Chinese hotels seeing steep declines from coronavirus

The Chinese government’s efforts to stem the effects of the deadly coronavirus are at full speed, but the increase in travel and hotels since 2003’s SARS outbreak and the dates of the spread of the coronavirus occurring over the country’s most-important holiday are having a chilling effect on metrics.

 

GLOBAL REPORT—The first data from STR has been published as to the effect of the coronavirus on Chinese hotel performance, the numbers covering the first 26 days of 2020.

According to STR, the parent company of Hotel News Now, occupancy on 14 January was 70%, but that the number has plummeted since, with 26 January data, showing a 75% drop in occupancy during that period to 17%.

Average daily rate, though, increased starting 19 January, from bookings made for Lunar New Year travel, reaching a monthly high on 26 January of 754.48 Chinese yuan ($107.81).

Coronavirus, a respiratory virus that according to the World Health Organization likely was transmitted initially by an animal to humans, is known as a novel coronavirus, in this case named 2019-nCoV.

The existence of the new virus was first announced on 31 December in Wuhan, China, which remains its epicenter, and the WHO declared it a global health emergency on 30 January.

As of press time, the number of confirmed cases in China reached 20,530, according to the Nikkei Asian Review, with new cases reported hourly by the Chinese government’s National Health Commission.

Christine Liu, regional manager, North Asia, STR, said despite the rise in cases, she feels quite positive due to the Chinese government’s speed in building new hospitals to treat patients.

The biggest barrier to containing the virus was that due to delays in government announcements as to the existence and likely extent of the virus, efforts to curtail it occurred during the Chinese Lunar New Year celebrations, in which billions of trips are made across this vast country.

“The virus happened before Chinese New Year, the most important holiday on the Chinese calendar,” Liu said, referring to the festivities that in 2020 started in 25 January and are due to finish on 8 February.

STR analysts said the preliminary data for 23-26 January showed a 71% year-over-year decline in occupancy and a 10% increase in ADR, adding that the low performance is due to the “escalation of the outbreak and partially and depending on product type and location—to the combination of Chinese New Year.”

They added that “historically, Mainland China’s occupancy falls to an absolute level of roughly 55% during the week of Chinese New Year.” When looking at data for 24-26 January, average occupancy was down to 21.9%. ADR, usually between 650 yuan ($92.88) and CNY700 ($99.80) for the holiday week, reached a preliminary average of 711.50 yuan ($101.67).

“It should be noted that during the festive period, some hotels and locations experience higher than normal occupancy and ADR, and they will have seen an even bigger decline compared to 2019, in light of the outbreak,” STR’s news release noted.

Containment
Liu said many people had already left Wuhan before the city was officially closed down on 23 January.

“The government said 5 million people got out of Wuhan before it was shut down,” she said.

Attempts to curtail the virus have been hindered by the fact “99% of people do not know they have the virus,” she said.

David Goodger, managing director, Europe and Middle East, Oxford Economics, agreed that the assumption is that the virus will be contained relatively quickly, possibly within a couple of months.

“There will be a rebound in demand, with the biggest impact being in China itself, in the 15 to 20 major cities that have the biggest source markets of Chinese travelers,” he said.

It is not just Wuhan and its province of Hubei that have been affected.

“Many hotels in Beijing have closed. Beijing is the first destination people go to from Wuhan. This is likely to be far worse than 17 years ago, when the SARS virus occurred, as people travel more than they did then and because it was the lunar period,” Liu said.

Staffing
So far, hotels have not taken drastic actions in terms of staff employment, Liu said.

“No one has been laid off, as they know it will be difficult to get them back. The chairman of Huazhu (Hotels Group) has said the firm will not lay anyone off, but that it will cut the salaries of senior management,” Liu said, noting most leave for senior staff has been cancelled.

Those employees who traveled to visit family across China also are not able to travel home and go to work, she said. That holds true regardless of the city in which their trip started and finished, not just those who started in Wuhan or were visiting it.

“They cannot come back to work. Anyway, there is no demand, and the holiday has officially been extended to 10 February,” Liu said.

Hong Kong, already negatively affected by ongoing political demonstrations, and nearby Macau are suffering, too, she said.

Goodger also said the two Chinese special autonomous regions likely would feel an impact.

Both these markets are almost completely reliant on Chinese travelers, and he said it remains unclear how long it will be before that demand rebounds.

In Macau, the government on 4 February closed all casino operations for 14 days.

The U.S. might see some impact, Goodger said.

“The U.S. will not be anywhere as bad as China, but the Chinese are coming to the U.S. less due to the trade war, and now they cannot come. You would expect numbers to be down,” he said.

Analysis based on the impact of the 2003 SARS virus indicates the Wuhan coronavirus could result in nearly 8 million lost U.S. hotel roomnights through the end of 2024, according to data from STR partner Tourism Economics.