An uncertain but promising year

The tourism sector’s improved situation was palpable by the end of November. The good figures posted in the summer were consolidated thanks to the season being extended to October and part of November. However, this positive trend has been hampered by the emergence of the latest wave of COVID-19 in Spain, related to the Omicron variant, raising doubts regarding the stability of the tourism sector over the coming months, which could see a negative start to 2022. Nevertheless, once this wave stabilises the sector is likely to return to the recovery observed up to last November. Looking ahead to 2022 as a whole, we remain optimistic and expect an appreciable improvement on the 2021 figures despite the high uncertainty today.

After the strong recovery posted by the tourism sector last summer, the activity indicators published up to December showed no signs of slowing down. Demand, supply and prices all maintained the good performance observed in the summer and even continued to improve, further closing the gap with their pre-COVID levels, in spite of pandemic-related risks reappearing towards the middle of November when infection rates rose again in Europe and the new Omicron variant started to spread. Nevertheless, tourism demand remained very solid, consolidating week by week the great  improvements achieved mid-2021.

According to data from the hotel and non-hotel occupancy surveys carried out by the National Statistics Institute, the sector’s recovery intensified in October. Total overnight stays were 18% below the figures for the same month in 2019, improving 4 pp on August’s already good figures. International tourist overnight stays were 32% below the level posted in October 2019 (17 pp better than in August), thanks to a very strong recovery in British tourist arrivals, achieving levels higher than those recorded in August. There was also a surprise from domestic tourist overnight stays, performing 18% above their level of October 2019. This dynamic supports the hypothesis that pent-up and captive demand¹ have continued to have a significant effect on domestic tourism, and that the industry’s efforts to lengthen the season have paid off.

The «stretching» of the tourist season had a clear effect in October but, according to CaixaBank POS card spending data via hotel businesses, this effect does not seem to have continued in November. As can be seen in the chart below, between mid-August and the last week of October the seasonal drop in spending was less than in 2019, bringing weekly spending in 2021 appreciably closer to the 2019 level. However, a correction in this effect has been observed since the first week of November, with expenditure in 2021 returning to a seasonality that is more similar although somewhat less acute than in 2019.

Apart from an analysis of holiday and leisure tourism, very dominant during the high season, it is also revealing to look at the situation of business tourism, which is very important for keeping tourism businesses going during the winter months and key for urban tourist destinations. This kind of tourism is not a mainstay for the sector but is a fairly important source of revenue that generated 8.2% of total tourism expenditure in 2019, with both domestic (with shorter stays) and international (more focused on large trade fairs) business tourism making very similar contributions.

As shown in the double chart below, before the big recovery began in May 2021, business tourism fared relatively better than leisure tourism, both international and domestic. However, the number of domestic tourists travelling on business has levelled off at a rate that is about 30% lower than in the same period in 2019. International tourists travelling for business did recover as from May 2021 but at a slower pace than leisure tourism, which has been showing signs of stagnation in recent months.

This stagnation could be due to the impact of the digital transformation experienced during the pandemic, with the result that business relations rely much less on face-to-face encounters, especially meetings (more relevant for domestic tourism). This could mean that, once travel gets back to normal, business tourism will have less potential to improve.

Given the changing and uncertain nature of the current situation, it is becoming increasingly important to be able to carry out analyses using large databases that provide much more insightful information. Consequently, at CaixaBank Research we use big data methodology to study card payments made via CaixaBank point-of-sale (POS) terminals in order to develop highly granular indicators for tourist spending.

If we look at the CaixaBank POS card consumption indicator by branch of activity, updated to the last week in November (see the chart below), we can see that the differences between sectors had an effect on their recovery. Specifically, the sectors in the part of the value chain closest to consumption at destination saw the effect provided by pent-up demand dissipate to some extent, while the intermediate sectors (transport and marketing) saw their conditions gradually improve.

The situation of the travel agency and passenger transport sector gradually improved after suffering a set-back last summer, reaching levels, in the last week of November, that were 39% and 29% below the same period in 2019, respectively (see the chart), whereas other sectors that had been more buoyant in August 2021, such as accommodation and vehicle rental, moderated their recovery, bringing their situation closer to the average. In turn, the card consumption indicator for hospitality posted very high growth in turnover at the end of November, pointing to a good situation in the sector but also to the increased use of cards in this type of establishment following the emergence of COVID-19.²

Uneven recovery for the hotel industry in the summer

The sector recorded a very strong recovery in the summer months of 2021 but not to the same extent for all branches, as can be readily seen if we analyse the growth in tourist overnight stays in the different autonomous regions, whose performance was disparate, ranging from decreases of more than 40% compared with summer 2019 to growth of almost 10%.

To better understand this disparity in the recovery among hotel companies, we analysed how turnover picked up across all hotel businesses using CaixaBank POS terminals, an analysis which allows us to break down the improvement recorded in tourism expenditure.

As can be seen in the tables below, on aggregate the sector’s recovery has not been entirely representative, with big differences between the 25% of hotels with the best and worst performance. According to our analysis, the median change in hotel POS turnover in summer 2021 compared with the same period in 2019 was –16%. However, more than 25% of the hotels with CaixaBank’s POS terminals posted declines of more than 52% last summer, while the 25% of hotels with the best performance achieved growth in excess of 19%.³

These differences remain even when we take into account the extent of dependence on foreign tourism, the hotel size and autonomous region in question (see the tables), confirming that there is significant inequality within the sector and that, as a result, a large number of hotels are still experiencing difficulties. Economic policy tools should therefore continue to take this inequality into account and maintain the support mechanisms in place for those companies that have been hit the hardest.

