Wednesday, 25 November 2020

The Amazing Race 32, Episode 7

Almaty (Qazakstan) - Hyderabad, Telangana (India)

Visiting Friends and Relatives:
Pandemic and Post-Pandemic Travel Trends and Predictions

More than a million people a day went through TSA checkpoints in the run-up to Thanksgiving. This is less than half the daily number last year, but more than ten times that in April of this year. More people in the USA are travelling by air in the USA today than on any other day since the COVID-19 pandemic arrived.

The Wednesday before Thanksgiving is typically the busiest day for air travel in the USA, so perhaps this should be no surprise. But what does it tell us about travel -- and about what to expect for pandemic and post-pandemic travel in the months and years ahead -- that Thanksgiving travel is down by so much less than travel at other times during the pandemic to date?

The fundamental lesson is that the strongest motivation for travel, for people who aren't refugees or migrants, is the desire to visit friends and relatives. Wars, natural disasters, and other exigencies that drive migration provide more even greater compulsion for travel. But while migrants sometimes move repeatedly in search of a safe haven, migration can be a one-off event. People travel to visit friends and relatives, if they can, repeatedly throughout their lives.

It should be no surprise that ties of friendship and family are what motivate us most to travel, even to take risks (or to impose risks by our travel on other people such as service workers) to travel in a time of pandemic.

But this is a surprise to a travel industry that has systematically averted its attention from travel to visit friends and relatives ("VFR travel" in industry and scholarly parlance).

As I learned when I was trying to find statistics on travel patterns for my Practical Nomad books and for Airtreks.com, the travel industry conceptualizes the motives for travel as being either "business" or "leisure". VFR travel is either bundled into leisure travel (as a presumptively insignificant subcategory), or into a residual category of (presumptively insignificant) "other" motives for travel.

Hotels take for granted that VFR travellers are staying with friends and relatives, and therefore not in the market for hotels. Car rental companies take for granted that VFR travellers are travelling in their own cars, and therefore not in the market for rental cars. Airlines take for granted (I've seen and heard this time and time again, especially in off-the-record informal conversations) that VFR travellers are low-revenue bottom-feeders who can be attracted by sufficiently low fares to seats that would otherwise go empty, but who aren't willing to pay enough to be worth targetting as a market, or to justify flights to VFR destinations unless there was also enough high-paying business or vacations-for-rich-people traffic to fill the premium, business, and/or first-class sections at the front of the plane. I've seen the same generally highly-regarded international airline offer conspicuously worse service on a flight to a primarily VFR destination than the same airline provided on a flight to an otherwise-similar destination with more business and upscale-leisure traffic.

None of these assumptions are entirely true, but they have rarely been questioned. Those few advocates for VFR travellers and tourism and travel researchers who have tried to call attention to VFR travel have generally been ignored. A special issue of the Journal of Tourism Studies on VFR travel in 1990 opened with an essay on the question, "VFR tourism: Is it underestimated?" Revisiting the question twenty years later, an article in the journal Tourism Management concluded, "VFR Travel: It is underestimated." And yet another special issue on VFR travel in 2017, this time in the International Journal of Tourism Research, opened with an editorial, "VFR Travel: Is It Still Underestimated?" The answer, until the pandemic, has been, "Yes, it still is."

During the current pandemic, travel companies that have heretofore turned up their noses at VFR travellers are finding, to both their surprise and their confusion, that they have no choice if they want to remain in business except to cater to VFR travellers. VFR travellers are the only people, or most of the people, who are still sufficiently motivated to travel in spite of the risks to themselves and others.

The bottom has fallen out of business travel. Meetings and conventions have been cancelled. Business, occupational, and on-the-job training (except some necessarily hands-on training) is being provided remotely, just like all other education. Travelling salespeople are mostly not travelling, but selling remotely. Videoconferencing has existed for some years, but inertia and the need to learn how to use new tools has been a barrier to widespread adoption. Once business people are used to it, they are finding that it's a sufficient replacement for face-to-face meetings that in many cases (not all, but many) they will no longer be able to justify the additional time or money required for travel to face-to-face meetings, even after the pandemic.

