COVID-19 brought the world to as close to a standstill as we have ever seen. In 2020 we saw near-paralysis in movement as well as decision-making, wrestling global economic consequences with health and safety imperatives.

The travel and leisure industry and its associated sub-sectors have been hardest hit. As the pandemic fully took hold in March last year, the GBTA (Global Business Travel Association) forecast that revenue loss in worldwide business travel alone in 2020 would exceed $800 billion. Meanwhile, the global leisure travel and tourism industryseparately valued at $685 billion in 2019was forecast in May to reach just $396 billion in 2020, more than 40% below original expectations of over $700 billion. With second and third waves of lockdowns now experienced throughout the second half of the year and into 2021, even those figures feel optimistic.

The return to a world in motion cannot come soon enough for companies across the industry, whether it be airlines, airports, hotels, restaurants and other entertainment venues. Vaccine rollouts in 2021 should provide the vital injection of free movement and positive momentum, but the key question is when. We will not emerge from the crisis at anywhere near the accelerated rate in which we entered it and managing the recovery curve will be extremely difficult in practical terms from a capacity perspective, given continued uncertainty and the stop-start nature of restrictions globally.

A long road to recovery

This is not a crisis that will evaporate in the 12 months ahead and a long-term mindset is needed to stabilize and re-shape companies for the future. The impact of virus mutations has already demonstrated that backward steps need to be taken before we can look fully forward again, and this immediately translates to delays on the anticipated recovery in the travel industry during Q1 2021.

Even with fast-tracked vaccine rollouts in H1 2021 and a potential snap-back in passenger confidence for the ensuing summer period, the travel and leisure industry remains firmly set for a long road to recovery. This could be potentially 3 to 5 years in the making before operators can re-establish pre-crisis levels of demand in key European travel markets.

For example, as detailed below in Figure 1, our analysis suggests that reaching a level of air travel similar to the demand seen in 2019 is unlikely to be achieved until 2023.

alixpartners travel industry covid accelerating disruption 2021

Of course, it also remains unclear whether all business sub-sectors will fully recover at all. While leisure tourism may well climb back to pre-crisis levels eventually, business travel specifically may plateau at significantly lower levels, as companies continue to refine and further embed flexible remote working practices from the pandemic—and their additional cost optimization potential—into business as usual. Research from October’s Euromonitor International Voice of the Industry: COVID-19 survey reported that one-fifth of polled business professionals now expect reduced air travel and international travel to be a permanent consumer choice (20% and 21% respectively)—seven percentage points higher than the previous survey in April 2020.

The pace at which consumer concern falls in relation to leisure travel of any kind will also play a key role in kick-starting recovery. At a global level, ongoing health concerns for COVID-19 across many countries at different stages in their own containment and vaccination programs will impact preferences for foreign travel.

The Euromonitor survey reported that 65% of consumers expect to holiday close to home more in the mid-term, nine percentage points higher than in April, with 18% expecting this to be a permanent shift. People are expected to travel reduced distances at least into the mid-term, driven by “reduced spending on holidays due to job losses and the global recession and also the desire to help their country’s recovery by supporting local communities and businesses and immersing themselves in their own culture.” While we may still see a surge in summer 2021 travel booking due to pent-up demand and money saved by some consumers due to the restrictive lockdowns, economic realities could hit home in 2022 and flatten the recovery curve.

Ongoing concerns surrounding the safety of international travel may also deter seasoned holidaymakers, although screening enhancements introduced at airports including quick turnaround saliva tests may bolster confidence that disruption will be kept to a minimum.

All the while though, revenues and profits continue to decline, leading to increased debt levels and shrinking liquidity. Leverage levels of EMEA-based travel companies have steadily increased, in part due to taking on new debt to sustain daily operations as well as the steady erosion of equity due to operational losses. Figure 2 below starkly highlights the weight of companies within the travel industry facing high levels of distress and associated media coverage, with additional cases also developing away from the media’s business pages.

alixpartners travel industry timing vs distress levels 2021

A lack of adequate financing, inability to streamline for a sustained downturn and missed opportunities for market consolidation will likely cost travel companies dearly. Those that emerge with the strength and shape to prosper beyond the pandemic will be the operators that quickly find comfort in continued ambiguity.

The true winners will be those agile enough to react flexibly to a multitude of rapidly evolving factors, including destinations permitted to be served; travel insurance offerings; vaccine progress; and of course the short- to mid-term hesitancy from consumers to take flight. When that moment does finally arrive, though, the world will truly be set in motion once again.