Strategy Note /

Tourism: 'Staycation' buffer for some (India) more than others (Iceland) in EM

  • To avoid the risk of a quarantine on arrival or on return and with jobs more risky staycations likely become more common

  • Defensive (high domestic, low international tourism contribution to GDP): eg China, India, Philippines, Mexico

  • Vulnerable: eg Croatia, Georgia, Jamaica, Iceland, Mauritius, Maldives, Thailand, Turkey, Saudi, Sri Lanka, Qatar, UAE

Tourism: 'Staycation' buffer for some (India) more than others (Iceland) in EM
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
8 June 2020
Published byTellimer Research

I am thankful because I am still in a job and my family and I are healthy. But, after publishing over a hundred reports in the first five months of the year and spending the last three months cooped with the family, I (we) would like a vacation (hopefully, not from each other).

The risk of an overseas vacation is that we are forced into quarantine either on arrival or on return should we contract Covid-19 or venture to a country where policy is focused on lifting lockdowns, rather than minimising infections (see Death by Covid-19 or starvation: Your Hobbesian Hobson’s choice in poorer EM). This is irrespective of whether tests are offered on arrival (as in Iceland), even if those tests are subsidised. The desire to avoid quarantine as well as the concern that future income has become more uncertain is pointing us towards a 'staycation'.

One of the first reports I wrote on Covid-19 was, in what seems an eternity ago, at the end of January. It discussed the signal for the global tourism industry from the first case of the virus announced in the UAE. (There are now almost 40,000 cases and 276 deaths in a population of about 10mn, the infection curve has not flattened but lockdowns are being lifted, albeit with continuing restrictions on occupancy levels, safety requirements and prohibited in-country travel for all but essential workers into and out of the capital, Abu Dhabi). Below, we extend that analysis, which concentrated on GDP contribution from all tourism, to differentiate exposure to domestic and international tourism.

Exposure to more resilient domestic tourism versus more vulnerable international segment

We segment emerging markets into two categories:

1) Defensive – high domestic tourism contribution (over 5%) to GDP and* low international contribution (under 5%):

  • Africa: Ivory Coast

  • Asia: China, India, the Philippines

  • Wider Europe: none

  • LatAm and Caribbean: Argentina, Mexico, Peru

  • Middle East: none

2) Vulnerable – low domestic tourism contribution (under 5%) to GDP and high international contribution (over 5%):

  • Africa: Botswana, Egypt, Morocco, Mauritius, Tanzania

  • Asia: Maldives, Sri Lanka, Thailand

  • Wider Europe: Bulgaria, Croatia, Estonia, Georgia, Iceland, Slovenia, Turkey

  • LatAm and Caribbean: Barbados, Costa Rica, Jamaica, Panama, Uruguay

  • Middle East: Jordan, Lebanon, Qatar, Saudi, the UAE

If the thesis is that domestic tourism should be more resilient than international tourism, then it is not sufficient to list countries with a high contribution to GDP from domestic tourism because they may suffer much more from the drop in demand from the larger international segment.

Of course, domestic and international tourists are not substitutes

Of course, from an economic growth and balance of payments perspective, domestic 'staycationers' are a poor substitute for visitors from overseas. Typically, their trips are shorter in length, they spend less and they spend almost entirely in local currency.

For example, in the US and Australia, international visitors spend 6x and 7.5x more than domestic tourists. In Vietnam, the average daily spend of international visitors is twice that of domestic travelers. Furthermore, the buffer from what should be more resilient domestic demand is tempered by the restrictions on supply (ie occupancy limits well below maximum as hotels, restaurants and tourist attractions re-open).

Nevertheless, until the world has put Covid-19 behind it, it is better to have the domestic tourist segment than not.

Regional charts comparing domestic and international tourism contribution to GDP