PLANNING FOR THE RECOVERY - Adam Sacks President Tourism Economics January 2021 - South Dakota Tourism ...
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PLANNING FOR THE RECOVERY Adam Sacks President Tourism Economics adam@tourismeconomics.com January 2021
“It is said that the darkest hour of the night comes just before the dawn.” Thomas Fuller, 1608-1661 English churchman and historian Penned within a travelogue of the Holy Land Died at age 53 of epidemic infectious disease
The worst of times US COVID Deaths and Hospitalizations Deaths Hospitalized 4,000 140,000 3,500 120,000 Deaths (7-day MA) 3,000 Hospitalized (right) 100,000 2,500 80,000 2,000 60,000 1,500 40,000 1,000 500 20,000 - - 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1 1/1
…but the best of times may be in sight US: Estimated vaccine distribution Millions of doses % of population vaccinated 200 100 Vaccinations (doses) Optimistic case (%) 80 150 Base case (%) Pessimistic case (%) 60 100 40 50 20 0 0 January February March April May June Source: Oxford Economics/CDC
Vaccine diffusion will be gradual in 2021 US: Covid-19 vaccination doses administered Daily doses % 700,000 3 Daily doses administered 600,000 Percentage of population 2.5 500,000 2 400,000 1.5 300,000 1 200,000 100,000 0.5 0 0 12/2112/2312/2512/2712/2912/31 1/2 1/4 1/6 1/8 1/10 Source: Oxford Economics/Our World in Data
Three snapshots of the travel landscape Travel performance Year-over-year % change 40% 20% Hotel room demand (+3%) 0% Auto trips (-2%) -20% -40% Air pax (-54%) -60% -80% -100% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Source: TSA, Arrivalist, STR
After a steep drop, SD travel has begun its ascent South Dakota monthly sales tax collections Y-o-y growth, by month, 2020 20.0% 10.0% South Dakota visitor spending ($ billions) 0.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct -10.0% -20.0% -30.0% +3% -40.0% Accommodat ions -50.0% Rest aurant s -60.0% Recreation -70.0% -80.0% $4.1 $4.0 -18% $3.8 $3.9 Source: Tourism Economics, South Dakota Department of Revenue $3.4 2016 2017 2018 2019 2020 Source: D. K. Shifflet, Tourism Economics
…placing SD among the best performing markets in the country Annual travel spending losses by state Year-over-year % change 0% -20% -40% Best 10 markets -60% Worst 10 markets -80% Source: U.S. Travel Association, Tourism Economics
And intentions to travel remain steady
How will the economy influence the travel recovery?
After recovering about half of losses, jobs fall US: Nonfarm payroll employment Millions 155 150 145 Dec: -140k Feb-Apr: Nov: +336k 140 -22.1mn Oct: +654k Sep: +711k Aug: +1.5mn July: +1.8mn 135 June: +4.8mn May: +2.7mn 130 125 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Source: Oxford Economics/Haver Analytics
Unemployment rate still near recession peaks US: U3 unemployment rate % 16 Apr: 14.7% 14 12 10.8% 10.0% 10 9.0% 7.8% 8 7.1% 6.1% 6.3% Dec: 6.7% 6 4 2 Average of 7 prior recessions 0 1960 1970 1980 1990 2000 2010 2020 Source: Oxford Economics/Haver Analytics
Participation rate at its lowest since the 1970s US: Labor force participation rate % 69 67 65 63 Lowest since 1977 61 59 57 1949 1959 1969 1979 1989 1999 2009 2019 Source: Oxford Economics/Haver Analytics
Fed policy acting as wind in the sails
Housing activity remains very buoyant
Large and rapid fiscal stimulus without precedent
Policy upside risk shouldn’t be discounted ▪ Congress will likely pass, on a bipartisan basis, additional stimulus checks totaling $1,400/ person on top of the $600 checks passed at the end last year. ▪ President Biden will attempt to pass some of his spending and tax proposals via the budget reconciliation process requiring only a simple majority. ❑ 3rd round of stimulus checks should lift GDP by 0.7%.
When will travel recover?
