As hotels announce their fourth-quarter and full-year 2019 earnings reports, one subject is hovering over the conversations: The coronavirus outbreak that is centered in Wuhan, Hubei Province, China, is forcing hotels to close their doors to guests across the country, and is affecting revenue across a range of travel-related industries.
Globally, the World Health Organization has confirmed 46,997 cases of COVID-19, its official name for the outbreak, as of Thursday, with 1,826 new cases in the previous 24 hours alone. Most of these were in China, with 46,550 confirmed cases (1,820 of which were new) and 1,368 deaths (254 of which are new). At the same time, the U.S. confirmed its 15th case Thursday in a person under quarantine at a San Antonio military base. Three deaths attributed to the virus have been reported beyond China’s borders, including the first in Japan.
“We don't know a lot about this virus,” CDC Director Dr. Robert Redfield told CNN's Chief Medical Correspondent Dr. Sanjay Gupta in an interview on Thursday. “This virus is probably with us beyond this season, beyond this year, and I think eventually the virus will find a foothold and we will get community-based transmission.”
According to the latest report from travel analytics company ForwardKeys, the downturn in travel caused by the outbreak has now spread beyond China, with other parts of the Asia Pacific region reporting a 10.5 percent slowdown in outbound travel bookings for March and April, excluding trips to and from China and Hong Kong.
As of Feb. 9, the setback looks likely to be most prevalent in Northeast Asia, where outbound bookings for March and April are down 17.1 percent year over year. The “all-important Chinese outbound market,” the report noted, is much worse off, with outbound travel from China down 57.5 percent from last year. Bookings for March and April are poised to be 55.9 percent of what they were at the same point in 2019. “Forward bookings to Asia Pacific are 58.3 percent behind; bookings to Europe are 36.7 percent behind, to Africa & the Middle East are 56.1 percent behind and to the Americas are 63.2 percent behind,” the report claimed.
This decline is likely to have a severe impact on the travel and tourism industries: According to research firm GlobalData, China accounted for about 12 percent (159 million) of global outbound travelers in 2019, with outbound travelers spending $275 billion over the year.
Hotels worldwide are already feeling the pinch. The Mobile World Congress, held in Barcelona each year since 2006, had been scheduled for Feb. 24-27, but was canceled earlier this week after several big-name vendors withdrew over coronavirus concerns. As a result, bookings in Barcelona hotels dropped an estimated 25 percent, according to data from Forward Star, the benchmarking firm affiliated with analytics company STR. “These numbers provide a strong indication of the bookings impact for hotels in Barcelona,” said Steven Cote, STR’s product manager for Forward Star. “Given that 100,000 delegates were expected to attend the Mobile World Congress, the effects will be significant for hoteliers in reaching their performance goals for not only this quarter, but the entire year.”
On Tuesday, Hilton President/CEO Christopher Nassetta told investors the company had temporarily closed roughly 150 of its 225 hotels in China to new arrivals, and expected a $25 million to $50 million impact to 2020’s full-year adjusted earnings before interest, taxes, depreciation and amortization. The outbreak also could delay net unit growth, Nassetta noted, but should not have a severe effect on overall openings worldwide.
Wyndham Hotels & Resorts, meanwhile, closed 1,000 hotels in China over the past weekend, approximately 900 of which were Super 8 master licensee franchisees. Since then, approximately 50 hotels have reopened, CEO Geoff Ballotti said during the company’s earnings call. “Importantly, the majority of the closures resulted from owners and franchisees doing everything they could to protect their team members and prevent the spread of the virus,” he told investors. Approximately 70 percent of Wyndham’s Chinese hotels remain closed, CFO Michele Allen added, with the balance experiencing occupancy declines of approximately 75 percent.
“We expect this to continue through at least the end of March,” Allen said during the call, noting that hotels in Korea, Singapore and Thailand are reporting “varying degrees” of occupancy declines. “We are assuming that as hotels in China reopen the market will remain soft for the vast majority of the year as occupancy recovers over a three-month to six-month period.”
At the same time, openings scheduled for the first quarter will likely be postponed, causing flat to negative room growth for Q1.
