Hospitality is more of a victim of Coronavirus than of SARS

• The outbreak of Novel Coronavirus in Wuhan has reverted the positive market sentiment in early 2020 and is sparking concern on the Chinese and even the global economy. While the exact magnitude will largely depend on when the virus is contained and how long business activities are halted, sectors with people-to-people exchange have already taken the brunt, such as aviation, hospitality and retail. Given the tourism boom in Asia in the past decade, we put a special focus on hospitality, a sector standing at the epicenter of the shock. In this report, we analyze the past experience of SARS on hospitality in China and Asian markets in 2003 with a risk assessment for nowadays.
• During the period of SARS, the most immediate reaction in China was fewer domestic and foreign tourists, leading to a decline in the occupancy rate from 60% in 2002 to 56% in 2003. The most affected location was not only Guangdong but also other first tier cities, such as Beijing and Shanghai. Looking broader into Asian markets with high frequency data, Hong Kong, Macau, Singapore and Taiwan also experienced a sharp fall in tourist arrival. Hong Kong suffered the worst decline in occupancy rate of 66% in May 2003 comparing to a year ago, while the rest hovered around a 35% reduction. The weak demand have translated into massive fall in revenue per available room as hotels had to cut prices to fill rooms. As a result, hotel revenue growth in 2003 plummeted by -10 to -15% in the three markets with the exception in Macau, which is supported by the unique gaming business.
• However, the experience from SARS might not be fully relevant for the current Novel Coronavirus for several reasons. First, we cannot predict the contagion scale and duration of the negative sentiment. Second, the tourism sector is much bigger now than the past. Outbound tourism from mainland China into Asia has multiplied by 6.7 times since 2003, which does not bode well for the impact of the coronavirus on growth, especially for Hong Kong and Macau, and to a lesser extent Singapore and Taiwan. New players today, which were not relevant in 2003, are Thailand and Japan, who received close to 10 million Chinese tourists in 2019 respectively. Third, global hotel giants are now more exposed to Asia, meaning any downfall in revenue could hurt deeper. That said, even without being certain about the extent and duration of the new virus, the impact of the Novel Coronavirus on Asian and global hospitality will be worse than the past.

Full report available for NATIXIS clients.