’ confidence keeps growing and business travel swings back to pre-crisis levels.

What back in the darkest moment of the global lockdown looked more like a miracle than a credible reality, has happened: travel is back, and the scars left by the downturn have healed in record time.  

Some coronavirus side effects will certainly stick around for some time, mostly around hygiene and safety concerns. Health screening and stricter vaccination controls translate into longer queues in airports and at border checks. 

Green shoots everywhere

Across the travel landscape, all sectors see green shoots emerge between Q3 and Q4. Players with a weak balance sheet before the virus outbreak stumble and fall, but most transport, accommodation and distribution players, heavily backed by financial aid during the crisis, manage to get out of the dark tunnel in reasonably good shape.

Ground transportation, notably high-speed trains, enjoy a strong boost from early Q3 thanks to the rapid increase in domestic travel. 

Similar to previous crises, online travel agencies take the lead on the recovery front by capturing the rising online demand thanks to their edge on search engine marketing and metasearch traffic. 

But airlines and hotel chains are not willing to repeat the 9/11 errors, where a new breed of tech travel distributors, such as Expedia and Booking.com, capitalized on the huge distressed inventory from suppliers and the online shift of consumers to become the new travel giants in today’s world. 

They are now stronger, faster and smarter on the digital front and will fight for their share of the direct business. As a result, 2021’s growth momentum in travel will be evenly shared between suppliers and OTAs.

Google Travel, which in the pre-coronavirus world already dominated the travel sector like no other thanks to its market-crushing search engine and neatly integrated travel ecosystem, sits in the front row of the recovery phase, harnessing the ever-increasing shift towards hyper-connected consumer behavior.

* Check scenarios 2, 3 and 4 when they are published in the coming days and next week.About the author…

Mario Gavira is a tech executive, angel investor and board adviser

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This series is focusing on how the industry might emerge from the disastrous set of circumstances that the travel, tourism and hospitality sector finds itself in.

The first of four scenarios – Travel swings back to normal in 2021 – was followed by a second idea: The end of mass tourism as we know it.

We continue with the next theory…

Scenario 3: Big is beautiful in the new travel order

This scenario sketches a fundamentally different outcome to the previous scenarios: the virus will prove to be more resilient than expected and the discovery and mass production of an effective vaccine will only become a reality in 2023.

Containment measures, including lockdowns and border closures, will be switched on and off during three years and overwhelmed healthcare systems all over the world will fall into a constant breaking point.

The virus brings the world economy to its knees

This asynchronous cycle of lockdowns across all regions will have devastating ripple effects on the world economy.

The desperate fiscal and monetary policy measures taken by governments and world agencies to try to absorb the shock will prove insufficient to break the downward spiral.

Supply chains across the world will not keep up with the on-and-off nature of the lockdowns, consumer confidence will fall off a cliff and monstrous jobless numbers will reach 1920s Depression-era levels.

Self-reinforcing recession dynamics will kick in, triggering widespread bankruptcies and credit defaults, and humanity will remain in a heightened state of anxiety between 2020 and 2023. 

The travel industry’s odyssey

Travel, deeply intertwined with the global economy and everything that moves this world, will be staring down the barrel of a deep recession for a long period.

With households in the middle and lower classes experiencing significant financial pain and foreign travelers being stigmatized as a sanitary threat, the industry will face a long and winding road before reaching the end of the crisis.

But, eventually, with a vaccine finally available at global scale and economies slowly getting back on their feet, the miracle will happen: human curiosity to explore the planet and connect with other cultures and people will prove to be stronger than any virus or economic downturn, and travel, like the proverbial Phoenix, rises from the ashes.

The travel industry, after an hibernation period of over two years, will look very different. The deep and dislocating shock and the path to recovery will be littered with bodies of companies that didn’t make the cut.

Companies with short cash runways, weak balance sheets or strong debt levels will struggle to stay in business with revenues down 60% to 90% over nearly 36 months. When revolving credit lines are shut down and taxpayer money from relief packages dries out, numerous travel firms will collapse or consolidate.

On the winning side, firms with deep pockets, resilient business models, superior marketing positions and strong public support, will manage to muddle through the economic meltdown and come out alive.

Who’s in, who’s out?
In accommodation, size will be a decisive factor in who survives the slump. Large hotel chains sitting on fat cash buffers and with a solid balance sheet will be in a good position to renegotiate their property lease terms with tenants and open and close properties across the world, based on the intensity of outbreaks in each region.

