Global travel industry may not recover for years as coronavirus holds back Chinese tourists

To contain the virus, millions of Chinese people squat down, flights have been canceled and countries are impose restrictions on anyone coming from mainland China.

The ripple effects are felt around the world. Tour groups and cruise lines are canceling their trips due to falling demand. International fairs and conferences from Hong Kong to Italy are suspended. And the hotels that are usually packed with Chinese tourists are empty.

The number of Chinese tourists has exploded in recent years. More … than 180 million The Chinese have passports, compared to about 147 million US passport holders. And when the Chinese travel abroad, they spend a lot of money.
Chinese tourists made 150 million overseas trips in 2018, spending $ 277 billion on their overseas trips, according to at the United Nations World Trade Organization.
Around Asia, the influx of Chinese travelers has been a godsend. Last year, the top 10 destinations for mainland Chinese travelers were all in Asia, according to looking for outbound tourism from China. This means that places like Thailand, Japan, South Korea and Vietnam have a lot to lose from the crippling viral epidemic. Hong Kong and Macao, two major destinations for mainland tourists, will also suffer.

“China is the world’s largest overseas travel market, in terms of spending,” said Matthew Dass, economist at Tourism Economics, in a research note earlier this month.

Tourism Economics lowered its Chinese departure forecast for 2020 due to the coronavirus earlier this month. The company said that if the outbreak lasts longer and is more severe than the 2003 SARS crisis, it could result in 25 million fewer overseas trips by Chinese travelers this year. This could wipe out spending up to $ 73 billion.

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The International Civil Aviation Organization has said the hardest hit countries are likely to be Japan and Thailand.

The organization valued earlier this month, Japan could lose $ 1.29 billion in tourism revenue, followed by Thailand at $ 1.15 billion.

“This epidemic is beyond anyone’s imagination,” Jane Sun, CEO of Trip.com, told CNN Business on Monday.

Trip.com, China’s largest online travel platform, was due to release its fourth quarter results this week, but delayed them until mid-March. The company also owns and operates Skyscanner and Ctrip.

Final numbers are still being calculated, but Sun said the company would “of course” take a hit from the outbreak. She warned that the impact on her business and the travel industry this quarter “could be significant.”

Hotels and airlines face heavy losses

Marriott (MAR) said on Thursday it was experiencing low occupation across the Asia-Pacific region due to the outbreak. In Macau, the occupancy rate fell to 1% at one point, CEO and chairman Arne Sorenson said on a call with investors. The semi-autonomous Chinese territory, one of the main gaming centers in the world, casinos closed for two weeks this month due to the outbreak.

Marriott executives have warned that the company could collect $ 60 million less in fees and profits for the region than it originally anticipated for the quarter.

As the outbreak spreads to other countries, Marriott hotels in Europe and beyond are also starting to feel the pain.

“When you look at South Korea and Italy, we’ll see both cancellations and we’ll see a drop (revenue per available room) in those markets,” Sorenson said. “Some Italian cities, we probably lost a few dozen occupancy points in the early days.”

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In a call for results earlier this month, Hilton (HLT) Executives have warned of a likely drop in bookings from outbound Chinese travelers to Asia and the United States. The epidemic will take between $ 25 million and $ 50 million in annual profits from the company, CEO and chairman Christopher Nassetta said.

The global airline industry is also facing huge financial losses and its first drop in traffic in more than a decade from the coronavirus.

The International Air Transport Authority (IATA) warned last week that the impact on demand could cost airlines more than $ 29 billion.

The outbreak will also likely reduce global traffic by 4.7%, erasing earlier IATA growth forecasts and marking the first overall drop in demand since the global financial crisis of 2008 and 2009.

Hong Kong International Airport is largely empty these days.  IATA estimates the blow to global airlines could exceed $ 29 billion.

Dozens of international carriers have canceled or reduced their services to mainland China.

Air France-KLM (AFLYY) warned that its income could drop to $ 216 million between February and April due to the outbreak.
australia Qantas Airlines (QABSY) says the virus could wipe $ 100 million pre-tax income for the second half of the company’s financial year. China is the biggest source of tourists to Australia.

The cruise industry in crisis

China is expected to become the world’s largest cruise market by 2030, according to a recent study by the Shanghai International Shipping Institute. The crisis aboard the Diamond Princess cruise ship could derail that plan.

The ship became a floating quarantine zone earlier this month, after dozens of passengers were struck by the coronavirus. Around 700 cases, including at least four deaths, have been linked to the outbreak on the ship.

“China could be closed to cruises for a year or more and even once it reopens, many potential consumers could have a negative association with cruises, which could limit the long-term growth path,” said James Hardiman, Analyst at Wedbush. .

China was the second largest market for cruise ship passengers in 2018, with nearly 2.4 million Chinese navigating that year, according to the latest Global Passenger Report from the Cruise Lines International Association. The United States remained the number one market, with more than 13 million Americans traveling on cruises in 2018.

Ingrid Leung, managing director of Incruising Travel Asia, a Hong Kong-based travel agency that sells cruise packages, said new bookings are currently down 95%.

This is in part because the parent company of Princess Cruises Carnival (CCL) and Royale Caribbean Cruises have introduced restrictions due to the outbreak, banning passengers who have been to mainland China and Hong Kong in the past two weeks from sailing.

The restrictions are in place at least until the end of March, but Leung has said his business crisis will likely continue until the end of the year.

“Instead of aiming for Q2 or Q3 departures, we probably need to sell Q4 2020 or beyond,” Leung said.

Carnival said earlier this month that the impact of the coronavirus on global bookings and canceled trips “will have a big impact” on the company’s bottom line.

Chinese domestic travel will also suffer

The coronavirus outbreak has struck during the critical Lunar New Year holiday, a time when millions of people across China are returning home for family reunions. Beijing has taken the extraordinary step of extending the holidays until mid-February to try to contain the epidemic. About half of the country remains under travel restrictions.

In total, the coronavirus could lead to 90 million fewer domestic trips and $ 115 billion in lost spending, according to the most severe scenario presented by Tourism Economics.

The Temple of Heaven, a popular tourist destination in Beijing, is a ghost town.
Intercontinental (IHG) has closed or partially closed 160 of its 470 hotels in greater China, a region that includes Taiwan and Hong Kong.

“We are seeing significant reductions in occupancy rates in February across the company,” Chief Executive Officer Keith Barr said on an earnings call earlier this month, adding that the disruption will cost the company around $ 5 million in February alone.

Airbnb is also feeling the effects. The short-term housing company said it had suspended all bookings in Beijing until May, following government guidelines. Reservations in other regions, including Wuhan, the epicenter of the outbreak, have been suspended until April.

Chinese airlines will also be hit hard.

Research firm Cirium has found that more than 200,000 domestic flights in China were canceled between January 23 and February 18. The three major airlines most affected during this period were Chinese carriers Lucky Air, Southern china (ZNH) and Xiamen Airlines – have each canceled nearly 50% of their flights.

Recovery could take years

So far, Sun of Trip.com has said that “millions of orders have been canceled”, referring to both domestic and international travel. But she said the company is already seeing signs of pent-up demand.

After squatting for over a month, “staying home doing nothing, if you look at our research results, a lot of people are ready to go out,” she said.

Millions of Chinese may want to travel, but it will be difficult to make up for lost ground.

The World Tourism and Travel Council analyzed previous major viral outbreaks and found that the average recovery time for the number of visitors to a destination was 19 months.

Tourism Economics said demand for travel to China is likely to start increasing later this year or by 2021.

But full recovery could take much longer. The research firm predicts that China’s overseas and domestic travel markets will not fully recover until around 2023.


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