IMPACT OF PANDEMIC COVID-19 ON THE TOURISM SECTOR

Abstract
Tourism and travel sector is one of the largest economic sectors, inducing exports, generating
revenue, creating employment and bringing economic prosperity across the globe. Tourism, over
the last few decades, has no doubt become a major share-holder in contribution towards the global
GDP and has become a major economic and social force. The recent outbreak of the pandemic
caused by the coronavirus COVID-19 continues its negative impact on the global economy in
general and the tourism sector in particular. The pandemic has inflicted shocks on all the facets of
the economy, be it the demand side, the supply side or the liquidity. Accordingly, the aim of this
paper is to analyse the impact of the pandemic COVID-19 on the tourism sector and assess its fall
out on losses of revenue, employment and GDP. The paper tries to identify the negative impact of
the pandemic on revenue generation, exports, investments and loss of jobs in the tourism sector;
draw parallels with similar though smaller SARS-2003 and Global Economic Crisis of 2008;
economic impact on tourism-dependent countries and on India; and finally, look at a possible way
ahead.

Introduction
On 30th January 2020, the WHO declared coronavirus COVID-19 a pandemic and a global
emergency, leading to countries declaring lockdowns, banning international travel and restricting
domestic travel. With “social distancing” becoming the buzzword, all activities involving travel,
human interaction, accommodation and dining etc took a hit. The services sector in particular
including travel, tourism, entertainment, hospitality and recreation have borne the major brunt.
Tourism within itself, comprises numerous sectors like travel, accommodation, transport, food &
beverage, culture, recreation, sports etc, that assist in supporting and serving both domestic and
international, business and leisure travel.
According to the World Trade and Tourism Council (WTTC)1, the global economic and
employment impact of Travel & Tourism can be seen in 185 countries and 25 regions. WTTC
research reveals that in 2018, this sector accounted for 10.4% of global GDP and generated 319
million jobs (10% of total employment). However, the outbreak of the pandemic coupled with
global travel restrictions, have stuck a severe blow to this otherwise growth-oriented sector.

1 Country Analysis
Lockdowns in the USA, China, Japan, Germany and the UK, which were the top five tourism
markets in 2018, collectively representing 47% of the global Travel & Tourism GDP, will have an
adverse effect on their Travel & Tourism sector, their GDP growth and the global Travel & Tourism
GDP.

Impact on Tourism Revenue, Exports and Investments

United Nations World Tourism Organisation (UNWTO)2, the UN agency responsible for promotion
of responsible, sustainable and universally accessible tourism, in its World Tourism Barometer of
Jan 2020 had forecasted a growth of 3-4% in international tourist arrivals worldwide; and, its
UNWTO Confidence Index showing “cautious optimism” for 2020, with 47% of its Panel Experts
believing that tourism will perform better while 43% saying that levels of 2019 will be maintained.
As per UNWTO, factors that could weigh on growth in tourism were - uncertainties surrounding
Brexit, geopolitical and trade tensions, and the global economic slowdown. But, none had
anticipated the imminent pandemic.
In the light of, rather, the darkness of COVID-19, UNWTO’s revised forecasts have now estimated
that international tourist arrivals could decline by 20% to 30% in 2020, which would translate into a
loss of US $ 300-450 billion in international tourism receipts (exports). The World Travel and
Tourism Council (WTTC)3 has estimated that the crisis will cost the global tourism sector at least
US$ 22 billion, with the travel sector shrinking by up to 25% in 2020. China, where the pandemic
started, will also see a major drop in its revenue, decreasing from US $ 118 billion in 2019 to US $
71 billion in 2020, followed by the USA, Italy and Germany.
Tourism induces Public Investment, Private Investment and also, Foreign Direct Investment. The
tourism sector is seen as a profitable and lucrative avenue for investment. Exports and investments,
as induced by tourism, lead to financial mobility, flow of money from developed nations to
developing nations. The G20 countries were the main recipients of FDI projects in the tourism
industry, as 45% of the 1306 announced global tourism projects in 2018 and 2019 were invested in
these countries, suggesting they will be heavily affected by the limitations and shutdowns on travel.
However, smaller countries that depend heavily on tourism will be hit harder in relative terms. For
example, the Philippines was the highest recipient of FDI capital expenditure in the tourism sector
2019, according to fDi Markets. The US $ 6.3 billion sourced in this sector accounts for 53% of the

