London & the tourist

31/03/2021

COVID-19 has had a devastating impact on the tourism sector in London and far beyond.

Stay-at-home orders in place across the globe have led to airlines, airports, hotels and visitor attractions being forced to reduce capacity or remain closed for much of the past 12 months, making 2020 the worst year on record for global tourism.

As a popular destination that is often in the top three most visited cities worldwide, the impact on London has been immense.

74%

According to the World Tourism Organization (UNWTO), international travel fell 74% last year, plunging global tourism numbers back to levels last seen in the 1990s.

Not only did its valuable international market disappear overnight, but the city also saw immediate declines in business travellers (and the families who often accompany them), the halting of domestic visitors, and the loss of the weekday commuter population who make a significant contribution to the economies of the West End and the City of London.

In its interim report on the cost of the pandemic released in February, City Hall revealed that the British capital lost £10.9bn in tourism revenues in 2020 compared to pre-crisis 2019. Central London was hit especially hard because, unlike New York or Paris, it has few local residents to keep spend ticking over.

VisitBritain expects final inbound visits to the whole of the UK in 2020 to come in at just 9.7 million visits when full-year figures are announced in May–a dramatic drop of close to 76%–and only a fraction of the 40.9 million visits in 2019.

The situation a year on from the first national lockdown is a far cry from expectations before the arrival of COVID-19. As Rachel Welch-Phillips, an associate in Bird & Bird’s international Aviation group, notes: “Pre-crisis, global travel was growing quickly in terms of quantity of flights and volume of passengers. London was a perfect example of that. A standstill was not in anyone’s outlook.”

Operational losses

London’s tourism sector is waiting with bated breath for a route out of the crisis. It has worked hard to stay open and operational through repeated periods of lockdown but with capacity restrictions in place, that has often been at the expense of profitability.

Karen Friebe, head of Bird & Bird’s international Hotels, Hospitality and Leisure group, says that she has been advising hotel owners and operators on the difficult discussions taking place between them in response to the COVID-19 pandemic, for example on how best to fund operational costs, when profit margins are at rock bottom. At the same time however Karen comments that, “We have signed three new hotel management contracts for clients over the last year and are involved in negotiations for several more, which surely shows confidence that the market will bounce back post pandemic”.

When allowed to open, London’s visitor attractions and theatres have mostly operated at a loss because of capacity restrictions and have lost important revenue streams and markets too.

Bernard Donoghue, director of the Association of Leading Visitor Attractions (ALVA) and co-chair of the newly formed London Tourism Recovery Board, says the pandemic was nothing short of devastating.

“Attractions that are free such as the British Museum and the National Gallery are hugely dependent on secondary income through their food offering, events and shops – all of which disappeared.” “And paid-for attractions such as the Tower of London, St Paul’s Cathedral and Westminster Abbey – where around 90% of paying visitors come from overseas – have lost nearly all their market who were not here last year and won’t be here this year either”

Bernard Donoghue, director of the Association of Leading Visitor Attractions (ALVA) and co-chair of the newly formed London Tourism Recovery Board

There are hopes that the measures of limited capacity and social distancing, which are extremely damaging for tourist businesses, will come to an end before the summer months, in line with the UK Government’s roadmap for easing lockdown restrictions in England. If the plan stays on track, all legal limits on social contact will be removed on June 21, paving the way for a return in tourist numbers.

Inbound delay

The way forward for London’s tourist sector is far from certain, however.

While London’s tourism businesses and attractions would undoubtedly like to see the big-spending international visitors return quickly, they are likely to be last in line.

VisitBritain’s Inbound COVID-19 sentiment tracker indicates that the lower-spending visitors from nearby in Europe, in particular France, Germany and the Netherlands, will be the first overseas tourists to come back.

“We would then expect those from Ireland, Poland and India, who want to visit friends and relatives, to be at the front of the queue,” says Donoghue.

Visitors from the higher value US market are unlikely to return in any significant numbers until the end of year; and a real renaissance in inbound tourism from China is not anticipated until Spring 2022 at the earliest.