With these factors in mind, Wyndham is estimating a potential adverse impact of approximately $5 million to first-quarter adjusted EBITDA and a potential adverse impact of approximately $8 million to $12 million to full-year adjusted EBITDA.
MGM has closed its casinos and gaming areas in Macau in response to the outbreak. While Chairman/CEO Jim Murren acknowledged the company is incurring approximately $1.5 million of operating expenses per day across both of its properties in the district—mostly for payroll—he expressed confidence that the closures will not affect the medium to long-term earnings potential of the assets or the marketplace. “We feel that that situation will be managed and the company is well positioned given our diversification as a global company and our balance sheet strength,” he said during the company’s earnings call.
One hotel-connected business is taking a different approach: The Blackstone Charitable Foundation—affiliated with private equity firm Blackstone, which owns more than 10,000 hotel rooms worldwide—has announced plans to donate $1 million to support healthcare and counseling services for communities in China affected by the outbreak. The funding will support the efforts of Chinese independent nonprofit One Foundation and other nonprofit partners to accelerate their efforts in helping people across 31 provinces and cities in China.
What Hotels Can Do
Simon Worrell, global medical director at Collinson—a firm specializing in medical, security and travel risk-management services—suggested stocking up on face masks, antibacterial gel and hand soap to make sure guests and staff stay as healthy as possible. “Hotels need to instill confidence in their guests and staff that they are acting responsibly,” he said.
The bigger impact, Worrell noted, could be to supply chains, especially for businesses that use Chinese manufacturing companies. “Many organizations are fully aware of companies that are immediately upstream of them in a particular supply chain but may not know which other organizations are involved higher up,” he cautioned. “Companies should consider undertaking a process of product mapping to ensure that vital components are not being supplied from China. If this is the case, alternative supplies for Chinese products might be worth sourcing—at least at present.”
Beyond supply chains, Worrell noted the importance of knowing about intrinsic company factors and how one business could affect another. “You need to understand where an organization’s workers are in the world, for example, and whether they are client-facing,” he said. “Another important factor is whether there is considerable staff travel between offices affected by the outbreak and within APAC countries. In fact, there are many issues that will affect the construction and development of projects, and the company itself—but each organization will be impacted differently and will need to come up with a bespoke solution, as some issues will be more relevant to their situation.”
As the outbreak evolves, individual hotels and their related companies will need to host regular reviews, evaluating if further measures are necessary. “At the moment, there is no need to ‘turn the dial up to 11,’ per se, but this might not be the case in the next few weeks and months,” said Worrell. “Responsible companies should ensure that there is close communication with their medical authorities, [human resources], and both public and internal relations to ensure that all measures that are appropriate for the company and the stage of the epidemic are being carried out. These specialists should be part of an emergency response team who regularly reassess the situation every few days.”
Several experts have cited the 2003 SARS outbreak as a similar medical situation that affected the travel and hospitality industries, and hotel companies are looking to the past to get a sense of what they can expect. For that epidemic, the only country outside of Asia to report a significant volume of cases was Canada, and most of these were in the greater Toronto area, according to Anne R. Lloyd-Jones, senior managing director and director of consulting and valuation at HVS, in a new report. By the middle of March 2003, seven infections and two deaths had been reported in the country.
The World Health Organization issued a one-week travel advisory for Canada as a result of the cases, but the country’s hotels reported a 4.7 percent decrease in demand for the entire year. In Toronto alone, demand dropped 36.5 percent in April 2003 year over year, and was still down 20 percent in July.
“While the decreases in demand moderated somewhat thereafter, the extended span of the downturn is striking,” Lloyd-Jones wrote. “In all, over the period April through November 2003, the market reported over 257,000 fewer accommodated roomnights than in the same period of 2002. This equates to over CA$83 million in revenues. Over the full year 2003, demand was off by just under 220,000 roomnights, and revenues were off by CA$80 million (rounded).”
As HVS notes, from the first SARS case in Nov. 2002 to the last in June 2003, 8,098 cases were reported; of those, 7,324 people recovered and 774 people died.