SPICe has published a comprehensive briefing looking at the impact of COVID-19 on Scotland’s tourism sector. It focusses on the scale of impact, business support, reopening, and recovery. It provides insights and analysis on the scale of COVID-19 challenges faced by the sector, and the public sector policy response over the year to March 2021.
This blog, a summary extract from our new report, explores the longer-term outlook for the sector. We recommend readers check-out our full report for wider context and a range of related themes.
An extraordinarily uncertain outlook
The outlook for tourism is extraordinarily uncertain worldwide, and recovery will depend on interlinked factors related to both the health crisis and the economy that touch on both the demand and supply side of tourism. These include:
- evolution of the pandemic and new variants
- rollout of the vaccine
- the lifting of travel restrictions
- survival and readiness of businesses throughout the business base
- impacts on consumer confidence and travel behaviour
- developments in the wider economy.
While the brief recovery in the summer months of 2020 had fuelled hopes for the beginning of a recovery in the sector, those hopes were dashed by the autumn/winter waves of the pandemic. Internationally most experts do not see a return to pre-pandemic levels of tourism happening until sometime between 2023 and 2024. Evidence from Scottish industry leaders to the Scottish Parliament in January 2021 suggested 2023 as an estimated return point to pre-pandemic levels.
A number of key themes and trends have been identified that will have implications for the outlook of the sector.
- Domestic tourism is expected to benefit, as people prefer to stay local and visit destinations within their own country.
- Safety and hygiene will be a key factor in choosing destinations and tourism activities, likely impacting preferences for accommodation and transport.
- Demand (traveller behaviour will be influenced by the evolution of the crisis – less disposable income, declined travel confidence) and supply side (structural changes to business base) changes will impact visitor flows and pricing points.
- Sustainability will likely become more prominent in tourism choices, due to greater awareness of climate change and adverse impacts of tourism.
- Digitalisation in tourism services is expected to continue to accelerate.
- Access to skills issues could be exasperated in the tourism sector.
- Tourism policy will need to be more reactive with policies to incentivise and restore investment in the tourism sector.
What do some of these themes and trends mean for Scotland?
Structural change in the business base and the point of unwinding support
Structural change in tourism supply – the willingness and ability of businesses to create tourism goods and services to take to market – is expected across the business base. Not all businesses will survive the crisis and capacity in the sector is likely to be reduced for a period, limiting the recovery. UK Hospitality (Scotland) highlighted in evidence that the nature of discretionary support means that not all businesses get support, resulting in winners and losers. The longer the crisis continues, the more businesses and jobs will be lost, the greater the implications for traveller behaviour, and the tougher it will be to rebuild the tourism economy.
The current levels of government funded intervention in the sector, and wider economy, are unprecedented. The rationale for these interventions is valid – to save jobs and ensure businesses will there to start again whenever the economy reopens. However, there will come a point where this lifeline support will have to be unwound, and some tourism businesses will face difficult decisions about their viability. Factors impacting business viability will include: timeline for full return of international connectivity and aviation, changes in consumer behaviour and preferences, scale of return in corporate meetings and business events market. Tourism businesses are resilient, and many will be able to innovate and adapt but unfortunately not all of Scotland’s registered 15,000 tourism businesses will survive.
Domestic tourism and green choices
Domestic tourism (visitors from Scotland and rest of UK) is expected to benefit, as people prefer to stay local and visit destinations within their own country. Multiple factors drive this: fewer restrictions for travel within own country, more substitution options for travel, anxiety, and growing ‘green’ preferences. However, domestic tourists are often more price-sensitive and tend to have lower spending patterns. In 2019, overnight domestic tourists spent £3.3 billion (averaging £232 per trip) in Scotland and international overnight visitors spent £2.5 billion (averaging £734 per trip). Even with increased domestic demand this is unlikely to fill the £2.5 billion gap in international spend.
