Swine Flu – The New SARS?

Apr 30, 2009

Unless you’ve been living under a rock, I’m sure you’ve heard about the Swine Flu epidemic sweeping through Mexico and parts of the US.  Reports on the number of people who have died so far from the virus vary – but whether it’s 7 or more than 150, consumers are scared stiff.  Companies that sell medical face masks, hand sanitizers and drugs that treat the flu are making out like bandits – making huge amounts of money from the public’s panic as they stockpile supplies… just in case.  Companies in infected areas are shutting down retail locations, closing tourist attractions and travel to these areas are being banned by many countries across the globe. Europe is now warning against travel to the U.S.  Can you believe it?

Well, I can.  Unlike many Americans, I have experienced a medical scare like this before.  I remember when the SARS outbreak spread across Canada in 2003.  Masks became de riguer in all public places; it wasn’t uncommon to see someone walking through the mall or the airport wearing a face mask with a scared look on their face.  So using the experience that I’ve gathered through that time in Canada, I’m going to go out on a limb and predict how this is going to affect the U.S. tourism industry if this growing epidemic continues.

The SARS outbreak, which lasted from March through June 2003, cost the Canadian tourism industry $993 million dollars.  During that time, more than 5000 infected people were quarantined in hospitals, making citizens worry even more for their safety.  The panic wasn’t just a Canadian thing; foreign governments were warning against travel to Canada, making an already bad situation even worse for the tourism market.  Over one third of the workers in the tourism industry were laid off, with many more having their hours cut down drastically.  Hotel occupancy rates were in the 30-40% range, rather than the seasonal rate of 70%.  Even after Toronto and the remainder of Canada was declared safe, the travel industry was very slow to recover.  Despite discounts galore – airlines offered greatly reduced fares (or even free!) from Canadian and U.S. cities, gas stations cut prices and hotels offered never-before-seen promotions on rooms, f&b and theatre tickets – and huge headlining events, according to the TIAC, the travel market started to return to normal within a year.

Now let’s look at the state of the American hospitality industry before the outbreak of Swine Flu.  According to data from Smith Travel Research, Inc., the week ended April 11 was the worst of the year to date. Occupancy fell 17.9% year-over-year, while or ADR, fell 12.5% vs. last year at this time, and this resulted in RevPAR, falling 28.1% compared to the prior-year period.  This illness couldn’t have come at a worse time.  “This is kind of the one-two-three-four-five punch,” says Jan Freitag, a vice president at the hotel-tracking firm Smith Travel Research. “You have a global recession; business travel has been severely curtailed; leisure travel is curtailed because people are not sure they’re going to have jobs; you have a lot of new hotel supply in the pipeline; and oops, now we have the European Union suggesting that travel to the United States is a mistake.”  In the first week since news of the Swine Flu outbreak has broken, we’ve seen consumers and businesses cancelling trips, events and excursions to Mexico and many areas of the US.  Carnival Cruises even cancelled all cruise ports in Ensenada and Cozumel, Starbucks has closed ten stores in Mexico and Six Flags Amusement Parks closed all of their indoor facilities in Mexico City.

And now for the good stuff, my predictions.

U.S. and Canada, which have taken the biggest hit from the economic downturn, have another problem at hand: inbound travel to these countries is expected to drop another 15-20%, at a time when hotels rates in the US are down almost 50%.  I predict that the industry will continue to suffer as long as the recession and Swine Flu continue and will probably not recover fully until two to three years (and a lot of discounts, positive messaging and promotions) later.  The reason?  Because hotels are already deeply discounting to try to bring in recession travelers, there isn’t as much flexibility in the prices as there was in Canada.  The financial motivation to travel to the U.S. after this epidemic will not be as great (and don’t forget that the number of people traveling is already down because of the recession!) so the industry itself, has a lot more ground to make up.

But the good news, if the US is able to avoid a World Health Organization (WHO) travel advisory, things may not get to that point.  Hopefully, this epidemic can be calmly managed and contained, preventing further infection and death.  But while it continues, the tourism industry should educate and expose the distinction between legitimate concern about the spread of the virus from the panic-causing media portrayal of it as a “pandemic”.  We in the industry should be alert to the potential threat of swine flu but it’s vital to avoid being swept up in the panic which gripped the world during the SARS outbreak.

And until then, the hotel and hospitality industry needs to dig in their heels and prepare for a rough ride.

Need some ideas on how to market your hotel property to consumers who are hesitant to travel because of the risk of swine flu and the recession?  Check out our next travel post going live next week.

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