Coronavirus casts shadow over hospitality industry

New cases of the coronavirus are being diagnosed daily. Photo credit: iStock / Getty Images Plus / onurdongel

Updated: As of Feb. 10, the death toll in China from the Wuhan coronavirus outbreak has reached 910, up from 500 on Feb. 5. All but two of these deaths were in mainland China.

According to the New York Times, 40,500 cases have been confirmed in China and the disease has been detected in a further 24 countries. 

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The virus’ impact on travel and hospitality has been palpable: The World Health Organization has issued a “do not travel” advisory for the entire country, and most commercial air carriers have reduced or suspended routes to and from China. Preliminary data and analysis from STR found a hotel occupancy decline of 75 percent in mainland China from Jan. 14-26, and performance during the Chinese New Year holiday period was down significantly. 

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While the Chinese New Year holiday week normally sees a “significant shift in travel patterns,” the report noted, with a rebound generally following. “The week [of] Chinese New Year had low occupancy, as expected,” Jan Freitag, STR’s SVP of lodging insights, told Hotel Management. “But the following week, the occupancy actually dropped and did not sharply rebound as we had seen in a normal travel year.” On Jan. 26, STR reported occupancy of just 17 percent in mainland China, meaning that—on average—eight of 10 rooms were left unoccupied. 

Given the travel restrictions and warnings, it should come as no surprise that inbound travel to China has sharply declined. According to business intelligence firm ForwardKeys, inbound bookings for the Chinese New Year period were 4.5 percent ahead of where they were at the same time last year up to Jan. 19. A week later, they were 7.2 percent behind. Bookings from the Americas alone fell from 0.4 percent ahead to 13.4 percent behind. Asia Pacific, China’s largest source market with a 65 percent share of visitors, dropped from 6 percent ahead to 6.2 percent behind.

Cancellations

Earlier this week, the NYU School of Professional Studies decided to postpone the NYU April 2020 Hospitality and Real Estate Investment Conference that had been scheduled for NYU Shanghai. In a statement, the school said the measure “must be taken to safeguard the health and well-being of those who would have attended the conference, as well as those who would have participated as speakers and panelists.” The school expects to reschedule the event for April 2021.

Nicholas Graf, associate dean of NYUSPS, noted the “gigantic amount of uncertainty about the pandemic” and how the virus is likely to spread. Given that, and due to the timing restrictions of registering for a conference and booking flights, “we thought it would be very impractical for people to plan attending given that many airlines have suspended flights.” By postponing, he said, the conference—and the industry—will have “ample time to recover” as things get back to normal. Significant events like these, he added, tend to have a short- to medium-term impact on travel in general. “I do not expect the virus to cause any long-term trend.” 

Outbound Travel

Outbound Chinese travel has been a powerful force in hospitality in recent years, so the new restrictions are likely to have an impact on hotels worldwide. “China is now the world’s biggest and highest-spending outbound travel market, so the presence of Chinese visitors is eagerly anticipated by the tourism industry globally,” said Olivier Ponti, VP of insights at ForwardKeys, noting the economic impact could have been worse if the outbreak had happened even weeks earlier. 

According to data from ForwardKeys, outbound travel from China was set to break all records for the season before the travel restrictions were implemented: Up to Jan. 19, outbound travel bookings from China (excluding Hong Kong and Taiwan, where political unrest has affected travel) were 7.3 percent ahead, benchmarked against the equivalent period in 2019. As of Jan. 26, when Wuhan airport was closed and the Chinese government stopped outbound tour groups from traveling, bookings for the Chinese holiday period were 6.8 percent behind.

But while the records weren’t broken, David Tarsh, managing director of Tarsh Consulting, which works with ForwardKeys, told Hotel Management the year could still be “a pretty decent year” for outbound Chinese travel. “An awful lot of Chinese [people] have successfully left China to go on their New Year holiday,” he said. 

Lessons from SARS

The hospitality industry has already dealt with an Asian virus that affected travel trends, and may be able to take some lessons from history. The 2003 SARS outbreak caused a 28 percent drop in travel demand, Freitag said, citing data from STR partner Tourism Economics. 

If the industry reacts to the coronavirus in the same way it reacted to SARS, hotels in the U.S. can expect a 28 percent drop in inbound Chinese travelers, 4.6 million fewer roomnights sold and a $5.8 billion drop in visitor spending—“which then equates to roughly 0.3 percent demand decline,” he said. While this may not seem like a huge percentage, Freitag said that STR had recently, for the first time since 2009, predicted flat revenue per available room growth for U.S. hotels in the coming year. “If you have a negative influence on the room demand data, no matter where it comes from, that would then curtail total room demand, occupancy and then therefore RevPAR, so that's why this is significant,” he said. “It's small, but it could shift the data from flat growth to neg to decline.” 

“While it is understandable to look for comparisons with the SARS outbreak that began in 2002, it is important to consider the significant differences in the market over the last two decades,” Jesper Palmqvist, STR’s area director – Asia Pacific, said in a statement. “Dependence on smartphone technology, the widespread use of social media, significant differences in hotel inventory, greater volume in international arrivals to mainland China and overall economic conditions make it difficult to use that previous outbreak as an indicator this time around. There is also greater potential for hotel performance impact in other markets around the world because of the increase in Chinese outbound travelers.”

Graf, for his part, expects to see the effects of the virus for the next several months. “If history can tell us something [about] these viruses, the impact on travel tends to last months [after] the peak of the epidemic,” he said. “Even if it peaks within a month, the effect on travel will likely be felt through the spring and likely through the summer.” 

But the hospitality industry has emerged from crises before. At the time of the SARS outbreak, David Tarsh was working with the World Travel & Tourism Council, and recalls that the travel industry was “truly on its knees” due to fears of contagion. “That's not the case now,” he said, and noted how Bill Marriott advised hoteliers to close off the lower floors of their properties if they were struggling for bookings. “In doing that, you're giving your guests an upgraded experience from what they would normally get, but you continue to trade.”

Comparison: The Centers for Disease Control and Prevention has estimated between 19 million and 26 million cases of the flu in the United States alone from Oct. 1, 2019 to Jan. 25, 2020, and 10,000 to 25,000 flu-related deaths in that time period. 

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