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Travel Tech Essentialist #22: Coronavirus (Special Issue)

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In the past week, Covid-19 has started behaving a lot like the once-in-a-century pathogen we’ve been
 

Travel Tech Essentialist

February 29 · Issue #22 · View online
A short newsletter every two weeks with my pick of the top 10 Travel Tech stories and innovations shaping the world's largest and fastest growing industry.

In the past week, Covid-19 has started behaving a lot like the once-in-a-century pathogen we’ve been worried about. I hope it’s not that bad, but we should assume it will be until we know otherwise – Bill Gates
There’s a lot of speculation about how serious the coronavirus pandemic will be. But it’s already clear that the risk of infection as portrayed in the media is eviscerating the travel industry – Max Niederhofer
When I wrote my last newsletter last week, I was consciously avoiding any references to the coronavirus (or COVID-19), hoping that we’d seen the worst of it. So much so that the title of that newsletter was “Optimism”. It is now clear that COVID-19 is having an impact on the travel industry that is impossible to ignore. I normally send this newsletter every two weeks, but given the magnitude of changes in the last week, I’m sending this special issue focused on coronavirus’ impact on the travel sector.  The silver lining is that travel industry players have always been models of resilience and ability to adapt in the face of exogenous shocks. And this will be the case again this time around.

1. COVID-19 and the 2020 travel industry
Max Niederhofer, partner at Heartcore Capital writes about the impact that COVID-19 is having on various segments of the travel industry.
  • About 2/3 of the industry is consumer, and 1/3 is corporate. Corporate is projected to be down as much as 40% in a recent GBTA poll
  • Depending on how long the pandemic lasts, Niederhofer estimates that we could see travel overall down by 1/3 or more this year. China is the largest source market with about 11% of global travel spending, and Italy is one of the largest destination markets with about 5% of total travel receipts. The potential impact of these two countries alone is 15%.
  • Air and accommodation players operate with significant fixed costs and their success is based on managing capacity well. COVID19 will surely test their limits. Niederhofer expects some government intervention to support weaker airlines and hotel chains to reduce their aggressive expansion plans for the time being.
  • Alternative accommodation players like Sonder and Lyric have made the point that they can price below hotels in a downturn because their required RevPAR is so much lower. COVID19 will stress test this theory.
  • As to the impact of Airbnb, Niederhofer is unsure. It could be disproportionately impacted because hotels are perceived as “cleaner”, or it could be the smart alternative for people who want to avoid crowds. In any case, it would not be surprising if the Airbnb IPO slated for 2020 is put on hold. 
2. Amadeus and Sabre weigh in
  • Amadeus is a leading indicator for global air travel, distributing more plane tickets to travel agencies than any other company worldwide. The company stated on Feb 28th that they are seeing declines between 7% and 10% in airline passengers in February. Excluding China, Amadeus estimated that airlines may end 2020 with 1% year-over-year growth in traffic volumes. Amadeus CEO Luis Maroto pointed that under these conditions, airlines might be less willing to invest in future innovation: “Until things clarify, it’s a discussion with customers airlines more concerned about volumes of traffic than about the future”. Read more - Skift.
  • Sabre, another major GDS, said global travel bookings so far in the first quarter are down in the “mid teens” from a year ago, with cancellations focused in Asia-Pacific but spreading through the Middle East, Europe and North America. Read more -WSJ.
3. Travel Agency bookings
According to Vertical Research Partners:
  • The dollar value of trips sold by US travel agencies this week was down 9.4% year over year. The previous week, that metric was down 5.4%.
  • In China, more people are now canceling trips they’ve already paid for than are booking new ones.
  • Travel sales in Japan, Korea, and Southeast Asia are down by 60% to 75% year over year. 
  • Ticketing to the Nordics, Ireland, France and Benelux have seen the biggest fall-off this week, followed by Spain, Portugal, Eastern, Southeastern and Central Europe including Germany.
  • Latin America ticketing is in much better shape than Europe or Asia, but also saw another step down this week with ticketing now tracking ~3% lower y/y compared with the 1-2% decline that we were tracking a week ago.
4. Airlines - hit could be as high as $100 billion
“What we are now seeing is a state of panic over coronavirus,” said Phil Seymour, CEO of the International Bureau of Aviation in a WSJ article. He estimates the hit to revenues for airlines and airports could be as high as $100 billion. The sector was estimated to earn around $30 billion in profits before the virus struck.
  • Lufthansa said on Feb 26 it would start cutting costs and would cut projects in the pipeline by 10% and the budget for material costs by 20%, in anticipation of a coming hit to revenues and profits from canceled flights to China. It is also offering its staff voluntary, unpaid leave. 
  • Cathay Pacific, Hong Kong’s flag carrier, has asked all its staff to take three weeks of unpaid leave. 
  • Singapore Airlines said it has implemented a general recruitment freeze for all ground positions.
  • Alitalia said the rate of passenger no-shows at airports has “increased abnormally” while new bookings have slowed.
  • United Airlines reported a 75% drop in March demand for travel to the Asia Pacific region, excluding China. United had expected those routes to account for 10% of capacity this year.
  • Indonesia’s Lion Air has postponed plans for an IPO.
More than 200,000 flights to and from and within China that have been cancelled by airlines worldwide, but airlines have started to review their operations in other areas where the virus has spread.
  • Delta, United and American Airlines are waiving fees to change scheduled travel to Seoul.
  • Delta is waiving fees to change flights to Bologna, Milan and Venice, Italy and said it would also cut back on flying between the US and South Korea.
  • United announced a suspension of some service to Tokyo Narita, Osaka, Singapore and Seoul. 
