How does a decimated activities sector find a route to recovery, part 1

Predicting the long-term future of what was a $254 billion tours, activities and attractions industry when we are all still in full-on rescue mode seems a bit foolhardy.

A million operators, most of them small businesses, are focused on survival. The possible outcomes for the sector from 2021 to 2025 are an infinity of variables. Therefore, the only thing I can predict with certainty is I will be wrong, but being wrong is not a reason to not try!

Who will be the winners and losers?

The whole sector is being impacted negatively at a scale that none of us forecast or dreamed of. Different areas within the industry are experiencing different impacts and that will make a difference on who survives and who does not and who is then in a position to thrive as we rebuild the best part of travel.

Big business

I think it is becoming pretty clear that those huge businesses who are on the stock market have already refinanced and will survive to fight another day. The asset-light online travel agencies of Tripadvisor, Booking Holdings and Expedia Group will be able to manage the crisis in the three- to 12-month range. If it goes on significantly longer than that, then even their reserves and ability to raise cash may be called into question.

However, the main issue for this segment of the industry will be: Will they continue to be as interested in tours and activities as they were before? Before the crisis we had already seen them reducing investment in the sector as they all discovered it was a lot more complicated and harder than they had thought.

In times of crisis, you look after your core business. I expect to see changes from at least one of these OTAs with regards to tours and activities. These changes could include sales of standalone platforms like Viator or reversals from the market altogether. Will Amazon or another digital giant take this bargain of a lifetime opportunity to get seriously involved in travel?

GetYourGuide, with its large funding round again, should be able to sit this out for three to 12 months, and as a pure-play tours and activities OTA will be looking on at those above for any sign of them withdrawing from the market.

That said, it probably still has and will continue to have a higher cost of acquiring customers due to being a pure tours and activities OTA, and even vast sums of money can be quickly reduced by Google to get access to customers.

All of the above have the advantage of global reach, so they will be taking bookings in the recovery quicker than most. Also, due to this reach, they will also be able to laser-target their marketing spend on what is open and what is not and what product can retail and what cannot. This advantage will see them gain market share from the reduced market size.

One point of caution on the above: OTAs are not that great at driving local tourism. If the market stays driven by locals for some time, the OTAs will struggle to gain those bookings. They need regional and international travel to restart as soon as possible.

Not all operators need regional and international travel: In fact, depending on what country you are in there are perfectly viable local tourism business models that operators can change to rapidly. It is harder in some destinations than others. If disruption lasts at scale for 18 months-plus, then local wins, and OTAs are not good at local!

Middle-market operators

These operators make up about 15 to 20% of the supply base, and it is going to be extremely tough for them to survive in any shape that resembles what they were pre-crisis. All will have cut what they can, and if they have not, they should have, but they will still be burning cash every month.

How deep are the cash reserves? Also, how much debt are they willing to take to survive? Many who are loading up with debt need to do the calculation on does the debt work long-term with 50% reduced volume? Do you need that debt now or do you need it in the future to cash flow operations when tours start moving again?

Small operators

The massively fragmented and hugely diverse global operators base that is 80%-plus of the industry is in many ways best equipped to deal with the crisis. Many of these operators are in the team size of one to five people. They can scale down and hibernate; many do not have fixed monthly costs except for salaries for founders or maybe a vehicle. Many will be able to get work outside the sector and return to tourism later.

Having said that, I do expect the supply base to reduce. COVID-19 will be the first real business disaster many of these operators will have faced, the scale of it will tempt many of them to return to other industries that they deem more secure in the long term than tourism. Also, the vast majority of these businesses are self-funded from savings, families and friends, and the longer the crisis goes on, it will be like starting a new business again, and many may just decide they are not up for it.

At this point, it is worth noting that although tours and activities are without a doubt the best part of travel, the industry does not exist in isolation, and without a recovery in air travel and the hospitality sectors the tours and activities industry will be a shadow of what it was in 2019.

So although we are all focused on our industry, it is what happens in these two other sectors that will dictate a lot of our future. I think everyone in the whole of the travel industry agrees that the recovery will be driven local, regional and then international. The only disagreements are the timelines.

Technology providers

As with all industries, tours and activities are increasingly reliant on technology providers, such as reservation systems, channel managers and content systems. No doubt, the industry needs fantastic technology at its core, and the requirement has just gotten more not less.

However, it is difficult to see how many of those current providers will survive with the revenue models they have versus the development and maintenance costs. The investment levels many of these companies needed, which were never easy to access, have just gotten a lot harder.

I hope that the founders and leadership teams of all the many quality technology providers are in discussions and find a way to merge and rescue the best of what is available and the best talent to develop and grow our industry technology going forward. You are needed now more than ever.

All sectors of the tours and activities industry need to consider these limiting factors.

• Government restrictions: Who can travel? Where can they go? What do they need to be able to fly?
• Economic situation: Some economic forecasts are showing double-digit to a quarter reduction in countries’ GDP. Previous disasters were in the 1 to 2% GDP range for a short time. No one in travel has experienced this level of economic change.
• Costs: Many are assuming travel bargains, and yes there may be in the short term, but medium- to longer-term travel is going to be a lot more expensive.
• Insurance: You will need it, but can you get it, and what will the cost be? Applies also to businesses, and their customers’ insurance is a critical cog in the future. What is the insurance price for a 60-year-old getting on a cruise ship in 2021 or ‘22? I never thought I would ever hear myself say this, but insurance is likely to be an exciting place for travel startups post-COVID!

So what is different from 2019 for these operators and who will not just survive but thrive?

It may surprise many, but I do not see much change. Those operators in any of the above sectors of our industry which are:

• Digitally focused
• Understand that their only strategic asset is their customer relationships
• Have a balanced distribution arrangement
• Can make a profit per tour departure
• Can control costs and have a variable cost model
• Have outstanding experiences as the entry to the game
• Can adapt to a different customer base
• Can tailor their marketing to a varied customer base
• Can deal with drive and alternative accommodation as partners in an experience ecosystem

The crisis just put into hyper-speed much of what was already happening. Those operators who were on top of some of the above will grow again.

Underreported impact: I just want to mention that the biggest losers in this disaster are all those small family tourism operators in the developing world. Most of these family operators do not have digital reach. Technology is a mobile phone. They are in countries with zero safety nets. No matter how bad you are currently feeling about your business, please just remember we are lucky to be dealing with this from a position of strength many sadly are not.

* In part 2, publishing Monday, Syme looks at short- and long-term impacts on the sector and where he sees opportunities for innovation.