More tough times ahead for the tourism sector – the impacts of the war in Ukraine

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.

Tourism, interrupted

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.

No buffer

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

Revisiting innovation…

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.

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Lamia Kamal-Chaoui is the Director of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities since 2016.

As a key member of the OECD Executive Leadership team, Ms. Kamal-Chaoui supports the Secretary-General in achieving the OECD’s mission to advance economic growth and social progress as well as contributing to other global agendas such as the G20 and G7, the Paris Agreement on Climate Change and the implementation of the United Nations Sustainable Development Goals.

Supported by a team of over 160 staff, Ms. Kamal-Chaoui leads the Centre’s work to advance the OECD mission of “better policies for better lives” by ensuring that all people, all types of places and businesses of all sizes can prosper from green and digital transitions (read the Centre’s brochure and dedicated blog for more details). This includes work in the fields of: SME and entrepreneurship policyRegional, urban and rural  development;  Local employment and economic development (LEED programme);  Subnational statisticssocial economyMulti-level governance, local finance and decentralisationTourism and Culture.

Prior to being Director, Ms. Kamal-Chaoui has held several senior positions at the OECD since 1998. From 2012 to 2016, she served as Senior Advisor to the OECD Secretary-General. In this role, she supported the Secretary-General’s strategic agenda and led the OECD Inclusive Growth Initiative, the Knowledge-Sharing Alliance programme, the development of the Global Deal  and the implementation of the OECD Strategy on Development. From 2003 to 2012, she was Head of the Urban Programme in the OECD Directorate for Public Governance and Territorial Development.  Previously, she also worked in the OECD Trade Directorate and the OECD Directorate for Financial and Enterprise Affairs. Before joining the OECD, Ms. Kamal-Chaoui worked for a university-based research institute as well as several media outlets.

During her extensive career at the OECD, she has spearheaded several ground-breaking, multi-stakeholder OECD initiatives including the Roundtable for Mayors and Ministers, the Champion Mayors for Inclusive Growth Coalition, the Digital for SMEs (D4SMEs), and the StandbyYouth Initiative. She has also authored, co-authored, and overseen hundreds of policy reports and articles, and forged numerous strategic partnerships and collaborations with companies and international institutions. They include major philanthropic organisations (e.g. Ford Foundation, Bloomberg Philanthropies, Rockefeller Foundation, Kauffmann foundation, MacArthur Foundation, Open Society Foundations) as well as other prominent organisations (e.g. Vatican Pontifical Council of Justice and Peace, Club of Madrid), international civic organisations (e.g. Youth Forum, Ashoka Global) and multilateral institutions (e.g. World Bank, IADB, ADB, EBRD, European Commission, UN Habitat, APEC). She has also partnered with the private sector, including large corporations (e.g. Facebook, Amazon, Kakao, Microsoft, Vodafone) and business associations (e.g. International Chamber of Commerce (ICC), B4IG, SMEUnited).

Ms. Kamal-Chaoui has been a member of several International Committees and Advisory Boards (e.g. Lancet Green Recovery Task Force on COVID 19 recovery, C40 Women for Climate, UNWTO COVID-19 Crisis Group, World Economic Forum Deputy Board of Trustees, Vatican Expert Group on Inclusive Globalisation, Club of Madrid’s Shared Societies, Shanghai World Expo, Michael Bloomberg Mayors Challenge for Europe, Mayor of Paris Anne Hidalgo’s Strategic Committee). She has also been a lecturer at Sciences Po Paris for the “Governing Large Metropolis” Master’s Programme.

Ms. Kamal-Chaoui is a French and Moroccan national. She holds a Master’s Degree in Macroeconomics from the University of Paris Dauphine and a Master’s Degree in Foreign Languages and History from the University of Paris Diderot. She recently received the "Women of the Decade in Enterprise and Leadership" award of the Women's Economic Forum.