The Travel Industry Braces For Coronavirus Staycation

As COVID-19 cases continue to soar outside of China, its impact is expanding over markets worldwide, causing stocks to plunge. But considering that this is the time when people are usually looking to book their summer holidays, things could get even worse for the already troubled travel industry. Airlines, hotels and tourist destinations, brace yourselves!

Airlines – Wouldn't Want To Walk In Their Shoes

Airlines have already warned the outbreak will severely damage their profit. The International Air Transport Association estimated in February that the crisis will cost the sector more than $29 billion in 2020 and this statement is already outdated as the outbreak has affected even more regions. The coronavirus crisis marks another dangerous moment for airlines, which are already facing multibillion-dollar revenue losses as the disease hits demand.

British Airways, owned by IAG ICAGY, has announced it will drop 432 flights. Ryanair RYAAY will cut a quarter of its flights to and from Italy. EasyJet ESYJY has also cancelled hundreds of flights to Italy with their shares falling as much as 30 percent. Airline shares have plummeted since last week with IAG slipping 32% and both United Airlines UAL and Lufthansa DLAKY are down a quarter.

Survival depends on how much cash reserves these companies have and how agile they can be. But there is an upside as fuel prices are falling, interest rates are low and governments are looking at what they can do. But it remains questionable whether smaller airlines can survive.

Europe's GDP Is Severely Threatened

Flight reservations from China to Paris are down about 80% year-on-year when looking at February, March and April due to the lockdown. A consequence of which will impact the wider economy and Europe's GDP because Chinese tourists spend a lot during their travels. Even the French Finance Minister Bruno Le Maire is worried as France is seeing a 30% to 40% decline in inbound tourism since the outbreak. At this point, it is already certain that 2020 figures will be significantly altered downwards.

Hotels

The coronavirus is making an already challenging situation even more difficult for Trip Advisor TRIP as the company is already struggling to grow so the coronavirus outbreak is yet an additional headwind. The company did manage to exceed estimates for its latest quarter but 2020 is a crucial year since it aims to diversify from a pond of too many crocodiles and make revenue from experiences, dining and media efforts.

And despite not having such a presence in China, coronavirus can still make things difficult as movement is being limited. On the other hand, Marriott International Inc MAR, the world's largest hotel operator whose fastest growing market is China, is seeing a notable drop when it comes to demand for hotel rooms in China and is likely to slow down the schedule of new hotel openings.

Airbnb – Not Even Public Yet But Hit Just The Same

One of the most anticipated public listings of 2020 is in danger of being derailed by the outbreak. This 31 billion startup  has to weigh the risks of entering the public markets after an unprofitable year. Not to mention that investors have already been burned by the poor performance of other technology public offerings. Also considering that the travel sector is under so much pressure,  it wouldn't be surprising for this listing to be delayed.

Afterall, one of the main ingredients for a successful stock market debut is evidence of growth and preferably profit or at least potential for big earnings in the future. The virus will make things harder for Airbnb. On top of which, unlike 2017 and 2018 when it made a profit, before interest, taxes, depreciation and amortization, in 2019 the company lost money on that basis. And that was before the coronavirus emerged!

Outlook

As scientists race to develop a vaccine for the COVID-19 virus, the Centers for Disease Control and Prevention has prescribed "everyday preventive actions" to stem the spread of respiratory diseases. This includes staying home when sick. Along with the likely trend of staycation, the travel industry is in for quite a turbulence.

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