The Winter is Coming

In the first week of August a couple of years ago, we were visiting some long lost family in Norway. They showed us their new boat, and said they would sail the next day, but then had to store it for the winter. That's right - winter in August. Without doubt, Norway is one of the most visually stunning countries in the world. But thinking about winter in August - that’s rough. In San Francisco, we’re lucky that the fall/autumn weather is great, but still, winter kicks in usually in November.

November is always my least favorite month - it’s such a long time until March. I feel like many people in tourism (yes, I know there are also a handful of people who live in the other hemisphere) go through the same cycle each year. This year though, as well as having zero Spring and mostly zero Summer, many people are already staring down the face of winter like those Norwegians. And its only mid-August.

Good News

Many people in the tours and activities space have had a really good June, July, and now August. I’m not sure if anybody is going to make up for the lost spring, but I hear many reports of companies at 100% or more vs 2019. Beach towns, everything rural, and smaller locations across Europe seem to be doing ok.

Bad News

For the vast majority though, business is still a fraction of 2019, if not zero. As many folks pointed out in April, the 60 day shutdown works fine in China, but most countries don’t have the benefit of an authoritarian dictatorship to guide them through this. I wonder what the Chinese government thinks about our 4 month (and still going) face-mask debate.

The problem I see now, is that with the exception of the lucky few mentioned above, there is little hope of anything picking up now towards the end of the summer. The larger markets and cities (which make up the majority of the tourism industry) are mostly just not showing any improvement. As each week passes, there are fewer and fewer reasons for companies to try to grow again, just to have to downsize again for the winter. As more companies close for the winter (or longer), cities will be mostly ‘closed’. Pretty grim.

Unfortunately, it’s worse than that. For many, it’s not a matter of waiting until March or next summer. Regardless of demand returning, many of the jobs in travel are never going to return. When companies are forced to cut staff, they adapt, and learn to do more with fewer people. Processes are automated. Legacy and manual processes will no longer be performed by humans. It doesn’t go back to the same place.

The one thing that’s been consistent since March, is that nothing is predictable. Even the miracles of Vietnam and New Zealand have turned south in the last few weeks and days.

Good News

It’s not easy, but I think it’s important to try to dig up some good news, so despite the short term outlook being about as terrible as could be expected, here are a few slightly better things to look at. I apologize that my outlook here is from the viewpoint of Tours & Activities. Some of the positives are actually negatives for other sectors.

1. Vaccines

Sputnik V vaccine. Relax, that’s not my #1 positive news. It is quite an interesting turn of events though. In my mind Putin had a meeting on Monday with his vaccine lady and his marketing guy.

Vaccine lady: Good news, we have a vaccine. Bad news, we’ve only tested it on, like, 14 people…. more or less.

Marketing guy: That’s a shame because I came up with a cool name for it - Sputnik V.

Vlad, bless his tiny heart, whether you love him or hate him, he’s not one to turn down a good marketing opportunity. To be fair, it’s a great name. Approved.

Sputnik aside, the news on the vaccine could not be better. There are dozens of options, and apparently each has a likely failure rate of around 20%. Somewhere between 1 and 2 billion are already being manufactured. We don’t need them all to work. We also don't need them to work 100% of the time. Somewhere in there we should have options, and quite possibly in 2020. As Bill Gates likes to say, there are no problems that can’t be solved if they are given enough focus. Even Bill Gates said 1-1.5 years minimum. Nothing is certain, but right now it looks far better than anybody predicted. 

2. Negative forecasts

This just keeps winding me up, but all those dire predictions of travel numbers for the next 4-5 years are still pointless. When I say pointless, I don’t mean that they aren’t all that accurate, and they might have missed a trend here or a trend there, I mean they are 100% not worth looking at. It’s just somebody plugging in numbers into a spreadsheet, most likely combining other sources which are just somebody else’s made-up numbers. I don’t mean to sound rude. People are paid to create them. Budgets, funding and shareholders require something to look at. The intentions are all in the right place. But whatever you do, don’t plan the future of your business around them.

My last point on this (because I could go on and on about this) is that many of them say “won’t be back to 2019 level until 20xx” That’s the headline. But YOU don’t need it back to 2019. For reasons below, 90% is fine. 80% is fine. Even 70% will still leave you ahead.

International travel WILL return. Things will get back to normal. There isn’t anything to suggest that we won’t get back to previous levels of tourism. 

3. Hotels

Hotel supply is mostly fixed. Once built, the capital costs are sunk. Hotels might change hands, and property investors might lose a lot of money, but they will still operate as hotels. The alternatives in cities for the use of that land are mostly office space, retail and parking, all of which are extremely doomed.

Business travel, like working from an office, I suspect will be permanently affected by Covid. Most factors point in the wrong direction.

Unfortunately for the hotel industry, that’s a chunk of their revenue and room-nights. Lower business demand = lower overall demand = lower prices. The price of hotels will be much lower for many years, and the business sector loss turns into the leisure sector gain. Tours and Activities live mostly within the leisure sector.

Eventually, prices will catch up to 2019 again, but with a new and permanent higher % of leisure travelers. This is potentially a significant long term boost to the sector.

4. Efficiency

Airlines and hotels, like everybody will be more efficient coming out of this. It’s the flip side of the job losses I mention above. They’ll need to reduce costs to sustain those lower prices that they’re stuck with. Efficiency on any part of the travel journey is a benefit to everybody. With a more efficient core, those businesses will add jobs elsewhere - in places where humans add value and improve the experience. The net effect should be MORE travel jobs.

As well as airlines and hotels, Tours & Activity companies will be more efficient now. Or should be. If you haven’t yet, it’s not too late to review all those processes and be ready to come out of this as efficient as possible. Think technology. Review every process. Automate EVERYTHING that you can.

5. Competition

The new landscape is going to look very different. Unfortunately, the forest will have thinned out considerably, at least for the short term. There will be sunlight everywhere. Opportunity. You need to look for those gaps, and jump on the opportunities quickly. They won’t be there for long.

6. Local Marketing

If you haven’t focused on local and domestic yet, it’s not too late. That’s the sensible option for as long as it takes until international travel is actually happening again. Not people searching for destinations or flights - you need people getting ON flights. Those skills you’ll have marketing to locals, will still be equally valid in the future. The great thing about those locals is…. that’s right, they live locally. You can market to them any time you like once you know how to do it (think winter).

Summing up and the problem

The big hole in my bad news sandwich is between now and March. Those Norwegians, preparing for winter in August, are actually just fine. They do it every year. They have a huge pile of firewood stacked up next to their Tesla, in their fancy triple insulated log house overlooking the fjord.

People in this community are going to have to help each other through this winter. We are going to need ongoing support from network and community. The light at the end of the tunnel is a long way off right now.