CaixaBank POS turnover for hotel businesses between July and September 2021

Distribution of change compared with summer 2019

Although the indicators for Spain’s tourism business paint a very positive picture up to December, the emergence of the new Omicron variant has considerably altered the short-term outlook. The escalation of restrictions to contain this new wave will impair activity figures for the beginning of 2022, although there is still a great deal of uncertainty regarding the extent of the shock since, this time around, the tools at our disposal to combat the pandemic’s spread are no longer based solely on travel restrictions but also on vaccinations, testing capacity and the booster campaign.

In this respect, we can learn from what the countries of northern Europe went through in December, when they were already battling with the latest COVID-19 wave and were forced to take more restrictive measures. We therefore analysed the high-frequency flight data provided by Eurocontrol, which aggregate domestic and international operations and help to estimate the movement of tourists in other countries within our environment. As can be seen in the chart below, air travel in the countries affected earliest by the latest COVID wave was not so strongly affected in December. Only Austria, where tighter restrictions were imposed, posted a significantly lower number of flights than its pre-COVID benchmark, with a 42% drop compared with December 2019 (–35% in November). Meanwhile, air travel in southern European tourist destinations, in general less affected by the wave in December, posted levels between 20% and 15% lower than in the same period of 2019, improving on November’s performance.

This analysis of experiences in other European countries suggests that the impact of this new variant might not be as great as in pre-vaccine waves, although it is still expected to be substantial.

The current scenario is highly uncertain. An analysis of all indicators, official, internal and high-frequency, paints a very positive picture, even during the month of December. However, the pandemic has intensified significantly and, with it, the current escalation in restrictions will represent a major obstacle to this recovery, at least during January and February, as well as increasing the medium-term risks. 

To construct our forecast scenario, we have assumed that January and February will be significantly affected by the restrictions. However, their impact should be much less than in previous waves, thanks to the fact that, in addition to the restrictions, we also have medical solutions that were not available a year ago, in particular the large proportion of the population that has been vaccinated, which should have a substantial effect on the likelihood of severe cases developing, the high testing capacity and booster vaccination campaign.⁴ Consequently, in the medium term we expect the pandemic to stabilise, which should help to restore the level of domestic travel and the upward trend in international travel observed prior to the recent wave of COVID-19.

Given these mixed indications, we expect 2021 to have ended with GDP at 55% of its 2019 level, a 58% improvement on the 2020 figure thanks to the positive inertia of international and domestic tourism observed in our analysis of available indicators.

Looking ahead to 2022, we believe the difficult start to the year will not set the tone for the year as a whole. We therefore predict that international tourist expenditure will grow by 92% and reach around 70% of the spending level observed in 2019. In this scenario, we envisage a complex start to the year due to the latest COVID wave but assume that its impact will be temporary and that the sector will return to growth, largely supported by the recovery in EU and British tourist travel, which had recorded a very positive trend up to December 2021. Regarding domestic tourism, we expect the restrictions to have less of an impact and that, during the high season, the effect of captive demand will continue to keep Spanish tourist expenditure at similar levels to 2019, with annual domestic tourism expenditure exceeding its pre-pandemic level.

Regarding the level of tourism GDP in 2022, the year as a whole is expected to be positive despite the difficulties encountered in Q1. The stabilisation of the pandemic during the spring season and renewed dynamism in the summer months will lift tourism GDP to 82% of its 2019 level, with annual growth of 51%. While our tourism GDP projections for 2022 will be very positive for the sector (at a similar level to that of 2016), we still expect an appreciable gap compared with its performance in 2019. In addition to the difficult start to the year, this will also be due to the fact that we do not expect tourism from long-haul and less traditional markets to recover at a fast pace this year.

With this outlook, we expect the 2022 financial year to be profitable for the sector on average, confirming that the tourism industry’s long-term sustainability is beyond doubt. Nevertheless, it is important for economic policy to continue to be adapted effectively, given that the pandemic is still impacting the tourism industry as a whole and some businesses in particular are encountering great difficulties. The worsening pandemic has made the situation even more complex and we therefore believe it is vital to extend the furlough system currently in place. Additionally, the Fund for Supporting the Solvency of Strategic Companies managed by SEPI, totalling 10 billion euros and of which 1.08 billion have already been allocated, continues to be crucial for the stability of key tourism businesses.

Last but not least, the role played by the NGEU funds will also be significant when it comes to supporting digitalisation, sustainability and improvements in infrastructure, investments which the hard-hit tourism industry can hardly afford at present.⁵ The NGEU lines of investment in the tourism sector are specified in the Tourism Sector Modernisation and Competitiveness Plan of Spain’s Recovery, Transformation and Resilience Plan. In this plan, investments of 3.4 billion euros have been budgeted over three years, including 1.9 billion euros to promote the sustainability of the sector and 337 million euros in digitalisation. Although such amounts may seem somewhat limited for such a large sector, which before the pandemic accounted for 12.4% of Spain’s GDP (154 billion euros of GDP), the plan is a move in the right direction and should also encourage private initiatives to step in and once again invest in transformation as a means of exiting this crisis, maintaining Spain’s status as the most competitive tourist destination in the world.