2 UNWTO World Tourism Barometer (English version) Jan 2020

3 Country Analysis
country’s total greenfield FDI inflows in 2019. The travel and tourism sector also accounts for 21%
of total GDP of Philippines, making it the second most reliant country on the sector, according to
WTTC data.4
Tourism, not only includes leisure travel but also travel on account of business, events, festivals etc.
The pandemic has led to cancellation, suspension or postponement of many such mega events like
the Tokyo Olympics, the NBA season, the Wimbledon, the French Open, the Chinese Grand Prix,
the FIFA Asian qualifiers, and the list goes on. In addition, cultural events like the Met Gala, the
Cherry Blossom Festival, the Tucson Book festival etc, and all major music festivals have also been
postponed.
In 2016, the Rio Olympics generated tourism revenue to the tune of US $ 6.2 billion besides
creating jobs to the tune of 82% of Rio’s local economy. As forecasted by the Statista Research
Department5, revenue from the 2020 Summer Olympics and Paralympics was expected to be
around US $ 5.8 billion (630 billion Japanese Yen). With almost all of these events seeing a footfall
of millions, related activities like air travel (both domestic & international), hotel bookings,
sightseeing, dining, food & beverages, shopping & picking up souvenirs, which otherwise would
have contributed to the GDP of the host countries, unfortunately will not happen in 2020.

Loss of Employment
Tourism is a highly labour intensive activity which significantly boosts employment, having a
multiplier effect, implying that one tourist gives rise to a certain number of jobs (this number varies
from country to country, for example it is 9 for Bangladesh and 2 for India). With the impending
recession in the tourism industry, this multiplier effect would now work in a backward direction -
every less incoming tourist will cause a corresponding loss of employment. For developing
countries, which have been witnessing jobless growth in the recent years, the impact would be
much severer. As per the UNWTO6, Tourism and Travel generated close to 318 million jobs in 2018
(which was 10.0% of total employment in the world), including employment by hotels, travel
agents, airlines, other passenger transportation services and wider effects from investments and
supply chains etc. But now, the global travel and tourism market is predicted to see a loss of 75.2

4 Covid-19 jeopardises 75m tourism jobs despite record 2019

5 https://www.statista.com/aboutus/our-research-commitment 2020
6 UNWTO World Tourism Barometer (English version) 2019
million jobs worldwide in 2020. China, the country of the origin of the virus, is likely to see the
biggest loss to the tune of approximately 2.56 million jobs, followed by India and the USA. Italy,
which has been hit worst, is predicted to see a loss of 1 million jobs in 2020. Loss of jobs will lead
to reduced incomes which will lead to reduced spending leading to the vicious downward spiral of
the economy at large.

