The worsening Wuhan coronavirus outbreak is taking a heavy toll on airlines, gaming companies and hotel chains that have increasingly relied on the exponential growth of Chinese tourists and their spending power in recent years. It could still get worse, analysts said.
The health scare has prompted authorities from Hong Kong to Singapore to stem or ban visits by Chinese residents or people who have visited the mainland in recent weeks to contain the outbreak. Beijing also has locked down some cities, disconnected domestic transport hubs and barred local tour groups from going abroad.
British Airways and German airline Lufthansa have suspended direct flights to the mainland, while Cathay Pacific and Hong Kong Airlines plan to halve their flights to the mainland until the end of March. American Airlines, Delta Air Lines, United Airlines and Air Canada also have reduced their flights to the country.
The moves come 17 years after the Sars (severe acute respiratory syndrome) epidemic afflicted more than 8,000 people in 37 countries and devastated economies in Hong Kong and across the Asia-Pacific region.
Mainland Chinese and their tourist dollars have helped fuelled Southeast Asian economies in recent years. They accounted for 19 per cent of Singapore’s tourist visits in the first 11 months of 2019 and about 28 per cent of all foreign visitors to Thailand last year, according to government data.
“The outbreak will take a toll on tourism sectors elsewhere in the region, and places outside the region that receive tourists from China,” said Claire Li, a Moody’s Investors Service analyst. The potential negative spillover is likely to be worse than during the Sars outbreak, she added.
The coronavirus outbreak is believed to have begun in a wet market in Wuhan in central province of Hubei. It has since claimed more than 200 lives and spread to more countries, prompting the World Health Organization to declare an emergency.
The fear of contagion could dampen consumer demand and affect travel, trade and services in Hong Kong, Macau, Thailand, Japan, Vietnam and Singapore, which have been the top destinations for Chinese tourists in recent years, Li said.
Travel and tourism companies with operations in southeast Asia had already been feeling pressure in the past year as the slowing Chinese economy and the US-China trade war kept tourists at home.
As a reference, a yardstick measuring revenue passenger kilometres – distance travelled by paying passengers – of Asia-Pacific airlines fell by 35 per cent in May 2003, according to the International Air Transport Association. For all of 2003, it fell 8 per cent.
Airline stocks have slumped in the past two weeks, reflecting the worries.
China Southern Airlines, the nation’s biggest carrier, has dropped by 19 per cent in Hong Kong in the past two weeks, while China Eastern Airlines has lost 16.6 per cent since January 17. Cathay Pacific, Hong Kong’s flagship carrier, has fallen by 11.6 per cent.
Outside China, Thai Airways has been among the hardest hit as its shares slid 14 per cent in Bangkok since January 17. Japan Airlines declined 7.9 per cent in Tokyo and Singapore Airlines retreated 5.5 per cent in that period.
The reaction reflects a temporary event and not a structural one from a long-term perspective, said Ahmad Maghfur Usman, a transport and logistics analyst at Nomura.
“In the meantime, we expect continued pressure on stock prices as valuation multiples are squeezed and once the dust settles, as history has repeated itself, stocks will reverse sharply, in our view,” he wrote a research note.
The gaming industry is another sector that could face further pressure.
Visits by mainland tourists to Macau, the world’s biggest gambling hub, plummeted by 75 per cent in the first four days of the Lunar New Year holiday that began on January 25, according to tourism officials. There has been talk of closing the casinos if the crisis worsens.
Wynn Resorts may be “one of the weaker-positioned gaming issuers with regard to its ability to withstand severe or prolonged cash flow declines, S&P said in a report on Thursday. The operator generates 70 per cent of its property-level Ebitda, or earnings before income tax, depreciation and amortisation, from the former Portuguese colony.
Wynn’s shares fell 16.5 per cent from January 17 to Thursday’s close in New York, while Macau rival Melco Resorts & Entertainment has seen its American depositary shares in New York drop by 18.3 per cent in the past two weeks. Las Vegas Sands Corporation, the operator of Sands Macau, has seen its shares decline by 10.6 per cent in New York in that period.
Genting Berhad has lost 9.4 per cent in Malaysia since January 17. The group has “limited flexibility to absorb a significant and prolonged decline” in cash flow from its Singaporean or Malaysian casinos, S&P said.
Hotel operators in Hong Kong, as well as others with a big footprint in Asia, are also under the cosh as they offered to waive cancellation fees, analysts said. Their shares, though, have not been hit as hard as airlines and casino operators, having earlier lost their shine in 2019 amid anti-government protests.
Accor, whose brands include Fairmont and Sofitel, has about 30 per cent of its rooms in the Asia-Pacific region. Its shares have fallen 5.3 per cent in Paris in the two weeks through Thursday. Hyatt Hotels’ stock has declined 2.5 per cent in New York since January 17, while Wyndham’s slipped by 3 per cent.
“If the outbreak achieves pandemic status, takes a significant amount of time to contain, and severely hinders the Chinese economy, which would – in turn – hurt the global economy, the negative feedback loop this creates could prolong the financial impact on lodging companies,” S&P analyst Emile J Courtney said in a research note.