February 3, 2020
Coronavirus’ Effect on the Travel Industry Deepens as Global Emergency Is Declared
While the World Health Organization has stopped short of calling for a shutdown of global travel and trade, many travel companies are limiting their operations to reduce the impact of the coronavirus outbreak on their financials while helping to safeguard public health.
The World Health Organization convened an emergency committee on Thursday to decide whether to upgrade the status of the coronavirus outbreak spreading across the world to a global emergency.
While the group declared a public health emergency, the travel industry needs no such confirmation. In a matter of days, the virus’ effect on the industry has gone from speculative to one that’s reflected in earnings, schedules, and share prices of multiple sectors in the industry. From airlines to border crossings and cruise ships, the virus’ spread across the globe is, like it or not, facilitated by the travel industry’s core operations.
Hedge funds have shorted their positions against airlines who operate a high volume of flights to China, with European carriers including British Airways, Lufthansa, Air France-KLM particularly exposed. All three have halted flights to and from China completely, while others have cut down on schedules. Share prices of both Air France KLM and Lufthansa have fallen 13 percent this month, according to the Financial Times. Similarly, after cancelling some itineraries to China, Royal Caribbean said its 2020 earnings reporting next week would be hurt by as much as $0.20 per share.
Aviation analyst firm ForwardKeys released their latest figures Thursday, describing “a substantial setback in flight bookings” for the Lunar New Year period, which lasts until Feb. 6. While the impact has been most pronounced in the Asia Pacific region, bookings are slowing the world over.
“As of 19th January, [Asia Pacific] bookings were 1.3 percent behind where they were at the equivalent moment in 2019; a week later, they were 15.1 percent behind,” said a statement from Olivier Ponti, ForwardKeys’ vice president of insights. “The deterioration seen for other global regions has been similar, but a little less severe. As of 19th January, bookings to the Americas were 14.3 percent behind, to Africa and the Middle East were 0.7 percent behind and to Europe were 10.5 percent ahead. A week later, bookings to the Americas were 22.5 percent behind, to Africa and the Middle East were 9.9 percent behind and to Europe were 0.5 percent ahead.”
That said, some airlines could potentially see an upside because oil prices have decreased in response to the crisis. Jay Shabat, senior analyst at Skift’s Airline Weekly, said “for most airlines outside of Asia, the sharp drop in oil prices could wind up outweighing any loss of China traffic. We’ll see if the pandemic spreads. It’s already clear though that for Chinese airlines, this has been extremely painful financially.”
Many are drawing comparisons to the SARS crisis of 2003 to 2004, a period which Lufthansa’s former chief executive called aviation’s “worst ever crisis” in terms of revenue. But for the travel and tourism industry, the situation could turn out to be even worse this time around, at least in economic terms. (While coronavirus appears to be less deadlythan SARS, which killed 774 people, it has already surpassed it in terms of the number of cases.)
“If you look back at SARS, I think we had eight cases in the U.S. and we didn’t have one death, but SARS dropped travel from Asia by 30 percent,” said Roger Dow, president and CEO of the U.S. Travel Association, in a Thursday interview with Skift. “We’ve got to watch it every minute, but I do think sometimes there is an overreaction. We as an industry, and as an economy, never call an all-clear. When something happens, we’re slow to say: it’s back.”
The SARS epidemic happened at a much different time of development for the global travel industry. China has become a much more important source market for the world’s travel industry in the intervening years.
Figures released earlier this week from GlobalData illustrates that growth: “China has grown from the fourth largest source market in the world, with 47.7 million outbound tourists in 2009, to become the largest, with a staggering 159 million outbound tourists in 2019. This accounted for 12.2 percent of all outbound travelers globally. Furthermore, the Chinese outbound market was the second highest spending in 2019, with expenditure of $275bn.”
It added that amongst all the other headwinds the industry is facing — Brexit, geopolitics, extreme weather events — the quick rise of coronavirus “could mean a tough year lies ahead for the international tourism industry.”
Now, instead of welcoming tourists from their largest source markets, many destinations are doing the opposite. Russia has closed its entire border with China, and others are implementing visa restrictions. While those moves have been preventative, increasing calls across Asia to shut borders to Chinese citizens also have a disturbing ring of xenophobia.
Just days ago, the UN World Tourism Organization expressed prudent optimism for the year ahead for tourism arrivals. Depending on how the crisis plays out in the coming weeks, that forecast could drastically change.
— Skift Senior Enterprise Editor Andrew Sheivachman contributed to this report.