As the coronavirus outbreak continues, the risk to the lodging and cruise sector is growing, according to a new report from credit rating and analysis firm Moody’s. According to the sector comment, “China’s coronavirus is taking a big travel toll, a credit negative for U.S. lodging and cruise,” the timing of the outbreak during Chinese New Year, as well as the growing investment of hotel and cruise companies in Asia, all pose risks.
“With the spread of China’s coronavirus, risks are rising for exposed sectors such as U.S. lodging and cruise,” Peter Trombetta, assistant vice-president – analyst, Moody’s Investors Service, said in a written statement. “Any event that hurts traffic is a credit negative for the industry, which has already been experiencing a slowdown in fundamentals. We expect to see our rated lodging companies most affected by occupancy declines as people cut travel within China and from abroad as long as travel lock-downs continue.”
Of the cruise companies rated by Moody’s, the report says that Royal Caribbean Cruises Ltd. and Carnival Corporation will see the greatest earnings pressure from the outbreak as cruises from mainland China are canceled and passengers from China are unable to travel due to travel prohibitions. Royal Caribbean has announced three cruise cancellations on Spectrum of the Seas, the largest ship homeported in China, and it estimated that the impact of the outbreak will amount to approximately $0.10 per share, with an additional impact of $0.10 per share if travel restrictions continue. Costa Cruises, which is owned by Carnival Corp., has cancelled nine cruises over the next week.
“We expect the earnings impact from the canceled cruises to be immaterial at this point, but it could become more of an issue if there are more cancellations,” Moody’s said in the report, noting that NCL Corporation Ltd. will likely not see much of an impact because it has relatively little capacity in China since redeploying the Norwegian Joy from the area to Alaska in 2018.
According to statistics cited by Moody’s, overall passenger travel in China decreased 29 percent and air passengers were down 42 percent January 25, the first day of the Chinese New Year, which is typically a very busy travel period. This slowdown coincides with a period of slowing growth in the lodging industry’s fundamentals – in September 2019, Moody’s forecast slower growth in hotel earnings for 2020 due to flat to slightly down occupancy, modest daily rate growth of 1 percent to 1.5 percent and RevPAR growth of 0.5 percent to 1.5 percent.
“A decline in China-related travel will affect all of our rated lodging companies to varying degrees, depending on how long and extensive the outbreak proves to be,” Moody’s wrote in the report.
Hyatt, Hilton and Wyndham each have over 10 percent of their total rooms in the Asia-Pacific region, Moody’s said, and, while Marriott does not break down its room total by geography, approximately 28 percent of the rooms the company added to its development pipeline last year were in Asia-Pacific.