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Is tourism set for take off?

Tafara Mtutu
THE United States stopped enforcing the wearing of masks on public transportation on Monday April 18, 2022, following a court ruling and this was promptly effected by major carriers like American Airlines, United Airlines and Delta Air Lines.

In several other countries, Covid-19 restrictions, such as PCR tests prior to travelling and mandatory quarantine have been scrapped as the pandemic’s dangers wane in light of encouraging vaccination data globally. These measures have been met with higher tourist arrivals in the respective countries.

The ease in Covid-19 restrictions has been a strong indicator that the pandemic is at its tail end, save for China. The accompanying global recovery in the tourism sector coincides with the IMF’s assertions that the sector would be the last to recover, with indications of a recovery to 2019 levels expected to manifest only in 2023.

According to data from the International Civil Aviation Organisation, global air travel passengers declined from 4,6 billion in 2019 to 2,3 billion in 2021, but it is expected to recover to 3,4 billion in 2022. The recovery in air travel passengers also brings hope to Zimbabwe’s tourism industry.

Zimbabwe’s tourism industry has historically been among major foreign currency generating sectors,like mining and tobacco. According to Zimbabwe Tourism Authority (ZTA) statistics,international arrivals into the country mainly come from other African countries,which collectively account forroughly82% of total international tourist arrivals.

Most of these intracontinental tourist arrivals come from South Africa, Mozambique, and Zambia,which respectively contribute about 42%, 16%, and 13% to total intracontinental arrivals. The US and UK drive the remaining 13% of total international arrivals from countries outside Africa.

According to the March 2022 African Alliance Performance Update by the African Airlines Association (AFRAA),South Africa, Senegal, Tanzania, and Togo are the latest countries to relax measures such as pre-departure PCR tests for vaccinated travellers.

Zimbabwe has adopted a similar stance for cross-border travel, and this is expected to provide some logistical and financial ease on Zim-bound tourists.

Further, the capacity of airlines on the continent has steadily improved, moving from 42,9% in July 2021 to 67,3% in March 2022. To sweeten the recovery story, the rebound in international routes has markedly improved from 62,5% of the pre-Covid period to 79,9% over the last 12 months.

The improvement in global air travel in the past couple of months is likely to filter into Zimbabwe. According to Rainbow Tourism Group Limited’s (RTG) annual reports, hotel occupancies improved in 2021 to 31%, five percentage points up from 26% in 2020, on the back of less stringent lockdown measures in 2021.

Given the recent continent-wide relaxations of travel restrictions that are already in effect, the occupancy figures in 2022 are likely to inch closer to 2019 sector-wide hotel occupancy levels of 48%.

A multicurrency regime is also anticipated to drive the contribution of foreign currency receipts to total revenues, which had dropped to 33% in RTG’s case in 2020.

While RTG is not the only player in the sector, these figures offer a glimpse into the overall sector when used as a proxy.

However, we note several factors that might stymie the sector’s long-awaited recovery. Key among these headwinds include (i) upcoming presidential elections, (ii) the Russia-Ukraine crisis, and (iii)newly discovered Covid-19 strains.

The upcoming 2023 electionsstand as a major headwind considering the violent events that unfolded after the 2018 elections and became instrumental in the sector’s decline in hotel occupancies from 58% to 48% in 2019. As it stands, videos and pictures, all over social media of election-related violence, whether verified or not, have already become foretelling to the international community.

The Russia-Ukraine conflict is likely to slow down the recovery of the global tourism industry from an economic standpoint. The cost of jet fuel, which accounts for c.20% of airlines’ total operating expenditure, is likely to constrain the viability of running an airline given the impact of the conflict on energy prices.

Tourist Arrivals Graph

TheInternational Air Transport Association’s (IATA) Jet Fuel Price Index surged by 126,2% to 438,4 points in the 52 weeks to April 14, 2022 because of the conflict’s impact on oil prices, and airlines have extensively passed the burden onto travellers.

We also note the discovery of a new Covid-19 variant made up of two strains of the Omicron variant, called XE that was recently detected in the UK as another risk to the recovery of the world from the pandemic.

This variant has also been detected in other countries like Japan and India. Another Omicron variant was detected in Botswana earlier this month, and both variants could trigger another wave of Covid-19 infections andstringent lockdown restrictions.

We maintain that the local tourism industry remains key in addressing some of the economic challenges that Zimbabwe faces. The sector generates between US$1 billion and US$2 billion in foreign currency, which could ease demand for the greenback on the interbank auction system.

We note that the recovery of the sector could see improved earnings from Zimbabwe Stock Exchange-listed RTG and African Sun. However, whether or not the optimism we hold changes the investment case for the stocks is a discussion that investors must have with their advisors.

  • Mtutu is a research analyst at Morgan & Co. — tafara@morganzim.com or +263 774 795 854

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