23rd April 2020 By Contributor
Traditional tourist hotspots may not see international visitors for a year.
Aotea New Zealand director Richard Hanson argues the tourism industry will bear the cost as New Zealand’s strategy of Covid-19 elimination will put the whole country in self-isolation.
Richard Hanson
As the remainder of New Zealand’s business community prepares to operate under Covid-19 alert level 3, the internationally focussed sector of the New Zealand tourism industry is preparing for extended siege conditions.
As an industry that contributes 20% of New Zealand’s export earnings, there is a strong likelihood that many of the capabilities of this industry will not survive this extended period of lockdown. During the official lockdown period, many rental agreements provide for reduced payments, with staff partially supported by the 12 week wage subsidy. In the near future these protections will cease, but the international customer base the tourism industry relies upon, will remain excluded from our country.
It is a real prospect for many tourism businesses that they will not see revenue from traditional customers over the next 12-18 months. Treasury forecasts indicate that New Zealand borders will remain closed to visitors for 12 months. If correct this will see recovery of international travellers starting in the 2021 ski season, and then growing with the summer season of 2021-22.
General commentary relating to vaccine development & deployment also indicates that 12-18 months is a realistic timetable. In the absence of robust testing and tracing mechanisms, this is the most likely forecast by which tourism businesses can predict the return of recreational travellers from international locations.
The policy of Government has moved from “Flattening the Curve” to one of “Elimination”. This is a strategy of isolation from the remainder of the world. The success of elimination will, unfortunately, become our problem of isolation.
The rationale to close these border is sound. There will be a period during which it will be the most practical way by which New Zealanders can be protected from Covid-19. The challenge associated with this strategy is that the cost of this approach will be borne in very specific sectors of the economy.
From a general perspective, the tourism industry is being asked to bear the cost of protecting the health of the New Zealand community.
The business strategy appropriate for a 12-18 month siege, is very different to that appropriate for a six week interruption. Siege strategy requires a long term view, with the option of restarting earlier. For many, this long term view will require redundancies and/or closure of businesses. Where possible “hibernation” will occur, but in other cases, the result will be insolvencies.
The longer that border restrictions are in place and the more uncertain the conditions, the likelihood increases of the latter unfortunate result. If these insolvencies proceed it will remove the potential for these companies to pay tax and generate export earnings in the future.
Redundancies are being seen in the tourism industry and will accelerate as we approach the end of the wage subsidy period. These redundancies are because businesses are taking a longer-term view as to when customers return. A great proportion of these redundancies are for those staff recruited for language skills by way of work permit. These people have no access to public unemployment funds and as such are our most vulnerable. These people have been paying taxes and also have assisted their employer to pay its company tax.
Communication of timeframes and strategies is key. Right now there is an aspiration of a “smart border”, any communication of how this could work would be critical to current business planning.
Targeted support is also a tool that needs to be used to ensure that the productive businesses and people of the industry can survive the siege. Where the sector can continue to create value in the long term, wage/rent support should be linked to border restrictions, rather than alert levels.
There is a public health benefit to these border restrictions, but a large private cost being borne by a small number of businesses. New Zealand is moving to restart its economy after a successful lockdown period.
To protect the nation’s health, valuable international customers will be unable to access New Zealand for the foreseeable future. Targeted longer term support should now be considered for the valuable industries that will be impacted over the next 12-18 months to support Covid-19 control.
