As the human and economic toll of the coronavirus continues to mount, the hospitality industry is bracing for the worst.
On Jan. 30, the World Health Organization cautioned against non-essential travel to China after declaring the outbreak a public health emergency. Major airlines quickly responded, as British Airways, United, Delta and American, among others, suspended flights to and from mainland China. Hoteliers like Hyatt, Marriott and IHG, in turn, promised to waive cancellation fees related to travel within mainland China.
The outbreak shows just how important the Chinese market has become to the hotel industry.
While the long-term impact of the virus outbreak remains to be seen, the disruption that has already taken place only highlights just how important the Chinese market has become for the global hospitality industry.
A booming market
Chinese nationals comprise the largest tourist market in the world — a group that continues to grow. According to the U.S. National Travel and Tourism Office, 3 million Chinese tourists visited the U.S. in 2018, the third most of any country after England and Japan. Although that figure declined slightly last year amid geopolitical tensions, it has more than quadrupled since 2009.
Behind such stunning growth is China’s exploding middle class and its growing appetite for travel. It has prompted midscale hoteliers, eager to gain market share, to invest heavily in China.
And it’s not just China. Asia is expected to make up about 65% of the global middle class by next decade, with China’s population leading the way. Hotel companies like China Lodging Group and Marriott are intently focused on the market.
By 2021, Marriott expects that 26% of its total hotel rooms will be in Asia. In its third-quarter earnings call, Marriott said that its Bonvoy membership increase of 12 million over the past nine months was predominantly driven by China, which accounted for 40% of that growth.
The long-term impact
But a sustained outbreak of the virus would pose a significant threat to this growth, constricting new developments’ cash flows, driving down occupancy and reducing average daily rates.
In the short term, those properties most affected by the virus outbreak are likely to be at the higher end of the market. Chinese travelers are staying in four- and five-star properties as they travel abroad and within the United States.
With leisure travel driving Chinese to travel, many will cancel plans as airports and properties amp up emergency readiness and Wuhan remains on lockdown.
If the public health response thwarts further contagion, though, the long-term impact to the hospitality sector should be contained.
