Hotel Industry Braces For Impact Of Coronavirus

American hotel operators are keeping an eye on the fast-advancing spread of the coronavirus from China, as travel advisories and quarantines threaten business from one of the largest sources of U.S. tourism.

Wikimedia Commons/China News Service Staff monitoring passengers’ body temperature at a Wuhan train station during the coronavirus outbreak.

Concern about the spread of the virus grew Tuesday, after Chinese authorities reported a 60% increase in diagnosed cases and the death toll exceeded 100. As of Tuesday afternoon, nearly 4,700 cases of the respiratory infection have been confirmed in 17 countries, mostly in China. American regulators have said they are monitoring 110 cases across 26 states, with five confirmed.

The outbreak is worsening as some of the hotel industry’s biggest names gathered in Los Angeles at the annual Americas Lodging Investment Summit, the largest hospitality conference in the world. Three million Chinese tourists visited the U.S. in 2018, the third-highest source of overseas visitors, according to the U.S. Travel Association.

The impact some of the hotels represented at ALIS may feel if those consumers steer clear is substantial: Last year, Marriott reported Chinese travelers accounted for $260M on its balance sheet, while Hilton has a similar reliance on the country’s tourists, Citibank analysts said Monday.

“It is problematic,” MCR CEO Tyler Morse told Bisnow on the floor of ALIS. “We’re watching this closely.” MCR has more than 100 hotels totaling 12,000 rooms across 27 states.

In the event of an outbreak of infectious disease, hotel owners and operators would follow the lead of the Centers for Disease Control and Prevention, which notifies state and local health authorities to enact protocols that protect people and stop the spread of disease. Virgin Hotels CEO Raul Leal told Bisnow the company has a protocol to follow, adding that he has been in contact with the general manager of the Virgin Hotel in San Francisco, one of the cities that has enacted strict traveler screening at its airport.

“Generally, our protocol is to get on a conference call with all of our general managers so they can be aware of what is going on,” Leal said, stressing the importance of being prepared.

Morse said he sent out an information health pamphlet Tuesday morning to his hotel managers on the symptoms to look for in case they think a guest has contracted the virus. If fears of contagion escalate, the impact on the hotel industry could be “material,” Morse said.

“We are very concerned, like everybody is,” said Jeff Stephenson, vice president of franchise development at G6 Hospitality, which oversees 1,400 Motel 6 and Studio 6 hotels.

Panic has already hit the markets. The Dow Jones Industrial Average fell nearly 454 points Monday, stemming from fears of coronavirus and wiping out all gains made this year. Major hotel chains including Marriott, Hilton and Hyatt saw their share prices drop significantly in a market retreat Monday. Wynn Resorts, which has a large gaming presence in the Chinese special administrative district of Macau, a favorite destination for Lunar New Year tourists, saw its stock price plunge more than 8% Monday, while stock prices for online travel agencies like Expedia, Booking.com and Trivago fell between 6% and 8%. The trend followed a larger market hit for companies heavily affected by China’s tourism industry, including a retreat for airlines, retailers, hospitality and restaurants. The stock market, including hotels and airlines, stabilized Tuesday, even after CNBC reported that the White House was considering suspending all flights between the U.S. and China.

Best Western Hotels & Resorts President and CEO David Kong said his hotels in China “are hurting in a big way.” Kong oversees a global portfolio of 16 brands totaling 4,700 hotels around the world, including many in China. He declined to say how far occupancy is down in his China hotels.

“Demand is falling precipitously because of this virus,” Kong said. “It’s very scary.”

Kong said he has a trip planned to China in April, but because of the ongoing health crisis, he is reconsidering.

“A lot of travelers are not going to China,” Kong said. “It’s not just [mainland] China, it’s Hong Kong, Macau, all these locations that have our hotels. They are finding cases of [coronavirus] across Asia. I hope they contain it.”

The coronavirus outbreak is taking hold just as the hospitality industry in the U.S. is experiencing stalled growth after a decade of strong performance. For the first time since 2009, revenue per available room at U.S. hotels — the industry’s leading performance indicator — isn’t projected to grow this year, according to STR and Tourism Economics’ forecast released at ALIS.

“2019 was the industry’s worst year since the recession for RevPAR growth, which came in at an uninspiring 0.9% after nine years of increases of basically 3% or higher,” STR President Amanda Hite said.

STR predicts that hotel occupancy levels in 2020 will drop to 65.9%, a 0.3% decline from the previous year. Next year, STR expects occupancy to decline 0.1%. All of the projections were calculated before coronavirus started spreading globally.

If the industry can take any comfort, it is that similar global health scares have not had a long-term impact in the past. The 2003 SARS epidemic and the Ebola outbreak in 2014 didn’t have material impacts on lodging investment fundamentals, according to a Green Street Advisors report. Hotels still posted 7% quarterly returns during the Ebola outbreak and 19% returns during the SARS epidemic.

STR Senior Vice President of Consulting and Analytics Carter Wilson said it is still too early to predict the impact the coronavirus may have on the U.S. hospitality industry. Gateway markets like New York, San Francisco, Los Angeles and San Diego could be more impacted than secondary tourism destinations like Nashville or Austin. But what is going to hurt the U.S. hotel industry most is perception, Wilson said.

“In certain regions, it’s probably going to be significant,” he said. “Just think of all the inbound and outbound places that serve Chinese tourism.”

“Americans should know that this is a potentially very serious public health threat, but, at this point, Americans should not worry for their own safety,” U.S. Health and Human Services Secretary Alex Azar said in a press conference Tuesday. “This is a very fast-moving, constantly changing situation.”

“The precautions being undertaken are specific to travel to and from China,” U.S. Travel Association President and CEO Roger Dow said. “As we head toward a busy period for business and leisure travel, all of the current expert advice indicates that travel in the U.S. can and should continue as normal.” https://www.bisnow.com/national/news/hotel/hotel-industry-braces-for-impact-of-coronavirus-102744