Coronavirus impact: Too soon to know, impossible to predict

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Coronavirus impact: Too soon to know, impossible to predict
Photo Credit: Sakdawut Tangtongsap/Shutterstock

The initial data points have been as sobering as the mounting coronavirus headlines would indicate.

Hotel occupancy in China has dropped 75%. The U.S. is forecast to lose more than $10 billion in spending by Chinese visitors. And Disney could lose nearly $300 million in operating income from just the closure of its China and Hong Kong theme parks for two months.  

On the flip side, however, the impact of the virus on outgoing U.S. travel appeared to be confined to China itself. And the latest pandemic fears could be a boon, at least in the short-term, for adventure travel, domestic travel and other vacations that insulate travelers from global tourism hot spots and crowds in general.

Those were some of the predictions that began trickling out last week as the industry scurried to assess the potential fallout from the deadly coronavirus outbreaks that shut down all but emergency travel into and out of China, the world’s largest outbound travel market.

The reality, however, is that it’s just too soon to know and just about impossible to predict.

On Royal Caribbean Cruises Ltd.’s (RCCL) fourth-quarter earnings call Feb. 4, chairman Richard Fain said, “Unfortunately, no one knows how this outbreak will play out, and we don’t know how it will impact us. There are still too many variables and uncertainties to give an estimate of the ultimate impact.”

Tourism Economics, an Oxford Economics company, last week predicted that the ban on inbound travel from China would result in a 28% drop in Chinese visitors to the U.S. in 2020 and $5.8 billion less in spending. Over the next four years, it predicted, the U.S. would lose more than $10 billion in spending from Chinese visitors.

The company said it based its forecast on the timeline of the SARS outbreak in 2003, which lasted about four months. The full recovery in tourism to the U.S., the company said, took about four years.

Meanwhile, STR said hotel occupancy in China dropped from 70% to 17% between Jan. 14 and 26.

Both Tourism Economics and STR said they were still working on projections for how the virus would impact travel globally, although STR said hotels around the world are expected to see a pronounced impact, given the rise in Chinese outbound travel in recent years.

Clayton Reid, CEO of the travel marketing and research firm MMGY Global, said Australia, Asia, the Pacific Rim and Europe would be hit harder than the U.S., because they draw a higher number of Chinese travelers.

At RCCL, Fain said the impact last week was still regional.

And while the company has canceled eight cruises from China, CFO Jason Liberty said this year’s Wave season was off to an “excellent start.” He said the second week in January was a record-breaking week for bookings overall, with pricing ahead of last year. Bookings were especially strong from the U.S. and Europe, the company said.

For U.S. airlines, there are uncertain signals about whether the impact is extending beyond China to the rest of Asia. An analysis of online flight searches over the past five weeks conducted by the booking platform Hopper found that demand by U.S. travelers to visit areas in Asia outside of China appeared to be stable.

However, an ARC and IATA analysis found that refunds on tickets originating in the U.S. and going to Asia were up 215% year over year between Jan. 22 and Jan. 28. For tickets from the U.S. to China during that period, refunds were up 534%. Sales to China alone were down 59% year over year that week, and sales from the U.S. to all of Asia, including China, were down 18%. 

Still, the cancellation of flights by U.S. carriers to China and Hong Kong affected just 1% of United’s flights and 0.5% of Delta’s and American’s frequencies, according to the flight data analytics provider OAG.

And while Reid said the short-term impact of the virus was obvious, MMGY’s research of traveler reaction to past pandemic scares and other global crises suggested that travelers rebound from crises relatively quickly.

“We have noticed those peaks and valleys have actually shallowed over time,” he said. “In our view, people are becoming more accepting, unfortunately. But as a result, they tend to move on more quickly.”

Reid said the biggest difference between the current outbreak and the SARS and H1N1 outbreaks in 2003 and 2009, respectively, was the increased influence of social media and the role it played in amplifying anxiety.

“I traveled from San Francisco yesterday, and the number of people wearing masks, I have never seen before,” he said.

But he said that once the spread is contained, he expects people to resume their usual travel trends fairly quickly.

“My read would be that once April comes, this will begin to subside, and people will get back to their traditional travel patterns,” Reid said.

In a blog post, Chris Davidson, global vice president of research and insights for MMGY, wrote, “If there’s one thing we know, it’s that people will always travel.”

He went on to speculate that “other forms of travel may actually experience a concurrent uptick, even as news of this health crisis spreads.”

As an example, he said, “Our data revealed a significant spike in road trips in America as a form of travel experience over the past five years. ... This trend could actually accelerate when travelers are concerned about crowds and confined spaces.” 

Reid wondered if the market for isolated individual travel would grow in response to the virus.

“Adventure travel, trips where people get back to nature and away from crowds and confined spaces, might well experience growth in times like this,” he said. “We also know from research that travelers are now more likely to avoid tourism destinations and experiences that are increasingly overcrowded in favor of more local, authentic experiences. Might a global health pandemic like coronavirus impact and accelerate this trend, too?”

Roger Dow, CEO of the U.S. Travel Association, said that the U.S. should take advantage of the many travelers who are canceling trips to China.

“Travel moves very quickly from one place to another,” he said. “People are not going to stop traveling, they are going to go somewhere else. ... There’s a plus side, and that’s that the people who planned to go to those areas will seek to go to other areas, and the U.S. could benefit greatly from that.”

Indeed, while travel agents reported the widely anticipated cancellations to China and Asia, none indicated any real panic about travel in general.

Jerry Saxe, president of Los Angeles-based Carlisle Travel Management, a Travel Leaders Network agency that attributes about 15% to 20% of its business to Asia travel, said his agency was working on a lot of refunds.

“Companies don’t want to take the risk,” Saxe said. “It is about duty of care for their employees. If they have a booking with multiple stops that includes China, they will just cancel the whole trip altogether. No one seems frustrated; it’s just part of doing business for them.”

Otherwise, however, he said business overall has been steady.

“January was a stellar month for us  --  more so than usual,” Saxe said. “The first two weeks came really strong. The third week of January took a slight dip, but then it increased in the fourth week. Because the economy is good, our business is on pace despite these cancellations.”

But he also added: “The cancellations potentially could impact business if it continues for many months.”

Becky Powell, president of Protravel International, said her advisors, too, were seeing cancellations, “but in a lot of cases people are rebooking to other destinations or postponing the trip for a period of time until they see how quickly this clears up. With corporate travel, it’s a whole different story, and a lot of that will just stop until all the travel advisories are lifted.”

What remains important, Dow said, is “to make sure the message doesn’t become confused with ‘Don’t travel at all.’ That would cause huge economic damage.”

Communication, he said, is the most important thing any government can do to prevent wide travel losses.

“One thing we don’t do well in this country is give the ‘all clear,’” Dow said. “We are quick to talk about something going on, but we can recover much more quickly if people know the facts.”
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Jamie Biesiada, Johanna Jainchill, Christina Jelski and Robert Silk contributed to this report.

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