Gut punch to travel and tourism
Industry on the outbreak’s front lines could be looking at a very bad year.
A government warning not to board a cruise ship or long flight if you’re frail. Convention and event cancellations from coast to coast. Global travel warnings. ❚ The travel and tourism industry has taken hit after hit since the coronavirus outbreak began in January. It’s still early for concrete data, but economists and industry executives fear 9/11- or recession-like repercussions. Travel demand plummeted then and was slow to recover.
“Unfortunately, they’re on the front lines on the effect of this virus. They’re getting pummeled,” said Mark Zandi, chief economist for Moody’s Analytics.
He said the travel and tourism impact from coronavirus could be greater than the fallout from 9/11, or the 2003 SARS outbreak, because of the global nature of the crisis.
“Global travel is effectively shutting down,” he said. “It’s going to take a while to get it back up and running again. This is going to be a very tough year for the travel and tourism industry.”
Willy Shih, a professor of management practice in business administration at the Harvard Business School, said the Chinese economy then was a much smaller component of the global economy than it is today.
Shih said there wasn’t as much direct international travel into China in 2001 or 2003, and carriers flying from China to international destinations today were regional carriers.
“The magnitude is much, much larger,” he said. “It’s a very different scale.”
Global travel research firm Tourism
“It’s going to take a while to get it back up and running again. This is going to be a very tough year for the travel and tourism industry.”
Mark Zandi chief economist, Moody’s Analytics
Economics says the travel industry is feeling the most acute coronavirus pain for three reasons: Official travel restrictions, event cancellations and risk aversion. The ripple effects from that trifecta are hurting airlines, hotels, car rental companies, cruise lines, tourist attractions and other travel businesses.
“We don’t know how this thing is going to play out yet,” Shih said.
Signs of a slowdown
U.S. airlines began suspending and cutting international flights in late January and have repeatedly added new reductions to additional destinations.
Now the cuts are poised to spread to flights within the United States as travelers worry about the risks of flying anywhere, not just abroad.
United Airlines last week said it will cut its domestic seat capacity by 10% in April and May, and JetBlue said it is making 5% cuts.
On Tuesday, American said it is reducing international seat capacity by 10% this summer, including a 55% reduction in flights across the Pacific. Flights within the United States will be reduced by 7.5% for the month of April.
The number of reported coronavirus cases in the U.S. is small, relative to other countries, but is rapidly on the rise, spooking would-be travelers as they think about spring break and summer travel plans.
“People are going to modify their travel plans,” said Paul Lewis, vice president of policy and finance at the Eno Center for Transportation, a policy group in Washington. “We’re already seeing that.”
Southwest Airlines CEO Gary Kelly last week said the airline’s bookings took a dive at the end of February. More than 95% of Southwest’s flights are within the United States, making it a key barometer of the U.S. travel demand. The estimated financial hit: $200 million to $300 million in bookings.
“It has a 9/11 like feel,” Kelly said of the drop in bookings.
The International Air Transport Association, which represents global airlines, last week boosted its estimates of the global financial hit from COVID-19 from $29.3 billion to between $63 billion and $113 billion as the bookings falloff has spread beyond Asia.
That would put airlines in the most precarious position they’ve been since after the Sept. 11, 2001, terrorist attacks. In the U.S. alone, the travel industry lost $40 billion from 2001 to 2005.
Air traffic didn’t return to pre-9/11 levels until July 2004, according to the U.S. Department of Transportation, and the industry wasn’t profitable again until 2006.
Taking capacity out can help airlines stem the coming losses, Shih said. Still, they have high fixed costs.
“They have to pay for it whether it gets used or not,” he said. “That’s a huge problem.”
Discounts might attract some skittish travelers, but Zandi thinks a broader recovery is further out.
“9/11 really darkened travel and tourism for months, but not for an entire year,” he said. “I think it’s going to take a while for people to feel comfortable about traveling.”
At the White House Monday, President Donald Trump said he wants to work with the airline and cruise industries to help them weather the fallout from the coronavirus.
“We’ll be helping them through this patch,” Trump said at a meeting with health insurance executives.
There’s no place like home
Hotels get business form three sources – vacationers, business travelers and convention/event goers – and each group is pulling back on travel due to coronavirus concerns, said Jan Freitag, senior vice president of lodging insights for hotel research company STR.
The first solid look on U.S. hotel demand since the cases in the U.S. have escalated will be released Wednesday when STR reports data from the first week of March, but the fallout has already started to show in airport-area hotel occupancy, Freitag said.
Hotels near airports with a large number of international flights saw room demand fall in late February, he said. Demand at hotels near Newark International Airport in New Jersey was down 12%, demand at Chicago O’Hare International airport hotels was off 8.1%.
Freitag and Zandi said some destinations could end up benefiting if skittish travelers stay closer to home.
