The impact of the coronavirus is shifting daily, as the
number of confirmed cases and deaths continues to rise and governments and companies
around the globe take steps to address the epidemic.
Now officially named COVID-19 (Corona Virus Disease ’19) by
the World Health Organization, the virus has killed nearly 1,400 people and
infected more than 60,000, with 447 cases outside China, based on figures released
the World Health Organization Thursday.
And WHO executive director of health emergencies, Dr. Mike
Ryan, says it is still too early to predict the end of the outbreak.
As the impact of COVID-19 ripples across the globe, it is
impacting travel brands across every sector from hospitality to air to cruise
to tour operators.
While the ultimate outcome is unknown, it is clear the
economic impact will be significant.
China’s
travel market is now the largest in Asia and one of the fastest growing
in the world, so the losses are expected to be much bigger than those from the
2003 SARS outbreak, which IATA
estimates cost Asia Pacific carriers $6 billion in revenue and the National
Center for Biotechnology Information says created a global economic loss of $40
billion.
Immediate effects
On Wednesday the organizers of Mobile World Congress, an
annual trade show in Barcelona that attracts 100,000 attendees, canceled the
event citing “global concern regarding
the coronavirus outbreak, travel concern and other circumstances, make it
impossible for the GSMA to hold the event.”
Hilton has closed about 150 hotels totaling 33,000 rooms in
China. On a call with analysts Tuesday to discuss the company’s latest earnings
report, Hilton CEO and president Chris Nassetta says they anticipate a “$25
million to $50 million impact to full-year adjusted EBITDA” and a 1% drop in
RevPAR – that is if the outbreak lasts “around three to six months with an additional
three- to six-month recovery period.”
Nearly two dozen airlines, including American, United,
Delta, Air France and British Airways, have cancelled all flights to mainland
China, and many are continually pushing back the date when flights will resume.
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IATA
reports that, based on past years’ air traffic data for one week after the
start of the Chinese New Year holiday, this year “daily passenger volumes were circa
40% lower compared to where we would expect them to be at the similar stage.”
And the cruise sector has captured much of the global coverage
as passengers have been quarantined and ships kept out of ports. In reporting
its 2019 full-year results, Royal Caribbean Cruises says, “If these travel
restrictions and concerns over the outbreak continue for an extended period of
time, they could have a material impact on the overall financial performance of
the company.”
Carnival Corporation says much the same, “As a result of Coronavirus, the company believes the impact on its global bookings and cancelled voyages will have a material impact on its financial results which was not anticipated in the company's previous 2020 earnings guidance.”
Strategic solutions
From the standpoint of revenue
management, including pricing and forecasting, coronavirus is a massive
challenge for the travel industry – affecting both the relevance of historic
data, the ability to predict the future and the need to address cancellations
in the present.
“It’s still very early days. The data we are collecting is
continually evolving,” says Gary Torres, vice president of global delivery at
Duetto.
“In a perfect world a forecast of a year is great. This is
an unfortunate case where the coronavirus has upset the balance.”
Without a known end to the outbreak or even when travel
restrictions will lift - along with the expectation that fear will have a
lingering effect long after – Torres says Duetto is shifting to much shorter-term
forecasting of just a few weeks ahead for hotel clients in China and Hong Kong
and advising them to narrow their revenue forecasts through the end of Q2.
Torres says Duetto’s data shows a 29% increase in
cancellations for hotel stays in China in January compared to 2019, and a
decline 75% in rooms booked in January for stays in February, March and April. And the impact is being felt elsewhere - Torres says cancellations for properties in the Middle East are up 16%.
For airlines, Aditi Mehta, solutions strategy
director at PROS, says it’s important that carriers have accurate data going
into their revenue management solution and that they are taking a holistic view
of their network so they will be prepared to resume full operations fast.
“This event isn’t necessarily unique
though the impact is pretty large,” she says.
“Several years ago it was the volcano
eruption in Iceland that disrupted travel in Europe for several weeks. Learning
from that past situation of when travel demand came back and when they were
able to resume operations, they can apply that data to future predictions.”
And while systems now use artificial intelligence and other
technologies to automate much of the revenue management process, unexpected
situations such as the coronavirus require what IDeaS global vice president of
marketing Mike Chuma calls a “man plus machine” approach.
“This is where you have be more proactive as a revenue
manager to ensure you are reading the signals of data that is coming in from
your source markets and your future looks and books,” Chuma says.
“It’s that monitoring and that understanding of what’s
happening in your surrounding areas, but also with influence from global
macroeconomic conditions and knowing what segments impact your business that is
going to help you work with the AI to be able to allow it to react.”
And IDeaS senior industry advisor Blake Madril says this proactive
approach is necessary for both short- and long-term strategies.
“If I know my Chinese travelers are no longer coming to me,
I need the system to forecast zero additional demand from that segment... and then
retroactively what’s the type of special event, the length of special event, I
need to build in order to reference this in the future or next year when we are
looking at year-over-year comparison,” he says.
One strategy those we talked to advise against – dropping prices,
since it can take months or even years to return to pre-crisis rates once
demand rebounds.
“Demand is simply not there. People will not travel to a
region if they think there is risk, even if the price is very attractive,”
Torres says.
“Focus on pragmatic, customer-centric service. Look at large
repeat businesses that have cancelled and maybe relaxing cancellation policies
to attract them back in the future, rather than chasing nonexistent demand.”
And even once flights to and from China resume and travel
restrictions are lifted, Madril says revenue managers still need to account for
the apprehension that will linger among travelers.
“So people need to think about how they will make adjustments
for the whole year,” he says.
“The industry has gotten used to flat is the new normal. We say
that about ADR, but no one has been anticipating a drop in occupancy. We’ve just
been under the assumption that more people around the world will travel more and
more frequently, so there is a great risk of a knee-jerk reaction.
"It’s really important people are being mindful, taking that measured approach, thinking long-term and trying to recover as much as possible while they still have booking window runway.”