Forward Contracts: Tourism Sector Covid 19 management Strategy

As the Kenyan real economy continues to struggle, one industry that is particularly vulnerable and that has borne the full brunt of the pandemic is the tourism sector.

In 2018, Kenya’s tourism sector grew by 5.6% ahead of a global average which stood at 3.9% making Kenya the third largest tourism economy after South Africa and Nigeria according to research by World travel and tourism council.

Further according to the same body; tourism sector contributed 8.8% to Kenya’s GDP in 2028 which was projected to grow by 5.9% in 2019 creating 1.1 Million jobs in 2018 alone.

Cognizant that the Covid 19 has necessitated global economies to restrict movements both locally and internationally as well as Kenya restricting inbound international travel essentially putting a fatal choke hold to Kenya’s  tourisms sector that heavily depends on tourist from Africa and Indian ocean, Europe, Asia, Americas, Ocenia and Middle east not to mention local tourism which remains untapped.

The reaction from the sector just like most has been to reduce or eliminate is single largest overhead, in the form of payroll by either sending employees of forced unpaid or partial paid leave or worse case laying off staff. The ripple effect of such a move is bound to have a negative effect directly on the employees with the ripple effect doubling or tripling to other families.

Even with these deep cost cutting measures without revenue inflows combined with some form of stimulus; the sector is starring at a bleak future as the effect of the pandemic may last 2 to 3 years or even more.

Given that state of play is quite uncertain, the sector must dig deep and find a solution to remain liquid to meet its least running cost.

First thing is to conduct a robust analysis of tourism trends the last 3 years in light of Kenya’s three main offerings of Safari, coastal tourism and conferencing while focusing on issues such as; source market, market demographics, nature of visits and income levels among others.

Second is segmentation of the various source markets since different segments have different needs and can be linked to one or a mix of the three Kenya tourism offerings.

Based on past trends the sector can identify the most optimal offering mix linked to a certain market segment and offer deep discounts of between 50 to 60% that is enticing enough to lure potential tourist.

The offer must be labelled as limited special offer to save on long term brand value; with bookings having a small window of 3 months while actual travel slated in subsequent years with a one year moratorium upon confirmed fully paid booking ensuring travel falls on low seasons in the subsequent years.

The lower prices can incentivize traditional tourist customers to book multiple destination offering over several subsequent years as well as attract new ones.

The program can act as a low-cost working capital avenue for the tourism sector to finance bare minimum operations to keep them afloat during the covid 19 outbreak as well as the immediate period after a possible viral slowdown or eradication.