“You may want to go to the Jersey Shore if you’re not going to get on a plane to go to Florida, the Caribbean or the south of France,” Zandi said.
One impact of coronavirus fears could also prove to be a windfall to consumers: falling oil prices.
With benchmark crude prices hovering around $30 a barrel, less than half their year-to-date high of $63, Lewis said that could make driving more affordable.
“We could be seeing gas prices well below $2, maybe $1.50 in some places,” he said.
With that in mind, people might decide taking a cruise or a tour of Europe isn’t worth the risk that they could be quarantined in some place that is far from home.
“Maybe people will consider vacationing closer to home,” he said.
Cruise ships in limbo
It’s been a rough period for cruise ship operators. Two Princess Cruises ships were hit with outbreaks, and other vessels were turned away from different ports because of the fear coronavirus might be aboard.
Over the weekend, Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, told NBC that older people and those with certain chronic health conditions should avoid taking cruises. The U.S. State Department issued an advisory warning older Americans not to travel on cruise ships.
Cruise companies had a $52 billion impact on the U.S. economy in 2018, up 10% from 2016, the Cruise Lines International Association, a trade group, reported last year. Cruise ships carried 12.68 million U.S. passengers, supported more than 400,000 jobs and paid $23 billion in wages.
No single state has more at stake than Florida, where the cruise industry employs 150,000 workers pays $7.69 billion in wages and generates $8.49 billion in direct spending.
Jaime M. Katz, a senior equity analyst at Morningstar, told USA TODAY that while this coronavirus is going to impact the industry this year, it is likely that things will return to normal eventually.
“I think how we think about it is there is this temporary hindrance to demand that will impact the business for this year that will return closer to normal in 2021,” Katz said.
“I think the real disruption (to the industry) is that because the virus is globally pervasive there isn’t an easy place to reposition ships to attract demand currently,” she said.
Since the outbreak has seemingly slowed in China, she said there is a chance business could resume there more quickly than it will domestically.
In the conference call with reporters over the weekend, Jan Swartz, the president of Princess Cruises, said the industry was adjusting to “a new normal.”
“We intend to be flexible and adapt,” she said.
Road to recovery
Last month, more than 700 passengers from the Diamond Princess became infected after the ship was held in quarantine off the coast of Japan. Of roughly 300 Americans evacuated from the ship and returned to the United States, 46 tested positive. Though most have ended their 14-day quarantine at U.S. military bases, some have remained in medical isolation as they recover.
Two thousand more cruise passengers on the Grand Princess await their next steps. The ship berthed on Monday at the Port of Oakland, California, where the passengers will be tested, disembarked and quarantined in the coming days. At least two passengers and 19 crew members have tested positive.
U.S. officials have stopped short of restricting cruises. Over the weekend, cruise companies met with Vice President Mike Pence and Acting Homeland Security Secretary Chad Wolf and agreed to voluntary steps to prevent the spread of the coronavirus on ships, including stricter preboarding passenger screenings, and increased use of social distancing and disinfecting.
“The health and safety of our guests is of the highest priority,” said Vance Gulliksen, a spokesman for Carnival Corp.o, said in a statement, “and cruising remains one of the most attractive vacation options available.”
Tanner Callais, the founder and editor of Cruzely.com, told USA TODAY that he thinks coronavirus is going to have an impact on the industry for several months, if not longer.
“At this point, if things were to calm down, you’re probably still looking at six months to a year where it’s impacting people’s buying decisions,” he said. “If things continue to get worse I just see that timeline increasing a bit.”
Callais said that in cruise-related forums he is a part of, people don’t seem too bothered, but the less-frequent cruisers, or people that have never cruised, may be more likely to opt out of a cruise.
“(It’s a) pretty big deal when the State Department comes out and says U.S. citizens should avoid cruise ships and I don’t think that’s been taken lightly by most middle of the road consumers,” he said.
And while the problem may clear up in the long run, Callais doesn’t think the link between coronavirus and cruises will leave the public’s memory anytime soon.
“The Carnival Triumph – that was 2013 – people still remember the ‘poop cruise,’ is what they call it,” said Callais. “I think it will be something that is always in the memory of people and there will always be jokes about it, mentions of it.”
Travelers who lined up to board the six cruise ships docked at Port Miami on Monday made their own preparations. They packed their bags with hand sanitizer, disinfectant wipes and Lysol spray cans.
But they said the spreading virus wouldn’t stop them. In fact, Chrisean Nichols said his main concern was getting quarantined upon his return.
The sophomore at the University of Pittsburgh was traveling with his family to celebrate his 20th birthday on Thursday, and he said they talked in recent weeks about canceling.
“When we talked about concerns, it was less about whether or not we’d get coronavirus and more about whether we’d get quarantined,” he said. “That would be a kick in the pants.”