CORONAVIRUS

Coronavirus casts shadow over hospitality industry

It is clear the economic impact will be significant as China's travel market to Africa and Kenya, in particular, is one of the fastest-growing.

In Summary

• Hospitality and travel operators have been particularly hit hard in the areas where the virus has taken hold.

•  Hotels and restaurant assets are bearing the brunt of the impact, while other asset classes are suffering tertiary effects.

Coronavirus impact on travel, tourism industry
Coronavirus impact on travel, tourism industry

The spread of the Coronavirus is invariably linked to travel and hospitality. 

The hospitality industry is a huge business that accounts for 10.4 per cent of the global Gross Domestic Product and 10 per cent of employment worldwide.

As global health officials rush to get ahead of the virus, business leaders are also preparing contingency plans. Hospitality and travel operators have been particularly hit hard in the areas where the virus has taken hold. Hotels and restaurant assets are bearing the brunt of the impact, while other asset classes are suffering tertiary effects.

This outbreak has already disrupted economies across Asia, Europe and even in Africa, and is likely going to bite out the earnings of the travel and hospitality industry players. We’re seeing business slow down unlike other seasons, international conferences and events being cancelled and that has a bigger impact on premium traffic which is a critical source of revenue for many network airlines, local and global hotel chains.

The impact is shifting daily, as the number of confirmed cases and deaths continues to rise, even as governments and companies around the globe take steps to address the epidemic.

It has already affected travel brands across every sector from hospitality, to air travel, to cruise, to tour operators. The latest news was from Saudi Arabia, with the Arab country temporarily suspending entry for individuals seeking to perform Umrah pilgrimage in Mecca or visiting the Prophet's Mosque in Madina, as well as tourists traveling from countries where the coronavirus poses a risk as determined by the Kingdom's health authorities.

While the ultimate outcome is unknown, it is clear the economic impact will be significant as China's travel market to Africa and Kenya, in particular, is one of the fastest-growing. The losses are expected to be much bigger than those from the 2003 SARS outbreak.

In addition, the spread of the virus, and the fear that has come with it, has caused companies doing business in China to close offices and factories, and restrict travel to and from the country. Airlines and cruise ships have canceled flights and tours in the country.

Amid a flurry of deep cleaning at their headquarters, hundreds of businesses, including multinationals such as British Petroleum, BMW, Orange and Estée Lauder, have suspended travel to countries with coronavirus outbreak and imposed quarantines on any traveller returning from those regions.

Others such as Nestlé, which has 352,000 employees, and L’Oréal, which has 86,000 employees, have cancelled all international travel for at least a month.

In 2018 alone, the Chinese spent $277 billion in international tourism, and in 2019, China predicted around 166 million outbound travellers. Therefore, when the Chinese are not traveling or are restricted to travel, there is likelihood of $69 billion loss in the first quarter of 2020, and might get worse than we can imagine. This means the global tourism industry will suffer more. 

Hotels worldwide are already feeling the pinch. The Mobile World Congress held in Barcelona each year since 2006, had been scheduled for February 24-27 but was canceled earlier last week after several big-name vendors withdrew over coronavirus concerns. As a result, bookings in Barcelona hotels dropped an estimated 25 per cent.

ITB Berlin 2020 where Kenya was to exhibit has also been cancelled due to the rapid spread of the virus.

It is estimated that the global airline industry would lose $30 billion due to the outbreak; compared with the $6 billion lost during the SARS outbreak in 2003.