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Skift this month is celebrating its eighth anniversary, the most consequential year in our history, both for how a global pandemic has devastated the travel industry we cover, but also for our evolution as a media company amid all this historic tumult.
To celebrate our anniversaries in the past, we have looked forward, but also back to cull lessons from earlier trends. But if we have learned anything from these troubling months in 2020, it’s that nothing will be the same. That’s why we have decided to look exclusively ahead for this year’s recognition of our anniversary, focusing on five travel sectors and envisioning how they will operate at this time in 2021. It’s become pretty clear now that we won’t see any signs of travel’s turmoil settling until at least next year.
If you want to predict 2021 for airlines, you might get a better answer asking epidemiologists rather than airline executives.
That’s because as long as a global pandemic rages, there can be no sustained recovery. Sure, some carriers will generate cash by selling cheap seats to customers who aren’t concerned about getting sick. But at all but the lowest cost airlines, this is neither a large group, nor profitable one.
Many carriers racked up hefty margins in recent years by concentrating on two types of passengers, both of which paid more for their seats than the typical leisure customer. The biggest slice came from corporate travelers, who paid big money not only for first and business class seats but also for economy. The second piece was what the industry calls premium leisure, or vacationers using their own money for premium economy and business class.
These segments are barely traveling now, and indications suggest they won’t return in real numbers until there’s a vaccine or, at the least, effective therapeutics.
If this comes next year, airlines may do OK in 2021. Yes, many will be much smaller than and will be saddled with hefty debt. But if it’s safe to fly, airlines may finally see real recovery. With more cash coming in, they might start retiring debt and planning for the future.
Of course, no one knows how much business travel will return, and Delta Air Lines CEO Ed Bastian recently said the industry may never again see as many business travelers as in 2019. He might be right, but regardless, a substantial number of business travelers should come back when it’s safe. And when they begin to fly again — even at just 60 to 80 percent of previous levels — the airline industry will be on a real road to recovery. — Brian Sumers, Senior Aviation Business Editor.
Imagining what tourism may be like in 2021 is imagining what it won’t be: a booming industry with no signs of slowing down.
Some may still hold out hope that when the vaccine or the treatment comes, so too will the voraciously optimistic tourism industry of the last decade. But that hope discounts the seismic changes that have happened across the various sectors of travel industry, the same ones that ushered in the democratization of tourism.
No one is arguing that the human appetite for travel will be extinguished by this virus. However, many of the forces that have defined the explosive last decade of tourism have also been affected by this crisis, from low cost airlines that will likely have to majorly cut back routes and expansion plans as a result of the crisis, to Airbnb which has publicly committed to being leaner, more focused company than its previously lofty ambitions.
There will certainly be fewer business travelers tacking on leisure trips — purely because there will be less business travel. There’s also a very good chance that the tourism marketing industry — also a major player in tourism’s growth in the last 10 to 15 years — will look much smaller after a period where some DMOs and tourism boards won’t survive the crisis. The ones that do will have a new appreciation of the perils of chasing volume.
Beyond the market forces that may make travel a less accessible and cheap, there may also be a more fundamental recognition of travel and tourism’s role in the world. Before the world shut down, few leisure travelers could have imagined a world where they’d be “stuck” in another country, unable to get home. The first half of 2020 has made that nightmare a possibility, and that may leave an imprint on travelers, one that that recasts what it means to travel across the globe for a long weekend. Where in 2019 they might have done that on a whim, in 2021 they make think more intentionally about when and where to go.
In many ways, tourism in 2021 will be a more modest affair. If the industry uses the crisis as a kind of lesson, it may use these existential shifts to future-proof itself for a future where more disruptive global change isn’t just possible, but certain. — Rosie Spinks, Global Tourism Reporter.
Until there is a vaccine and global “all clear” with respect to coronavirus, major hotel brands will continue to enforce extra cleaning and health initiatives as the key brand standard in hospitality in 2021.
These new safety initiatives may give leisure travelers the confidence to book a stay at a beachy resort or hotel in their favorite drive-to destination. But convention and group business travel — accounting for roughly a third of the room revenue at upscale hotels in the U.S. — need a medical breakthrough before the sectors can think about returning en masse to reservation systems in the coming years.
If some of the vaccine contenders furthest along in trials are successful, distribution will rapidly scale up over the first part of 2021. That means the key ingredient hotel executives from Marriott to Hilton cite as necessary to bring group business travelers back would be up and running in time for the summer 2021 vacation season.
But the hotel industry that makes it to the other side of vaccine development will be a lot lighter.
