Despite this devastating blow, the industry has remained resilient. As vaccines became widely available and travel restrictions eased over the subsequent three years, the travel industry has slowly come back to life. In 2021, the global travel and tourism industry rebounded by 4% from its 2020 lows. Substantial growth followed in 2022. That year, it contributed 7.6% to the global economy—a 22% increase from the previous year.
In 2019, the global tourism and travel industry expanded by 3.5%, outpacing the global economy’s 2.5% growth rate for the ninth year in a row. Among the largest and most vibrant sectors of the global economy, worldwide tourism and travel accounted for over 10% of the world’s gross domestic product (GDP) and sustained roughly 300,000 jobs that year.
On New Year’s Eve in 2019, the World Health Organization (WHO) received news that a new disease was circulating within Wuhan, a city in central China home to just over 11 million people. The global health agency called the novel virus the coronavirus disease 2019, or COVID-19 for short, and over the next three months, it would grind the global economy to a halt.
Fearful of the rapidly proliferating disease and uncertain of either its near-term fatality rate or its long-term health consequences, governments around the world closed their borders, shuttered public venues, and imposed strict stay-at-home orders. Public establishments—from restaurants and gyms to stadiums and offices—were instructed to close. Travel restrictions, once imposed on rogue states and far-flung corners of the world, became nearly universal.
Foreign and domestic travel rapidly plummeted. Flights were canceled, hotels were closed, and airports were abandoned. By the end of the year, the global travel industry had been brought to its knees: COVID-19 had erased $5 trillion in economic value and extinguished nearly 60,000 travel- and tourism-related jobs. The sector’s share of global GDP plunged by half on a year-over-year basis in 2020—making it “the worst year in tourism history”.
The Travel Industry’s (Gradual) Recovery
Despite this devastating blow, the industry has remained resilient. As vaccines became widely available and travel restrictions eased over the subsequent three years, the travel industry has slowly come back to life.
In 2021, the global travel and tourism industry rebounded by 4% from its 2020 lows. Substantial growth followed in 2022. That year, it contributed 7.6% to the global economy—a 22% increase from the previous year.
The industry also created 22 million new jobs—a 7.9% rise from 2021 (though nonetheless a sizable 11.4% short of figures posted in 2019). As we approach the last quarter of 2023, however, there are compelling signs that the post-pandemic travel industry could soon exceed its 2019 peak.
Air Travel Demand Soars
Following a historic 65.9% decline in passenger traffic in 2020, global air travel has gradually regained its footing.
In the first half of 2023, global revenue passenger kilometers (RPKs)—a metric that measures the total distance traveled by all fare-paying passengers on an airline’s flights—rose by 47.2%. Similarly, passenger traffic grew by 31% from last year, 5.8% shy of pre-COVID levels.
U.S. airlines have witnessed a similarly steady uptick in passenger numbers. After an 89% decline in domestic passenger numbers in May 2020 as compared to May in the year prior, figures have ricocheted steadily—climbing to 57.5 million by May 2021 and 71.2 million by May 2022.
In May 2023, domestic airline traffic finally hit a new peak. That month, U.S. airlines carried 81.8 million passengers—surpassing May 2019’s record of 81.3 million passengers.
The situation appears likewise positive from a financial perspective. In its June 2023 report, the International Air Transport Association (IATA) estimates that global airlines will earn $9.8 billion on more than $800 billion in revenues in 2023—the first such revenue figure since 2019. Global passenger traffic is also anticipated to approach pre-pandemic levels, with the global trade association predicting that 4.35 billion people worldwide will travel before the end of this year.
The Cruise Industry Makes a Comeback
After nearly two years of pandemic-induced cabin fever, the cruise industry is capitalizing on revenge travel. Although cruise lines faced a staggering 81% annual drop in passenger embarkations in 2020, the sector bounced back in 2022, recording over 20 million embarkations—a remarkable 329% surge from 2021.
In fact, the demand for cruises has already hit an all-time high, in part because younger passengers are choosing to embark on maiden voyages. Carnival, the world’s largest cruise company, reported record-breaking bookings in the first quarter of 2023, eclipsing any quarter in the company’s history. Demand for upscale cruise line Viking similarly eclipsed records in January 2023, when the company “recorded 18 of their top 20 sales days of all time”.
