Implications of COVID-19 on international travel
New Zealand’s connections with the outside world was upended on 14 March when the Prime Minister announced a mandatory 14-day self-isolation period for all travellers arriving in New Zealand (excluding the Pacific Islands). The self-isolation requirement was a response to the escalating severity of the COVID-19 pandemic and came after the US banned European travellers for a month just days earlier. This requirement to self-isolate will be a major blow to the New Zealand economy, as the requirements will effectively halt the majority of travel in and out of New Zealand.
Most travellers leave within 14 days
According to StatsNZ tourism arrivals data, 71% of travellers arriving in New Zealand in 2019 stayed for 14 days or less (see Chart 1). Business travellers stayed for a shorter time, with 86% of business travellers to New Zealand leaving within 14 days, while 76% of holiday goers left within 14 days, and even 63% of travellers intending to meet family and friends left the country within 14 days.
Because of the scale of the mandatory self-isolation policy, and the speed at which it has been pushed through, will make it exceedingly difficult to enforce every case. However, the total effect of the policy will also cut international travel off at the knees. Those visitors travelling to New Zealand will no longer visit, as it is not worth coming to New Zealand only to self-isolate. And many international tourists intending to stay in New Zealand for a longer than 14 days will cancel their plans too. Enforcement of the self-isolation policy is through spot checks of travellers who are recorded upon entry into New Zealand, with some tourists already facing deportation for refusal to cooperate. This policy is to be reviewed at the end of March but is unlikely to be reversed at that point given the current trajectory of the pandemic globally.
Airlines switch to crisis mode
The policy, along with others around the world including in the US and Australia, will cripple airlines who are rapidly reducing their capacity. Air New Zealand has already cut its long-haul flight capacity by 85%, and have reduced domestic capacity by 30%. Based on an estimated 30% cut of employees by Air New Zealand, 3,750 jobs will be lost. To reduce the total job losses, employees are being encouraged to take leave, but this action is no more than a short-term band-aid. Likewise, Jetstar have temporarily suspended some international routes and reduced capacity on some routes.
Australia has also responded to the pandemic by requiring that all passengers arriving in via international flight need to self-isolate from 15 March. This self-isolation will reduce outbound travel profoundly. In 2019, Australia was the most popular destination for Kiwis, with 41% of New Zealand residents saying Australia was their main destination (see Chart 2). China is also a considerable destination for New Zealanders, with 4.6% of New Zealanders arriving in New Zealand saying China was their main destination in 2019 – and this has grown from a 4.0% share in 2017. With current conditions, it’s hard to imagine many people booking flights to China at the moment.
We anticipate these travel restrictions will last for several months at minimum, and if this view bears out, industries with seasonal workers will find it difficult to secure the labour they need, including winter pruners and wrappers at vineyards, kiwifruit pickers, and ski season operators. Working holiday visa extensions to foreigners coming towards the end of their stay would provide a logical relief.
New Zealand’s growth in global connections now a liability?
Passenger air travel in and out of New Zealand is large in comparison to the size of our population. In 2019, there were around 3.1m arrivals of New Zealand travellers returning home, and 3.9m arrivals of foreigners into New Zealand. New Zealand has become increasingly globalised over the past 30 years, as international travel connections have expanded (see Chart 3).
In 2019, there were 2.5 times more movements in and out of New Zealand than in 2000. New Zealand has done well from increased globalisation, with international tourism expenditure having doubled since 2013, particularly due to growth in Asian travellers.
Travel and tourism in for a tough ride
It is hard to predict just how hard the aviation and tourism sectors will be hit from the COVID-19 pandemic. Air movements in, out, and within New Zealand are set to crash, and government support for Air New Zealand is looking likely. Much of how large the effects of the pandemic will be depend almost entirely on how far the situation escalates and how quickly it settles down. Domestic flights will drop as the reduced international demand flows through in coming weeks. Some loss in domestic flights may be reversed as New Zealanders planning to travel overseas decide to travel domestically instead.
However, downside risks to this view include people wanting to avoid crowded public spaces such as airports, and a broad slowdown in economic activity reducing people’s willingness to spending on non-essential activities like travel. We continue to monitor the situation, and will revise our expectations for the wider economy as our assessment evolves.