After Omicron: Tourism trends through 2022

In terms of a COVID-19 recovery – clearly 2022 got off to a rocky start.

By the end of 2021, as the Omicron wave swept through the country, driving a sharp increase in reported daily infections, it was clear that the economy wasn’t out of the woods yet.

However, there was a key difference between this wave and earlier waves seen throughout 2020 and 2021 – hospital admissions did not rise alongside daily infections to the same degree. The Omicron wave quickly levelled off and by March many public health restrictions had been lifted including all international travel restrictions for visiting Scotland.

Earlier this year we reviewed the position of the tourism industry in 2021 by looking across the most up to date economic indicators. In this blog we update our analysis and discuss the trends visible across these indicators over the last six months, covering the outlook and performance of firms, demand for transport and travel, and the economic conditions of the productive industries. Although largely backward-looking, the indicators tell the story of what kind of recovery Scotland’s tourism industry has seen to date.  We end by setting out some forward-looking indicators for the rest of the year.

 

Firm performance measures

The Business Insights and Conditions Survey (BICS) published by the Scottish Government contains several important measures of firm performance. For BICS results we show these for ‘All businesses’ and ‘Section I’.

We focus on ‘Section I’ – defined as ‘Accommodation and food services’ – which covers tourism-facing firms operating as hotels, B&Bs, restaurants, bars, etc. It should come as no surprise that firms in ‘Section I’ have been disproportionally affected by COVID-19 restrictions such as social distancing and travel restrictions. Whilst the focus of this blog is tourism trends, the interconnected nature of the Scottish economy means that many industries are affected by changing levels of tourist demand, therefore the performance of  ‘All businesses’ is also important to consider.

Chart 1 shows how the percentage of firms that report as currently trading has changed between June 2020 and June 2022. Each wave of the survey represents a non-overlapping two-week period. We can see that coinciding with the first and second national lockdowns, firms in ‘Section I’ saw much higher levels of inactivity than was seen by ‘All businesses’.  Around the time of the Second national lockdown, as ‘All businesses’ were reporting only 80% of firms as currently trading, ‘Section I’ firms were facing more than twice as much inactivity.

Beginning in Wave 29 – roughly mid April 2021 – the share of ‘Section I’ firms reporting as currently trading increased rapidly over the next few months. This figure continued to climb until around Wave 38 – roughly August/September 2021 – when nearly 100% of firms were reporting their status as ‘Currently trading’.

Relative to previous waves of COVID-19  infections, the Omicron wave was not followed by such an extreme dip in trading status. However, we can see that in Wave 47 – around December 2021/January 2022 – ‘Section I’ saw a larger decrease in the share of firms who ceased trading compared to ‘All businesses’.  The most recent waves of the survey show that both series continue to trend close to 100% of firms reporting as currently trading.

Chart 1: Percentage of Scottish businesses reporting as currently trading, Wave 7 to Wave 59 (30/05/20 -26/06/22)

Source: Scottish Government

In the context of COVID-19, close to 98% of Scottish businesses reporting as currently trading is a good sign for the Scottish economy. However, merely noting whether firms are trading or not doesn’t paint a full picture of how well these businesses are doing. Chart 2 shows the percentage of businesses reporting decreased turnover relative to their expectations for this time of year. As we can see, both series show a downward trend in the reporting of decreased turnover from Wave 7 to Wave 53. This trend appears to be levelling off somewhat. Again, we see that a higher level of ‘Sector I’ firms consistently report experiencing decreased turnover relative to ‘All businesses’.

Chart 2: Percentage of firms reporting decreased turnover, Wave 7 to Wave 53 (30/05/20 – 03/04/22)

Source: Scottish Government

Another important metric used to gauge the recovery of firms is insolvency risk. Charts 3 and 4 show the percentage of firms reporting the following levels of insolvency risk: ‘moderate risk’, ‘low risk’, ‘no risk’, and ‘not sure’ for ‘All businesses’ and ‘Section I’, respectively.

We can see from Chart 3 that since Wave 24 – roughly February 2021- the percentage of “All businesses” reporting a ‘moderate risk’ of insolvency steadily decreased until it began to plateau in October. Since then, there has been little change in the share of firms reporting ‘moderate risk’ or ‘low risk’ and a noticeable increase in those reporting ‘no risk’.

Chart 3: Percentage of Scottish businesses by risk of insolvency, Wave 11 to Wave 53 (10/08/20 – 03/04/22)

Source: Scottish Government

Chart 4 shows how firms in ‘Section I’ have experienced the risk of insolvency for the same period. Broadly speaking, the trends seen here match those described in Chart 3; the share of firms reporting ‘moderate risk’ of insolvency has decreased over time while the share of firms reporting ‘no risk’ has grown – with much of that growth coming since late 2021. Consistent with our previous analysis of Charts 1 and 2, Chart 3 highlights the greater degree of volatility experienced by those in ‘Section I’ relative to ‘All businesses’.

