Tourism during the COVID-19 pandemic and the road to recovery

With demand likely to recover, this report examines tourist behaviors during the COVID-19 pandemic and considers the outlook for the tourism industry.

In brief

• In-prefecture travel (micro-tourism) has increased beyond COVID pre-pandemic levels. This has been especially prominent in travelers who are risk averse.
  
• The decline in spending on overnight trips during the COVID-19 pandemic comes from decreased spend on transport and at the destination. The main factors are less use of public transport in order to avoid infection and lower spending on gifts and other goods.
  
• Based on trends seen in other countries which eased border restrictions before Japan, we assume that inbound demand within one month of relaxed controls will recover to about 35% in November 2022.

On 11 October 2022, Japan eased border control measures for foreign tourists and launched domestic travel subsidies for the first time since “Go To Travel,” the first subsidy program which was implemented 2 years earlier in 2020. Across the country, anticipation runs high in the hotel and tourism industry in the various regions for increased demand due to the approach of the fall foliage season and the return of inbound tourism as the border re-opens.
The report data has been compiled from various public and news sources, as well as a social listening and an EY online survey in June 2022 of 4,000 people aged 20–69 who are resident in Japan.

Online survey outline
Date: early June 2022
Method: online questionnaire by a survey company
Subjects: 4,000 residents of Japan, male and female, age 20-69
(Sample adjusted for age, gender and prefecture)

Current demand for tourism

When COVID-19 began to spread worldwide in early 2020, various measures such as lockdowns were imposed in many cities and national borders were closed, devastating the international tourism market. However, the introduction of vaccines and other factors has seen the gradual resumption of cross-border travel. Today, with 2019 as our benchmark, travel to the Middle East has returned to previous levels while Europe, Africa, and the USA have recovered to approximately 80%. In contrast, recovery has lagged in the Asia-Pacific region, matching the caution shown about relaxing border controls.

In South Asia, Oceania and Southeast Asia, which eased entry at an early stage, recovery is well under way, while Northeast Asia [including Japan] is still at a recovery level of under 10%.

Tourism activity during the COVID-19 pandemic

As of June 2022, where survey results are available, domestic travel in Japan is at almost 80% of 2019 levels. If we consider solely overnight trips for tourism, there has been some degree of recovery to reach 2019 levels depending on the timing, and partly attributable to various travel subsidies.

In this context, we conducted a survey to identify the attributes of people who traveled domestically even during the pandemic. COVID-19 has surged and fallen repeatedly in several waves. We set one factor for risk tolerance to be the number of infections per prefecture that would deter people from traveling, and its impact on behavior.

If we begin with trips taken during the period, people with a higher tolerance of risk tended to have a higher average number of trips during the pandemic. This tendency is striking if we look at the average number of trips in 2019 before the pandemic.

Risk tolerance and average number of trips

“Micro-tourism” is a keyword that broken through during the COVID-19 pandemic. If we define micro-tourism as travel within the prefecture where you live, we find that people a with lower tolerance for risk (the risk averse) had a higher preference for micro-tourism. This trend was also seen in the past, but it has become more prominent during the pandemic, suggesting that it reflects behavior relative to the risk of infection.

Comparing the ratio of micro-tourism vs. trips to other prefectures, micro-tourism grew from June 2020 when infections started to spread. It declined slightly with the government’s introduction of travel subsidy programs but we can see from the survey that micro-tourism is now at higher levels than in the pre-pandemic period. In addition, tourism during the pandemic declined in crowded cities such as Tokyo and Osaka, and we can assume that people sought to avoid the risk of infection. This survey suggests that visits to Osaka will increase beyond 2019 levels leading to a gradual recovery of tourism in the city.

Tourism spending during the COVID-19 pandemic

While we have observed tourist behavior during the COVID pandemic based on a tolerance for risk, how has this impacted actual tourist spending?

If we distinguish between overnight and day trips to observe travel frequency and spending per trip, frequency is on a downward trend for both overnight and day trips during the pandemic, but spending per trip for day trips has not shown a significant decline. In fact, data confirms that this had already recovered to pre-COVID levels in 2021.

If we examine spending per trip and assess the YoY increase/decrease, accommodation costs have increased for overnight trips but other spending has declined, resulting in lower overall spending per trip. However, unlike overnight trips, transport costs and destination spending for day trips are at the same level as pre-COVID, suggesting that spending per trip has been maintained at pre-COVID levels.

Looking in more detail at the decrease in transport spending, use of public transport has declined for both overnight and day trips, while the use of privately-owned and hire cars has increased. Possible factors include avoiding public transport in an attempt to minimize exposure to COVID-19, and the growth of micro-tourism which causes a greater decrease in public transport as there is less frequent long-distance travel. Car use did not compensate for this, resulting in a marked decline in overnight trips. However, day trips [including to neighboring prefectures] are generally a form of micro-tourism, so reported spending was enough to compensate for the decreased use of public transport.

If we look at the breakdown of spending at destinations, which is another factor in declining spending per overnight trip, this was caused by a large drop in shopping and entertainment services. In figures for shopping, there was a marked decline in spending on gifts. We can surmise that additional tourism consumption was suppressed because spending per overnight trip is higher than that for day trips, and because people feel reluctant to tell others that they travel during the pandemic.

