As the world and South Africa braces for the harsh socio-economic costs of the Covid-19 pandemic, the tourism and hospitality sector finds itself on the frontline. The unavoidable truth is that the measures necessary to contain the virus will also curtail the behaviours that transport companies, travel operators, accommodation providers and food and entertainment businesses rely upon to sustain themselves.
An acute drop in tourism activity is therefore certain. March hotel occupancy was already down 50% year-on-year three weeks into the month. Hoteliers large and small have now had to close their establishments and the airlines have ceased operations. Many may not recover as a result of the 21-day shutdown announced by President Cyril Ramaphosa on March 23.
In 2018, the local tourism industry generated direct foreign spend of R82.5 billion. A total of 722 013 people, one in every 22 working South Africans, is employed in the sector and, in all, tourism contributes in the region of 3% of national GDP.
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The current demand shock is an unwelcome setback for a strategic area of the economy earmarked for outsize output growth, job creation and increased foreign receipts. In reality however, the sector's economic contribution is both static on pre-2008 levels and below global benchmarks. The current crisis should not conceal the sluggish underlying trajectory nor the country's vast unrealised potential.
While managing the crisis response will remain centre stage for some time, South Africa's tourism industry, be it private operators or destination marketing organisations, will do well to begin shifting strategic focus to the question of "How to manage the recovery?"
Here, Turkey's recent experience contains a number of valuable lessons.
Turkish tourism's recovery
A geopolitical peer, Turkey is a naturally and ethnically diverse developing economy with a broad array of tourism product. In 2016, the country's tourism market went into free fall as terrorism, regional war and domestic unrest dramatically shifted global perceptions of the country and changed the risk calculation for would-be travellers.
The impact was stark. Arrivals dropped 25% from 41 million in 2015 to 31 million in 2016. Yet, despite this catastrophic period, visitor numbers rebounded strongly in 2017 and by 2018 had passed their pre-crisis levels. A further increase in arrivals of 14% in 2019 meant that Turkey has averaged an incredible 21% growth in the past three years.
Turkey's tourism industry is significantly larger than South Africa's and is better known to the global travel trade. It is also more conveniently located near large outbound markets and intercontinental air routes. Yet the recovery was as much to do with smart strategic planning and coordinated execution as it was with geographic destiny.
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The events of 2016 abruptly curtailed arrivals from the lucrative English language countries of North America and the United Kingdom, traditionally core source markets for Turkish tourism. In response, focus and investment was shifted to high growth territories, specifically China, the Middle East and Russia. The resulting diversification, which saw strong increases in new market arrivals even as traditional markets came back online, has structurally changed the sector.
Marketing investment was quickly converted into arrivals with the support of clear and deliberate barrier messaging. The Turkish Lira's rapid and sustained depreciation against major currencies created new price competitiveness and reinforced value for money perceptions. However, this was only compelling alongside credible assurances that the country was safe to visit. Concerted messaging direct to consumers as well as through the travel trade and official diplomatic channels successfully cultivated the perception that conflict risk was localised in isolated parts of the country. Coordination between police and security forces to protect tourist sites underwrote the credibility of these claims.
With new source markets came new visitor preferences and product development opportunities. Traditional perceptions of Turkey as a 'sun, sand and sea' destination have been extended to encompass historical, cultural, culinary and health and thermal tourism themes. This has supported the growth of new product sub-segments and has enabled a variety of new entrants into the sector.
Importantly however, Turkey's resilience is also a product of more than a decade's investment in modernisation of the industry and related infrastructure. For instance, a commercially powerful national airline, where the state retains a 49% stake, effectively converts traveller consideration into bookings with frequent, affordable flight options from 315 destinations around the world.
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The country was also prepared to double down on these investments in the wake of the crisis. A barometer for the scale of these commitments is provided by the highly coordinated show-leading Turkish presence at global travel trade events like ITB Berlin.
Lessons for South Africa
The above is good news to those involved in marketing South Africa to the world. Underlying natural fundamentals and the calibre of the country's tourism proposition suggest that a post-crisis rebound can be expected. The government has also been ratcheting up investment for some time and the weakening Rand will support competitiveness in the short term. Product and market diversification alongside focussed barrier messaging remain core focusses of the content projected into the world.
However, if South Africa is to replicate the successes of Turkey, more needs to be done.
For destination marketing organisations (DMOs), markets such as China, East Asia, India and Latin America all show significant potential. However, a reluctance to make multi-year 'investment' bets, exacerbated by an inability to leverage data availability into meaningful assessments of opportunity cost, mean that these growth markets remain relatively under-resourced.
Insufficient demand generation in turn leads to misdirected attempts at product diversification and visitor experience transformation. While geographic spread and inclusion objectives are fundamental imperatives, support interventions should only be targeted at tangible commercial opportunities.
Better inter-governmental coordination to secure tourist sites and prioritise visitor affairs can bring credibility to efforts to shape international market perceptions of South Africa as a safe and secure destination. Punitive visa and immigration policies must continue to be unwound. Developmental investments in industry utilities such as Jurni should be fast-tracked and leveraged to their maximum potential.
For private operators, weathering the crisis will require prioritised resource allocation and focused cost containment. Replenishing cash flows post-lockdown will require occupancy optimisation strategies and new approaches to pricing and promotion that challenge established norms. Capital expenditure and maintenance cycles will also need to be planned and managed carefully in order maximise cash preservation.
Performance marketing, which is based on data-driven lead generation, enables agility of marketing expenditure through risk-based fee structures and a clear view of return on investment. More generally, in periods of increased screen times and digital usage, shifting marketing spend to digital media can deliver improved outcomes right through the marketing funnel.
Crisis also leads to renewal. Focused investment spending can reveal attractive new market potential. New visitor segments will also create product development opportunities. For investors, the pandemic will likely bring discounted assets to market, enabling new competitive portfolios to be constructed. State entities with tourism-related assets should rethink sustainability and revenue generation strategies either with concerted capital and marketing investment or through consolidation and disposal processes.
The experience of Turkey, and other countries such as Thailand, Egypt and Columbia that have successfully rebounded from crises, suggests that South Africa's tourism industry is well placed to rebound. The sector therefore remains critical to the country's broader economic recovery and is a compelling case for increased investment spending.
However, the COVID-19 pandemic is global in nature and tourism in South Africa will need to recover while many others are simultaneously attempting to do so. The industry is hyper-competitive and international travellers have a wide range of choice. Outperforming the competitor set will require clear strategic planning and coordinated execution on a level not previously achieved, but that is most certainly possible.