Is tourism turning the tide?

After six decades of consistent growth, the unprecedented shock of the global COVID-19 pandemic saw tourism come to a near complete standstill. Two years on, there’s still huge uncertainty for the tourism sector. What lies in store for tourism in 2023 and beyond?

The tide went out…

COVID-19 highlighted the vital role that tourism played in supporting economic and social outcomes. Before the pandemic, tourism generated 4.4% of GDP, 6.9% of employment and 20.5% of service-related exports on average in OECD countries. But the pandemic saw its contribution to GDP fall by 1.9 percentage points and service exports by 10.6 percentage points.

During the pandemic, government support for businesses and employment, as well as measures to promote domestic travel kept the sector on life support until international travel could resume.

As part of efforts to promote domestic tourism, the UK’s National Lottery administered a GBP 10 million holiday voucher scheme to encourage domestic travel in the off-season. This was a crucial measure given domestic tourism accounted for over 80% of UK tourism expenditure.

In Iceland, a country highly dependent on international tourism, domestic trips increased by 70% between 2019 and 2021. This was in part thanks to state support measures such as the Loftbrú Scheme offering discounts on domestic airfares and travel vouchers worth 5000 ISK for every Icelandic citizen to spend on domestic tourism. In Japan, a National Travel Support Scheme offering 40% off domestic travel and accommodation costs supported 88 million overnight stays.

… and it rolled back in

As travel restrictions lifted and borders reopened, travelers surged back to many popular destinations. A new OECD report reveals that many countries have exceeded expectations for the sector’s recovery in 2022. This is on the back of pent-up demand, household savings and vouchers from companies for postponed trips. In Portugal, the number of nights in accommodation during the summer was 3% above pre-pandemic levels.

France also took stock of a strong recovery this summer, with initial figures nearly matching 2019 and accommodation prices soaring in popular tourist destinations like Paris and the French Riviera. The French national railway company SNCF sold a record 22 million tickets in July and August, 10% above pandemic sales. Many countries, including Chile, Morocco, Greece, Denmark, Portugal and Spain, project a full tourism recovery back to pre-pandemic levels by 2023.

Source: OECD Tourism Trends and Policies 2022

But it isn’t lifting all boats

Not all countries have recovered so smoothly though. The Asia-Pacific region has been notably slow to lift COVID-19 restrictions and reopen its doors. International arrivals to the region fell by 95% in 2021. This is the biggest decline globally. According to the Centre for Aviation, tourism is still 50% down from 2019, and it is now set to lose its title as the world’s largest travel region.

In Japan, international arrivals decreased by 99% in 2021, and the country re-opened to unrestricted tourism in October 2022. Australia and New Zealand have also adopted a cautious re-opening strategy.

Turning our eyes to China

The former powerhouse of global tourism has a crucial role to play, particularly in the Asia-Pacific recovery. China was an essential source market for international tourism before the pandemic. It accounted for 40% of tourists within the Asia-Pacific region, and almost 8% worldwide. China’s tough zero-Covid policies and strict lock downs have meant that activity remains restricted – for now.

Golden Week in China – a week in October during which tens of millions of people visit family or go on holiday – could provide an opportunity for activity to bounce back. This could help counter the effects of the global economic shock following Russia’s war of aggression on Ukraine and support the sector’s recovery into 2023.

War has left tourism adrift

At the same time, the cost-of-living crisis triggered by Russia’s war now poses new threats to the sector. Countries bordering Russia and Ukraine have struggled to attract visitors. At the beginning of the war, Poland experienced a decline in bookings across the country. The Slovak Republic has also seen a consistent decline in both international and domestic tourism since 2020. International arrivals also remain down in Estonia (down 30%), Finland (32%), Latvia (33%) and Lithuania (44%) as of July 2022.

The war’s impact on global prices is weighing down the sector’s recovery in other regions. Tourism businesses must now contend with inflationary pressures and rising input costs, on top of the effects of the pandemic. The energy price shock has cut disposable income, squashing the possibility of travel for many households. A 47% increase in American airfares has led to a 2.3% decline in bookings.

Good tidings for tourism resilience?

As we stand at the crossroads between two major global upheavals, the tourism sector faces very different regional challenges. The recovery in the Asia-Pacific region lags behind Europe and the US and prospects will remain uncertain until the Chinese market reopens. Meanwhile, resurgent demand in many popular European destinations has meant the sector’s growth has been constrained by labour shortages, creating bottlenecks and further price pressures.

Rebuilding capacity and boosting visitor numbers will be a major challenge for 2023. As businesses and policy makers navigate an uncertain outlook, they must work together to build the sector’s resilience in the face of what lies ahead.

Read the 2022 OECD Tourism Trends and Policies report here.

Policy Analyst at OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE) | + posts

Lana Fitzgerald is working for the OECD Centre for Entrepreneurship, SMEs, Regions and Cities where she supports work in policy research and advice. She has an undergraduate degree in European Studies from Trinity College Dublin, where she specialized in French, Spanish and cultural history. She also holds a certificate in Social Sciences and Humanities from Sciences Po, Paris. She is interested in matters of tourism, cultural policy and local development.

Senior Counsellor at | Website | + posts

Andrew Paterson is Senior Counsellor at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities and editor-in-chief of the COGITO blog site. Prior to joining the OECD, he was a senior civil servant in the UK Government where he led the UK Business Productivity Review, identified new emerging technological strengths as a focus for the Government’s Industrial Strategy, and developed the UK’s approach to “levelling up” through local growth. In previous roles he led the UK Government’s Housing, Planning and Local Growth analysis, economic and financial reforms in Britain’s Overseas Territories from the UK Foreign and Commonwealth Office, and neighbourhood renewal and regeneration policy from the UK Treasury. Andrew holds a Masters in Politics, Philosophy and Economics from the University of Oxford.