Global mass movement is one factor in the spread of the 2019 Novel Coronavirus, which at the time of writing has reached 24 countries outside China. The tourism and business travel sector which supports that movement quickly feels the pain when there is any constraint on international or local movement.
In many markets, passenger flows and property occupancies have weakened as travellers, businesses and governments make hard choices. Preliminary data from STR is showing that hotel occupancy in mainland China declined by 75% in the 2nd half of January.
The Maldives has just joined the list of countries banning Chinese visitors for now. With China being their largest tourism source market, that is not a decision that the Maldives authorities will have been taken lightly. Airlines and cruiselines are also facing some very direct effects.
For the travel sector in Hong Kong (2019 protests) and Australia (bushfires) in particular, this comes at an already challenging time. It is likely some businesses will face cashflow difficulties, including as they are asked to refund deposits and payments taken on advance bookings.
More broadly, it is already clear that 2019-nCoV is a downside risk to the Greater China economy, and on a more diluted basis to the global economy. The Economist has reported that China's growth in the first quarter could fall to as little as 2%, from 6% before the outbreak. Retail trading (bricks and mortar) across Asia has been impacted, with foot traffic at shopping centres well down. Major landlords in China are announcing up to a month’s rent holiday for their tenants.
What are we seeing?
Businesses in the hotels and resorts accommodation sector are focussing on 2019-nCoV at a number of levels: health and safety, trading performance and more strategically. Our hotels and hospitality team is supporting a number of clients as they work through the short and longer term implications of this epidemic.
We have set out below some of the matters hotel operators and owners may like to consider as they seek to manage the impact of 2019-nCoV.
As an employer…
Workplace legislation in most jurisdictions imposes a duty to look after the health safety and welfare of employees as far as reasonably practicable, so we are seeing that as a key focus. Some concerns are less obvious at first glance – discrimination against perceived Chinese nationals and data protection issues around health declarations from clients and employees.
Employers may want to consider:
- Staying abreast of current status and recommendations from local and international health organisations, and ensuring relevant internal communications are made regularly. The WHO website (https://www.who.int/ith/precautions/role_travel/en/) and local governmental websites provide crucial information here.
- Educating staff to spot symptoms in themselves and other staff as well as incoming guests. Some operators may obtain medical advice to support that, including making the use of wipes, masks and other materials available and/or mandatory. Supply chains on some of these products, especially effective masks, are stretched.
- Checking health, long term disability and life insurance policies and be aware of any limitations in those policies. Do they cover epidemics? Is there a limit on the number of staff who can draw down benefits at any one time?
- Implementing enhanced hygiene and property cleaning programs.
- Providing a safe workplace free from discrimination and harassment at a time of heightened tensions. The origins of 2019-nCoV are centred in Wuhan, China, and with the virus spreading rapidly through mainland China, many assume that persons from or in contact with Chinese nationals are more likely to be carriers of the disease. Spiked fears may cause guests and fellow employees to overlook the fact that the travel history of such employees ought to take precedence over their actual or perceived nationality. Employers should be mindful to ensure that employees from China are not unduly discriminated against or harassed on grounds of nationality.
- Asking appropriate staff to work from home, which may only be an option for white collar workers (accounts, procurement etc). On-property roles, such as housekeeper, chef or waiter will need to be on-property, though some businesses will need to consider managing their staffing complement if the downturn is prolonged.
Looking after your guests
Hotel operators may want to consider:
- Accepting government-related quarantine business. Some hotels have been asked to accommodate at-risk travellers in isolation. Corporate accounts, FIT guests and hotel staff are likely to have strong views on whether they want to share any perceived risk.
- Issuing declaration forms to staying guests and transient visitors, seeking information on health and travel history, to assist in tracing at-risk individual where a suspected or positive case arises that is connected with the hotel. Care needs to be taken to only seek categories of information that are permitted under applicable data protection laws, and dissemination and destruction of such information should be conducted in a manner consistent with legislation. Medical information is particularly sensitive, and hotels will need to handle such data with care.
- Ensuring crisis management protocols and infrastructure are available to support on-property teams with the consequences of a suspected or positive case in accordance with relevant local protocols and/or best practice. That team would include various functions including risk, HR, operations and PR.
- Given this is unlikely to be the last such epidemic, develop a workable crisis plan for your organisation that properly and realistically gathers and assesses information, balances risks and introduces measures to protect as far as possible your business, its staff and clients.
For owners and operators…
At this stage, no market looks immune to 2019-nCoV and the scale of negative impact may be immense and long-lasting, especially considering that China is the main tourism source market of many destinations in Asia and beyond.
Coronavirus outbreak as performance test releasing event?
It comes as no surprise that epidemics cause owners and 3rd party operators to reach for their hotel management contracts and check the force majeure events that release operators from any performance test or hurdles. We expect a number of hotels in Asia and beyond will have their performance test for the 2019/2020 financial year knocked out by 2019-nCoV, especially where they have a GOP test (actual vs. budgeted).
Budget deviations to prevent emergency
Hotel owners should expect shortfalls against budgeted performance due to the spread of the outbreak. Departures from approved budgets caused by emergency situations are permitted under most hotel management contracts.
In addition to the increase in expenditures to prevent or cure the emergency situation (e.g. medical supplies for the hotel employees and guests, insurance deductibles under health insurance policies, medical check-ups for hotel employees etc.), cashflow and the GOP margins will be affected with revenue dropping as hotels witness travel bans, cancellation of stays, cancellation of MICE events and weddings.
We expect cashflow challenges at some properties will cause operators to make working capital calls on owners, particularly as most operators are giving full refunds for advance bookings and events.
Plugging the gap
Our operator clients are being asked to assess the likely impact of Chinese inbound business being withdrawn certainly for Q1 and Q2 2020, and in a number of markets, last year’s guest data shows that it will have a material impact on revenues, and the lower occupancy is expected to limit rate growth. Operators will look to adjust their marketing strategies to target other source markets to replace Chinese inbound business, which may include chasing domestic tourism business to boost performance.
Government tourism marketing agencies have a strong role to play in mitigating the impact of 2019-nCoV, as does the international effort to contain the transmission and spread of 2019-nCoV.