(Talk given on July 24, 2020 during the Leadership Excellence Series in NCR of the Department of Tourism)
Recovery is all about length of time and effort needed to bounce back. Value chain also looks into the time and effort required in each stage of the process before products or services can be sold to a paying consumer. It also reveals an estimate of the cash flow needed to get things done, so allow me to apply the concept of value chain to the concept of recovery for the tourism industry. There are four major value chain clusters with ten factors before significant recovery can be expected – –
a) COVID19 situation of the traveler’s country,
b) country preparedness of both traveler’s and host’s,
c) confidence of tourists toward country of destination, and d) compelling offers. Let’s tackle each one.
A) COVID19 Situation of the Traveler’s Country
1. There are three natural tourism market segments that can be expected post Covid19.
First, the “crisis preventers”, or people from countries who were able to stop Covid19 early. These countries, like Taiwan, and Vietnam, were able to design a Covid19 prevention value chain for their nations successfully, leading to their gaining an economic and tourism growth advantage in the near term.
Second, the “crisis extinguishers”, or people from countries that have practically put out Covid19. These countries, like Thailand and Malaysia, were able to design value chain activities to counter Covid19 successfully, allowing their countries to normalize economic and tourism activities in the near term.
Third, the “crisis firefighters”, or people from countries that are still figuring out how to win against Covid19. These countries, like Indonesia, and the Philippines, have value chain designs that need to be reworked, in order not to put their nations’ economic and tourism growth in jeopardy in the near and medium term.
Most of the early resumption of international travel will happen because people need to move. But as for discretionary travel, the first market segment (crisis preventers) will naturally have a higher level of requirements before resumption versus people from countries that were more affected by Covid19. If ever they travel, they will most likely choose countries with controlled Covid19 cases (or from countries in either segment one or two), and avoid countries with ongoing Covid19 challenges (or countries in segment three). This segmentation, based on Covid19 prevention performance, will change the competitive landscape in the tourism industry, at least temporarily. Remember a basic truth about human beings – their “fight or flight” behavior is instinctive.
B) Country Preparedness
Country preparedness means the following:
1. The official removal of the country from Covid19-affected watch list. Be reminded that it took 8 months for the World Health Organization (WHO) to declare that the face-to-face transmission of SARS has ceased. Covid19 is far worse than SARS.
2. The removal of restrictions and resumption of flights to/from target countries.
3. The removal of quarantine requirement when traveling, whether through air bridge or travel pacts.
C) Confidence of Tourists Toward a Country
1. The way the promoting country can protect inbound tourists (such as peace and order image, unemployment rate that may lead to uncontrolled crime rate, tourist friendliness, etc.)
2. The way promoting tourist-related companies can prove they can protect inbound tourists (such as safety protocol, disinfection policies and actions by airlines, transport, hotels, malls, restaurants and related value chain)
D. Compelling Offers
1. The compelling value proposition relaunching mindset (such as new tour attractions plus mega sale events in airfares, hotels, malls, restaurants and other related value chain) that will tilt the risk vis-a-vis reward concept of people on status quo mode.
2. The ease of transaction, cancellation and refund of what have been reserved. (How many of us paid for flights and have not gotten a cancellation refund up to now?)
3. The absence of a more compelling competing offer from other countries considered as substitutes, especially if they are able to use government supported funding.4. The mindset to think like a start-up and the competency to create new usage of existing capabilities. For instance,
- Fabhotels in India repositioned its budget hotel as an alternative work area.
- Kasoku in Japan repositioned their apartments as #coronadivorce prevention.
- Museum Hack in the US changed their awesome storytelling offering of museum tour guides to awesome online team building.
- The Faroe Islands launched the first remote tourism tool to those unable to visit (Note: Some of these cases are shared in my “Business Model Shift” online seminar in Continuum Academy).
When Will Inbound Tourism in a Country Bounce Back?