Ongoing uncertainty

The progress of the COVID-19 virus itself, the rollout of vaccination programmes in each country and the emergence of new variants in the UK and elsewhere, are all factors that continue to create uncertainty in the ‘new normal’.

Noting how quickly the situation can change, VisitBritain recently downgraded its initial 2021 inbound tourism forecast. Its revised scenario for inbound tourist visits estimates just 11.7 million this year, up 21% on 2020 but still only one-third of the visits seen in 2019.

International visitors spend is forecast at £6.6 billion, up 16% on the extremely low base of 2020 and just 23% of 2019 spend because those tourists who are expected this year are typically lower spenders.

A gradual return

The big question for the sector is how long it will take to return to 2019 levels of performance.

A quarter anticipate this could happen as soon as the summer, while 48% expect more typical business performance by the end of the year.

73%

In a survey of 400 London businesses carried out in January 2021 by Opinium in partnership with Bird & Bird, 73% said they are optimistic that their business performance will return to more normal levels by the end of 2021.

Based on lessons learned from previous crises, such as 9/11 and the 2008 global financial crisis, Russell Kett, chairman at specialist hotel advisors HVS, expects “a gradual return rather than a bounce back” for the hotel sector.

“COVID-19 has had a phenomenal impact on the sector, more than anyone could have imagined. I’ve never felt it would be a quick return and think it will take hotels in London until 2023-24 before they start to enjoy the same level of business as 2019.”

What is taking much longer than anticipated, he notes, is the start of rebuilding because of multiple lockdowns.

Ultimately, however, he considers hotels and travellers as resilient.

“Travellers generally have good memories of travel experiences and quickly forget things they don’t like. Once people get beyond being frightened of going out, they will want to travel again. The vaccination rollout is helping to allay fears.”

Russell Kett, chairman at specialist hotel advisors HVS

Investor confidence

Confidence plays an essential role in the outlook for London. Although visitors’ confidence may have been shaken, that is not the case among hotel investors, according to Ben Godon, Head of Hospitality Asset Management at Colliers.

“Investor confidence remains strong on a global basis that the strength of the London market will return, the pandemic hasn’t put investors off.”

“Despite the trading difficulties, existing owners are managing to bridge the gap to make ends meet and are not willing to put hotels on the market at a discount – that has to be good news. We’re not seeing a discount on pricing of any note.”

Although the market will be very challenging in the short to medium term, Godon says: “We see this very much as a temporary blip.”

Taking off at the right moment

During the interim period, tourism businesses – in particular airlines – will have to hold their nerve as they manage the unpredictability of the COVID-19 crisis.

Stuart Cairns, a partner in Bird & Bird’s Commercial practice and lead of international airports initiative, says: “The issue for airlines going forward is when to start to ramp up again. It’s not easy to turn flights back on again, it’s expensive. We don’t know what ‘it’s over’ means for the crisis. We don’t know how to plan for the future. That’s the real challenge.”

Again, it comes down to building confidence among tourists to travel. That is something over which airlines do not have full control but where they still play a big part.

Bird & Bird’s Welch-Phillips says: “Though travel policies and restrictions may be introduced by governments, airlines will have a role to play in how they choose to roll out these requirements and how smooth they can make these for the passenger.”

She adds: “There may also be room for innovation in how airlines execute new policies that may be put in place. Their obligation is compliance, but airlines can choose to go above and beyond in the interest of improved passenger experience and enhanced passenger trust. However, airlines are currently having to plan for a very uncertain future that rides on the success of global vaccine rollout, the development of the vaccine and its strains, and the resulting economic impact of these.”

Staycation boom

Until international visitors return in significant numbers to London, domestic tourists are set to become the target for the city’s tourism sector.

Already a key component of the market during the lead-up to Christmas, the focus will be on attracting UK visitors throughout the year.

In the summer of 2020, when restrictions were partially lifted, the UK’s staycation market boomed with coast and country destinations benefiting most. Even though other cities in the UK saw a return in visitor numbers, domestic tourists swerved London.

