Governments take steps to save tourism from COVID-19

Locals in popular vacation destinations got a reprieve in 2020 from the ever increasing hordes of tourists, but not the sort they bargained for. Across advanced economies, tourism has collapsed to between a quarter and a third of its 2019 level. Some types of tourism, for example business travel and conventions, have disappeared altogether. With the new spike in COVID-19 infection cases across Europe and many US states, prospects for the winter season are dimming fast.

A survey of businesses in the tourism sector in countries in the Organization for Economic Cooperation and Development (OECD) finds that more than half may not survive by 2021. The main reason for this dire forecast is the prevalence of small enterprises operating in tourism—family hotels, restaurants, travel agencies, and entertainment venues. To combat this collapse, OECD governments are putting COVID aid into five areas: injecting liquidity into tourism businesses, boosting local demand for tourism through voucher schemes, creating vacation subsidy programs for domestic tourists, investing in digital solutions to replace human contact in the tourist industry, and reshaping group leisure travel.

Changing patterns in the tourist sector

In 2019, tourism made up 10 percent of global GDP, worth $9.3 trillion. In several European countries, its share was significantly higher. For example, tourism in Croatia contributed to 24 percent of GDP, in Greece 20 percent, in Spain 12 percent, in Portugal 8 percent, and in France 7.5 percent. In the United States, tourism generated $1.5 trillion, or 4.7 percent of GDP.

But not in 2020. Air travel bookings in the United States are at about a third from last October (see figure below). In September, two out of three hotels in the United States were below one-third occupancy, according to an industry study, and four out of ten hospitality workers remain unemployed. Greece reached 35 percent occupancy in the late summer, with many luxury hotels remaining closed altogether. This mark still exceeds the occupancy rate in Portugal (around 25 percent) and Spain (around 30 percent). Winter leisure tourism is problematic too, as the opportunity for social distancing at ski resorts and cruise travel is limited.

Beyond summer and winter vacationers, tourism traditionally depends on business travel. The COVID pandemic has changed this pattern too. The expectation in the tourism sector is that many firms will discover that they can conduct work efficiently on a remote basis and will come to see business travel as an unnecessary expense. Conferences and other business-oriented conventions may likewise be a thing of the past.

What can be done to resuscitate tourism?

Governments in OECD countries have so far come up with five measures to alleviate the collapse in tourism flows.

1. Inject liquidity into tourism businesses
   Governments are helping with liquidity in the sector. Latvia, for example, has introduced a reduced value-added tax rate of 5 percent for catering and tourist accommodation sectors. So have France, Greece, and Germany. In Switzerland, a legal standstill for the tourist industry was put in place regarding customer claims arising from the default of a travel service. A third of OECD countries, starting with Greece and Italy, have introduced dedicated lines of credit for tourism businesses through state-owned development banks. These lines of credit have long grace periods (up to five years), providing liquidity without an additional interest-payment burden on companies.
2. Boost local demand for tourism through voucher schemes
   A number of OECD countries have boosted local demand through state-subsidized discounts in tourism services. The United Kingdom led the way with its "Eat out to help out" discount program, which applies to eat-in food and drink on Mondays through Wednesdays. The discount is capped at £10 per person and does not apply to alcohol. France is providing consumers with restaurant discounts of €38 each. These discounts can be used on weekends and holidays to allow visitors to spend in bars and restaurants. Italy's recovery program allots every family free vouchers for cinema, theater, museum, and concert tickets. Italy is also refunding 10 percent on credit card transactions, up to €300, for foreign and local tourists alike.
3. Create vacation subsidy programs for domestic tourists
   Some governments are encouraging local tourism spending by introducing vacation subsidy programs. Korea, for example, provides workers with vacation bonuses equivalent to 25 percent of the cost of the vacation. Southern European countries have variations of such holiday subsidy schemes, as do other European countries such as Germany and Sweden. Japan goes a step further, covering hotel costs for the first three days of a week-long vacation.
4. Invest in digital solutions to replace human contact in the tourist industry
   Some recovery programs have committed aid towards reducing personal contact in the tourist industry by going digital. With cars providing greater social distancing than trains or airplanes, France and Germany are subsidizing car rental companies to update their fleets with electric cars—part of a broader green recovery initiative. Governments are also funding the development of online apps for booking tourist services and online tourist guides.
5. Reshape group leisure travel
   Austria and the Netherlands are financing ways to reshape group leisure travel. This segment generates significant revenues in large cities like Vienna and Amsterdam, mainly from Asian tourists or groups of European retirees. Reshaping group travel implies socially-distanced arrangements—for example trains, not buses—and focus on non-urban sites like parks and historical monuments in the open. Such reshaping may take years to mature, and a new type of tourist too.