SARS-2003, Global Economic Crisis-2008 and COVID-19

The tourism sector has taken a hit earlier as well; in 2003 because of the SARS (Severe Acute
Respiratory Syndrome) and in 2008 due to the Global Economic Crisis, when the international
tourism receipts declined by 1.4% and 5.4% respectively. However, the current crisis is much more
severe - only in two months, the deaths caused by COVID-19 have surpassed those of SARS. The
World Bank predicts that international tourism could drop back to the levels of 2012-14. SARS had
accounted for a drop in international tourist arrivals of almost 9.4 million and a loss of revenue
between US $ 30-50 billion.7 On the other hand, the Global Economic Crisis had led to a decline of
international tourist arrivals by 4% and international tourism receipts by 6%. It is significant to
mention here that the tourism sector has expanded exponentially since then - thus the losses in the
quantum of revenue will also be exponential, way bigger than earlier, more painful and will
accordingly take that much longer to recover.
One major point of difference between “then” and “now” is that this time, both the supply and
demand sides of tourism have been severely affected. With the travel bans across the globe,
restricted domestic travel, shutting down of major tourist attractions like the Louvre Museum, The
Taj Mahal and the Eiffel Tower etc, besides the closures of eateries, hotels, and transport facilities,
the supply-side of tourism has been badly hit. On the other hand, with a loss of jobs, reduction in
wages due to workplace disruptions, the consumer spending has also decreased, leading to an
“aggregate demand shock”. Thus, the number outbound travellers from countries which are
severely affected by the pandemic - like China, Germany, USA, UK, Canada, Italy (which ranked 1,
2, 4, 5, 8 and 9 respectively in number of outbound tourists in 2017), will decrease both due to the
fear of catching the virus as also due to people’s reduced paying capacity and propensity to
consume.

7 International tourism, number of arrivals 2019

Needless to say, for countries like Macau, Seychelles, Maldives, Bahamas and Fiji, which are
primarily dependent on tourism for their revenue, the impact will be even more severe. For
instance, tourism contributed to 72.2% of Macau's GDP in 2018. In Europe, which has been the
worst hit so far, countries like Spain, Greece, Portugal, Italy and Switzerland also depend heavily
on tourism. To cite an example, in 2018 approximately 45% of tourists to Spain came from the UK,
Germany, Italy and the USA. Spain, with more than 130000 cases, would no longer be an attraction
for tourists in the near future, less so from the four countries which themselves are badly hit by the
virus. Lost tourism is a big threat to the USA as well. According to Tourism Economics, Moody’s
and the U.S. Travel Association, about 3 million Chinese visit the USA each year, spending about
$6,500 per trip, 50% more than typical international tourists. With visits from China expected to fall
by about 30% this year, an economic loss of about US $ 5.8 billion has been forecasted. Tourism
Economics estimates. 8

Impact on the Indian Economy and Tourism

In India, the tourism sector has emerged as a catalyst for its inclusive growth. It has become an
important source of revenue especially for areas where industrial investment isn't profitable.
According to the Ministry of Tourism, in 2018, the estimated foreign exchange earnings from
tourism were US $ 28.585 billion. The WTTC stated that in 2019, 8.1% of total employment
generated in the country was contributed by the tourism sector. With the on-going lockdown,
increasing number of COVID-19 cases, high densities of population, relatively poorer standards of
hygiene & sanitation and inadequate public health care facilities, the Indian tourism sector is likely
to see a fall in revenue and thus huge losses. According to the KPMG report9, potential impact of
COVID-19 (2020), the Indian tourism and hospitality industry is staring at a potential job loss of
around 38 million, which is around 70 per cent of the total workforce. As per the KPMG report,
aviation and travel sector together may incur a loss of about US $ 1.1 billion (INR 85 billion) due to
travel restrictions imposed on foreign tourists.
Besides the formal sector of the tourism industry, about 50% of the gross value added by hotels &
restaurants is contributed through its informal sector. Most people in the informal sector of tourism
are semi-skilled workers, female workers and people from marginalised communities. In
developing countries like ours, tourism related jobs attract the poor more than the elite. It has

8 US economy: Coronavirus could disrupt tourism, iPhone supply

9 https://home.kpmg/xx/en/home/insights/2020/03/the-business-implications-of-coronavirus.html
created numerous jobs in areas where industries are difficult to come by like Ladakh, Himachal
Pradesh, Madhya Pradesh, the North East and Andaman & Nicobar Islands etc. These States and
UTs, which depend heavily on tourism for their revenue, are likely to face a crisis in job creation
and sustenance. This crisis is even a bigger threat to daily wage workers like guides, taxi drivers,
porters and other such workers below the poverty line, whose survival is hand to mouth, most of
whom are employed in this sector.

