Coronavirus already impacting travel beyond China air routes

Coronavirus already impacting travel beyond China air routes
Photo Credit: Rangizz/Shutterstock

The travel industry is bracing for a potentially serious downturn of unknown length as the coronavirus continues to spread, forcing cancellations of flights, tours and cruises in China and threatening to create a global tourism slowdown.

While most industry players said it was too early to predict the ultimate impact, investment analysts said the growing number of travel warnings and bans related to the virus, combined with election-year politics in the U.S. and geopolitical tensions, were worrisome in terms of the financial health of the industry in 2020.

“The tourism industry is already facing a number of headwinds, including ongoing uncertainty over the terms of the U.K.’s upcoming Brexit withdrawal and intensifying geopolitical tensions between a number of powerful nations,” said Ben Cordwell, travel and tourism analyst at the U.K. data and analytics company GlobalData. “These factors, combined with the coronavirus outbreak, could mean a tough year lies ahead for the international tourism industry.”

While some outbound tours and China-based cruises were cancelled, U.S. tour operators were mostly taking a wait-and-see approach, noting that this is the off-season for travel to China; group travel and cruises typically pick up in March.

Airlines felt the immediate brunt, with British Airways becoming the first carrier to halt all travel to China and others following suit.

Austin Horowitz, a senior aviation management consultant for ICF, said that even in a best-case scenario, demand for air travel to China would take a severe hit in the near term.

“The duration of how long this goes on until it is contained will have a significant impact on how fast the recovery is,” Horowitz said of travel demand.

A recent IATA analysis showed that pandemic outbreaks can have a major impact on air service demand but that demand also recovers quickly. The World Health Organization has not classified coronavirus as a pandemic, but it is likely to do so.

During the most significant pandemic of this century, the 2003 SARS outbreak in southern China that killed nearly 800 people and afflicted more than 8,000, Asia-Pacific airlines saw the number of monthly miles travelled by passengers bottom out at 35% below pre-pandemic levels.

Over the course of 2003, revenue miles flown were down 8%, causing $6 billion in lost revenue. However, monthly passenger numbers at Asia-Pacific carriers had returned to pre-SARS levels within seven months of the start of the crisis.

Other pandemics, such as the 2015 MERS flu outbreak in South Korea, had a shorter-lived effect. The first month of the outbreak brought a 12% decline in travel to and from South Korea, IATA said. However, volume began to recover after just two months.

“While there are risks that this outbreak could cause a sizeable disruption, history indicates that any effect on air transport would be temporary,” IATA said in a statement.

Cordwell, too, said that while it was hard to predict best- and worst-case scenarios, “I do think the market is quite resilient. People are not going to stop travelling. … I do think the industry will definitely bounce back.”

Travel advisors, meanwhile, were scrambling to deal with the uncertainty.

“It has been a horrible experience with travel plans,” said Craig Hsu, vice president of Travel Design USA, which specializes in travel to Asia. “The mood of our travellers [is] very concerned and worried. We have cancelled multiple trips, including a large group that was supposed to travel to Wuhan in March. Luckily, the airlines and cruise lines worked with us for a full refund to our clients.”

Although acknowledging that his advisors were inundated with calls, he said the impact had been much greater in 2003. But he also pointed out that U.S. consumer demand for travel to China was much higher back then.

“SARS was huge,” he said. “People were more interested in travelling to China during that time versus now,” a shift that he attributed to trade and political tensions between the U.S. and China.

Agents said they also were starting to see apprehension about travel beyond China.

For example, Joan Novack, an independent advisor with a Travel Edge affiliate in New York, said she has two clients, women in their mid-80s, travelling to Southeast Asia with Abercrombie & Kent starting Feb. 24. One of the clients still wants to take the trip, she said, but the other is reluctant after hearing news reports about the spread of coronavirus.

ASTA advised agents against making any recommendations to clients about whether or not to travel to affected areas, instead of encouraging them to direct clients to the Centers for Disease Control and Prevention for the most up-to-date recommendations related to coronavirus.

“Ultimately, it is the traveller who must make that decision, ideally doing so in an informed manner and in light of his or her own individual risk tolerance,” ASTA said in a statement.

Cruise lines with China-based ships last week began cancelling departures through early February. And some lines implemented stricter preboarding health screenings. Likewise, as of last week, more than 20 U.S. airports were screening passengers arriving from China.

As far as the long-term impact of coronavirus on cruise lines, UBS financial analyst Robin Farley said that Royal Caribbean Cruises Ltd. (RCCL) is the most exposed to the China market, where it has about 6% of its deployments in 2020, followed by Carnival Corp. with 5% and Norwegian Cruise Line Holdings with less than 1%. She said that while Chinese passengers are growing rapidly as a source in other parts of the world as well, “Chinese passenger travel to other markets may not be as impacted by these concerns.”

