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European TAA market in and following the COVID-19 crisisOur initial thoughts as of CW12/2020

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The COVID-19 induced crisis a shaking event for the travel market in general and the tours, activities & attractions segment.

In order to navigate through the crisis we believe it is helpful to have a stage model to understand a) the relative timeline, b) different market player behavior and c) guide own actions and initiatives alongside this model.

Our model is based on a) experience from historic crisis, b) publically available information and c) a variaty of expert calls held.

Disclaimer: We are no experts on a health/virus or global economy and we also have no specific access to more information than anyone in our industry, so take this more as a framework of our thoughts than as expected future.

Preface

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Market stages

I) Lockdown II) Fade In III) Rebound

Duration 7 weeks to 4 months 3-9 months 1-3 years

Market volume

0% of pre-crisis levels 30% of pre-crisis levels 85% of pre-crisis levels

Market perspective

• China started to relieve lockdown after 7 weeks and already moved to phasis II

• We would expect Europe to potentially continue the lockdown for longer periods as they have a different health/economy growth trade-off view

• Governments are inclined to put things back into "normal mode" as soon as possible to stimulate economic growth / try to get to V-shape recovery

• Trade-off between health and stimulation is solved in China by limiting capacity of tours, activities and attractions to 30%.

• China moved to 100% online booking for nearly all TAA to reduce infection points / interactions

• Governments are using helicopter-money to stimulate economic growth

• Post financial crisis data suggests recovery of the travel market (b2c+b2b) to 85% post crisis

• Governments will try to further stimulate the demand situation by tactics as helicopter-money

• Domestic travel will typically recover quicker than international/long-haul travel due to 1) tourists feeling safer at home and 2) travel bans being extended to protect regions against reinfections.

[1] Coronavirus: parks and tourist attractions reopen as China tries to get back on its feet and expert calls held[2] Travel spend DE, source VDR

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Market stages – visual timeline

Lockdown7 weeks

Fade Inongoing

Reboundnot started yet

March 2020

December 2020

April2021

Lockdown12 weeks

Fade In6 months

Rebound1-2 years

Chinabenchmark

Europeanoptimistic scenario

Lockdown4 months

Fade In9 months

Rebound1-2 years

Europeanpessimistic

scenario

Depending on scenario either winter season 2020 or easter season 2021 will be the next “real” TAA season in the “normal” market.

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Behaviour of market players II) Lockdown II) Fade In III) Rebound

End customers

• TAA activities access is restricted or not allowed

• End customers get heavily driven towards ecommerce within lockdown period

• TAA demand is slowly starting again• Demand recovery is incentivised by

government efforts to restart demand• Customers will move their behaviour to

more online booking due to 1) infection fear, 2) government regulations and 3) lockdown learning effects

• Pre-crisis trend from offline to online will be accelerated due to 1) lockdown learning effects and 2) increased pre-booking need to allow for better travel planning

Operators • Operators of all sizes will get under pressure by their cash-in being 0, therefore becoming cash-flow negative with usually not high cash reserves

• Pressure on cash-flow is intensified by customers looking for

• Governments will try to address this by offering subsidies and easier access to debt

• Still negative cash-flow

• Demand for TAA will exceed offer due to 1) health restrictions and 2) TAA operators having reduced their fixed cost basis and therefore ability to offer their products

• Negative cash-flow will continue and therefore further bankruptcies occur

• Product prices should remain at pre-crisis levels

• Market reboot will lead to higher supply than demand resulting in lower product prices on tier 2 and 3 products compared to pre-crisis levels

• Previous dismissals of TAA personnel will ease acquisition of well-trained personnel

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Behaviour of market players III) Lockdown II) Fade In III) Rebound

Technology providers

• Software providers have mainly moved to hybrid pricing models charging based on 1) transactional volume and 2) monthly subscriptions: Transactional volume will be 0, monthly subscriptions will be seeing high churn levels and defaults

• Hardware providers will see 0 revenue as customers will delay buying decisions

• With revenues under pressure and typically medium-term financing structures technology providers will get under pressure and some will default

• Software providers will be seeing increasing transactional revenues and continued pressure on monthly subscriptions

• Hardware providers will continue to see low revenue due to further delays on investment decisions

• Continued pressure on revenues will increase pressure on tech companies leading to further defaults

• Software providers should be able to recover to 85% of their pre-crisis revenues following the markets recovery

• Hardware providers will see a delayed recovery process as operators will focus on getting the business up again and will initially shy away from larger investments and prefer to further use old technology

• Technology providers in general will receive sales tailwind by 1) operators in need for new tech by their tech provider defaulting and 2) the crisis increasing push to adopt more reseller channels and the needed technology to enable that

Resellers • Due to resellers mainly earning on commissioned sales double pressure by 1) reduced booking volume and 2) refunds of already earned commissions

• Financial pressure on resellers will lead to defaults especially on segments with pre-existing pressure from pre-crisis (eg. gift/voucher sales)

• Governments will try to ease effects especially on tour operators by subsidies and increased debt availability

• Financial pressure continues as market volumes stay low

• Pre-crisis consolidation initiatives will accelerate by 1) sales prices on low levels and 2) financially strong players having managed the effects on their core business

• Trend to move from online to offline will see acceleration and hence give tailwind to online channels (eg. OTAs, but also operators’ websites)

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DataAppendix

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Travel spend DE (business & leisure)

Source: VDR

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COVID-19 Case count projections

Source: Cross Healthcare Research – DB’s Initial Covid-19 Projections, Deutsche Bank Research

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China Room Nights Booked Index

Source: Shiji Distribution Solutions