The unprecedented growth of the travel industry leading into 2020 made 2008’s crash look like an anomaly. And while a shocked and stuttering economy under the strain of coronavirus might seem overwhelming, it’s not unprecedented. In addition to the 2008 crash, the travel industry also experienced fallout after 9/11, SARS, MERS, and Swine Flu before coming back stronger.
Will the same happen with coronavirus? Or could the pandemic prove a game-changer in a world that’s shuttering its doors to mass travel and tourism? Here’s a breakdown of then and now, and what to look for as we navigate through the crisis and towards recovery.
2008 vs 2020: What are the differences?
Back in 2008, the travel industry had been in recovery mode since 9/11. It faced an uphill battle as domestic and international travelers were regaining their confidence in travel. Airline and flight bookings were still struggling from 9/11 and didn’t return to previous levels until July 2004. The airline industry wasn’t truly profitable again until 2006. When the 2008 Great Recession hit, the travel and lodging industry had recovered for just a few years.
Fast forward to late-2019 and 2020 and the landscape is much different. Before the coronavirus outbreak, the travel industry had experienced rapid growth with few signs of slowing down. Research from Deloitte found that US hotel guest bookings grew from $116 billion to $185 billion between 2009 and 2017 with unprecedented growth expectations for 2020 and beyond. Compared to 2008, in 2020 the industry wasn’t just licking its wounds, it was roaring.
What was recovery like?
The travel industry started pivoting during the 2008-2009 recession. Hotels worked to cut their bottom lines and operational costs to wait out the recession. In the following years, the global economy slowly recovered and travel dollars were flowing again, as households regained solid financial footing. Also during this time, we saw smartphones being adopted by the average consumer. All of a sudden, apps made it easier for would-be travelers to find deals. Smartphones and social media also created the ‘travel influencer’ trend. Travel was promoted to individuals across every socio-economic class – which helped fuel the expansion.
For the vacation rental industry, 2008 marked a pivotal point: Airbnb was born. The company embraced the uncertain financial climate by marketing to an emerging travel consumer who valued experiences and price points over hotel comfort. In the years after, the tech giant popularized the vacation rental industry to the masses, further boosting the travel industry’s recovery. The vacation rental home market grew nearly five times over since 1999.
The recovery was a bit of a mixed bag of variables. Sure, the longest bull market in history helped bring money in the industry. However, advances in technology and social media also played a key role.
2020: Getting hit on two fronts
Although travel confidence had recovered from 9/11 fears and the world was traveling again, the 2008 crisis dramatically curbed discretionary spending. People lost jobs and the households not affected by layoffs or a repossession realized they had stretched themselves thin on cheap credit. They bootstrapped to deleverage their finances from credit. Back then, the hospitality industry suffered because travel dollars simply weren’t there to grab.
In 2020, things appear to be different. For starters, the coronavirus makes it near impossible to travel overseas as more countries are closing their borders and airlines cancel flights. Would-be travelers are sheltering in place, self-quarantining, or avoiding domestic travel to save their health and money. To make matters worse for the travel industry, the lockdown caused an unexpected chain reaction of layoffs, furloughs and salary cuts as businesses struggle with the uncertainty surrounding the pandemic. So unlike 2008, we’re not just dealing with reduced spending. Potential guests simply can’t travel.
What do past travel trends say?
The travel industry is long accustomed to financial stumbles, followed by recovery. If you look at megatrends from Skift, major events all hit the travel industry hard:
- Bird Flu
- Swine Flu
However, the slumps are always accompanied by consistent, upward growth. Of course, the past events weren’t crippling pandemics that shut down travel completely. We’re also far from being out of the woods with coronavirus. However, China is reporting an uptick in travel since COVID-19 has started to abate. People want a break, especially after the stress of living in lockdown. And so, China could offer a glimmer of hope for the travel industry. Just a reminder: we have to be careful with a singular point of data. We could still see roller coaster losses until a coronavirus vaccine is developed, and faith in travel is restored.
Emergency relief efforts
The grim data and predictions don’t indicate that all hope is lost for our industry. Airbnb is lobbying for stimulus packages for hosts and vacation rental property managers to find some relief and stay afloat during the pandemic.
Additionally, the US coronavirus stimulus bill could also offer hosts and vacation rental managers unemployment assistance. The bill would protect those hit with a COVID-19 diagnosis, or if their family receives such a diagnosis. Hosts deemed sole proprietors that report vacation rental income could also receive small business loans to cover the interest on mortgage payments, rent, and utility bills.
Platforms like Airbnb are already evolving to the crisis with options like, “More Flexible Reservations” and extended their extenuating circumstances policy worldwide to help soothe travelers’ concerns. VRBO is strongly encouraging guests to offer traveler credits or full refunds.
What we’re seeing
Unfortunately for vacation rental managers that rely on foreign travel, the situation is complicated compared to 2008. Back then, you could find creative marketing tactics to convert the few potential travelers out there. But now, and because of current border closures, there’s just no way to get travelers from their home country to your vacation rental.
This could create a rippling effect in our industry as hosts and owners find themselves in a real estate predicament. As previously mentioned, the last 12 years were good for our industry. Many vacation rental owners and managers took advantage of the boom to boost their portfolio, often through cheap credit. Unfortunately, without income, those booming portfolios quickly become liabilities. Luckily, we’re seeing some North American lenders offer mortgage deferral options which might give owners and managers that little bit of leeway to stay afloat.
Despite the coronavirus pandemic, some vacation rental property managers are holding steady during coronavirus with long-term bookings. Domestic travelers that aren’t under lockdown are looking for a quiet place to practice social distancing and get away from the grim reality of their cities. Wooded cabins and homes in tranquil, remote areas are also a reprieve for travelers. Even in some cities affected by outbreaks, we’re seeing bookings here and there with budget travelers looking for a deal. Everything may be closed, but the change of scenery seems to attract them nonetheless.
What we’re looking for
The 2020 vacation rental industry is much more sophisticated and developed than it was in 2008. Once people can travel again, we’re confident the industry will bounce back. Unlike 2008 which relied heavily on booking platforms, we now have direct booking sites, social media, and paid ads. When the recovery happens, the industry will be better positioned to take advantage of increased economic activity. But what will the light at the end of the tunnel look like for our industry? Here are signs we’re scanning for:
- Domestic travelers from afar: the global economic downturn will put a pinch on household budgets. At first, we’re likely to see local domestic travel (nearby towns or neighboring states), but eventually, we’ll see domestic travels going from one coast to another. This will be a sign the average traveler is reconsidering traveling again.
- Social media influencers: some of these famous personalities’ entire livelihoods depend on their ability to travel. They’ll be the first to travel in order to get their businesses back up. Once you see some of them in foreign countries, expect the average traveler to follow a few months later.
- Tradeshows and conferences: once we see them sprout back up, it’ll be a sign that travel is ready to boom again. The vacation rental industry may be the first to benefit from these travelers as companies restrict spending, limiting expensive hotel stays.
What’s next with COVID-19?
The unknowns related to COVID-19 are vast because the virus isn’t just a singular event in time. Infections are hitting remote and vulnerable areas around the world. Even the experts don’t know if the virus will come back in waves. There could also be long-term economic aftershocks that we can’t predict.
What’s for sure is that we’ll likely continue to see bills and proposals that help bail out the industry and keep it from irreversible damage. It’s safe to assume the travel industry and vacation rental property sector will change forever. However, if past recessions and trends hold true, the end result is the same. Over time and with innovation, the travel industry adapts to a world we can’t possibly imagine and finds new ways to thrive.