Vaccines, Reopening & Recovery

COVID-19 is here to stay

At the beginning of the pandemic, some optimistic scenarios painted eradication of the virus, and a return to normal within one-two years, similar to SARS in 2003. Most Asian countries which experienced SARS adopted a similar playbook: strict quarantine, universal mask- wearing, social distancing regulations, within months largely gaining control over the virus. This ‘covid-zero’ policy enabled most of them to reopen their economies by 2H 2020. China, with its vast domestic economy, saw demand for its exports and manufacturing roar back to life. Unable to travel overseas, Chinese tourists, the main driving force behind much of global tourism demand in the past 10 years, powered a remarkable domestic travel boom, with hotels in popular destinations like Sanya, Hainan island reporting over 80-90% occupancy and rescuing 2020 results for hotel management companies like Marriott, with much of the US under lockdown for most of 2020. Smaller, trade and travel dependent countries like Singapore however, continued to suffer even with the virus under control, with visitor arrivals plummeting 85.7% yoy, GDP shrinking 5.8% and Singapore Airlines, its flagship carrier, reporting a record $4.3 billion loss, the worst in its history.

Farewell to ‘covid-zero’

The rapid mutation and spread of COVID variants has made it clear that containment, or ‘covid-zero’, is no longer sustainable, countries will have to adapt to living with the virus, and the road map back to normality, or our new normal, will be led by vaccines. In this respect, the “end” of the COVID-19 pandemic is likely to be similar to previous plagues like the Spanish Flu, which became the common flu virus. (The same novel strain of flu introduced in 1918 is the direct ancestor of every seasonal and pandemic flu over the past 100 years). The Spanish flu was thought to have ended a year later, in the spring of 1919, but flared up again in early 1920. By the middle of 1920 however, the deadly strain of flu had in fact faded enough that the pandemic was over in many places, even though there was no official declaration that the pandemic had ‘ended’. Unlike Covid-19, the world in 1920 did not have vaccines. The Spanish flu ended simply because the virus had infected enough people, and more importantly, enough people retained immunity that the virus was unable to find new susceptible hosts, in scientific terms, when R<1.0. An estimated third of the world’s population had caught the Spanish Flu by 1920; a WHO estimate in end-2020, prior to the emergence of the Delta variant in India and the winter wave in many countries, suggested that only 10% of the world’s population had caught the virus. Further, the risk of reinfections and fading antibodies in infected patients all suggest that COVID-19, in the near-term at least, will not be completely eradicated and governments will likely continue to exercise caution over their travel and reopening policies.

Vaccines will drive economic recovery

The success of vaccines in reducing the severity of disease and hospital admissions offer hope that while the virus cannot be eliminated, governments will no longer need to resort to strict lockdowns to avoid overburdening the healthcare system. Infectious disease experts had earlier suggested 70% (of total population fully vaccinated) as the level at which herd immunity can be reached, although the increased transmissibility of variants has thrown into question whether the actual threshold may be higher, and it appears likely that we will continue to see breakthrough infections, even with mRNA vaccines.

What has become clear over the second quarter of 2021 however, is that herd immunity may not be as significant a determinant for reopening as each society’s risk tolerance for living with the virus. The US, for example, announced masks were no longer mandatory for the vaccinated, with most of the country opening up in June despite only having 40% of its total population fully vaccinated (actual vaccination rates vary widely from state to state, with most major cities boasting a vaccination rate close to or above 70%; President Joe Biden has set July 4th as a target deadline for vaccinating 70% of the US). With hospital admissions rising and the Delta variant spreading rapidly in the UK, Prime Minister Boris Johnson announced a four-week delay to its much-anticipated full reopening on 14th June, seeking to buy time for more of its population, in particular those aged under 30, to get vaccinated. Around 40% of the UK’s total population had been fully vaccinated as of 1st June, with the government hoping to reach two-thirds by the end of July.

