Nothing hurts the travel industry more than fear. Social distancing due to the coronavirus has damaged the travel sector significantly. The travel industrial is facing headwinds, as consumers hunker down to avoid catching the coronavirus.
Investors continue to sell their travel stocks and the new ban from the US White House crimp demand for flights and cruises. In 2020, the S&P 500 airline sector is down 45% as of Thursday, March 12, while shares of major cruise liners are down more than 70%. That is the worst start to the year on record. If the US can see a decline in the peak infection numbers within 2-months, sentiment should begin to improve.
Cruises Are on Hiatus
Cruises have been curtailed. The Center for Disease Control is recommending that travelers, particularly those with underlying health issues, defer from taking cruises worldwide. According to the CDC, Cruise ship passengers are at elevated risk of spreading of infectious diseases, including COVID-19. While this warning is for everyone, older adults and travelers, according to the CDC with underlying health issues, should avoid cruises at all costs.
Cruise lines are attempting to do what they can to increase interim social distancing. Carnival announced it would suspend global operations at its Princess Cruises subsidiary for two months. This followed information that there were coronavirus outbreaks on two of its ships. Royal Caribbean plans to cut its capital spending by $1.7 billion.
The trade organization that oversees the cruise industry is also attempting to reduce the number of elderly passengers that come aboard cruise ships. A cruise trade organization sent a proposal to the White House suggesting that they would employ a policy that would not allow anyone older than 70 from boarding without a doctor’s note verifying their fitness for travel.
Air Travel is Taking a Beating
Air travel has crawled to a halt. This comes despite the airlines attempting to entice travel, especially within the United States. Fares have tumbled, but airlines are fighting a temporary uphill battle. On Wednesday, March 11, President Trump announced a 30-day ban on some travel from Europe. This announcement was not initially clear which created even more chaos surrounding travel.
According to the International Air Transport Association, the coronavirus could reduce global airplane passenger revenue by as much as 20%. Last month, the trade group was forecasting a decline in revenue by approximately 10%.
There appears to be light at the end of the tunnel. If the Chinese model of handling the coronavirus is mimicked in the US, it should take approximately 2-months for the virus infections to peak and decline. On March 13, Apple announced that it had reopened all 42-stores in China. Recall, Apple said that store closures in China, which is one of the largest markets for the company, were a primary reason why it was forced to revise down their quarterly financial guidance. This was the beginning of the decline in US stocks, which saw volatility explode to an 11-year high. Sentiment will begin to improve relatively quickly if test kits can show the magnitude of the spread of the coronavirus and then the eventual decline from peak infections. When this occurs the equity markets will have bottomed.