Measures to tackle this Crisis

Potential measures to support the tourism sector can be temporary state aid for tourism and easy and
fast short term and medium term loans to overcome liquidity shortages from the national
governments. All tourism entities should be treated as priority sector lending. Fiscal relief for the
small and medium scale industries and protection of workers from unemployment and loss of
income. Governments should fund or assist ventures hanging on the edge. The European Tourism
Manifesto alliance, suggests a simplification of visa rules, reducing or waiving travellers’ taxes and
supporting economically hit destinations with promotion and marketing to attract tourists and
guarantee a swift recovery in the aftermath of the crisis. In India, the government should promote
‘Incredible India’ aggressively, should take special measures to improve the sanitation and
cleanliness of all tourist destinations, airports, public transport etc. and should advertise the same.
Travellers should be allowed to postpone travel, this would avoid cancellations and ensure demand
once the pandemic settles. Globally, we must improve our state of preparedness to handle such
emergencies and our state of sanitation. An assessment of safety and hygiene levels of tourist
destinations must be mandated.

Conclusion
If crisis measures are extended, on average, each additional month of shutdowns will cost 2% to
2.5% of global GDP. If extreme COVID-19-related measures last until mid-June 2020, the U.S. will
see its GDP fall almost 4%. Italy and Germany will see their GDP fall close to 6% and the UK more
than 5%. Experts from the tourism and travel sector state that once the outbreak is over, it could
take up to ten months for the industry to recover. The shock in the tourism sector is a major shock to
mobility, it will hamper not only the mobility of humans but also funds. The extent of losses will
depend on how quickly the virus, and more importantly the fear, is eradicated. Some long term
impacts of the virus can be structural changes in travel patterns, for example business trips might be
replaced by ‘virtual journeys’ and ‘video conferencing’. Once the pandemic is contained, there is an
urgent need to mobilise resources to stimulate the economy. The economies must work proactively
in order to make the tourism sector robust, as it has many lives and livelihoods linked to it.
References
How much will COVID-19 shake the world economy? Economic Effects of Coronavirus Outbreak
(COVID-19) on the World Economy 2020
https://www.ieseinsight.com/doc.aspx?id=2291&ar=7&idioma=2

Coronavirus is a once in a lifetime chance to reshape how we travel April 3, 2020

https://theconversation.com/coronavirus-is-a-once-in-a-lifetime-chance-to-reshape-how-we-travel-134764

The World’s Dependency on the Travel Industry

https://howmuch.net/articles/travel-tourism-economy-2017

10 countries most dependent on tourism 2020

https://www.traveldailymedia.com/10-countries-most-dependent-on-tourism/

Employment loss forecast 20202

https://www.statista.com/statistics/1107475/coronavirus-travel-tourism-employment-loss/

Importance of tourism and its economic value

http://www.market-width.com/blogs/Importance-Tourism-Industry-Economic-Value.htm

How SARS affected tourism

https://www.thestar.com.my/news/nation/2020/01/29/how-sars-impacted-tourism

World Economic Forum: How is Coronavirus affecting tourism

https://www.weforum.org/agenda/2020/02/the-coronavirus-will-hit-the-tourism-and-travel-sector-hard/

CNN Business: Global Travel Industry 2020

https://edition.cnn.com/2020/02/28/business/global-tourism-novel-coronavirus/index.html

USA Today: Effect of Coronavirus on products 2020

https://www.usatoday.com/story/money/2020/02/20/china-coronavirus-spread-threatens-us-economy-
commerce/4806939002/

The unorganised workforce of India 2018

https://www.geographyandyou.com/the-unorganised-workforce-of-india/

European tourism sector urges measures to mitigate COVID 19 impact 2020

https://www.euractiv.com/section/coronavirus/news/european-tourism-sector-urges-measures-to-mitigate-
covid-19-impact/