Farley also said that early checks had indicated that the coronavirus had not impacted North American cruise bookings.

“Concerns about viruses tend to be regional to the occurrence, and it is still early to know what regions may ultimately be impacted,” Farley wrote in an investors note.

The outbreak was top of mind at the Americas Lodging Investment Summit in Los Angeles last week, as hoteliers braced for a significant drop in one of their biggest growth markets as well as the potential fallout from a decline in outbound travel from China.

STR president Amanda Hite said, “I do expect there to be a pretty big demand drop [for hotels] in China. When I look at the initial impact on the U.S., there will be some key markets that feel it, especially in gateway cities that depend on Chinese travellers, like New York, Los Angeles. Those are markets where if this is a prolonged issue, that could be very impactful.”

Hite said a look back at the impact from SARS, which began around February of 2003, showed the peak drop in room demand for China came a few months later.

“We saw room demand drop 50% in April, 75% in May and then another 50% drop in room demand in June,” she said. “And then it started to pick back up.”

Jamie Biesiada, Johanna Jainchill, Christina Jelski and Robert Silk contributed to this report.

Global Ambitions

Pierfrancesco Vago, executive chairman of MSC Cruises
Pierfrancesco Vago, executive chairman of MSC Cruises.

“In three years we will double our capacity and in 10 years we will triple it,” said Pierfrancesco Vago, executive chairman of MSC Cruises.

In 2018 MSC will operate a fleet of 14 ships with an average size of 2,892 guests at double occupancy and is expected to be the largest operator by capacity in Europe. It has ambitious expansion plans in North America and China and is the market leader in South America and South Africa. By 2028 the company will have 24 ships in service, with an average size of 3,734 passengers.

“Our objective is to deliver a holiday experience which is unique to our customers and to tourism in general,” Vago told Cruise Industry News. “It’s also to expand the concept of cruising to the world,” Vago added.

Between now and 2026, MSC will take deliveries of ships on the Seaside, Meraviglia, Meraviglia Plus, Seaside EVO and the LNG-powered World Class platforms.

Vago described MSC as a global brand, with a premium level product offering at a contemporary price.

“Our common denominator is that we are a Mediterranean brand with the capability to fine-tune the experience to the area of operation,” Vago said. “We can fine-tune the product delivery.”

While its peers have a house of brands competing in the cruise market, MSC has a single brand with large ships.

“MSC has traditionally believed in organic growth,” Vago said.

But that doesn’t mean they may not one day explore other market segments as customers grow with the brand.

The MSC Seaside

In Europe, Vago said the company has realized their ambition to conquer the market, also entering the business later than all their competitors.

That strategy is now expanding to the rest of the world, he said, and the plans will follow demand.

In China, the MSC Splendida is replacing the Lirica on a seasonal basis, upping summer capacity out of Shanghai. In South America, the new Seaview will sail from Brazil for winter 2018-2019.

In North America, the new Seaside is year-round, to be joined by the 2017-built Meraviglia come 2019.

“We have customers travelling to the Caribbean and we needed to introduce new ships, with a different platform,” Vago said. “We had the need to put more cabins and a new offering into the North American market if we wanted to evolve our brand there.

“We had one ship (in North America) and she was filled with customers from Europe. We did not have the opportunity to grow,” he continued. “There is an opportunity for MSC to grow in North America but we needed to create both the hardware and the software for the market. That is the vision behind the building of a very new platform and prototype, the MSC Seaside.

“The Seaside is a spirit of our leadership in many ways. We are setting the pace for innovation and we will see many reflections of this platform for years to come.”

The Seaview, a sister ship, will be delivered this summer. The Seaside EVO platform, essentially an enlarged version with more staterooms, will be launched in 2021, with a second ship scheduled for a 2023 delivery from Fincantieri.

Construction Starts for Spectrum of the Seas

Image result for Spectrum of the Seas
Spectrum of the Sea steel cutting.

Royal Caribbean International cut steel to mark the start of construction for the Spectrum of the Seas (Quantum Ultra), which will be delivered from Meyer Werft in 2019 and head for the Asia market.

“Set to debut in 2019, Spectrum will be the next evolution of the cruise line’s groundbreaking and high-tech Quantum class of ships placing the ship in a new class of her own. The revolutionary Quantum Ultra ship will specifically be designed for guests in China and the Asia-Pacific region, and will feature cutting-edge and unprecedented experiences and amenities,” the company said. 

“Today is a very special day in the development of our new Quantum Ultra ship, Spectrum of the Seas. We are now one step closer to delighting our guests in Asia Pacific with this remarkable ship,” said Michael Bayley, President and CEO, Royal Caribbean International. “Spectrum will be another giant leap forward in vessel design and guest experiences that will provide travelers with ample opportunities to create unforgettable memories.”