New consumer preferences driven by COVID-19 suggest substitution effects towards rural areas and self-catering properties. Safety and hygiene have become key factors to select destinations and activities. People are likely to prefer private means of travel when travelling and avoiding big gatherings. Thus, the recovery period for urban areas and hotels is expected to be more prolonged. There was evidence of this trend in the initial reopening period in summer 2020.
Growing preferences for ‘green’ and sustainable choices could see increased demand for natural areas and more local destinations – shorter travel distances may result in a lower environmental impact of tourism. The World Tourism Organisation (UNWTO) foresee growing demand for open-air and nature-based tourism activities, with domestic tourism and ‘slow travel’ experiences gaining increasing interest. Slow travel is an approach to travel that emphasises connection: to local people, cultures, food and music. This need to balance sustainability with tourism policy was highlighted when concerns were raised around the Scottish Tourism Recovery Taskforce (STRT) recommendations linked to Air Passenger Duty. It was highlighted, via the Scottish Tourism Emergency Response Group (STERG), that whatever is done regarding aviation, international connectivity and international marketing must be in line with climate change targets and environmental expectations.
Digitalisation and innovation
Given the pressing health and safety concerns around face-to-face interactions and hygiene, digitalisation in tourism services is expected to continue to accelerate, including a higher use of automation, contact-less payments and services, virtual experiences, and real-time information provision. In view of the complexity of these issues involving sensitive data, significant investment, and the cooperation of several sectors and countless individual players, if it is going to succeed, it is essential that public and private sector partners engage meaningfully.
A step in this direction is the proposed ‘Tourism Data Hub for Scotland’ as a named action within the STRT recommendations. The STERG National Action Plan states that a ‘Team Scotland’ (collaboration across relevant public bodies) partnership are developing the business case for this initiative, working closely with Scottish Government and building on experience from academic, research and industry partners.
Innovation in tourism will be essential, as tourism businesses and destinations will need to adapt their offerings to modified travel behaviours. This crisis has accelerated the transition to digitalisation. VisitScotland is working in partnership with Business Gateway to promote and deliver digital support services to industry.
It will be important that all tourism businesses, particularly those at the micro and small end of the scale, have access to this support. It will also be imperative that businesses don’t face barriers, such as lack of access to satisfactory broadband. The roll-out of the Scottish Government’s R100 superfast broadband programme will be a key enabler here.
Active policies to incentivise and restore investment in the sector
As we go into spring-summer 2021, we know the tourism sector will be a very different this year to what it was in 2019. The gradual roll-out of COVID-19 vaccines is expected to help restore consumer confidence, contribute to ease travel restrictions and slowly normalise travel. Nonetheless, the industry’s recovery will be slow, as new COVID-19 variants are causing governments to continue using travel bans to stem the spread.
Forecasts indicate that it will take years for global tourism demand to return to 2019 levels, which means that overcapacity could be the new normal in the medium term. This prolonged period of low demand means that the way tourism is supported and financed may need to change. Reduced investment will call for active policies to incentivise and restore investment in the tourism sector to maintain the quality of the tourism offer and promote a sustainable recovery. This will require a commitment of support from all relevant public sector bodies – VisitScotland, Scottish Enterprise, Highlands and Islands Enterprise, South of Scotland Enterprise, Skills Development Scotland, etc. This commitment to supporting tourism must go beyond existing support patterns with a collaborative and notable evidence-based shift in direction, as resources allow.
This work has already started, as the Scottish Government has commissioned relevant agencies and stakeholders to develop a five-year recovery and investment plan based on green recovery, fair work, and place based principles. It is hoped the development of a full and costed recovery plan and investment model will be completed and financial resources for delivery identified in late spring 2021, and the plan would then be delivered via regional project teams, likely to comprise a mix of the enterprise agencies, VisitScotland, Skills Development Scotland, SDI and businesses.
Every destination across the globe has experienced the impact of COVID-19 and will be seeking their share of the recovery. Thus, it will be important that industry and governments work together to ensure the restart and recovery of Scotland’s tourism sector gets off to the best possible start.
Alison O’Connor, Senior Analyst, Financial Scrutiny Unit