While varying greatly based on local, segment, national and regional conditions, the TTDI results and research help highlight some of the various and common operational challenges the T&T sector faces in its recovery.

With T&T activities being severely restricted over the past few years, the greatest decline in index performance has come from the contraction of related operations and investment. As such, average scores fell in the Air Transport Infrastructure (-9.4%), Prioritization of Travel and Tourism (-6.7%) and Tourist Service Infrastructure (-1.5%) pillars. Air route capacity and airport connectivity plummeted, especially in more mature and high-income economies. Similarly, the decline in tourist service infrastructure reflects initially reduced capacity in the accommodation and related segments. The average number of per capita short-term rental units dropped by about one-fifth between mid-2019 and 2021 across economies ranked in the index.^{1919. AirDNA (received via direct communication), 25 August 2021.} While not reflected in the TTDI results, STR data indicates that, over a similar timespan, the number of hotel rooms did not recover to pre-pandemic levels in many countries.^{2020. STR (received via direct communication), 17 September 2021.} In line with these trends, both T&T capital investment and government T&T expenditures also fell. The decline in sector capacity has also been compounded by the fact that most businesses are SMEs and do not have the means to survive prolonged drops in demand or restrictions on person-to-person contact. The disproportionate impact of the pandemic on the sector is indicated by the direct T&T contribution to global GDP falling from 3.2% to 1.6% and the contribution to global employment falling from 3.8% to 3.1% between 2019 and 2020.^{2121. World Travel & Tourism Council, Tourism Satellite Accounting Research 2021 (received via direct communication), August 2021.}

Figure 5: Select pillar 2019 to 2021 average score change

Yet, as demand resumes in line with easing travel restrictions and somewhat improving COVID-19 conditions, the initial reductions in capacity increase the potential for supply-side constraints. In advanced economies, in particular, rising demand, earlier layoffs that disproportionality hit T&T, and competition for talent with other sectors have resulted in widespread labour shortages. A WTTC report focusing on the United States, the United Kingdom, France, Spain, Italy and Portugal estimates that the T&T sectors in these countries experienced staff shortfalls ranging from 9% to 18% in 2021.^{2222. World Travel & Tourism Council, Staff Shortages, December 2021, p. 5: https://wttc.org/Portals/0/Documents/ Reports/2021/WTTC-Staff-Shortages.pdf.} The interconnected nature of the T&T supply chain and ecosystem has also created challenges. Hotels, airlines, car rental firms, tour operators, cruise lines and others all form a chain of service providers dependent on each other along the traveller journey. Bankruptcies or other disruption issues at any point along this chain have the potential to negatively affect the others.

Over the course of the pandemic, growth in merchandise trade coincided with production, worker, equipment and space shortages to create a global supply-chain crisis. For instance, hotels have faced shortages of items ranging from slippers for clients to kitchen equipment.^{2323. Vora, Shivani, “The Global Supply-Chain Crisis Is Hitting Hotels Where It Hurts Most”, Architectural Digest, 14 January 2022: https://www.architecturaldigest.com/story/hotels-supply-chain-crisis.}

The recent outbreak of war in Ukraine and resulting sanctions and travel restrictions related to Russia have added further pressure on the recovery. Airlines around the world have had to reroute operations, increasing travel times and costs. Meanwhile, the still fragile recovery in international tourism demand could be tempered by increased hesitancy among travellers when it comes to visiting Europe.^{2424. Goldstein, Michael, “International Travel a Casualty of the Ukraine-Russia War”, Forbes, 7 March 2022: https://www.forbes.com/sites/michaelgoldstein/2022/03/07/international-travel-may-be-another-casualty-of-the-ukraine- russia-war/?sh=1151f12f6f54.} Many T&T economies in Europe, Eurasia and beyond may also be hard hit due to reduced demand from Russia and Ukraine. Combined, these two economies account for about 3% of international tourism spending, with Russia having been a major source of visitors to destinations ranging from Azerbaijan, Georgia and Turkey to Israel, the United Arab Emirates and Thailand.^{2525. World Tourism Organization, “World Tourism Barometer”, Vol. 20, Issue 2, March 2022: https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2022-03/UNWTO_Barom22_02_March_excerpt-1.pdf?U1d1hw2v5Ga4TSmloKQRNbFKpr6mNygA.}