They will also have the capacity to leverage investments in their technology, integrating new systems such as sterilization robots and touchless devices. These global brands also have the firepower to implement and promote new hygiene protocols and certificates. 

Consumers, after the long crisis, will naturally gravitate towards trusted household brands, making large hotel groups the go-to option once travelers hit the road again.  

Many small- and medium-size hotel groups, after years of travel demand at minimum level, become cut-price acquisition targets for larger groups, sparking a strong consolidation process in the hospitality sector.

Numerous independent hotel properties will also decide to affiliate to larger groups, allowing them to tap into the power and reach of global brands. 

Hospitality unicorns like OYO or Sonder, enjoying hordes of venture capital cash in the pre-coronavirus era, will see the ground fall out from underneath their feet. Massive losses before entering the downturn combined with inconsistent guest standards linked to their frantic growth strategy will prove too much to survive the long downturn crush.

Turbulence in the air

Literally overnight, the virus outbreak reset the clock on an aviation boom that was the engine to the increase of global tourist figures from 818 million in 2010 to 1.3 billion in 2019.

Some governments will apply the “whatever it takes” mantra, conceding from unlimited loans up to renationalization, such as for perennially unprofitable Alitalia.
In stark contrast, low-cost carriers all over the world will be mostly left to their own fate, sparking a wave of consolidation.

A few of them will emerge out of the bloodbath thanks to their strong balance sheets, less crowded skies and low dependence on business travelers.

One or two mega low-cost carriers per continent will control most of the point-to-point intraregional traffic between countries, while domestic air travel will mostly be operated by publicly owned national carriers. 

Long-haul business will be concentrated into a handful global network carriers mainly from the Middle East and Asia, and the pre-crisis short-haul feeder system of international hubs based historically on airline alliances and interlining agreements will be been mostly replaced by loosely tied flight combinations connected through the NDC technology standard. 

With airline traffic experiencing a five- to six-year recovery cycle from the 2019 peak, aviation in 2025 will turn out to be a veritable smorgasbord of a few mega-carriers and a handful low-cost carriers co-living with state subsidized flag carriers that mainly operate money-losing domestic routes.

OTAs go shopping

As with the rest of the industry, travel intermediaries were busy during the crisis, reducing fixed costs and offloading struggling assets.   

Size, once again, will play a critical role. Asset-light online travel agencies with a global footprint, household names and a thick wad of cash will have the staying power to survive the long cash crunch and expand their footprint through bargain acquisition targets, such as regional brands and technology providers, to beef up their market dominance.

As Mauricio Prieto points out, they also were in pole position to capture the demand once travelers hit the road again: “Truly global intermediaries like Booking.com or Airbnb, which do not have a high dependency on any single geography, can quickly and opportunistically redirect business to the most promising geographies”

A driving force in the market will be large private equity companies, awash with cash and sharp deal-forging capabilities. Debt refinancing vehicles come with preferred stock clauses, allowing a selected group of private equity firms to jump into the boardrooms of the largest OTAs in the West. These new power brokers will spark a string of M&A deals in the industry, profoundly reshaping the travel distribution landscape.

Smaller intermediaries with limited refinancing capabilities cannot sit out nine to 12 months of a revenue drought. Many will stumble and fall.

A new kid in travel tech town

Amazon will come out of the crisis even stronger, thanks to the formidable capacity to flex its supply chain machinery to provide households with the most basic services during the lockdown.

After years of toying with the idea of entering travel, the retail giant will finally get serious with a string of acquisitions of struggling travel tech players, reshuffling the cards among the worldwide travel giants. 

Digital gatekeepers, Google and Facebook, which commanded more than half of the $330 billion online advertising business in the pre-COVID-19 world, will see travel-related revenue fall off a cliff once lockdowns spread across the world.

eMarketer’s 2020 pre-crisis prediction of $13 billion digital media spend in the travel industry is re-forecast to less than $5 annual billion between 2020 and 2022.

As a result, Google will quickly shelve its plans to keep expanding into the travel ecosystem and refocus its engineering resources to more promising verticals, such as telemedicine and e-learning.

Google and Facebook will keep playing a dominant role in the top of the travel user funnel, but the rest of the travel tech players will gain ground in the rest of digital ecosystem.