Rhino Africa’s David Ryan and Grant Rapaport are conscious of the fact that it is not business as usual. In part one, they look at the key factors which forms part of their forward planning.
In order to ensure economies throughout Sub-Saharan Africa can recover in the wake of COVID-19, there is no getting around the fact that tourism must be at the forefront of our recovery, a pillar for economic growth and employment. For that to happen as quickly as possible we need to ensure that the businesses that make up the backbone of our industry, from lead generation to logistics and accommodation are able to survive, in order to meet and entice the return of world demand for African travel.
As a first step to understanding this complex impact this pandemic will have on our interconnected industry we have identified five key factors that will form the basis for our forward planning. They are:
- Treatment and vaccine horizon
- Ability to travel from key source markets
- Destination markets’ ability to reopen and host
- Structural differences between flights, beds and activities and tour operations
- Recovery tailwinds
TREATMENT AND VACCINE HORIZON
At present, there are no existing treatments for COVID-19, despite trials that are underway to test the efficacy of existing drugs, along with the timelines to produce a vaccine. These timelines include the required safety and efficacy through clinical trial results and scaling manufacturing required are estimated to take 12-18 months.
ABILITY TO TRAVEL FROM KEY SOURCE MARKETS
Simply put there needs to be healthy guests with disposable income to afford travel and a flight network servicing Africa. As we think forward to the restart of local then global economies we need to look beneath the economic turmoil and segment the impact it would have had on different parts of the population in our source markets and their disposable income.
Setting aside the travel bans, the economic impact will likely not be born equally across source markets or within them. In rich countries, the burden of this pandemic will sadly fall disproportionately on the working classes. We see a massive shift by knowledge workers to working remotely, shielding their income while physical, generally lower paid labour cannot, and are therefore at higher risk of being laid off. Additionally, we have already seen in many of our source markets an unprecedented scale of governments stepping in to fill the gap left by constrained economic activity, further socialising the cost.
Direct stimulus packages have also been adopted at a time when personal spending is physically constrained and there could well be further pent up demand accumulating, particularly in the luxury and experiential spaces. While this is mixed news, our belief is that our guests’ disposable income may be less impacted than initially thought, driving our recovery in demand for travel post the crisis.
Flights and the massive infrastructure investment every global city has made to facilitate the movement of people and investment is a fundamental building block of our modern society. Governments have already moved to shore up airlines to ensure they are ready to be part of the global restart in trade and commerce.
Rapid passenger pre-flight testing will soon become part of the normal airport experience driven by the urgent need to underpin economic recovery with the normalisation of flight service. Asian countries have already employed these techniques to great effect, and we can expect rapid iterative improvements as the airports shift their resources to roll out these measures for the dual purpose of containment and the critical return of confidence to the sector.
A best-case scenario where we are relatively successful in containing the outbreak of COVID-19 in Sub-Saharan Africa, there is still a high probability that our borders may have to remain closed to our primary source markets.”
DESTINATION MARKETS’ ABILITY TO REOPEN AND HOST
While initially concerned that a lack of containment of the virus in the destination (Sub-Saharan Africa) would have a long-term adverse effect on our recovery due to an inability to host, we are encouraged by what we are witnessing locally and regionally, through decisive leadership necessary, given the vulnerability of our populations. These are early days still, but cautious optimism is warranted.
A best-case scenario where we are relatively successful in containing the outbreak of COVID-19 in Sub-Saharan Africa, there is still a high probability that our borders may have to remain closed to our primary source markets, not due to an inability to host, but rather the high risk of imported infections.
We take note of the stringent measures China has employed to safeguard its population from an imported resurgence of the virus. These would be harder to deploy in the African context although a combination of far lower inbound volumes and rapidly improving testing capacity as well as investments made at departure points may prove enough. We also note that countries like South Africa have deep infectious diseases knowhow which would support these efforts.