Chart 4: Percentage of Scottish businesses in ‘Section I’ by risk of insolvency, Wave 11 to Wave 53 (10/08/20 – 03/04/22)

Source: Scottish Government

 

Indicators of consumer behaviour, transport and travel demand

To compliment our firm performance indicators, we now turn to data for consumer behaviour and demand for transport and travel. Combining these various sources allows us to provide a clearer picture of the direction of tourism trends in Scotland through 2021 and 2022.

Chart 5 shows how the volume of transactions in Pret A Manger stores across the UK has changed through 2021 and 2022. The Pret A Manger index is used by the ONS as a proxy of consumer spending in their real-time indicators bulletin and compares sales in seven regions to a pre-pandemic baseline (January 2020).

The red line indicates the path of transactions in Scottish stores across this period. We can see a significant dip for all seven regions coinciding with the Omicron wave at the end of 2021 and the start of 2022. Since then, transactions in Scottish stores have recovered and continue to hover slightly below the pre-pandemic January baseline. It is worth noting that comparing June sales in 2020 to January sales in 2021 is unlikely to provide a perfectly accurate picture of current consumer behaviour. However, it could be indicative of a return towards normality for some consumers.

Chart 5: Transactions in Pret A Manger stores relative to pre-pandemic baseline, Index: 100 = January 2020 average (04/03/21 – 30/06/22)

Source: ONS

On the 18^th of March 2022 the Scottish Government took a large step in facilitating the return of international travel by removing all COVID-19 restrictions for those entering or leaving Scotland. Chart 6 shows the number of terminal passengers entering or leaving an aircraft from a Scottish airport each month between January 2019 and May 2022. This data provides a useful insight into trends in international travel over the pandemic period.

From Chart 6, we can see that passenger traffic fell significantly between February and April in 2020. Throughout the remainder of 2020 and 2021 the level of traffic remained low – finally climbing to 50% of the pre-pandemic trend for November in 2021.

Total passenger traffic within the first four months of 2022 has already surpassed total passenger traffic for the entire year of 2021 – a good sign in the context of the last few years. However, it is crucial to ask how these months compare to the pre-pandemic trend. If we compare the first four months of 2022 to the same period in 2019, we find that the volume of passenger traffic in 2022 is approximately 62% of the pre-pandemic trend for the same period.

Chart 6: Total monthly EU and other international terminal passenger traffic (thousand), from January 2019 to May 2022

Source: Civil Aviation Authority and FAI calculations

Complimenting passenger traffic data, provisional data from the International Passenger Survey (IPS), available at Visit Britain, provides useful information on spending and visits from January to April of 2022. The IPS – produced by the ONS – suggests that amount spent by inbound visitors to the UK as a whole in April was 91% of the pre-pandemic total for April in 2019. Data from the IPS also indicates that the number of visits in April was 67% of that seen in 2019.

It is worth noting that the methodology used in 2022 varies slightly from that used in 2019 and that provisional data is subject to revision. The 2022 figure does not include visitors travelling via the channel tunnel, unlike the 2019 survey. Therefore, the amount spent and number of visits may be closer to the April 2019 pre-pandemic level.

Road fuel sales data provides us with another way to gauge how transport behaviour has changed in Scotland throughout the pandemic. Chart 7 shows how the demand for total road fuel, i.e., petrol and diesel, has changed between January 2020 and July 2022.

We constructed this chart by taking a rolling monthly average of daily fuel sales – this allows us to analyse the longer-term trends relative to a pre-pandemic average while flattening out short-run disruptions such as the fuel crisis seen in September 2021.

There are three noticeable and sharp declines in this chart which closely track the two national lockdowns and Omicron wave. For the majority of the period displayed here, we can see that Scotland and England have remained closer to the pre-pandemic average than Wales. Despite the small dip coinciding with the Omicron wave, the most recent data indicates that fuel sales in Scotland have stayed relatively close to 90% of the pre-pandemic March average (slightly more than in England and Wales).

Chart 7: Rolling monthly average of daily road fuel sales compared to pre-pandemic baseline, Scotland England and Wales, baseline = average sales: 27/01/20 – 20/03/20, observations: (21/03/20 – 03/07/22)

Source: BEIS and FAI calculations

 

Economic performance measures

Our final indicator of how tourism is recovering from the pandemic is Gross Domestic Product (GDP). GDP is the total value of final goods and services produced in the economy. The Scottish Government’s series on monthly GDP identifies the change in monthly GDP relative to the pre-pandemic level in February 2020.