Godon believes 2021 will be different. “The demand for coast and country will still be very strong but there is already pressure on supply in these areas. This year I think London has a real opportunity to participate more in the staycation market, with people choosing to mix a short break in the countryside with another short break in central London.”

One of London’s newest hotels, Hyatt Place London City East, is gearing up for the domestic market by working with key leisure agents.

Silvia Abreu, Director of Sales, says:

“British travellers are renowned for their resilience, and have historically always been amongst the first to resume bookings and start travelling again. For that reason, as more businesses focus on the need for flexible booking policies and companies ensure they adhere to the strictest COVID-safe protocols, there is every reason to feel confident about the domestic travel horizon.”

The leisure market is the most obvious focus, but Abreu also highlights the importance of bleisure (business and leisure) trips as an emerging opportunity.

“The pandemic has highlighted the difficulty of working and living in the same space. We know that, for those still unable to return to their office, there’s a growing desire for people to break up their day-to-day monotony and have a dedicated working environment where they can focus on the work in hand. And, where more members of the family are competing for Wi-Fi, there’s a growing demand for hotel rooms as a great place to work from.”

To cater for this customer demand in the ‘new normal’ post-COVID, Hyatt Place London City East has created a series of co-working and bleisure packages in time for its summer reopening.

Delivering safe tourist experiences

The onus is on London businesses to ensure visitors feel safe and to build trust in the capital’s visitor experience.

There is evidence that for many London businesses being ‘COVID-secure’ has become a longer-term investment.

3 in 5

London businesses

Bird & Bird’s survey found that three in five say that becoming ‘COVID-secure’ had a significant impact on their bottom-line last year.

However, eight in ten (79%) plan to maintain some levels of such practices even after restrictions are lifted, even though 92% expect there to be an ongoing cost for this.

Among those who said that the cost of becoming COVID-secure had had a significant impact on their bottom line, the largest cost contributing to this was from increased investment in IT and tech (39%), followed by physical and practical changes to operating spaces (33%), and changes to procedures or training (28%).

The pandemic has clearly accelerated hotels’ consideration of technology that reduces contact.

However, the emphasis on creating safe environments comes at a cost for hotel owners and operators, as Bird & Bird’s Karen Friebe highlights.

“It’s unfortunate that the expenses involved in providing the enhanced cleaning, safety and distancing measures that are required as a result of COVID-19 – such as remote check-in arrangements and in-room food delivery – are likely to be offset by cutting labour costs.”

Karen Friebe, partner, Bird & Bird

Short term rental

Visitors wanting to cater for themselves and have more control over their London stays are increasingly likely to look at short-term rentals and serviced apartments as an option.

The self-contained accommodation sector is expected to do progressively well, continuing a trend that existed before the pandemic.

Merilee Karr, chair of the Short Term Accommodation Association (STAA) says the sector “provides the right combination of self-sufficiency, distance and standards of cleanliness”.

Over the course of the pandemic, she says new benchmarks of cleanliness have emerged in the sector that weren’t there before. “We’ve entered a new world where cleanliness is something consumers care about deeply and it’s raised the bar for the lower end of the market.”

Minimising the risk

Potential visitors to London will also want reassurance that they can easily change plans if they need to.

Bird & Bird’s survey revealed that almost two thirds (64%) of London’s business-to-consumer businesses say that they are expecting to continue the ‘no questions asked’ cancellation policies introduced last year throughout 2021, even though this is likely to lead to an increase in their standard pricing.

From the start of the pandemic, hotels were quick to adapt. “Overall hotels handled changes to cancellations policies well,” says Godon. “They adopted a flexible approach to bookings during the crisis and this will continue this year.”

Hyatt Place London City East is a good example of the approach taken by the sector. Abreu says: “One of the actions we have taken is to amend the cancellation terms and reduce the length of contracted days prior to arrival in the event of leisure groups needing to cancel. In the short term, we will also likely see a reduction in the lead time for bookings – a natural response that will undoubtedly change as travel confidence returns over the year ahead.”

“Ultimately flexibility is going to be key to helping customer confidence through the pandemic and beyond.”