While not yet fully reflected in the TTDI’s Price Competitiveness pillar, rising travel demand, the stated labour, capacity and other shortages, global supply-chain disruptions and rises in fuel prices and inflation caused by factors such as the war in Ukraine will likely increase costs and service prices throughout the entire T&T supply chain and ecosystem. For example, as of 13 May 2022, jet fuel prices were more than double what they were a year ago,^{2626. IATA, “Jet Fuel Price Monitor”: https://www.iata.org/en/publications/economics/fuel-monitor/.} and if they remain high, airline yields and ticket prices will likely rise.^{2727. Kamel, Deena, “Fuel Price Spike and Russia-Ukraine Crisis Risk Airlines’ Recovery , Iata Says”, The National, 13 March 2022: https://www.thenationalnews.com/business/2022/03/13/fuel-price-spike-and-russia-ukraine-crisis-risk-airlines- recovery-iata-says/.} Recent UNWTO analysis cites how conflict-induced uncertainty, higher energy and food prices and inflation, in general, are putting pressure on consumer purchasing power and tempering global economic growth, potentially affecting T&T sector performance. Moreover, as economies such as the United States combat inflation by increasing interest rates, consumer demand and T&T investment may be further hit by the rising cost of credit.^{2828. World Tourism Organization, “World Tourism Barometer”, Vol. 20, Issue 2, March 2022: https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2022-03/UNWTO_Barom22_02_March_excerpt-1.pdf?U1d1hw2v5Ga4TSmloKQRNbFKpr6mNygA.28. World Tourism Organization, “World Tourism Barometer”, Vol. 20, Issue 2, March 2022: https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2022-03/UNWTO_Barom22_02_March_excerpt-1.pdf?U1d1hw2v5Ga4TSmloKQRNbFKpr6mNygA.}

With travel restrictions still common and traveller confidence hampered by pandemic concerns, the past few years have also seen a shift in demand trends in global T&T. According to the UNWTO Panel of Experts, the major trends driving the T&T recovery include domestic tourism, travel close to home, open-air activities, nature-based products and rural tourism.^{2929. World Tourism Organization, “Tourism Grows 4% in 2021 But Remains Far Below Pre-Pandemic Levels” [News release], 18 January 2022: https://www.unwto.org/news/tourism-grows-4-in-2021-but-remains-far-below-pre-pandemic-levels.} The World Travel and Tourism Council (WTTC) data shows that, on average for the 117 economies covered by the index, domestic spending’s share of T&T spending increased from 50.8% in 2019 to 62.6% in 2020 as domestic demand fared better than collapsing international demand.^{3030. World Travel & Tourism Council, Travel & Tourism Economic Impact Research 2021 (received via direct communication).} Moreover, current projections for 2021 show that domestic spending growth is expected to substantially outpace international spend in every region outside of the Caribbean and Middle East.^{3131. Trip.com and World Travel & Tourism Council, Trending in Travel: Emerging Consumer Trends in Travel & Tourism in 2021 and Beyond, November 2021, p. 6: https://pages.trip.com/images/group-home/2021_Trending_in_Travel_EN.pdf.}

The TTDI results further reinforce the shift in demand dynamics that the world has witnessed. The second most improved pillar is Natural Resources (+2.5% average score increase). While this was driven largely by an expansion in the number of recognized UNESCO World Heritage natural sites and protected areas, such as national parks, the greatest improvement has come from destinations’ ability to garner interest in nature-related segments as illustrated by the 20.8% average growth in natural tourism Digital Demand value, a measure of online searches for topics such as natural wonders, outdoor activities and rural accommodation.