Inbound tourism practically grounded to a halt during the COVID19 pandemic. During SARS, it took about 3 to 6 months to restore inbound tourists from most countries that experienced SARS, but double the time for the countries that did not experience SARS — the reason for the latter is the confidence level for safety required by potential tourists from unaffected countries needed to be higher (source: “Post-SARS tourist arrival recovery patterns: An analysis based on a catastrophe theory” by Chi Kuo Mao, Cherng G Ding and Hsiu Yu Lee).
Compared to SARS that affected only 29 countries, Covid19 affected over 210 countries. While SARS had less than 1,000 deaths, Covid19 has over 600,000 deaths so far. COVID19 affected us far worse than SARS of 2003. The recovery period will naturally be much longer and from the time the 10 factors mentioned will be fulfilled. Needless to say, not all of the 10 factors have equal weight but they are all interacting forces to consider in preparing for a recovery, with the upstream value chain as pre-requisites for the subsequent downstream value chain. In other words, no compelling offers will motivate inbound travelers unless the fundamental need of safety can be guaranteed.
Let us assume, optimistically, that the restoration to original (or precovid) state in a country will be by the end of October 2020, and the presence of the ten factors defined previously by December 2020. We can guess that an almost similar level of inbound foreign tourists will happen likely by the third quarter of 2021 and normalcy of inbound foreign tourists from countries that were not hit by Covid19 to occur by the first quarter of 2022, i.e., unless vaccines are discovered much earlier, which is the best hope for countries in segment three.
Some may be discouraged with the information I shared, others will see this as a realistic assessment, a reset, therefore an opportunity equalizer. Being resilient or not is complex and is a continuum where we are further influenced by experience.
While we learn about the importance of sensemaking, more than anything else, in strategy formulation and what we need to know to prepare for the future, let us keep our hopes alive, because about a year from now, things will be very different, very likely for the better. By then vaccines for Covid19 will be available. There is something the world can all look forward to. Meantime, local tourism may be a sound bet.
Can the Private Sector Do It Alone?
During the peak of COVID19, many private companies helped fellow countrymen, by giving food and disinfection materials to the poorest areas, among others. Even those people affected were helping others cope. Many big companies have also helped in an unprecedentedly manner.
Government also helped out, most recently about guaranteeing loans of the SMEs since some banks seem to be reluctant to give out loans during abnormal times. The private sector and the government must work together. The cash flow of many smaller travel companies have either been depleted or near depletion. Others have already stopped operating. Only those with ample discretionary cash can survive for a prolonged period. Those operating alone may have to look for alternative cash sources, including partnering with others, and repositioning, such as the four tourism examples I gave earlier, and pivoting to other or additional businesses for the time being.
How the Government is Helping Domestic Tourism
As to private sector and government collaboration, here is a partial list of what the government of some countries in Asia are doing to support their domestic tourism.
- Thailand gave 40% subsidy of normal hotel room rates (capped at 3,000 baht or about US$96 per night up to 5 nights). They also gave 40% subsidy for food, other services and facilities (capped at 600 baht or US$19 per room per night). Thailand also launched 2 million domestic airline tickets at 2,000 baht (US$64) per person and for round-trip tickets, they gave subsidy a maximum 1,000 baht (US$32) subsidy per ticket. As a reward for 1.2 million health workers and volunteers, they granted a subsidy capped at 2,000 baht (US$64) per person for a two-day and one-night trip.
- Malaysia gave 1,000 ringgit (US$234) in income tax breaks for money spent on domestic tourism. They also gave 100 ringgit (US$23.4) to each Malaysian in digital discount vouchers for trips within the country.
- Indonesia gave discount for domestic tourists who visit top 10 tourist spots, subsidizing airline fuel and tourism promotions as well.
I hope the information I shared can help you plan the future of your business and the future of our nation. Many people asked me what should be their strategies to survive, my answer has always been the same, make it a goal to survive first, and to look forward to something better in the future. As for me, I look forward to holding my first grandson, Leo, whom I have not personally seen for three months since his birth. I also look forward to tell him inspiring stories about how people pivoted during Covid19 of 2020. I hope to resume my monthly travel in the future and hope to see some of you in one of my trips.