Tourism Meltdown

As Darren Winters points out, the tourism meltdown is currently underway, triggered by COVID-19’s great lockdown, and the fallout is disbursing menacing clouds over the wider economy.

After one hundred years in business, Hertz Global Holdings Inc has recently filed for chapter 11 bankruptcy, nearly 700,000 vehicles lay idle, 16,000 jobs have been axed and creditors have been left with $19 billion of debts. For Hertz, the pandemic and the great lockdown was the final straw, bearing in mind that the car rental company has lost money for the past four consecutive years, including $58 million in 2019.

The car rental space was already under stiff competition from fourth revolution companies, Uber and Lyft as the smartphone generation and the tech-savvies preferred the ease of use with car-sharing apps. 

What could come next in the post-pandemic world is self-driving vehicles brought to you by your favorite car-sharing apps. So the new world order of investing has already decided the winners in the car rental space, the car-sharing apps. 

With the brick and mortar meltdown, the Carmageddon already in play for a few years and now the tourism meltdown underway the fallout has hit nearly every sector of the economy, either directly or indirectly.

Hertz going bankrupt due to the rise of car-sharing apps and a tourism meltdown has a ripple effect on already struggling auto manufacturers and auto loans

Tourism meltdown

The rising auto loan defaults adversely impact auto loan lenders, but it also means auto manufacturers might have to adapt to the ongoing sluggish auto sales going forward, bearing in mind that consumer credit is a major factor in financing an auto purchase. 

Moreover, with the tourism meltdown underway, auto manufacturers can’t rely on car hire companies to buy up the overproduction of autos. So with auto inventory pile-up likely to worsen, as manufacturers take time to adjust to new sluggish demand auto prices are likely to fall, albeit in the short term. If so, this suggests that the economy could be entering a deflationary cycle, where businesses have an oversupply of non-perishable inventories in a dwindling demand environment. 

But food inflation has already arrived as supply-side dynamics have been disrupted due to the pandemic, with tourism meltdown burning off a source of work tourism labor for farmers as fresh produce rots in the field. 

So the tourism meltdown weighs on auto loan defaults and delinquent retail mortgages as there are fewer tourists renting cars and buying from brick and mortar stores

Tourists were one bright spot for brick and mortar stores as they tend to buy clothes and souvenirs from traditional retailers, so a tourism meltdown means less revenue for brick and mortar retailers. 

What impact would a tourism meltdown have on the global economy?

Worldwide, the tourism industry contributes $8.9 T to global gross domestic product (GDP) in 2019, which represents approximately 10.3% of global GDP.

Globally, the tourism economy supports a total of 330 million jobs, 1 in 10 jobs, which could be jeopardized if the tourism stall is sustained leading to a tourism meltdown

But which are the regions where their economies are mostly geared towards the tourist economy, would be the most adversely impacted by the tourism meltdown?

The World Economic Impact Reports has recently released its findings in an in-depth and timely report looking into just that.

The Caribbean is the region most adversely impact from a tourism meltdown since tourism accounts for a significant 13.9% of its GDP or $59 Bn in 2019 

Southeast Asia is the second region adversely impact from a tourism meltdown with tourism accounting for 12.1% or $380 Bn last year. 

Oceania comes third with tourism accounting for 11.7% of its GDP or $197 Bn last year.

Darren Winters points out, Europe generates the second-largest US dollar revenue from tourism and is more heavily reliant than Africa and South America on tourism, so a tourism meltdown threatens 9.1% of its GDP valued at $2 T. The US, the world’s largest economy generates the greatest revenue from tourism at $2.1 T, with the sector adding 8.8% to its GDP in 2019. 

So what are the countries most impacted by a tourism meltdown?

44 countries in the world rely on the travel and tourism industry for more than 15% of their total share of employment. 

Predictably, many of the countries suffering the most economic fallout from a tourism meltdown are island nations. The more robust the economy the less likely it is that the country relies on tourism.

For example, in New Zealand 479,000 jobs are generated by the travel and tourism industry, while in Cambodia tourism contributes to 2.4 million jobs. 

Tourist-centric countries remain the hardest hit from travel bans and a tourism meltdown

As already noted above, the tourism industry accounts for $2 T of Europe’s GDP in 2019.

The tourism meltdown could have an impact on the peripheral sovereign debts 

Greece (which is completely left out from the visual capitalist list) should be top of the list with 18% of its GDP derived from tourism in 2019. 

Spain is the second-highest-ranking country with a tourist-centric economy accounting for 14.3% of its GDP in 2019. 

If lockdowns remain in place until September, the Spanish economy is projected to lose $68 billion (€62 billion) in revenues. 

Then comes Italy with 13% of its GDP derived from tourism, then Turkey with 11.3% of its GDP based on tourism.

Mexico is another tourist-centric economy accounting for 15.5% of the country’s GDP in 2019.

So in short, a tourist meltdown could be underway with a wide-reaching impact.

From aircraft manufacturers to autos, hotels, car hire companies, restaurant suppliers, and finance companies, sovereign investors could all be adversely impacted by a tourist meltdown. 

The recent bankruptcy of Hertz underscores just how widespread a tourist meltdown could be for the domestic and global economy.

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