Travel recovery in a transformed world!

Travel is an integral part of our lives – we make cultural connections with the people, places, and experiences we value most. For many, travel is more than a personal passion, earned vacation, or an Instagram opportunity; it’s the salvation for many local businesses, that shape the identity of a place, and have them come to life.

Understandably, it was unthinkable before 2020 that travel of any kind – domestic or international – or the mode of transportation – airlines, passenger trains, or automobiles – could come to a halt. Nevertheless, the unthinkable happened, and ever since, there has been much speculation as to whether travel would ever return to its pre-pandemic glory.

?Following the slump, first-time business flight bookings have exceeded the 2019 records, which is a key milestone to indicate a steady recovery. Should the trend continue, an estimated 1.5 billion more passengers globally will fly in 2022 than they did the previous year.

?As we find ourselves poised on the road to recovery, the questions that everyone would like an answer to are, Who is traveling? Why are they traveling? What are they spending on? And how long will this pent-up demand remain, especially in India??

Who is traveling?

The first point we have to acknowledge is that the Asia Pacific region including India, through a large part of the COVID recovery period, has been behind other regions in terms of resuming travel, particularly international travel. But that has been changing rapidly in the last few months. This region has so much more potential for that recovery because it’s starting from further behind.

We all know that it’s the leisure travelers that are leading this movement, which is also what we witnessed in most parts of the world. An exception here is that business travel also has been contributing to the surge. The reason is that it’s time for businesses to make themselves visible to their customers in person again after being Zoom-ed out for so long and that person-to-person connection, which just wasn’t possible for so long, has been absolutely prioritized.

This is an interesting aspect to deliberate because unlike what many assumed, more than the need for businesses to make an immediate re-entry, it’s the personal wanderlust that resumed travel.

Why are they traveling??

Well, we shouldn’t forget that there are a lot of folks out there who put travel on the top of the list of things they missed the most since the pandemic struck. Also, let’s not forget that consumers hold a strong position with their spending capacity that was built up by not spending on travel for several months or even years.

So, it’s true that this ‘Pent-up Savings’ narrative determines the travel trends across the world including in emerging economies like India. I believe this ‘Pent-up Demand’ is yet to uncover the stories of the middle and upper-income groups. Primarily, consumers who have been able to work from home and more of their discretionary spending was towards things that they couldn’t do during the lockdowns.

?What are they spending on?

?Making memories: Spending on ‘Travel Experiences’ is roughly 34% above 2019 figures and has surpassed spending on ‘Materials’ since 2021. In 2020-21, spending made a sudden, but not surprising, shift from services to goods. However, spending is now changing its course as travelers seek experiences instead of souvenirs, even while the retail therapy (Shopping at Department stores, Malls, etc.) lingers on. ?We can say that return of experience economy is a global trend now.

Are there any headwinds that might stall the recovery within the region?

We have to accept that the current inflation poses a few hiccups. It doesn’t pertain to only the rising cost of goods, but also the Funding Costs due to the ballooning Policy Interest Rates. Although that’s the reality, liberal travel policies, Pent-up Demand, and improved household balance sheets have a critical role to play.

?I think, in this particular order; recovery happens first, followed by high Funding Costs, increased travel costs, and then a little shift in the volumes of travel that adjust for the dip. For now, slowing down is something we should anticipate from 2nd half of next year.

?In mid-2021, for every dollar that an airline made, $8.60 was spent on operating costs, which reflects this cascading effect on the rise of travel costs. But the Pent-up Demand is the bigger story here.

?Are there any tailwinds that might accelerate the recovery within the region this year?

?For these reasons, I believe this year is still the start of a reopening:

Consumer and business momentum: Leisure travel bookings have remained above 2019 levels and by the end of April 2022, business flight bookings are more than 25% above pre-pandemic levels. This goes to prove that the desire to travel is strong.

?Job Market Resurrection & Pay Raise in high-paying sectors like IT: Many people who faced unemployment in 2020 now have jobs, while the recovery is still underway. This means more people could purchase travel tickets and have the budget for discretionary spending.

?Financially Better Off: People have paid off debt and other liabilities at a record pace over the last two years as per the recent global reports. Higher-income consumers – those that are likely to be traveling for leisure – are in the best financial position, thanks to the excess savings fueled by the pandemic.

?Work From Home: In markets where working from home is more prevalent, people spend less on commuting, housing (by relocating to tier 2 & 3 cities), and related costs freeing up enough money to travel and recreation.

?In conclusion, despite the headwinds that I had outlined, Travel is on the road to recovery. Although as positive as everything seems, let’s not dismiss the fact that COVID still lurks in the dark.?Through these years of restoration, we have grown an optimistic outlook toward dealing with the virus with booster jabs, better therapeutics, and SOPs. Now, let’s hope that no other Variant jeopardises the comfort we reached. Should there be any renewed concerns around the virus, it brings back the stop-start economy, which could be detrimental to all the progress we’ve been making so far and go all the way back to hit the reset button and we land back in early 2020 again from a COVID perspective.

?Leaving all of it to fate, we could continue on this story of Pent-up Demand and the recovery that follows this year and the next. With global travel now springing back to life, we hope to see the return of international travel from China and the US as that’s such an important factor for global tourism and also for India. US & China remains the top two trade partners to India?(who make up $100+ Billion?each in bilateral trade in FY’22) for India