US travel ban deals ‘hammer blow’ to tourism sector

US president Donald Trump's decision to place an all-out travel ban from Europe in response to coronavirus has dealt "a hammer blow" to the tourism sector and is likely to push the euro area into recession, Goodbody Stockbrokers has warned.

Chief economist Dermot O’Leary said the US move marked “an extraordinary escalation” in containment efforts.

“Travel trends had already collapsed in Europe, with this decision dealing another hammer blow to the prospects for the tourism sector in the region,” he said, noting tourism represents 10 per cent of total employment in the Republic.

“Tourism alone may be enough to tip the euro area into recession,” he said, suggesting more aggressive fiscal measures were required to deal with the fallout from the virus.

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While Ireland and Britain have been excluded from the US ban as it only applies to countries in the Schengen zone – the European borderless free travel area – "one has to think that they may soon be [included], while travel bans are likely to continue to feature as plans for social distancing are implemented elsewhere," Mr O'Leary said.

The Government has announced a €3.1 billion coronavirus stimulus package, one of the biggest per-capita spends of any country, amounting to almost €630 per person. In its budget on Wednesday, the UK government unveiled a £30 billion package of measures.

Tourism numbers

The latest tourism numbers show the number of overseas trips to Ireland by non-residents increased marginally in the final quarter of last year but the duration of stay and earnings from overseas visitors fell.

The figures, however, predate the outbreak of coronavirus, which has decimated travel in Europe and elsewhere.

The UK, which accounts for 4.7 million tourists, is the most important source of tourists into Ireland, followed by mainland Europe (3.9 million) and the US and Canada (2.4 million).

However, US tourists have been representing an increasing share of the total over recent years and spend significantly more than an “average” tourist, Mr O’Leary said, noting that the average spend by tourists from the US and Canada was €701 in 2019 (excluding air fares), relative to €549 by Germans and €258 by those from Britain.

Airlines

The aviation sector bore the brunt of the dramatic expansion of the crisis on Thursday, as the US travel restrictions on much of continental Europe deepened the sector’s misery and piled more pressure on governments to offer emergency support.

The 30-day restrictions will badly disrupt transatlantic traffic key to the earnings of major European carriers and their US airline partners, analysts warned, as the move hit travel stocks already battered by the virus outbreak. Those routes account for 20-30 per cent of large European operators’ revenue and a majority of profit, Credit Suisse analyst Neil Glynn warned, “highlighting the damage to revenue lines for the coming weeks and potentially well into the summer”.

He added: “A ban on travel to the US will likely mean heavier cuts” than the drastic capacity reductions already ordered as airlines scrapped flights – first to China and then to other destinations including Italy as the virus spread. – Additional reporting: Reuters