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PASSPORT NOT REQUIRED

This year’s summer vacation will be local, outdoors, and subject to cancellation

Lake Michigan, seen from near Chicago.
AP Photo/ Nam Y. Huh
A best-case-scenario.
  • Natasha Frost
By Natasha Frost

Reporter

On July 24, 2019, after years of prosperity and growth, global aviation hit a new milestone: In a one-day record, more than 225,000 flights criss-crossed the world, as summer vacationers and business travelers journeyed from one corner of the globe to the next. 

What a difference a year makes. At the time of writing, less than half as many flights—111,494—are scheduled for the same date in 2020, according to global travel data provider OAG. Four months into the Covid-19 crisis, the world now faces travel restrictions, widespread job losses, and the beginning of what is already being described as one of the most biting recessions in modern history.

Altogether, it means your longed-for summer vacation probably isn’t going to happen. To begin with, international travel is virtually impossible: The US state department has advised American citizens to avoid traveling overseas, while countries such as New Zealand and Japan have indefinitely closed their borders to non-citizens. All over the world, big events that draw hordes of visitors have mostly been cancelled or postponed, including the Tokyo Olympics, Edinburgh’s comedy festival, and the Kentucky Derby, among many others. 

Even within the US, travelers are unlikely to want to venture to formerly popular big cities, many of which have been ravaged by the coronavirus. “NYC is clearly the hardest hit in the US [by Covid-19] by a meaningful multiple,” said David Katz, an analyst with Jefferies. “It’ll be obviously harder for people to want to travel and stay here.”

With a return to normal still as much as three to six months off, according to estimates from carriers such as American Airlines, it’s still far too early to pick winners. But a picture of this summer’s preferred travel destinations is starting to emerge: accessible by car, not too close to other people, and preferably easy on the wallet.

A post-Covid world

The packed beaches of Jacksonville, Florida, say it all: People are desperate to get out of their homes. Weeks into the US’s nationwide lockdown, Google searches for “when can I travel again” continue to rise. “People have been cooped up, and, in the US as well as in Europe, they consider vacations to be a right rather than a privilege,” said Katz. Vacation travel is therefore likely to resume much earlier than business travel: “That happens first.”

What travel looks like in the short-term will depend a lot on what’s allowed and the depth of the economic crisis. If past recessions serve as any guide, cash-strapped vacationers will instead load up their cars and go to places they can reach on their own steam. In a report to investors, Wolfe Research analyst Jared Shojaian suggested the industry’s recovery might resemble the months following 9/11. “Once the economy begins to “re-open,” we believe drive travel will outperform air travel, domestic will outperform international travel, and leisure spending will outperform business spending,” he wrote. 

For airlines, the storm will continue long after the US economy begins to crank back into gear. In a note published April 13, Cowen analysts Conor Cunningham and Helane Becker suggested that a “return to work might not mean immediate return to the air.” Throughout April and May, with most of the US in lockdown, airlines will continue to see falls in revenue of more than 90%, they estimate. June and July will be only somewhat easier.

The destinations of choice, therefore, will be those that can be reached within a day’s drive, and planned on the fly. Popular options currently include national parks around the US, according to data from Google, as well as Massachusetts’ Cape Cod and the Adirondack Mountains in upstate New York, both of which can are close to major US metropolitan areas. The small town of Coroga, New York, has already seen an influx of visitors from downstate. Speaking to the local Daily Gazette, Scott Horton, the town’s supervisor, said many summer visitors had showed up far ahead of their usual schedule. “It’s a natural progression, happens every year, but this year it’s happening about two months early,” he said.

Online travel companies are taking note of these changes. Having slashed the marketing expenses which ordinarily make up between 35% and 50% of total revenue, companies such as Booking and Expedia are pushing remaining budget toward promoting social distancing-friendly vacations in remote locations, in a bid to profit from Google searches for “family camping trips” over terms like “hotel in Paris” or “flight to London.” 

Expedia is currently featuring travel to Banff National Park in Canada, with its “pristine wilderness” a particular selling point. In a recent blog post, meanwhile, competitor Booking.com compiled a list of US campsites, with an eye to travelers gearing up for the great outdoors.