The unprecedented low-demand environment will cause some hotel owners to walk away from the industry. CBRE expects 60,000 hotel rooms, or a little over 1 percent, of the U.S. hotel supply will permanently close next year. New York City could be well on its way to seeing 20 percent — roughly 25,000 hotel rooms — of its hotel supply shut down for good.
Despite the industry trimming, some degree of a rebound will also be underway.
The drive-to, domestic travel touted by leaders like Marriott CEO Arne Sorenson in the early days of recovery will continue to lead the industry next year. Individual business transient demand will return more in 2021 in places like Europe and the U.S. while China, which is already seeing momentum in the sector, may almost be back entirely to normal.
In the meantime, hotel operators in 2021 need to maintain marketing plans tailored to local travel, as they will continue to rely on business coming from their surrounding region over long-haul destinations. — Cameron Sperance, Hospitality Reporter.
Let’s face it: Describing with any certainty what the online travel market will look like in the summer of 2021 is a total crapshoot, given pandemic uncertainties but you can bet your frequent flyer miles that two things will definitely take place. New business models will emerge, and the strongest players will acquire weaker ones because valuations have plummeted, and there will be plenty of bargains.
For example, a new business model, management contracts, is emerging in the short-term rental industry after the debacle of companies such as Sonder, Lyric, and Stay Alfred finding themselves stuck with long-term master leases of entire buildings when guests cancelled en masse. OK, management contracts aren’t new; in recent years major hotel chains around the world chucked owning properties and opted to go asset light with management contracts.
But management are newish in the short-term rental industry when brands decide to offer entire buildings. Referring to master leases, Turnkey CEO T.J. Clark said, “We are not sure why the VC (venture capital) market of investors didn’t recognize this risk, especially when the major hotel brands have been divesting of real estate holdings for years, and moving to a management model based on revenue share. That’s a very sound model with low inventory risk.”
Domio is one of the short-term rental brands attempting to embrace such management contracts, as well as licensing deals with real estate investment trusts, and other property owners, said CEO Jay Roberts. He contended that management contrasts have the potential for higher profit margins, and that master leases involves higher risks. As with any business model transformation, the dynamics are complex, and not 100 percent conclusive either way.
The success of master leases depends on how skilled a company might be at predicting future revenue, a dicey prognostication even during “normal” times, let along a coronavirus crisis. “Master leasing is an underwriting bet, so commission management models are less risky,” said one short-term rental veteran who declined to be identified. “But master leases can be much more profitable in specific circumstances.”
Management contracts as opposed to master leasing is just one example of the experimentation that companies will do across online travel.
With so many online travel players under duress, there are plenty of bargains out there for cash-rich companies. Property management company Vacasa last week acquired Vail Resort Rentals in Vail, Colorado. There will be lots of deals available, especially as lower-profile companies, such as Florida-based online travel agency Bookit.com, close up shop.
That’s not to say that every distressed company will make for an attractive acquisition target. Far from it. But there will be deals out there to grab — and there will likely be some consolidation among major brands, as well. — Dennis Schaal, Executive Editor.
Investment in travel technology sped up in recent years, and many startups challenged incumbents. But the pandemic changed the mood music. Medium-sized vendors and young companies may find that the giants are fiercer rivals a year from now.
Many prominent tech providers had success in building up their cash cushions during the crisis. That means that many of them can continue to invest in marketing and research-and-development. So expect a rash of mergers among smaller players as they try to compete.
Past recessions have led to more outsourcing. So this crisis will also spur demand for software that simplifies and automates many workflows, such as a hotel manager’s administrative tasks.
Yet many travel companies will remain short of cash and staff a year from now. So many of them will be reluctant to overhaul their tech stacks. That reality will cap the growth in software sales, intensifying the competition among vendors.
Overall during the new abnormal, expect vendors to be in a knife fight on their life raft, battling for market share. But also keep faith that startups will find openings that lumbering incumbents can’t or won’t exploit. Just as Airbnb arose out of the ashes of the great financial crisis, trust that at least one genuinely disruptive startup will gain early momentum a year from now.
One side note: Software buyers in the U.S. and Europe may view tech companies based in China with more suspicion a year from now. The U.S. government in early 2020 asked Beijing-based travel technology group Shiji to divest itself of a maker of hotel software, StayNTouch, on vague claims of security concerns. The move smelled of bullying rather than prudence. But it still sent shockwaves through the sector. Political parties will likely continue to find it convenient to badmouth China. So plan for more fact-free, second-guessing of Chinese tech. — Sean O’Neill, Senior Travel Tech Editor.