  • British Airways is offering passengers the opportunity to rebook their flights to northern Italy.
  • JetBlue said it would waive fees on passengers changing new bookings. Its network is largely US-focused, but it does rely on customers booking via an array of overseas carriers.
5. Corporate travel
Companies are canceling business travel and corporate events around the globe:
  • Nestlé told more than 290,000 employees to suspend all international business travel until March 15, and requested that all domestic trips be avoided.
  • Amazon banned all non-essential employee travel in the US and internationally
  • Google expanded its employee travel restrictions, now adding South Korea and Japan to the list of areas that already included China, Iran and two Italian regions of Lombardy and Veneto. This occurred after a Google employee at the Zurich office tested positive for coronavirus.
  • Goldman Sachs banned all business travel to South Korea and certain parts of Italy, after previously placing travel to China off limits. The bank is also asking employees to avoid nonessential travel to Italy and Asia.
  • Siemens told employees not to travel to Italy.
  • Google is canceling its Google News Initiative Summit that had been scheduled for late April in Sunnyvale, Calif.  
  • Xerox postponed its Global Partner Summit, scheduled to take place in Florida in March.
  • United postponed its investor day, which was set for March 5.
  •  Facebook canceled its annual marketing conference that was going to take place in San Francisco in March.
  • Some of the major conferences cancelled in the past few weeks include Mobile World Congress, Cisco Live Melbourne, Facebook’s F8, DEF CON China and ITB Berlin 2020.
6. OTAs
OTA shares underperformed the market this week: Booking -12%, TripAdvisor -17%, Expedia -18% vs S&P 500 -11.5%. In LionTree’s universe of 150 stocks, events and online travel were actually the worst performing sectors this last week: Live / Events (-18.0%), Online Travel (-16.2%).
  • Booking Holdings forecast Q1 gross bookings to decline -8% to -13%; Greater China impacted the most but also the broader APAC region (accounts for “a little over 20%” of room nights); Starting to see a slowdown in travel globally, including in EU (Europe was growing through February, but expect it to be negative in March).
  • TripAdvisor could have a “low-single-digit” negative impact to revenue.
  •  Expedia expects approx. $30-40mn negative impact to adj. EBITDA in Q1, and “some impact” beyond Q1 in 2020 as well but too hard to quantify at this time. Seeing “weakening of the business” beyond APAC; Still believe they can drive double-digit EBITDA growth in 2020.
  • eDreams Odigeo anticipates financial disruption from coronavirus slowdown. From February 22 to February 25, bookings declined 12% year-over-year. This includes a 35% drop in Italy and a 92% drop in China. Read more - PhocusWire
  • UK-Based On The Beach expects its results for the year ending September 30, 2020 will be “below current market expectations”. The company has seen a “small but noticeable reduction in demand,” which has “accelerated significantly following the increase in COVID-19 cases in Europe, particularly the spread of the virus to Tenerife.”
Source: LionTree newsletter.
7. Cruise industry
Coronavirus concerns have pushed the $45 billion cruise line industry to cancel trips and reroute ships. Carnival Cruise Lines, Norwegian Cruises, and Royal Caribbean Cruises all together recently announced they’d canceled nearly 40 cruises and rerouted over 40. Shares are down across the three major cruise lines between 35% to 40% since January. China is a growing market for cruise lines and currently makes up around 10% of the market. North America makes up about 50% of the market and Europe 25%. Chinese travelers who fly to Europe then board a cruise back to the mainland make up about 14% of cruise customers. Read more - NBC News.
8. Hotel chains
Some hotel chains have disclosed the impact of COVID-19 on their operations:
  • Hilton has closed about 150 hotels totaling 33,000 rooms in China. Hilton CEO says they anticipate a “$25 million to $50 million impact to full-year adjusted EBITDA” and a 1% drop in RevPAR if the outbreak lasts around three to six months with an additional three- to six-month recovery period.
  • Wyndham Hotels closed 1,000 hotels in China; Approximately 70% of Wyndham’s Chinese hotels remain closed. At the same time, openings scheduled for the first quarter will likely be postponed, causing flat to negative room growth for Q1 2020. Wyndham is estimating a potential adverse impact of approximately $8 million to $12 million to full-year 2020 adjusted EBITDA.
  • Hyatt has closed 26 hotels in mainland China, Macau, Hong Kong, and Taiwan with many others that remain open running at very low occupancies. Estimated decline of $1 to $2 million in EBITDA for 2020.
9. Opportunities
  • Udelv is a Silicon Valley startup offering the world’s first autonomous vehicle built specifically for last-mile delivery. On Friday, it announced that it was offering its autonomous delivery trucks to deliver goods to areas with quarantined patients, including China. See Tweet.
  • Private Jets get a spike in demand as businesses and wealthy travelers look to minimize public exposure and find alternatives to suspended flights. Read more - Fortune
  • Startups and apps that focus on car travel and road trips such as Roadtrippers and Road.travel could get increased demand from travelers looking for alternatives.
  • Meetings and events are moving online. Videoconferencing company Zoom has added 2.22 million monthly active users so far in 2020, more than in all of 2019. Zoom shares are up 40% in February, their best month since Zoom went public in April. Read more - CNBC
  • In times like this, travellers realize the benefits of travel insurance, particularly solutions such as Setoo that are customized to their personal needs.
  • Good opportunity for hotels and new generation hospitality brands to promote special staycation offers for locals.
10. Stay on top of the Coronavirus impact on the business of travel
If you want to follow the latest news about coronavirus and its impact on hotels, airlines, cruise lines, tourism destinations, and other sectors of the travel industry, the Skift editorial team has launched a page with the latest content from a variety of news outlets and health agencies. Read more - Skift.
👍 If you like this newsletter, I would appreciate if you forward it to a friend or colleague. And hit reply (or via Twitter) to send me feedback, ideas or suggestions. Until next time,
Mauricio
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