According to the Cruise Lines International Association’s (CLIA) 2023 State of the Cruise Industry Report, cruise tourism is projected to rebound to 106% of pre-pandemic levels in 2023, with 31.5 million passengers set to sail. The cruise sector remains one of tourism’s fastest-growing: 36 million passengers are expected to set sail in 2024, a 6.3 million-passenger or 21.2% increase over the 29.7 million passengers served in 2019.
Surging Passport Applications
In response to the pandemic, the Department of State temporarily suspended routine visa services. Predictably, passport demand dwindled: In 2020, the State Department issued just 11.7 million passports—9 million or 43% fewer than in 2019.
But now that borders have reopened and COVID-related travel restrictions have eased, well-heeled Americans are once again itching to travel internationally. In 2022, the State Department processed close to 22 million passports—an almost twofold increase from the amount of passports issued in 2020.
Fast forward to early 2023, and the State Department is being inundated with 400,000 passport applications per week. To cope with this increase in demand, the State Department has extended processing times. As a result, the standard passport renewal process—which typically takes a few weeks—can now take up to 13 weeks, while even expedited service is expected to take up to 10 weeks.
By the end of the year, the State Department expects to issue a record-setting 25 million passports. To facilitate this, the department is increasing staffing levels and hiring additional personnel. However, a return to pre-pandemic processing times of six to eight weeks for routine service and two to three weeks for expedited service seems unlikely until the end of 2023.
The Car Rental Market Rebounds
Like other segments of the travel industry, the U.S. car rental market experienced a sharp downturn during the pandemic. In 2020, travelers rented a mere 17.3 million vehicles—a 60% year-over-year decline from the 44.5 million cars rented in 2019.
To stay afloat, rental companies sold over 770,000 vehicles. Hertz, one of the “Big 3” American car rental companies, filed for Chapter 11 bankruptcy in May 2020 and downsized its fleet by 198,000 cars, leading to an industry-wide decline in revenue of over 27% that year.
Shockingly, the car rental market was able to stage a remarkable recovery in 2021. That year, 29 million cars were leased, and rental revenue rose to $28.1 billion from $23.2 billion the year prior. In fact, pent-up post-pandemic demand was so extreme that car rental companies found themselves unable to meet the surge in rental requests. As a result, daily rental rates inflated by 48% or nearly $35 between mid-2020 and spring 2021.
Although rates have since cooled slightly, the rental car market continues to benefit from the ongoing resurgence in travel activity. Hertz, which finally exited bankruptcy in June 2021, recorded a 4% increase in total revenue to roughly $2.4 billion in the second quarter of 2023.
On the whole, the U.S. car rental industry is projected to achieve a compounded annual growth rate (CAGR) of 5.27% between 2022 and 2026. The industry is also expected to dole out 46.8 million rentals by 2024—a figure that would surpass pre-pandemic levels.
The Future Looks Bright
With the crisis sparked by the pandemic finally in the rearview mirror, the travel and tourism industry can look ahead to more promising times. According to estimates by the World Tourism Organization (UNWTO), for instance, international tourist arrivals are expected to bounce back to between 80% and 95% of pre-pandemic levels in 2023.
The United Nations agency is not alone in its optimistic predictions. Research by World Travel & Tourism Council’s (WTTC) suggests that the industry will grow to $9.5 trillion in 2023, just 5% below 2019 levels. The report also foresees the sector’s job figures returning to 95% of their 2019 count.
Looking ahead, the GDP of the travel and tourism sector is projected to achieve an average annual growth rate of 5.8% over the next decade. This growth—which is expected to create nearly 26 million jobs—is (once again) poised to outpace the overall global economy by 2.7 percentage points per year.
At The Spaventa Group, we’re excited about the future of the travel industry. We’re also enthusiastic about the future of travel itself. From drones to air taxis, we’re eager to see what the future holds.
Through our series of curated alternative funds, we offer bold investors like yourself the opportunity to invest in category-defining companies.
