Harvey damage to travel sector won't heal fast


While the nation focused largely on the human tragedy unfolding in Houston last week, analysts and suppliers thousands of miles away began tallying the cost of Hurricane Harvey to Texas' economy, including to its travel sector.

Generating $35.2 billion last year, the Texas travel industry accounted for just over 2% of the state's total gross domestic product (GDP), about on par with the contribution from its electronics and agriculture sectors. Of all the state's industries, only energy made a significantly greater contribution to its GDP.

The pain was felt across the spectrum of travel enterprises, from cruise lines to airlines, from hotels to car rental companies. Flights and cruises were cancelled, airports, hotels and ports were closed, and thousands of rental cars were presumed damaged or destroyed by the storm.

What's more, Harvey forced the shutdown of multiple oil refineries, which was expected to raise the prices of all refined fuels, from diesel oil and gasoline to jet fuel. The least refined petroleum product is the bunker oil that fuels most cruise ships. While the price of gasoline jumped 6 cents a gallon in the first five days after the storm hit, efforts to get comment from the cruise lines on bunker fuel supplies and prices were unsuccessful.

By late last week, Harvey had already caused a significant jump in jet fuel prices. The Gulf Coast region accounts for half of all jet fuel produced in the U.S., and 16% of the nation's refining capacity was still down as of Aug. 31.

According to the price-reporting firm S&P Global Platts, jet fuel prices, not accounting for taxes and delivery costs, had increased from $1.59 a gallon on Aug. 25 to $1.97 a gallon on the morning of Aug. 31.

Meanwhile, Matthew Kohlman, Platts' senior managing editor for refined products for the Americas, said a gallon of jet fuel in the Gulf Coast region was 23 cents per gallon more than the price on the New York futures market, the largest spread since Hurricane Ike hit the Gulf Coast in 2008.

Jet fuel produced in the Gulf region not only supplies local airports but is also shipped through pipelines to major hubs in Atlanta, Charlotte, Philadelphia, Washington and New York.

Kohlman said prices tend to revert to normal once refineries come back on line.

Cruise lines

For the cruise industry, the immediate pain was relatively short-term. Carnival Cruise Line had to cancel four voyages: one seven-day cruise each for the Carnival Freedom and Carnival Breeze and two five-day voyages on the Carnival Valor.

Royal Caribbean International likewise lost one cruise out of Galveston, Texas, when it was forced to divert its Liberty of the Seas to Miami to avoid the storm.

The longer-term damage is expected to be felt in the Texas cruise market. Carnival, in particular, has invested heavily to promote the three ships it bases year-round in Galveston, which is primarily a drive-market port.

Roadways have been underwater, and meteorologists said last week that some might not be clear for as long as three weeks, making it uncertain when booked guests will be able to drive to the Port of Galveston, which reopened last Thursday after being closed for a week. Members of the Coast Guard and U.S. Army Corps of Engineers were surveying the port facilities to see what kind of damage the high water might have left behind.

The personal toll and economic upheaval resulting from Harvey also cast doubt on whether passengers from southern Texas will have the appetite or the ability to take already-booked cruises. Demand from the area for all cruises could be diminished as residents focus on recovery.


Hoteliers in Houston and other parts of southeastern Texas scrambled last week to repair and reopen more than 100 hotels damaged by winds and flooding.

The disaster posed yet another setback for a Houston hotel market where demand levels had already been beset by a combination of depressed prices in the energy sector and an influx of inventory. Through June, Houston hotels' revenue per available room fell 4.4%, compared with a 3% increase for the U.S. as a whole, according to STR.

InterContinental Hotels Group (IHG), whose brands include Holiday Inn, Holiday Inn Express and Staybridge Suites, said on Aug. 31 that about 50 of its 150 hotels in the path of the storm had been either shut down due to damage or had seen operations affected by issues such as flooding or loss of communications or power.

"We are working diligently to safely accommodate guests who have reservations at impacted hotels and are remaining in close contact with individual hotels around the clock to provide assistance and resources," an IHG spokesperson said in a statement last Thursday.

A half-dozen of Marriott International's properties in the area, including five Fairfield Inns and one TownePlace Suites, had been closed as of early last week. One Hyatt Place hotel was also closed, while another temporarily stopped taking new arrivals.

One of Hilton's 110 hotels in the area was closed. Choice Hotels International -- whose brands include Comfort Suites, Quality Inn and EconoLodge -- has about 130 hotels in the impact area and said most are operating but some aren't. "Franchisees in the surrounding areas are participating in the FEMA Emergency Lodging Assistance Program, which supports communities by providing temporary housing for emergency workers and people displaced by the flooding," Choice said in a statement.

Wyndham Hotel Group said "the vast majority of our more than 100 hotels in the affected areas remain open" but declined to be more specific.

All the hoteliers declined to predict when their shuttered hotels would reopen.

On Aug. 25, Texas Gov. Greg Abbott said that Harvey victims and relief workers would be exempt from paying hotel occupancy taxes for two weeks.

Rental cars

Meanwhile, car rental companies worked to move some of their fleet to higher ground to avoid flood damage while simultaneously moving inventory from other regions into the Houston area to serve what was expected to be a surge in demand from both residents who have lost vehicles and arriving emergency personnel.

Enterprise Holdings, Hertz Global Holdings and Avis Budget Group each said last week that they were moving vehicles from other regions into the area. Hertz said it had moved some of its fleet to avoid the kinds of damages car rental companies sustained during previous weather events such as Superstorm Sandy in 2012 and Hurricane Katrina in 2005. As of last Thursday, the companies had not reported how many vehicles had been damaged by Harvey.


Bush Intercontinental and Hobby airports in Houston reopened late Wednesday afternoon after having been closed since the prior Sunday, and while airlines planned to ramp up operations at both, they emphasized that it would take time.

"We must ensure that we have adequate staffing and functional concessions, airport facilities, roadways and parking to serve our customers," said Brandy King, a spokeswoman for Southwest, which with approximately 150 flights per day is the largest carrier at Hobby.

Added Charles Hobart, a spokesman for United, "It's a matter of making sure we have the right crews and equipment and employees in place to operate a full schedule. That is going to take some time."

United, which maintains its second-largest hub at Bush, has the largest airline operation in Houston. The airline, which typically runs some 500 flights per day out of Houston, said it would take weeks to resume full operations.

Southwest waited until Saturday to resume flying into and out of Hobby. As of last Thursday, the carrier had not provided an estimate for when its full Houston schedule would be operational.

Neither carrier was talking last week about the size of the financial hit they expect to take as a result of Harvey.

"The business implications, who cares? We'll [worry] about that later," Southwest's chief revenue office, Andrew Watterson, told the audience at the Boyd Group's International Aviation Forecast Summit in Las Vegas last Monday as the storm still raged.

Helane Becker, a transportation investment analyst for Cowen & Co., estimated that Harvey would cost United $265 million, according to the website Seeking Alpha. Jim Corridore, an analyst with the investment research firm CFRA, also said United's losses could be in the hundreds of millions of dollars. 

"We note that this disaster, while monumental in scale and damage to the city, is a one-time event," Corridore was quoted by Barron's as saying.

"We expect demand to return to normal eventually."

Robert Silk, Danny King, Tom Stieghorst and Michelle Baran contributed to this report.


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