Hotel, motel, Holiday Inn

What kind of accommodation travelers choose to stay at may also be different. In the wake of 9/11, cheaper hotels were far less hit than their luxury counterparts, said Dan Wasiolek, an analyst at Morningstar. “During that period, when maybe travelers were a little bit scared to travel and had less money in their pockets, many preferred near-home vacations compared to international travel.” 

Already, some of these hotels are starting to gain and have retained a bit of momentum, said Katz. “Talking to operators, they think that people may be quarantining themselves in less expensive hotels.” Holiday Inns in places such as Fort Wayne, Indiana, are offering special long-term rates to first responders, with a flat fee of $299 for a week’s stay. Government contracts have helped others to make it through: Budget chain Motel 6 this week announced that it would be providing more than 5,000 rooms for homeless people in California. 

It’s a very different story at the other end of the scale. For luxury hotels, after more than a month of no business trips and conferences, profits have all but evaporated. Thousands of on-the-ground hotel employees have now been laid off or furloughed by hotel giants such as the Marriott, Hilton, and Hyatt chains. Corporate staff cuts are likely to follow. 

The second and third quarters of the year should be prime earning time for hotels: Last year,  Hilton Worldwide Holdings earned 62% of its annual $886 million profit between April and September. This year, the main objective for it and its competitors will simply be surviving these paltry months—and accruing as little debt as possible. In the immediate term, that means holding on to cash and reducing operations down to the barest of bones. If economic recovery resembles the wake of the 2008 recession, demand may not return to 2019 levels until 2023 at the earliest, said Wasiolek.

Airbnb and other hotel-alternatives, meanwhile, are wading through uncharted territory. In its 12 years of operating, Airbnb has become a superpower in the vacation business, with quarterly revenue of over $1 billion in late 2019. But it has recently dipped out of profitability: Coronavirus, its first real test, comes at an inopportune moment. In March, bookings were down year-on-year all over the world: 95% in Asia, 75% in Europe—the company’s biggest market—and 50% in the US, according to a Wall Street Journal report. 

So far, it has followed the tactics of others in the sector, including promoting remote locations, cutting its $800 million marketing budget, and freezing hiring. Those changes have also involved a pivot to longer-term accommodation: Stays of a month or more (“Make Airbnb your home”) are now a homepage mainstay, with an eye on customers in busy cities desperate for a way out. Ordinarily popular city destinations such as Austin or New Orleans have been relegated to the very bottom of the page. As a replacement for in-person experiences, the company is also pushing online alternatives such as “Meditative Yoga and Slow Life Coaching” with an Italy-based host.

But Airbnb and its competitors may not be well-placed to survive a longer down-turn in demand. “Their primary role was to satisfy excess demand during periods of strong compression,” said Katz, “in markets where there’s a citywide convention, markets where the hotels are really expensive. With what we have now, where demand is curtailing dramatically, it’s hard to imagine that entities like that can succeed.”

Operators are holding faith in the notion that now may in fact be a better time to promote private rentals than hotels. “What we’re going through is unprecedented,” said Stephen Haskell, the general manager of competitor OneFineStay. “People who don’t want to stay in a hotel because of social distancing are booking private homes. We don’t want to say we’re actively capitalizing on this, but it is happening.”

Don’t hold your breath

Even hoping for a more subdued summer vacation may be optimistic. Speaking to CNBC, Barry Diller, chairman of the Expedia Group, predicted ”normal activity” would not return until the final quarter of 2020. Given airlines’ estimates of a three-to-six month crisis, “we have enough data points to believe that that’s a base case,” said Wasiolek. “That kind of indicates that summer vacations aren’t happening.”

With such sparse offering on the immediate horizon, some passengers are looking beyond the summer: In an email to Quartz, short-term property management platform Guesty reported rising bookings for fall and winter vacations, particularly around Thanksgiving and the December holidays. The average stay for these bookings was nine days, compared to a pre-pandemic average of 4.5 days, with prospective travelers looking to use their saved up vacation days. 

But whether the industry’s travails end with the summer depends a lot on the success of current measures, some of which are being lifted against the advice of public health experts. In a Morgan Stanley report published in early April, researchers warned of a possible second wave over December and January, wiping out another peak period for the travel sector.

Until a vaccine is in hand, nothing is certain, said Katz: “There’s little more than hope at this point, which we know is not a plan.”

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