World Tourism Day and the pandemic

BY FEHMI KOFTEOGLU

Since 1980, the United Nations World Tourism Organization (UNWTO) has commemorated World Tourism Day on September 27, each year choosing a new theme. The theme for this year was ‘Tourism for Inclusive Growth’.

The 41st World Tourism Day was celebrated in the COVID-19 environment, the pandemic of the century, which has continued for 19 months with its long-term consequences still unclear.

Tourism, or the travel industry more broadly, has been hit badly, experiencing massive losses in every segment. The following figures, based on UNTWO reports and prepared by Anadolu Agency reporter Fuat Kabakci, show the scale of the losses caused by the pandemic.

Tourism destinations in the world started to impose travel restrictions on tourists on April 20, 2020, when the COVID -19 outbreak was declared a global pandemic.

Tourism mobility decreased by 16% in February 2020, 64% in March 2020, and 97% in April 2020. Although it recorded a partial recovery in May-December 2020, tourism mobility couldn’t exceed 15%.

The hotel occupancy rates fell to 40% in the same year while hotel bookings dropped by 47%, airline seat capacity decreased by 63%, airline reservations declined by 81% and the number of tourists fell by 74%.

The number of tourists, which reached 1.4 billion in 2019, decreased by 74% to 381 million in 2020 due to the pandemic.

COVID -19 caused 100-120 million job losses in direct tourism sectors. The pandemic cost USD 1.3tr to the global tourism industry while it reduced Global Gross Domestic Product by more than USD 2tr.

The international tourism fell to levels seen 30 years ago due to the COVID -19 pandemic, as it caused border shutdowns and full or partial restrictions for foreign tourists.

The impact of the pandemic on the travel industry has exceeded 4% effect of the global financial crisis in 2009.

As these figures reveal, we say once again that tourism isn’t just tourism. “Tourism aims for a more prosperous and peaceful world as well as large and equal distribution of created values,” the UNWTO Secretary- General said.

Hospitality industry can’t pay interest expenses

The accommodation segment of the tourism industry seems to be the only one talking about the credit/debt problem, even as the problem snowballs. Hotels in Istanbul have now also joined hotels in Antalya and Marmaris in seeking a solution to the problem between hoteliers and bankers.

“The accommodation sector’s earnings before interest, taxes, depreciation, and amortization (EBITDA) can barely meet half of its interest expenses,” said Bahattin Yucel, Former Tourism Minister of the 54th Government, in his column on the online tourism newspaper Turizm Gazetesi.

DEBT QUINTUPLES EQUITY CAPITAL

“Looking at data over the last 10 years (20102020), interesting clues emerge regarding the actual reasons of the problem, especially in accommodation enterprises,” Yucel says, stressing that debts of enterprises have nearly quintupled their equities.

The turnover of accommodation facilities decreased by 60% to USD 4.7bn in 2020, compared to 2019, while the 10-year average income of these facilities amounted to USD 9.7bn per year. The highest income was recorded in 2014, when the turnover reached USD 12.1bn.

The total loss of the accommodation sector in the same year reached USD 3.2bn, when USD 200m operating loss, USD 1.6bn financing expenses, USD 1.3bn non-operating costs were added.

However, the main problem is not the pandemic but unproductivity. Low profitability supports this opinion. The 10-year average EBITDA amounts to USD 900m while annual loss totals USD 700m on average, when financing expenses and non-operating costs are deducted.

NOT REALLY PROFITS AT ALL

When the average profit margin and loan interest rates are compared, we face the reality that a 138% interest rate, which is higher than the operating margin, seem impossible for the industry to pay. Thus, the accommodation sector’s EBIDTA can only meet half of loan interest rates, which in turn quickly melts equities of enterprises.

The total liquid assets deducted equities remain at USD 2.9bn in the sector while total debts reach USD 14.3bn. In other words, the present debt of enterprises quintuples their equity capital.

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