Of course some people -- including among others many hotel, restaurant, transportation, and agricultural workers -- have no choice but to go wherever their jobs require. But except under economic duress, people are much more willing to take risks, and to impose risks on others, to be with friends and family than for a paycheck. That's the clear evidence of the current wave of Thanksgiving travel in the US, or of the similar, but much larger, annual wave of Lunar New Year travel that drove the initial spread of COVID-19 in China:

The annual 'migration' of people from major cities in China at the Lunar New Year numbers in the hundreds of millions, and it is almost all VFR-motivated. Although this catches international media attention, mostly showing overcrowded railway stations and trains, there is never a mention of the VFR travel motivation that causes the mass urban exodus (and return journey).... [T]his is more proof of the lack of sufficient status being afforded to VFR travel, with Chinese scholars tending to eschew these travellers in favour of more 'high-profile' tourists who are assumed to have more economic impact.

As for recreational travel, some rich people are still taking vacation trips. But overall, far fewer people are travelling on their holidays other than to visit friends and family, and to fewer types of destinations. Isolated and exclusive high-end resorts, holiday rentals, individual or small-group outdoor activities, and driving-distance destinations are holding up better than theme parks, city breaks, flying-distance destinations (especially long-haul destinations), or cruises, for example.

Neither business nor leisure travel has disappeared during the pandemic. The statistics are stark, however, and it has become apparent to businesses that provide all manner of services to travellers that (1) most of those still travelling during the pandemic are VFR travellers, and (2) some other categories of travel, particularly business travel (other than conventions, which may return eventually), will "recover" much more slowly after the pandemic, and may never regain their previous levels.

What will this mean for travellers like you and me?

Airlines have already parked many planes or cancelled leases to cut costs. (Many airliners are mortgaged, with title held by banks or leasing companies rather than airlines.) For those planes still flying, routes, sizes of planes, and frequencies of service have been modified to focus on routes dominated by VFR travel first, leisure travel a distant second, and business travel (especially convention travel) an even more distant third. This is a reversal of airlines' pre-pandemic priorities for deploying capacity.

Unfortunately for those who love to travel, and especially for would-be long-haul travellers, airfares after the pandemic are likely to be substantially higher than they were before the pandemic. Historically, airlines have structured fares in such a way that business travelers and a small number of rich leisure travellers (who airlines could persuade to pay for more than mere transportation) have subsidized VFR travellers and budget-conscious leisure travellers. With airlines having lost some of their highest-paying traffic, current airfares would be unsustainable even if planes filled up again with low-revenue VFR and budget leisure travellers. Airlines won't keep operating at a loss forever. Regardless of how much money governments give to airline owners, airlines will eventually raise fares and reduce capacity to match the number of people willing to pay higher fares. The only real question about post-pandemic airfares is how much higher than pre-pandemic fares they will be, as a result of reduced high-paying business travel.

If there's a silver lining in post-pandemic travel services and prices, it's likely to be in hotels. Hotel rates are likely to be lower, and more hotels will offer services tailored for VFR and budget leisure travellers.

These changes are happening already, as hotel owners and managers, stuck with a glut of hotels, compete for the business of fewer people who are still on the road: VFR travellers and some people whose work still requires travel, such as field service technicians, transient construction and agriculture workers, workers in the oil and gas and some other industries in locations far from their homes, etc.

These hotel price and service trends will accelerate, though, as the pandemic continues and if business travel doesn't recover after the pandemic (which it won't). As I've discussed before, hard times for hoteliers are good times for budget travellers. The key event driving change will be a massive wave of bankruptcies of hotel owners, which has already begun.

Hotel owners, like airlines, are lobbying for billions of dollars in bailouts from the US government. Travellers, the public at large, and Congress should just say no.

There's no reason for the government to bail out investors who bought hotels, or banks who loaned them money. They gambled, and they lost. It's especially ironic that the companies lobbying for hotel-owner bailouts include owners of casino hotels, whose wealth has been built on profiting from other people's bad bets, but who are unwilling to accept the consequences of their own bad investment bets and their decision to take profits rather than retaining sufficient reserves to tide them over the ups and downs of the travel business.

Hotel owners will try to extort travel-lovers to support bailouts by threatening that, "If the government doesn't bail us out, we'll go out of business." So what if they do? Hotels don't close just because their owners go bankrupt. They are sold to new owners at bankruptcy or foreclosure auctions. Having incurred lower acquisition costs, and thus having lower debt-service costs, those new owners can afford to operate the same hotels, with the same level of service, profitably, with lower room rates. Hotel-owner bankruptcies and hotel foreclosures are a bad thing for hotel investors and banks and a good thing for travellers, especially budget travellers.