Assumptions: Baseline • 2021 Q1 • Difficult start to year. Concerted efforts to get disease under control • Vaccine distribution accelerates in earnest • 2021 Q2-Q3 • Vaccination programs make a meaningful impact • Through ramp-up of vaccination programs, compliance with public health guidance, and improved testing, disease prevalence declines, immunity rises, and cases decline • Assume by the end of 2021 Q2, Covid-19 infection rates are low • Leisure travel picks up headed into summer • 2021 Q4 • Post-Labor Day, context for business travel and group events has normalized substantially. Corporate travel restrictions are eased. Group events are permitted in most areas, though certain restrictions continue. • With US perceived as substantially “safe from COVID”, group and business travel returns strongly (group demand recovering to about 20%-30% below 2019 levels in 2021Q4)
Will higher income households support recovery? Share of leisure lodging spending by income 40% 39% Households earning $100k+ account for 24% of households… but 59% of leisure spending on lodging 21% 20% Unemployment rate (October): 14% 15% 13% 14% 13% • High school grad: 8.1% 11% • Bachelor’s or higher: 4.2% Less than $40k $40k to $70k $70k to $100k $100k to $150k $150k and more Share of households Share of spending Note: Lodging spending is based on recent three-year average (2015 to 2018). Consumer spending represents leisure trips. Pre-tax annual income, in thousands. Source: BLS; Tourism Economics
High income earners least impacted by the crisis US: Share of workers who can telework by wage level, in % Earnings greater than the 75th 61.5 percentile Earnings from 50th to 75th 37.3 percentiles Earnings from 25th to 50th 20.1 percentiles Earnings less than or equal to the 9.2 25th percentile 0 25 50 75 100 Source: Bureau of Labor Statistics/Oxford Economics
Rebound in consumer spending driven by low-income families
With spending on goods outpacing services US: The K-shaped consumer spending recovery Feb 2020 = 100 Durable goods 14% * 120 Nondurable goods 23% * Services 64% * 110 100 90 80 * Pre-Covid share of total consumer spending 70 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 Source : Oxford Economics/Haver Analytics
$1.4tn cash stash for households
Major reshuffling of the deck
Leisure travel will fuel the recovery Business and leisure trips Index (2019=100) 120 100 100 100 101 105 99 108 Leisure back to 2019 levels 93 80 90 85 in 2022 76 60 40 49 Business nearly back in 40 2024 20 0 2019 2020 2021 2022 2023 2024 Business Leisure Note: Only domestic trips Source: Tourism Source: Economics U.S. Travel Association, Tourism Economics
Approximately three years to recover room demand levels Room demand: US Quarters relative to trough, level relative to prior peak 20% 8 quarters to 10% recover prior peak Prior peak level 0% Room revenue is 12 quarters to -10% recover prior peak expected to recover Next year: 2021 Q4 to its prior peak level -20% in early 2024, about -30% four years after prior peak. -40% Today: 2020 Q4 -50% -60% 2020 Q2 -70% -4 -2 Trough 2 4 6 8 10 12 14 16 18 ◼ Global Financial Crisis ◼ Global Coronavirus Recession Source: STR; Tourism Economics
…but the second half of next year will look very different Room demand Quarterly, relative to 2019 10% 2023 Q2 0% 1% 0% 0% 0% 0% -3% -3% -10% -5% -4% -9% -12% -14% -20% -23% -30% -32%-33% Strong recovery in 2021H2 to -34% -40% demand levels about 10% below 2019 -50% -60% -57% -70% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 2022 2023 Source: STR; Tourism Economics * Total room inventory RevPAR is calculated without removing temporarily closed hotels. On a standard RevPAR basis, growth is forecasted as -47.0% in 2020 and 25.0% in 2021.
Recovery after a pandemic: 14-17 months 2003 SARS outbreak in Hong Kong 2003 SARS outbreak in Singapore International arrivals (thousands) International arrivals (thousands) 1,500 800 14 months from crisis to recovery 12 Month Average 17 months from crisis to recovery 12 Month Average 1,362,000 lost arrivals Lost Arrivals 1,472,000 lost arrivals Lost Arrivals 700 1,000 600 500 500 0 400 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Source: Tourism Economics Source: Tourism Economics
80% of travellers indicate return within six months of virus containment How long to return to travel 'as usual' after the pandemic has subsided? 50% 47% February Survey April Survey June survey September survey 45% 40% 34% 35% 32% 30% 28% 25% 20% 15% 15% 14% 15% 10% 8% 5% 4% 5% 0% Not wait at all Wait 1-2mths Wait ~6mths Wait ~1yr Not travel in foreseeable Source: IATA future
How do we advocate for the industry during this crisis?
Reminder: the travel sector was a leader of SD job growth L&H employment in South Dakota Employment in South Dakota, by major industry Index (2010=100) Amounts in number of jobs 112 Heal th and social assistance 72,790 SD L&H +10% Retail t rade 67,980 110 Manuf act uring 47,350 Accommodat ion & food svcs 46,420 Finance and insurance 40,060 108 SD + 9% Construct ion 36,970 Tourism 33,210 106 Other svcs, exc. public admin. 33,080 Wholesale trade 25,850 104 Real estate & rent al/leasing 25,690 Professional and t echnical services 24,540 102 Admin. and waste services 20,530 Transportation & warehousing 18,210 Arts and recreation 12,220 100 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Educat ional services 10,420 Source: BLS Source: Tourism Economics, BEA
Industry in crisis: no sector has been hit as hard at travel South Dakota employment loss by industry % of industry lost since February Leisure & hospitality 16% Information 7% Other services 5% Education & health services Manufacturing Government Trade, transportation, and utilities Professional & business services Financial activities Mining & logging -5% 0% 5% 10% 15% 20% Source: BLS
Travel must be our focus for an economic recovery Share of total SD employment loss by industry % of all jobs lost since February Leisure & hospitality 50% Education & health services 20% Government 13% Trade, transportation, and utilities Manufacturing Other services Information Professional & business services Financial activities Mining & logging -10% 0% 10% 20% 30% 40% 50% 60% Source: BLS
This should not be controversial
Will there be an enduring legacy of this crisis? Gratitude.
THANK YOU! Adam Sacks President Tourism Economics adam@tourismeconomics.com January 2021
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