Impact of Covid-19 on global tourism made clear

The enormous toll of Covid-19 on international tourism has now become clear, with World Tourism Organisation (UNWTO) data showing the cost up to May was already three times that of the 2009 Global Economic Crisis. As the situation continues to evolve, the United Nations specialized agency has provided the first comprehensive insight into the impact of the pandemic, both in tourist numbers and lost revenues, ahead of the upcoming release of up-to-date information on travel restrictions worldwide.

The latest edition of the UNWTO World Tourism Barometer shows that the near-complete lockdown imposed in response to the pandemic led to a 98% fall in international tourist numbers in May when compared to 2019. The Barometer also shows a 56% year-on-year drop in tourist arrivals between January and May. This translates into a fall of 300 million tourists and US$320bn lost in international tourism receipts – more than three times the loss during the Global Economic Crisis of 2009.

Governments in every world region have a dual responsibility: to prioritise public health while also protecting jobs and businesses.

Dramatic fall in tourism places millions of livelihoods at risk

UNWTO secretary-general Zurab Pololikashvili said: “This latest data makes clear the importance of restarting tourism as soon as it is safe to do so. The dramatic fall in international tourism places many millions of livelihoods at risk, including in developing countries. Governments in every world region have a dual responsibility: to prioritize public health while also protecting jobs and businesses. They also need to maintain the spirit of cooperation and solidarity that has defined our response to this shared challenge and refrain from making unilateral decisions that may undermine the trust and confidence we have been working so hard to build.”

Restart underway but confidence low

At the same time, UNWTO also notes signs of a gradual and cautious change in trend, most notably in the Northern Hemisphere and particularly following the opening of borders across the Schengen Zone of the European Union on 1 July.

While tourism is slowly returning in some destinations, the UNWTO Confidence Index has dropped to record lows, both for the evaluation of the period January-April 2020, and the prospects for May-August. Most members of the UNWTO Panel of Tourism Experts expect international tourism to recover by the second half of 2021, followed by those who expect a rebound in the first part of next year.

The group of global experts points to a series of downside risks such as travel restrictions and border shutdowns still in place in most destinations, major outbound markets such as the United States and China being at standstill, safety concerns associated with travel, the resurgence of the virus and risks of new lockdowns or curfews. Furthermore, concerns over a lack of reliable information and a deteriorating economic environment are indicated as factors weighing on consumer confidence.

Lift-off on travel welcome, but ‘traffic lights’ present stop-go challenges says RSM

Whilst the announcement to loosen travel restrictions on certain overseas destinations is welcome news, RSM has voiced concern over the major challenges posed by the government’s mooted traffic light plan. It believes the system is too ‘stop-go’ in nature and so won’t allow travel operators to make short-term business critical decisions.

Blanket restrictions on non-essential overseas travel will be relaxed in the UK from 4 July. Holidaymakers will be allowed to travel to certain countries without quarantine measures on their return from 10 July.

Ian Bell, partner and head of Travel and Tourism at RSM, said: ‘The lifting of travel restrictions is the long-awaited good news that the travel industry has been waiting for, but with the introduction of the traffic light system, we’re moving from black and white guidance to forcing businesses to operate within many shades of grey. This stop-go guidance will mean businesses at times won’t know whether they’re coming or going.

‘Moving forward with caution is key to ensuring longer term success, but this very variable system creates uncertainty and risk, and so won’t allow businesses to make short to medium term decisions that are critical to their longer-term survival.’

A traffic light system will classify countries as green, amber and red depending on the prevalence of coronavirus, but the colour of those lights could interchange at any time depending on how the virus fluctuates from country to country.

Ian Bell says: ‘The challenges that this system presents for travel businesses is far more complex and severe than that presented to retail operators, for instance, who at least have the ability to shut-up-shop to offset operational and cash-flow loses. Travel companies on the other hand, once back up and running, need to commit to more in terms of cost and cross-border operations. If a light changes from green or amber to red at a moment’s notice, those very multi-layered commitments are hugely compromised.’

