The global tourism industry starts a very promising 2022 with an increase in international arrivals in January of more than 130% (an increase of 18 million) compared to the same period last year. However, according to data from the UNWTO World Tourism Barometer in March, there are major risks that threaten the continued recovery of the tourism industry in 2022. The conflict between Russia and Ukraine is one of them.
According to UNWTO, the hostilities between Russia and Ukraine that occurred at the beginning of the year, along with the resulting economic and political consequences, could be a risk to the recovery of international tourism, especially travel to Europe.
The most obvious impact is on air travel. After the war broke out, Ukraine and Russia shutdown their airspace, and many European countries also banned Russian planes. This affects air travel intra-European and disrupts other traffic flows. Overflights Moldova was stopped and overflights around the borders of Ukraine, Russia and Belarus were also disrupted. Therefore, long-haul flights between Europe and East Asia have to be rerouted, resulting in longer flights and higher costs.
The data shows that air bookings for intra-European travel dropped right after Russia started sending troops into Ukraine on February 24. This trend decreased until the beginning of March before starting to increase again. However, it is yet to be assessed whether this reflects consumer concerns about higher travel prices in the future, or travel demand shifting towards destinations perceived to be safer or are closer to home.
The conflict between the two countries also affects somehow neighboring destinations, European countries, and even more distant destinations. Ukrainian and Russian tourists account for about 4% of international arrivals to Europe. During the pandemic period, the Russian market increased significantly for many destinations such as the Maldives (up from 5% in 2019 to 17% in 2021), Seychelles (from 3% to 17%), Sri Lanka (from 3% to 17%). 5% to 9%).
In 2020, Russian and Ukrainian tourists contribute about 3% of global spending on international tourism. With the current conflict between the two countries, the total global tourism receipts could lose at least 14 billion USD.
In addition to the direct impacts on aviation and tourism of many destinations, the hostilities between Ukraine and Russia impact the economy and indirectly affect the recovery of the tourism industry. Adverse economic factors that can affect tourism demand include higher oil prices, inflation, rising interest rates and disruptions to supply chains.
In 2020, the oil price was only at 40 USD/barrel of Brent, but in March 2022, the oil price increased to more than 100 USD/barrel and this is the highest in the past 10 years.
In addition, rising inflation also makes the prices of transportation and accommodation services increase, putting pressure on consumers’ purchasing power and savings. According to the OECD, inflation was already high at the start of this year and could climb at least 2.5% higher.
To curb surging inflation, the US Federal Reserve announced an interest rate increase of 0.25% on March 16. This is the first increase from near zero since 2018, and is expected to increase to 1.9% by year-end. Although inflation is resolved, this will increase interest rates and affect consumption and investment demand.
Earlier this year, UNWTO released scenarios for growth in international tourist arrivals from 30% to 78% in 2022 (compared to 2021), depending on many factors. This would be 50% to 63% lower than pre-pandemic levels. It is still early to assess the impact of the conflict between Ukraine and Russia, and this will depend on the extent and length of the situation. But when policy, geopolitical and economic factors change, it is clear that UNWTO’s forecast numbers on the recovery of the tourism industry will have to be adjusted.