Travel sector may recover more quickly than after previous recessions: report

The Covid-19 pandemic and the closed Canada-U.S. border delivered a “deep shock” to the Canadian hospitality sector this summer, a report from CIBC Economics says. Though challenges remain until a vaccine is approved, the report outlined positive factors that could aid the sector’s recovery.

The number of tourists to Canada in April and May was down 97% from a year ago, and the accommodation sector’s GDP was running at only one-third of the 2019 level, the report said.

July numbers should be better as social distancing rules eased, but some people were still apprehensive about travel and many tourist attractions were closed for the summer.

A potential silver lining is that Canadians who didn’t spend money while travelling abroad may be spending that money domestically. “While tourism is an important sector at home, Canadians still spend a lot more abroad than foreign visitors spend here,” the report said.

Last year, the trade deficit in tourist spending was more than $10 billion. That deficit becomes more pronounced in the winter months, when few foreigners are inclined to visit and Canadians flee to sun destinations.

“If those dollars get diverted to spending at home, that could be a significant lift to the Q1 growth rate,” CIBC said.

“While a January day in Winnipeg or Toronto might not seem to be a close substitute for Florida beaches or Arizona’s golf courses, much of that spending diversion could come simply from snowbirds who normally winter in the south opting to stay at home.”

The report also noted that many Canadians have been increasing savings during the pandemic due to limited options for spending on “experiences,” as well as concerns about job security. Those savings could lead to “a reserve of spending power” when the pandemic threat ends, the report said.

Will travel demand come roaring back, though, once there’s an effective Covid-19 vaccine or therapy?

“Typically, household discretionary spending like travel comes back with a lag after a recession, taking longer to recovery than overall consumption,” the report said. “That’s due to the loss of incomes during the slowdown. Travel is, after all, to some extent a luxury.”

This time could be different, though, as the labour income rebound is likely to be steeper than in previous recessions and household finances have been protected somewhat through fiscal stimulus.

The report also noted that in many cases travel was cancelled not because of a lack of income but because of health restrictions. That may have created “pent-up demand” among “frustrated travellers” itching to get away as soon as it’s safe to do so.

One exception to the travel sector’s eventual recovery could be business travel, which accounts for almost 40% of tourism’s contribution to GDP, the report said.

“[T]he use of technology to substitute for travelling to intra-company meetings might linger as a cost saving measure now that it’s successfully been put to the test during the pandemic,” CIBC said.

“Travelling to meet your own employees face to face might be seen as more of a luxury in the years ahead.”