Asia’s wealthy countries began ramping up vaccinations in June, after combating numerous delays including vaccine hesitancy, manufacturing issues, and much of the West, in particular the US, restricting export of its vaccines. Despite reaching similar vaccination levels as western Europe however, Singapore continued to keep social restrictions in place as it ended a one month lockdown on 22nd June, although its government has begun moving its public message away from ‘containing the virus to stressing that Singaporeans will need to learn to ‘live with the virus’. China meanwhile has reached similar vaccination rates, but shows no signs of opening up its borders in 2021, partly because of uncertainty over the lower efficacy of its vaccines. Japan and South Korea similarly kicked off their vaccination rollout campaigns in June, with South Korea exceeding its monthly target by the middle of the month.

When Will Travel Resume?

While many economies in the US, Europe, and parts of Asia have begun to reopen, some at full strength, others in progressive stages, complete reopening of the travel industry will likely lag the reopening of domestic economies by at least six months to a year, as governments remain reluctant to fully waive quarantine requirements. The US, for example, despite reopening most of its economy, still remains closed to travellers from China, India, Brazil, UK and Europe, despite Europe unilaterally opening its borders to the US, even to unvaccinated travellers, on 18th June, ending a 15-month ban.

Highly tourism-dependent economies may not be able to wait much longer. Greece began welcoming inbound tourism on 14th May, requiring only a negative PCR test result, while Thailand on 22nd June approved a “sandbox plan” to allow Phuket to reopen to international tourists from low and medium-risk countries from 1st July without the need for quarantine. Phuket has vaccinated just over 70% of its population.

Vaccine tourism has emerged as the travel trend of 2021, organised by tour operators and private clubs. In the US, Alaska and San Francisco have begun offering vaccinations at the airport, while New York City is planning to roll out mobile clinics to provide free vaccines to tourists at local attractions such as the Empire State building and Times Square. European travel agents are offering vaccination getaways to Russia, while the wealthy, tourists and celebrities have been flocking to Dubai for months to get vaccinated, most famously Mark Machin, the former head of CPPIB, who was forced to step down after it was discovered he had defied Canadian government guidance to avoid international travel and received a COVID-19 vaccine in the UAE in February, at a time when it was officially available only to those over 60 and frontline workers. The Maldives has also raised ethical questions with its plan to launch three week-long vaccine vacations from July, what it calls the 3V strategy:

visit, vaccinate and vacation. Most of its vaccines have been obtained from COVAX, the WHO’s subsidised vaccine-sharing scheme for developing countries, as well as via donations from China and India, and it was not clear where vaccines for its 3V strategy would be sourced.

Meanwhile in Asia, where most countries have sealed their borders for more than a year, the first signs of the travel reopening have appeared, but with very incremental steps. South Korea will waive quarantine for vaccinated Korean returnees, business travellers and students from 1st July, while Hong Kong has also announced it would reduce quarantine for vaccinated travellers from fourteen to seven days. Singapore, meanwhile, on 23rd June announced it would reduce quarantine from twenty-one to fourteen days, and with its highly trade and tourism-dependent economy, may be pressured to do more soon.

Economic Reopening and Travel Recovery Forecast

Based on government’s publicly announced targets, the pace of vaccinations to date, manufacturing supply announcements and other publicly sourced information, PCG Research has put together the following economic and travel reopening forecast (see Charts 1 and 2 in Appendix for further country-by-country details). Based on this forecast, we anticipate economic recovery to closely track the pace of vaccinations in each country, with travel reopening dependent on several factors:

  • Highly trade and travel-dependent countries like Singapore are likely to initiate some partial form of travel reopening by 2H 2021. Singapore is already in discussions with numerous countries like South Korea, Australia and Vietnam to initiate travel bubbles.
  • Countries with large domestic economies, especially Australia or China, whose citizens accounted for a fifth of global tourism spending in 2019, are in no hurry to open their borders and will not open before 2022.
  • Most of Asia’s less developed countries, especially Southeast Asia, still face a severe lack of vaccines and are looking into strategies like Thailand’s ‘sandbox’ plan to welcome vaccinated tourists to Phuket to selectively reopen part of its tourism sector.

Download full PDF to see the PCG Research Travel & Reopening Forecast