Russia’s war in Ukraine is a humanitarian catastrophe. It is also sending shockwaves through the global economy, well beyond the conflict zone. Latest analysis by the OECD shows that global economic growth could be set back by more than 1 percentage point this year due to the conflict and related sanctions.
The tourism sector, which directly accounts for nearly 7% of jobs in the OECD is likely to be among the hardest hit – again. Globally, air travel stopped almost entirely during the pandemic.
In 2020, there were 1 billion fewer international trips with only marginal improvement in 2021.
For two years, this has meant millions of tourism jobs, careers and businesses have been put at risk or on hold in the world’s most popular destinations. Many relied on emergency government support for their survival.
The new year provided the industry with the promise of a new dawn. As travel restrictions eased, visitors started making grand plans. Tripadvisor reported a higher intent to travel in 2022 than pre-pandemic in all five markets covered by their survey (the United States, United Kingdom, Australia, Singapore and Japan), and a higher average spend per trip too. Demand for international air travel in January 2022 was up 165% on January 2021, and February’s ticket sales pointed to continued strong growth. Tourism was back in business, with expectations of a return to pre-pandemic levels by 2024.
The long way round
The war in Ukraine now poses major challenges for tourism businesses still licking their wounds from the pandemic. The conflict could hold back the fragile tourism recovery and add uncertainty about future prospects and investment. The Russian outbound market, worth EUR 32.5 billion to destination markets pre-pandemic, is the sixth largest in the world but with a higher ranking in countries such as Estonia, Finland, Latvia, Lithuania, and Poland, where travel restrictions are in place.
Even destinations that remain open to Russian airlines – such as Israel and Turkey – will be affected as Russian tourists are challenged by restrictions on card payments and volatility in the price of the rouble.
Wider markets for tourism will be impacted too. First through falling confidence in the safety and security of travel to European destinations. The United States is the second largest international market after China, and has been slower to recover from previous shocks. European operators are now reporting that the conflict is already negatively affecting advance bookings for travel to Europe this summer.
Flight bookings within Europe fell by 23% the week after the outbreak of war, and flights to Europe from the United States were down 13%. Countries close to the conflict zone – Bulgaria, Croatia, Estonia, Georgia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia – have seen a 30-50% collapse in bookings.
Second, the closure of Russian airspace has added time and cost for many companies traveling between Europe and Asia, discouraging long-haul trips. Eurocontrol, the European air traffic manager estimates that avoiding Russian airspace for a flight between Paris and Tokyo, adds more than 1000 nautical miles and 150 minutes.
Even where tourists are still willing and able to travel in principle, rising fuel, food and energy prices will reduce their spending power and margins for the sector’s squeezed businesses. In Australia, for example, figures collected by the RACV show rising fuel prices would increase the costs of a round trip from Melbourne to Mallacoota – a popular vacation spot – from AUD 139 (before February 19) to AUD 163 by mid-March.
Businesses including hotels, restaurants and tour operators – 85% of which are SMEs – were already in a fragile financial situation after a tough two years in which they ran down their reserves and ran up debts during long periods of closure. Many now have little buffer to absorb these price shocks, especially since emergency support measures – which succeeded in supporting many jobs and firms during the pandemic – have been withdrawn in many countries.
As pressures mount and combine in different ways in different destinations, tourism jobs, careers, and businesses are again at risk in many countries.Lamia Kamal-Chaoui, OECD
Policy makers are looking for new ways to support the sector. In some countries, such as in Poland and Estonia, they are using spare capacity in hotels to house refugees. Countries are also examining whether the sector can support routes to work for refugees, providing them with income and better prospects for integration while addressing skills gaps for businesses.
More innovative solutions are needed in many countries to survive the turbulent times ahead. The OECD will continue to monitor the situation through its Tourism Committee and report on emerging policies to support the sector in the weeks and months to come.
Explore OECD work on Tourism at oecd.org/cfe/tourism