‘Travel businesses now face multiple challenges and risks in reopening. They will take on significantly higher operating costs at a time when government financial support is winding down; managing the logistics of providing Covid-secure travel to destinations; increased communication to customers on guidelines that keep changing, and; ensuring that ‘T’s and C’s’ protect their businesses from future claims if customers are unhappy with the travel experience, or worse still if outbreaks occur at destination.

‘The industry is hungry to get back to business, and the government has sought to meet that very real demand, which is good news and positive progress, but the long haul to creating more certainty for those businesses to thrive has only just begun.’

Open letter to chancellor urges government to offer Cash Tax Credits to struggling leisure and hospitality businesses

The Rt Hon Rishi Sunak MP
Chancellor of the Exchequer
HM Treasury
1 Horse Guards Road
Westminster
London
SW1A 2HQ
2 July 2020

Dear Chancellor

RE: Cash Tax Credits to boost working capital for leisure and hospitality businesses

As head of Leisure and Hospitality at RSM, I have been working hard with my clients during lockdown to help secure Government funding and advise on other Coronavirus related measures, alongside my colleagues. Both personally and professionally I am passionate about the sector. Last week I was heartened to see the easing of social distancing rules and a reopening date for businesses.

Nevertheless, there are still challenges ahead. The leisure and hospitality sector is being tested like never before with operators facing a prolonged period of reduced footfall. As the two-metre rule has now been relaxed, the acid test will be whether consumers have enough confidence and cash to deliver positive cash flow for restaurants and other hospitality businesses once they start to reopen their doors from 4 July.

Reopening comes at no small cost. Businesses are having to physically adapt their premises, provide PPE to staff, create new marketing plans, provide staff training, introduce safety protocols and more, all at a time when cash reserves are already depleted. Add to this the fixed costs of running a closed site during lockdown – principally rent bills accrued since 23 March – and realistically we are looking at a huge wave of administrations in the sector.

The Government’s support over the past few months has been critical in saving many businesses. However, it could all be for nothing if measures are withdrawn at pace in the coming months. Reopening is not just a question of flipping the sign on the door to ‘open’. Operators will be at the mercy of consumer confidence in the UK and globally, which could take months or even years to fully return.

Tax cash credits could be a way to further ease the cash burden on already stretched businesses and give them time to get back up and running.

Tax Cash Credits:

From a tax perspective, businesses will treat most of the direct site costs that have built up during closure plus the additional reopening costs as revenue-related deductions. Given the financial plight of most operators, additional deductions will simply enhance a loss and with it, a cash flow benefit at some point in the future – which will simply be too late for many. Similarly, any expenditure in reconfiguring site lay outs deemed to be capital in nature will offer no immediate benefit and may just increase any tax loss.

How could this help loss-making businesses? As part of these measures, any loss-making business would ring-fence all site-specific expenditure incurred between 23 March and reopening (without having to distinguish between capital and revenue) and surrender any associated tax reliefs currently available in exchange for an immediate cash tax credit rather than carry forward for future use.

For example, surrendering £100,000 of costs for say a 19% credit would give cash-strapped operators a working capital lifeline of £19,000. The amount of the benefit claimed would be subject to subsequent review/true up as part of the end of year corporation tax return submission. Ultimately, this would not affect the quantum of tax relief achieved but would be an advance of tax relief at a time when it is needed most.
Two months ago, you said you would do whatever it takes to support businesses through this pandemic. Implementing this policy could go some way to keeping that promise. This crisis for the leisure and hospitality sector doesn’t end when lockdown lifts. The impact will continue to play out for months to come and this initiative could be the difference between survival or closure for many operators.

I hope you will consider this proposal for the sector and I welcome any feedback and discussion with the Treasury.

Yours sincerely
Paul Newman
Partner and Head of Leisure and Hospitality
RSM UK Audit LLP