The travel industry has already taken a huge hit due to travel restrictions and canceled trips for both business and pleasure, but that’s just the beginning.
It could be the worst crisis for the industry since the September 11 terrorist attacks on the United States, according to some experts.
“It’s on the front line of the fallout,” said Mark Zandi, chief economist with Moody’s Analytics. “It’s the most directly and immediately impacted.”
The hit to the travel industry has the potential to become a major drag on the global economy if the coronavirus continues to spread around the world.
“It’s vital. If you measure the entirely of the impact of travel, it is bigger than any other industry around the world. No other industry can say it supports 1 in 10 jobs,” said Adam Sacks, president of Travel Economics, a leading research firm that follows the industry. His firm produced the data on the industry’s global revenue and employment, the latter for the World Travel and Tourism Council.
“It’s partly because it’s such a diverse industry. It includes a lot of things you don’t think of,” said Sacks. “Besides airlines and hotels, it’s part of retail, part of restaurants, parts of technology.”
The effect on travel is growing by the day.
There has been a sharp drop in travel across the Pacific, not just to and from China, the epicenter of the outbreak, but also to other Asian countries. This week United Airlines disclosed that it had seen a near total drop in demand to China and about a 75% decline in near-term demand on the rest of its trans-Pacific routes.
Sharp drop in business travel
The falloff in travel has expanded beyond the Chinese market.
Several major conferences expected to draw more than 100,000 visitors each were canceled even if their location has yet to experience an outbreak. That’s because people traveling from around the world could bring the virus to the event, and infected people are slow to show symptoms.
“The fact that the largest global travel show is being canceled right now is telling,” said Sacks.
The steep and immediate drop in willingness to travel is comparable to what happened following the 9/11 attacks, said Scott Solombrino, the trade group’s executive director. Confidence started to improve as time passed after the attacks, he said. In the case of coronavirus, the concern about travel is growing each day amid new reports of outbreaks around the world.
“It is fundamentally affecting the way many companies are now doing business,” he said. “If this turns into a global pandemic, the industry may well lose billions of dollars — an impact that will have negative ramifications for the entire global economy.”
Leisure travel also affected
It’s not just business travel. Americans who were busy making plans for spring and summer trips are also thinking twice.
A survey of 1,200 US adults by the Kaiser Family Foundation found that one in eight have already changed their travel plans due to concerns about the virus.
The overall impact depends on how long the outbreak continues. Past health crises, such as SARS epidemic, indicate people will be willing to start traveling as normal again soon after there is a sense that is safe to do so, Sacks said.
“Travel globally is incredibly resilient,” he said. “People’s desire and need to travel outweigh their concerns fairly quickly.”
But much of the travel that has been lost already, or will be canceled in weeks or months to come, is unlikely to be made up.
“This is gone, lost forever,” said Zandi. “It’s not like you’ll hold two conferences in the fall if the one this spring is canceled.”
Job losses to come
So far there has not been deep job cuts announced in the travel industry. But millions of workers could lose their jobs, or have their hours cut, if the demand for travel continues to be depressed. That is especially true for lower paid service jobs such as housekeeping at hotels and waiters and waitresses at restaurants.
And as those workers are forced to cut back their own spending, the impact of the slowdown will ripple through the broader economy.
“Lower income workers will be hit harder,” said Sung Won Sohn, professor of business at Loyola Marymount Unviersity. “They’ll have to cut back their spending immediately. That has a significant multiplying effect throughout the world.” He said the drop in economic activity globally could be as much as $1 trillion.
Experts don’t believe that the hit to the travel industry is enough to spark a global recession by itself. But the virus is having a widespread effect on the global economy.
“I don’t think the worst is behind us in terms of the economic impact. The worst is yet to come,” said Sohn.