Air passengers do not have it so easy. Many who had to shelve plans to visit London over the past year are navigating complicated rules on whether they are entitled to a refund or a voucher; and whether that voucher can outlive the survival of the airline or if there is any solvency protection.

“Across the EU, member states have used differing methods of insolvency intervention to assist the airline industry during the pandemic. However, EU law, which places obligations on airlines to provide refunds for cancellations under certain circumstances, remains unchanged. Though passengers may be offered vouchers, they are entitled to a refund by law and if they request one, the airline has an obligation to provide the refund.”

Rachel Welch-Phillips, Associate, Bird & Bird

The debt burden on the industry has increased overwhelmingly as a result with government authority interventions where airlines have not complied with the law in this regard.

Fewer travel options

With the survival of airlines under threat, international tourists heading to London may find they have fewer options on how they get there.

“Those operating out of remote geographies will be the hardest hit,” says Welch-Phillips, “for example, low-cost airlines operating from regional airports in Europe.”

As airlines fail, the price of flying to London is likely to rise. Price hikes could also increase if the business travel market fails to recover fully.

“How airlines model their pricing is linked between business travel and consumer travel. The more uptake of higher-priced first-class and business travel tickets drives down the price of leisure sales and increases the volume of leisure seats available,” says Welch-Phillips.

For those that do travel, however, they may well find the experience of travelling through airports better than before the pandemic. Bird & Bird’s Cairns says some of his airport clients are using the time where there is less operational pressure to “get their house in order”.

“Airports were already looking at how to improve the passenger journey and remove bottlenecks, such as at security or in baggage handling. Technology will be at the heart of solutions to have fewer touchpoints, more social distancing and fewer bottlenecks because they are becoming less expensive and more sustainable.”

The bottleneck issue is an important one for passengers and airports alike-travellers cannot spend while standing in queues and airport approval ratings go down when travellers feel stuck.

Events travel

Business and leisure events are a major driver of visitors to London, contributing £23bn to London’s economy in 2019, according to the Business and Events Partnership.

Exactly when London can hope to return to such a level is hard to pin down.

London businesses themselves remain hesitant about travelling for business again, according to Bird & Bird’s survey. Three in ten (29%) anticipate it will be at least 18 months or more before business travel returns to normal, while almost half (45%) anticipate this happening in 12 months’ time.

The events industry, meanwhile, is preparing for a return to in-person business events in the latter part of the year; with the World Travel Market, The Business Show 2021 and the B2B Marketing Expo all slated for the autumn.

Also, potentially on the cards are sporting events including the NFL London Games and music events and festivals such as the BBC Proms, All Points East and Wireless. London & Partners says: “Most events are scenario planning to welcome audiences in COVID-secure environments and we expect a lot of events in outdoor settings to be the first back to market.”

The danger for events businesses not opening to full capacity again is existential. Bird & Bird partner Phil Sherrell, who heads up the firm’s Media, Entertainment and Sport practice, says: “If we remain in a world where some form of social distancing is still required, all those businesses that rely on live events will have to rethink their business model because they’re built on fitting in as many people as possible to maximise revenues.” A reduced capacity would also jeopardise long-term contracts.

Confidence boost

In the meantime, London will have to navigate through a challenging transition period.

Its immediate future boils down to confidence: airlines need to be confident they can fill aircraft to capacity; businesses need to feel confident to spend corporate budgets on events and face-to-face meetings once more; hotels and accommodation providers need to cater to guest demands for safety and flexibility and visitors need to feel their exposure to risk is low both in terms of public health safety and in not being penalised for changes in travel plans.

Not all those factors are within the control of tourism-related businesses during normal times, yet alone during the ‘new normal’.

External contributors

Ben Godon, Head of Hospitality Asset Management at Colliers

Bernard Donoghue, Director of the Association of Leading Visitor Attractions (ALVA) and co-chair of the newly formed London Tourism Recovery Board

London & Partners

Merilee Karr, Chair of the Short Term Accommodation Association (STAA)

Russell Kett, Chairman at specialist hotel advisors HVS

Silvia Abreu, Director of Sales, Hyatt Place London City East