In order to understand how this crisis plays out in the local tourism market, we have broken the industry into three major components to understand the vastly different recovery scenario impacts.
As we have seen, the extent of travel bans has arguably had the most direct and immediate impact on airlines with an unprecedented number of long-haul flights no longer operating, and limited domestic and regional flights feeder connections continuing in all source markets. One benefit in this space is flight bookings are highly automated and includes real-time visibility which allows airlines to have the most scalable and agile responses to market changes in booking demand as it returns and plenty of capacity to be returned to service.
That being said, actual flight operations are far more complex and require a coordinated response with each airport, government and regulator to operate especially as one could expect necessary controls on movement in this phase of the containment of the virus. Routes are likely to come back in a piecemeal fashion based on regional and international routings that show credible and sustained control over the virus as commerce returns.
In Sub-Saharan Africa, this is too early to tell, but flights and in particular SA Airlink’s domestic and regional network will be a critical backbone service for the return of any form of scaled, safari focused tourism. We expect this to start with limited service in conjunction with robust rapid COVID-19 testing facilities at and around airports given the risks associated with travel and reigniting localised epidemics once we see containment measures lifted.
Existing bookings – unlike airlines with loaded, scheduled products in a largely homogeneous marketplace, Tour Operations involve the connection of guests, logistics, activities and accommodation in the curation of tailor-made holidays. Hence in the first phase of this crisis, we have dealt with record volumes of guests scheduled to travel in March and into Q2 that had to either be postponed or in some cases cancelled, requiring our entire capacity to be directed at these tasks, all without any additional revenue to contribute these incremental costs. In ordinary times the full-service B2C model does necessitate multiple touch points that increase the workload, but this is worth the investment in the long term as we see repeat and referral guests drive our growth. In times of crisis, this also allows us the clear benefit of having a primary voice in ensuring our guests can be presented and consider all options available to avoid cancellations. Through this relationship-centric approach we have seen positive results in maintaining a large proportion of the forward book which will aid the recovery of both flights and beds with a base load of guest arrivals in the future.
New bookings – we have seen a dramatic drop off in online search interest in the last 45 days as the world is preoccupied with the immediate impact of COVID-19. This will change over time as we see search interest and enquiries slowly return as potential guests see more certainty in the future which currently looks too cloudy to facilitate commitment to future travel. As this interest returns, we expect to see average lead times (booking to travel) for high-end guests which are normally six months to potentially be even longer as we saw post other health scares like Ebola. The search interest return and the lead time we will see will be extended if governments and airlines don’t set clear expectations regarding schedules and border control regulations which have the ability to reassure guests if done well. What we do not need is stories of flight cancellations or self-inflicted wounds through policies like we saw in the unabridged birth certificate saga. Regardless of the facts on the ground Tour Operations will be at the forefront of disseminating accurate reliable real-time information related to the inevitable patchwork of additional travel restrictions, in addition to the ongoing need for guiding clients back to Africa in order to facilitate guest conversion. Industry associations like SATSA, TBCSA, ATTA and TSA will need to coordinate closely with regional and international governments to ensure certainty and clarity is the goal of all messaging.
BEDS AND ACTIVITIES
Accommodation and related activities are fundamentally driven by heads in beds. Therefore, the timing delay until we see guests arriving back into Sub-Saharan Africa at scale is the critical driver to bed operations recovery. As a long-haul international destination, this will be significantly impacted by the success of all the factors we have identified. While international markets remain closed, we can expect some short- to medium-term demand from our domestic and regional markets. These will require adjustments to operations and pricing in many cases. Given the small size of the local luxury market, this will be limited in volume and drive significant price flexibility and SADC rates.
For bed owners, one will need to weigh the financial and human costs of mothballing operations versus those related to adapting operations for local demand and the ability to generate domestic or regional demand in the short term. Added to these risks, if history from the 2010 Fifa World Cup reminds us of anything, it’s during times of low occupancy, as experienced post the 2008/9 Financial crisis, a gluttony of highly discounted 5 and 6-star beds is hugely detrimental to bed suppliers that are geared to servicing the 3 and 4-star markets.