Interest in tourism during the COVID-19 pandemic

Interest in tourism during the pandemic has fluctuated repeatedly in line with waves of infections, but we can say that recently there has been a recovery to 2019 levels. However, we can also confirm that interest in overseas travel has declined since the start of the COVID pandemic.

A nationwide travel subsidy was launched in response on 11 October 2022. Based on social listening, attention levels are very high for travel subsidies that target all of Japan.

We can confirm that as the details of the nationwide subsidy became clear, the level of attention also increased.

According to EY’s online survey in June 2022, when these types of nationwide travel subsidies resume, travel motivation rises in proportion to the level of risk tolerance, as seen earlier. Overall, we can anticipate a boost of about 16 percentage points. We can expect that tourism consumption will rise in various regions for the fall travel season, with heightened interest in seeing fall foliage and eating seasonal foods.

Capturing inbound demand and future expectations

At the same time, border control measures have also been relaxed, and there is anticipation of rising demand for inbound travel. While the Japanese level of interest in overseas travel has declined because of the COVID pandemic, is there interest in Japan from overseas? The desire to visit Japan showed a drop at the onset of the pandemic but heightened as the Tokyo Olympics approached. This later subsided but interest levels are now higher, once more approaching pre-COVID levels.

In Europe, when border controls were eased in June 2021 and cross-border tourism resumed, inbound demand recovered in July 2021 (i.e. within one month) to about 51% of 2019 levels. One year later in July 2022, it had recovered to about 84%. If we assume a recovery scenario similar to Europe, we can predict that Japan will also recover to a similar level by October 2023.

However, recovery may come later as we do not currently expect inbound travel from China, which represents the largest number of visitors to Japan.

We can also compare other Asian countries - Singapore and Thailand - which eased border restrictions earlier than Japan and whose main source of inbound tourism is also China.

Border restrictions were loosened in Singapore in May 2022 and in Thailand in June 2022. In the following month, recovery was at almost 35% of 2019 levels. If we consider that like Japan, their primary market is China, it may be more realistic to use these Asian countries [and not Europe] as benchmarks for the recovery of inbound demand. As a consequence, we can anticipate that Japan will also recover by November 2022 to about 35% of pre-pandemic levels.

Does a weak Japanese Yen have a positive impact on inbound demand?

As of 20 October 2022, the exchange rate approaches 150 JPY to 1 USD, taking the yen to an unprecedented low. Looking at the relationship between inbound spending per trip and the effective exchange rate, history suggests that this will have a positive impact on spending per trip which will increase to almost 150,000 JPY. [For this calculation, we exclude the one-off impact of increased spending for events such as the 2019 Rugby World Cup.] As a result, there are high expectations of an increase in spending.

According to an article by the US market research company Skift*1 using data from September 2022, when the USD is strong against various currencies, the number of tourists visiting the US declined by 27% vs. 2019, while Americans who travel to other countries increased by 2%. Anecdotally, when the author of this report participated in an overseas event, many people commented that visiting Japan would be at the top of the bucket list for tourists as soon as border restrictions are relaxed. If the dollar holds strong, we can anticipate a rise in demand from the USA.

How to promote tourism after the COVID-19 pandemic?

With the impact of the COVID-19 pandemic restricting both international and domestic mobility over the past few years, this has been a harsh environment for tourism which is based on mobility. Various support measures have been implemented during this period, with initiatives such as increased capital investment in the hotel sector, promoting digitalization to advance the tourism industry, and beyond that, adopting digital transformation (DX) in tourism to drive innovation. A previous article*2 outlined how destination-led initiatives that link to advanced destination-management are key to realizing DX for tourism. DX is being discussed in these terms in various regions, and it is desirable not only for tourism-related businesses, but also for all industries that support destinations to reach a consensus for a shared vision for the future.

On the other hand, tourist behavior has changed during the COVID pandemic. There is a growing trend for short distance rather than long-distance travel, so-called micro-tourism. The Future of Tourism 2022–2031 (Nikkei BP) suggests that “daily life tourism” will be a future trend. Micro-tourism can apply not only to tourist resources such as theme parks and hot springs, but also leads local residents starting to reconsider and rediscover their own regions by promoting their own culture, history and the people and stories that exist in the region. Creating new value and promoting attractiveness will become important themes for tourism in the years ahead.

In common with other countries, the sector in Japan is struggling to recruit employees. As demand recovers, there is an imperative to find a workforce which will provide services with higher added value. Improving productivity through digitalization to pay higher wages and rebuilding the attractiveness of regions are initiatives needed to make the tourism-related industry attractive as a workplace.

History and culture are different because of country, region and people. The essence of tourism is to experience this difference and people will have a strong desire for this experience after the COVID-19 pandemic. Initiatives such as determining the various changes, attracting visitors to regions, encouraging an understanding of regions and promoting the participation of tourists in activities to protect regions will enable the sustainability of destinations and will likely become more important than ever for the tourism industry in the post-pandemic era.