On the other hand, the Non-Leisure Resources pillar had one of the greatest declines in average performance (-1.9%) as business travel declined. While this sector is recovering, it has rebounded at a slower rate than leisure, with factors such as workplace flexibility and the availability of virtual alternatives for in-person meetings tempering demand and potentially leading to some permanent loss in corporate travel. This will force many T&T segments to adapt. For example, operators in the meetings, incentives, conferences and events (MICE) area may have to rely more on smaller and hybrid events.^{3232. World Travel & Tourism Council, Adapting to Endemic Covid-19: The Outlook for Business Travel, October 2021: https://wttc.org/Portals/0/Documents/Reports/2021/WTTC%20Adapting%20t%20Endemic%20Covid%20-%20Business%20Travel%20Outlook%20011121.pdf?ver=2021-11-02-082813-280.} T&T businesses and destinations are increasingly looking to capture opportunities offered by the changing nature of work. Over the course of the pandemic, more businesses have gone virtual, and an increasing share of the labour force is becoming independent.

This sample of independent workers is also increasingly willing to travel. A recent survey showed that the share of US independent workers doing business outside the country jumped from 12% in 2013 to 28% in 2020.^{3333. Robbins, McLean, “New Data Shows Independent Work Is a ‘Force to Be Reckoned With’”, MBO Partners, 9 December 2020: https://www.mbopartners.com/blog/press/new-data-shows-independent-work-is-a-force-to-be-reckoned-with%e2%80%8b/.} Additionally, the trend in “bleisure” travel – the addition of leisure activities to business trips – is also growing.^{3434. Cvent Guest, “What Is Bleisure Travel and Why Is It Important?”, Cvent, 5 March 2021: https://www.cvent.com/en/blog/ hospitality/bleisure-travel.}

To cater to these growing markets, T&T businesses will have to become more flexible and create new, innovative products. For instance, some major hospitality groups are creating new long-stay properties that include kitchens and living spaces, while other have introduced packages that offer reduced rates for those staying longer, which include IT and boardroom services.^{3535. Skinner, Toby, “Is ‘Bleisure’ the Future of Business Travel?”, Financial Times, 1 June 2021: https://www.ft.com/content/ aeda2b54-0eec-49d2-8599-a00e12122f24.} Furthermore, while virtual business may require less office space, corporations and their employees may need options for occasional company meetings and events that the sector could provide. However, it is important to note that these new market opportunities are primarily for the high-end travel market and are not likely to replace the overall loss in business travel. Lastly, T&T operators have also had to introduce more flexible booking and cancellation policies in order to address uncertainty about travel regulations and the pandemic, in addition to increased consumer desire to make last-minute changes or to add leisure stays to their business trips.^{3636. World Travel & Tourism Council, Trending in Travel: Emerging Consumer Trends in Travel & Tourism in 2021 and Beyond, November 2021, p. 11: https://pages.trip.com/images/group-home/2021_Trending_in_Travel_EN.pdf.}

From a destination point of view, many governments have also adapted to changing conditions to take advantage of shifting demand dynamics. For one thing, many countries have provided various incentives to boost domestic tourism. For example, Hong Kong, Singapore, South Korea and Japan have rolled out various programmes that provide discounts, coupons and subsidies for domestic travel.^{3737. Ibid., p. 8.} Meanwhile, Aruba targeted the digital nomad market through extended work visas and other benefits via its One Happy Workation programme.^{3838. Visit Aruba, “One Happy Workation in Aruba!”: https://www.visitaruba.com/accommodations/one-happy-workation/.} The trends towards more rural and nature-based tourism also offer an opportunity for less-developed economies to harness the benefits of T&T given that the distribution and quality of natural assets are less tied to overall economic development, with Natural Resources being one of the few pillars where non- high-income economies typically outperform high- income countries (see Figure 6).

Figure 6: Composition of top quartile, by income group

Overall, the above adaptations to shifting demand and COVID-19 conditions help highlight how flexible T&T business and destinations can be in times of crisis. As the sector rebuilds and addresses future risks, its adaptability will become more crucial than ever. In particular, as can be seen in the key findings that follow, the shift to domestic and nature-based travel, as well as other trends, coincides with an increased emphasis on sustainable and safe travel. Therefore, T&T development will have to become increasingly sustainability-oriented.