By guest authors Lorraine Ehrlichmann, Evgeni Kochman, Jürgen Schröder, and Nina Wittkamp from McKinsey
About the author(s)
Lorraine Ehrlichmann is a consultant in McKinsey’s Munich office, where Nina Wittkamp is an associate partner; Evgeni Kochman is a consultant in the Frankfurt office; and Jürgen Schröder is a senior partner in the Düsseldorf office.
The authors wish to thank Dilip Bhattacharjee, Christian Dominka, Alicja Mokwinska, and Sarah Stohrer for their contributions to this report, as well as trivago and its members for their continued support and data provision.
A new report provides insights on how the travel industry can cope with shifts in demand patterns due to COVID-19.
With the opening of borders and the relaxation of travel restrictions in most of Europe in mid-June, we are seeing an initial restart of the travel industry. Hotels are reopening, and airlines are resuming flights on a reduced but regular schedule. Majorca, one of the most popular destinations for German vacationers, was allowing a limited number of German tourists as a part of its trial reopening.
The restart of travel after the COVID-19 lockdown raises many questions:
- What are the post-lockdown consumer trends shaping the industry?
- What will the changes in consumer behavior entail for major tourism players and stakeholders?
- What are the near-term and long-term business risks and opportunities for individual industry players?
- Tourism has historically rebounded to its precrisis way of operating following an economic crisis. Given that the current economic crisis was precipitated by a public-health crisis, might we see changes to the industry that persist long into the future?
These myriad open questions reveal the intense uncertainty associated with both what post-COVID-19 vacation travel patterns will look like and how companies in the industry, such as public tourism authorities or accommodations and transportation providers, should respond to the changing tourism landscape.
Our already available reports bring together lessons learned from other countries, especially China, analyze scenarios for the recovery of US hotel occupancy, and together with IATA provide ways to track and understand demand recovery.
In this report, we draw upon the insights from our proprietary travel dashboard, developed in partnership with trivago. We identify and quantify key emerging travel trends, discuss their impact on vacation travel patterns, and provide guidance on how travel industry players can utilize data insights to manage the resulting situations. There is no doubt about ambiguity within the industry and the limited data transparency to understand demand development. At the same time, the travel industry needs to look beyond the challenge and see the opportunity.
Eight trends shaping the post-COVID-19 travel market
While there are several individual anecdotes and even more opinions about how the crisis has shaped the travel market, data and empirical evidence have been limited so far. That said, observations from recovering travel markets may demonstrate early patterns, giving travel players a head start. We chose Germany as a reference point due to its position as the largest European and third-largest global international travel market, and the fact that its metrics are commonly seen as leading the recovery curve.
Eight important—and, in part, mutually reinforcing—trends that have emerged during the COVID-19 crisis can be observed.
1. Travelers are showing increasing appetite for and confidence in travel
During the lockdown, search volume dropped to only about 10 percent of the pre-pandemic volume, and actual click-outs (redirections to provider websites) dropped even more sharply. Today, search volume is up to 55 percent of where it was at the beginning of the year, and the conversion rate has been almost fully restored: about 99 percent of the rate from the beginning of the year.
2. Domestic travel is outperforming international travel for the first time
Historically, search volumes from January to July favored international destinations about 27 percent higher than domestic ones. The earlier opening of the domestic market while international restrictions remained has reversed this trend, giving domestic travel the lead. In fact, June showed about 36 percent higher domestic demand than international.
3. Last-minute bookings are gaining in importance
Potentially due to the uncertain epidemiological situation at the peak of the crisis (April to May), travelers had been planning both their domestic and international travel for later in the summer. The lifting of restrictions, which went into effect on June 15 for European countries, appears to be behind a surge in last-minute bookings. This year’s share of June and early-July travel bookings with a start date within 30 days after booking has exceeded the respective share of June and July 2019 bookings by 7 percent.
4. German travelers stick to their favorite pre-COVID-19 destinations abroad
Two of Germany’s neighbors, Austria and the Netherlands, are among the most popular international destinations as travel resumes. Search volumes and conversion rates for both countries have been growing since May. This may be due to the ease and perceived relative safety of travel to these countries. Nevertheless, German travelers’ current list of top vacation destinations extends well beyond the border and even includes countries severely hit by COVID-19 such as Italy, Spain, and France.
5. Travelers are turning to German seaside alternatives
Among domestic destinations, the attractiveness of Germany’s coastal regions (Mecklenburg-Western Pomerania, Schleswig Holstein) has increased significantly. Along with mountain and other nature-focused regions, domestic coastal destinations have been considerably more in demand since the outbreak of the crisis.
6. Longer trips gain in popularity
Demand for longer trips (more than seven days) has not only recovered but has exceeded precrisis levels. Demand for one- to two-day travel, despite a dramatic recovery since May, is still around 63 percent of where it was at the beginning of 2020. Considering the financial impact of the crisis, it is possible that travelers are choosing to skip weekend getaways in favor of longer summer holidays with their families.
7. Demand for vacation homes nearly doubled during the crisis
The total demand for vacation rentals increased during the crisis, up approximately 78 percent from March 2020 to its peak in May. For domestic travel, the demand even more than doubled during its peak in May 2020 versus March 2020. We saw the overall share of vacation rentals begin to decline in June as many hotels resumed operation, but the share remains significantly higher than it was precrisis.
8. Despite a drop in prices, travelers’ willingness to pay for nature-oriented destinations remained almost unchanged
An analysis of price development since March determined that though travelers were mostly offered lower prices, they were still willing to pay 2019-level prices or higher for mountain, coastal, and other nature-oriented destinations. By contrast, travelers headed to city destinations, which are more dependent on a mix of business and leisure travel, were more price sensitive. These travelers paid less than they did last year.
The current COVID-19-related developments and dynamics in the travel industry are unprecedented, but there is little empirical data to point to the drivers of these shifts in the market. However, analysis shows that certain patterns and “industry rules” still seem to be valid when combined appropriately. It goes without saying that many players in the industry are currently being forced to rethink their business models and improve their adaptivity to quickly changing external events. Those that can do so will be well positioned to identify, utilize, and benefit from new opportunities.
Understanding destination attractiveness can help industry players navigate these uncertain and continuously changing times. Our approach in this analysis could extend to other countries of origin (for example, the United States), destinations, detail levels (for example, the US at state level), as well as additional time frames and circumstances even beyond the here and now of the COVID-19 crisis.
The full report (19 pages can be downloaded here