As international arrivals start to scale these arrivals will displace local demand. The sheer complexity of the international travel ecosystem, that we have taken for granted over the last 20 years, presents timing risks to be managed and monitored in order to transition pricing strategy while managing occupancies.
The lead times highlighted in the Tour Operator section then need to be considered in the recovery which adds additional time to the road to bed occupancy recovery. That is also why deferral, rather than cancellation of current future travel pipelines is so critical as these international arrivals will provide support for bed owners as the build-up of new bookings ramps up in the 6 to 12-month timeframe. The recognition of these structural constraints is critical for bed operators to plan for ensuring sustainable operating cost levels are achieved rapidly post local lockdown periods or alternatively access to bridge funding is secured to ride out this layered demand recovery.
We are conscious that as the travel bans persist, there is a large amount of international travel still booked for travel through the next six months that may require postponement creating great adversity and complexity to bed, flight and logistical services.
EMERGING MARKET CURRENCY WEAKNESS
We have seen a perfect storm of credit downgrades in South Africa, flight to quality and upcoming necessary government fiscal and monetary policy interventions that have already significantly changed country and regional financial risk profiles of the developing world. We have seen this in 15-25% currency weakening in South Africa and its direct neighbours and closer to 40% in the Zambian Kwacha while East African destinations have been spared with 10-15% declines this year. This bodes well for destination competitiveness for an industry that still hasn’t largely moved to dynamic pricing.
AVAILABILITY AND LOWERED OPERATING COSTS
As we have seen significant demand side shocks we have seen and expect further price reductions from suppliers especially in the short-term and holding or reductions in 2020 rates. Weaker regional currencies, mean African beds, will be trading at 2014 / 2015 US dollar pricing levels, with little appetite from bed suppliers to increase rates due to lack of occupancy through the better part of 2020.
With labour market disruptions and lower oil prices, for the first time, a depreciation in regional currencies will not mean a direct increase in inflation, further dampening the requirement for price increases. On the contrary, we predict that US $ priced bed rates will need to decline into 2021 if they want to compete with their Rand-based counterparts, as they brace for a recovery in occupancies.
This bodes well for destinations like South Africa and Namibia but will require a competitiveness review for destinations like Botswana, Zambia, Zimbabwe and East Africa that largely follow US $ based pricing. Thus, if bed operators were to work with a common purpose, our road to recovery could be further aided by ensuring highly competitive destination pricing. This extends to lower long-haul airfares which are also likely in the medium term as loads build and are aided by oil prices that look set to remain low.
While COVID-19 is deeply impacting all of us, we know that this moment will pass and travel will be back, because the desire to connect is in all of us. We are seeing people throughout the world find innovative ways to feed that need during this time of isolation and we expect the need to connect and embrace life and experiences will be stronger than ever once the forced isolation eases. Our belief is, therefore, that the psychology of mortality enhances a desire for connectedness that will drive an increased demand for experience. And with a developing consciousness, Africa has both experiences and connectedness in abundance. As we all know, there are few places in the world that families and loved ones can come to reconnect for long hours every day, away from the distractions of endless Zoom meetings and chat apps, like that of the back of a Land Rover.
In addition to the incredible experiences Africa has to offer, the shared humanity of this crisis which is truly Global has already seen millions of people and businesses stepping up to support those in need. The established indirect and direct connection between tourism and poverty alleviation, education and wildlife preservation should all be strong drivers of both our industry leaders in this time of crisis, as well as additional motivators for our guests to come back to Africa in support of these amazing causes. The reality is as destinations and source markets reopen, guests will have a plethora of options available for travel and few destinations have the impact story so closely linked to why travel to Africa should be at the top of the list of those guests with that consciousness to give back.