Some former hotels will be repurposed as homeless shelters, residential housing, and/or temporarily during the pandemic as quarantine/isolation facilities. If you test positive or are exposed to COVID-19, and don't have space in your home to isolate yourself from family or roommates, where can you go? Quarantine and isolation facilities like this are an important part of the pandemic response in some other countries, but completely missing in the US. But these changes in how hotel building are used could occur independently of who owns the hotel, whether they go bankrupt, or whether a lender forecloses and sells off the hotel.

Hotel owners will also threaten, also falsely, that hotel-owner bankruptcies or hotel foreclosures will result in a loss of jobs. But there's no necessary relationship between how many people will be employed at the property and who owns it. Current owners are already laying off hotel workers and cutting their wages. Current owners may even be under more financial pressure to extract givebacks from workers than new owners who have lower debt-service costs. Hotels may change to business models which require less staff, such as less-than-daily room cleaning, but that's completely independent of ownership, bankruptcy, or foreclosure.

Bankruptcy lawyers and investment advisors are already gearing up for hotel bankruptcies and foreclosures. As happened on a much smaller scale after the recession of 2007-2008, there will be Meltdown Opportunities for Hotel Buyers in hotel "restructuring" and acquisition out of bankruptcy.

Even before the pandemic, those few analysts thinking about VFR travel had already recognized the special role it could play, as the sector of tourism least negatively affected and quickest to recover, in economic recovery from tourism crises and disasters. The more attention hotel owners and managers and prospective buyers of bankrupt hotels pay to VFR travellers as the only (or at least the largest) remaining game in town, the more services will be added or adjusted to meet our needs. Would you rather have room service available at higher-than-restaurant prices, and a minibar full of overpriced snacks? Or a refrigerator you can stock yourself, and a microwave, or maybe even a kitchenette? I know what I want.

I assume that there are entrepreneurs already drawing up business plans for new hotel service concepts and renovations, to be executed when they can buy hotels at the bottom of the price curve, at fire-sale bankruptcy liquidation or foreclosure auctions. Many, many hotels will be up for sale, so there will be plenty of opportunities to try out new ideas with relatively low up-front costs.

Some of those ideas will be bad, some will be merely pointless, and some will be to others' tastes but not mine. I've stayed in some strange "concept" hotels, some of them concept-built but many renovated from existing (often failed) hotels. I expect that some of these new concepts will be good, however, especially since they are less likely than current hotel concepts to target high-paying corporate travellers and their priorities for facilities, features, and services.

How are hotels responding to the pandemic, and what new concepts are being introduced, that might make for hotels more to your taste, even after the pandemic? What would you like to see, or what are you seeing if you have travelled recently?

Link | Posted by Edward on Wednesday, 25 November 2020, 23:59 (11:59 PM)
Comments

Great, thoughtful piece, as always.

I’ve traveled once since the “before times” ended, and it was a VFR trip to check on my parents’ welfare. Until I read this I hadn’t even realized the change. I’ve never made a welfare check before and I stayed in an AirBNB for the first time visiting them. Change is already here. I found that the AirBNB was a nice respite and a good place to essentially quarantine.

Wishing you and yours a safe and happy holiday season.

Posted by: Anonymous, 29 November 2020, 08:11 ( 8:11 AM)

I live in a heavily tourism-dependent province, and I’ve been dismayed to find that tourist operators, usually at the head of the “we should be allowed unfettered dominion over the marketplace” line have quickly shifted to a “if the government doesn’t bail us out, your children will have no jobs” stance.

My point of view, which you have expressed well, is that if we’re going to have capitalism, we’re going to have capitalism: risk is risky, and if you want an unregulated upside, you need to be prepared for an unregulated downside.

Posted by: Peter Rukavina, 30 November 2020, 09:01 ( 9:01 AM)

Family indeed is everything and travel agencies shouldn't be surprised to see people taking the risk to visit relatives. We all want to make the world a better place. What can we do now?. Have had enough of this COVID-19 thing? Let's take all the necessary precautions when stepping forward to visit families. The bond is too tight.

Posted by: Anthony E., 14 December 2020, 12:44 (12:44 PM)

More on pandemic travel, risk, and impacts on tourism-dependant places and people:

https://hasbrouck.org/blog/archives/002564.html

Posted by: Edward Hasbrouck, 20 December 2020, 20:02 ( 8:02 PM)
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