The top five trends that will drive tourism’s recovery
The tourism industry was battered by the Covid pandemic in 2020, but Zurab Pololikashvili, secretary-general of the World Tourism Organisation, identifies the drivers that could incentivise tourism FDI in 2021.
The Covid-19 pandemic has hit the tourism sector hard. By the second quarter of 2020, 100% of global destinations had introduced restrictions on travel. As a result, destinations welcomed as many as 1.1 billion fewer international arrivals in 2020 than they did in 2019, translating into a loss of $910bn to $1.2trn in export revenues and 100–120 million direct tourism jobs.
In this context, what are the drivers that could incentivise FDI in the tourism sector in 2021? That is the crucial question investors must ask in the midst of new waves of Covid-19 and against a backdrop of continued uncertainty at the start of 2021. UNWTO Investments has identified five potential forces that might drive tourism recovery.
1. Consumer behaviours
Generation Z is a key demographic to keep an eye on since it will represent the largest share of the global population, numbering 2.6 billion, by 2040. These digital natives will be keener to explore with less apprehension than older generations, whose health is generally more at risk. Hence, their new behaviours may create trends towards digital and innovative services, especially mobile. At the same time, they will demand personalised experiences.
The evidence suggests that the Generation Z age group, along with millennials, consider travel experiences a priority. Their trips are characterised by shortness, a focus on authenticity, and on sustainability. Moreover, given the impact of the Covid-19 pandemic, there is an increasing demand for transparency regarding health protocols, safety and data privacy. This represents a great opportunity for investors to capture value and leverage offers and assets.
2. Innovation and technology
These digital natives are demanding new solutions built on technologies such as 5G, cloud-based services, artificial intelligence and blockchain. All of these solutions increase the speed of information retrieval and enhance both intuitiveness in interactions and experiences before and after a trip. For example, an increasing number of travel tech start-ups are using blockchain tokens to add value to their booking experience, and also to create incentives based on decentralised networks. All this accelerates the digitalisation of the tourism value chain and its stakeholders.
3. Travel tech start-ups
Venture capital investment in the travel tech sector has experienced continuous growth throughout the past decade. About $455bn was invested in travel and mobility tech start-ups between 2010 and 2019. Surprisingly, despite the drop in global investment seen in 2020, the amount of funding directed towards the travel tech sector not only remained stable but experienced a marginal increase during the first semester compared with 2019. This has been an interesting driver with regard to capital formation and international investments in intangible assets in contrast to traditional assets.
4. Green investments
Covid-19 has accelerated the transition towards green investments in the tourism sector. This is a powerful driver to create FDI opportunities as it promotes incentives, regulations and consensus to achieve sustainability compliance with regards to the sector’s growth; it can do this through cost-efficiency, city policies, corporate/brand image and better guest satisfaction. The pandemic opened up opportunities for green buildings and retrofitting, and the need to reduce emissions presents a $24.7trn investment opportunity in the green buildings sector of emerging market cities between now and 2030. This represents a $1.5trn opportunity in hotels and restaurant buildings alone.
Considering the 73.2% decline in tourism greenfield investments experienced in the first half of 2020, and the potential drops expected for 2021, any new global FDI opportunities will be related to the increase coming from cross-border mergers and acquisitions, rather than traditional greenfield investments. These new investments will be characterised by the acquisition of distressed hospitality assets with the purpose of renovating, retrofitting, repurposing and rebranding them. These strategies will allow for the reallocation of capital, while at the same time safeguarding jobs. They will also lead to innovative business models towards hotel offices, workstations, or repositioning towards green buildings in compliance with high health protocols, and rising demand.
Home page photo by Cliff Hawkins/Getty Images.
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