Chart 8 highlights the different impacts that COVID-19 has had across some key sectors and for the economy as a whole. We can clearly see from the ‘Accommodation and food services’ series, the outsized impact the first and second lockdowns had on GDP.

More recently, relative to the pre-pandemic baseline, the broad trend is that GDP has continued to move towards the pre-pandemic level. In April 2022 ‘Accommodation and food services’ experienced GDP being greater than the February 2020 baseline for the first time since the pandemic began.

One interesting exception to this is that the “Productive” sectors – defined as mining and quarrying industries, manufacturing, electricity & gas supply, water supply & waste management – are still around 5% lower than the pre-pandemic baseline. The lagging performance of the ‘Productive” sectors as a whole is largely driven by the slow recovery in mining and quarrying industries and electricity & gas supply – which as of April 2022 are still 10.1% and 17.1% below the February 2020 baseline level.

 

Chart 8: Cumulative change in Gross Domestic Product by broad sector in Scotland relative to February 2020, (March 2020 to April 2022)

Source: Scottish Government

Looking forward

In this blog we have presented recent data indicating broadly positive trends for the recovery of tourism demand and the health of tourist facing industries.

Our ‘firm performance’ indicators show that most firms, regardless of sector, are currently trading. Despite facing higher levels than aggregate, tourist facing firms in the ‘Accommodation and food services’ sector are also less frequently reporting decreased turnover. In addition, we see an upward trend in firms reporting experiencing ‘no risk’ of insolvency along with a decrease in those reporting experiencing ‘moderate risk’.

A similarly positive story emerges from our indicators of consumer behaviour, transport and travel demand. If Scotland and the rest of the UK can make it through the summer without the need for the reintroduction of travel restrictions, passenger traffic data indicates that international tourism may recover to reach the 52% of visits and  and 59% spending (relative to the 2019 baseline) forecast by the IPS for the whole of  2022. This forecast, made in February 2022, is a downgrade from previous forecasts made prior to the impact of the Omicron variant of around 2.9 million visits and £2.3 billion in spending. Visit Britain foresee that a return to the pre-pandemic norm for international travel levels is likely to take several years yet.

Finally, our economic indicators show Scottish GDP has remained above the pre-pandemic level for the fourth month in a row. On another positive note, there has also been considerable growth in the ‘Accommodation and food services’ sector throughout the first four months of 2022. This growth has lead to ‘Accommodation and food services’, a sector which has experienced significant setbacks due to Covid-19 restrictions, experiencing GDP greater than the pre-pandemic baseline for the first time since the pandemic began.

 

Headwinds facing the economy as we enter summer

 Emerging from the COVID-19 pandemic, tourism facing industries and international travellers face a fresh set of challenges in both supply and demand. It is worth keeping in mind that staff shortages, fuel price inflation, and the rising cost of living will likely impact the rate at which tourism recovers throughout the remainder of 2022.

 

Table of data and sources

	Variable	Published by	Updated	Weblink
1	Percentage of Scottish businesses reporting as currently trading, Wave 7 to Wave 58 (30/05/22 -15/06/20)	Scottish Government	Fortnightly	Go to data
2	Percentage of firms reporting decreased turnover, Wave 7 to Wave 53 (30/05/22 – 03/04/22)	Scottish Government	Fortnightly	Go to data
3	Percentage of Scottish businesses by risk of insolvency, Wave 11 to Wave 53 (10/08/20 – 03/04/22)	Scottish Government	Fortnightly	Go to data
4	Percentage of Scottish businesses in ‘Section I’ by risk of insolvency, Wave 11 to Wave 53 (10/08/20 – 03/04/22)	Scottish Government	Fortnightly	Go to data
5	Transactions in Pret A Manger stores relative to pre-pandemic baseline, Index: 100 = January 2020 average (04/03/21 – 16/06/22)	Office for National Statistics	Weekly	Go to data
6	Total monthly EU and other international terminal passenger traffic (thousand), from January 2019 to April 2022	Civil Aviation Authority	Monthly	Go to data
7	Rolling monthly average of daily road fuel sales compared to pre-pandemic baseline, Scotland England and Wales, baseline = average sales: 24/02/20 – 20/03/20, (04/03/21 – 16/06/22)	Department for Business Energy and Industrial Strategy	Weekly	Go to data
8	Cumulative change in Gross Domestic Product by broad sector in Scotland relative to February 2020, (March 2020 to April 2022)	Scottish Government	Monthly	Go to data