Coronavirus panic has reached a fever pitch as cases outside of China continue to tick upwards. We appear to be seeing a perfect storm of airlines, governments, and passengers all feeding off each other to create an elevated level of fear. Judging from airline reaction, demand seems to be disappearing quickly and dramatically. Now the question is… how long will this last? Only that answer can begin to help us understand just how awful this will be for the industry, but as of now, there are no answers.
I don’t have access to real-time numbers, so this won’t be a numbers-based post. Instead, I’m hoping to add a little levity to the situation which has grown increasingly frenzied with every passing day. How crazy are things? I’m glad you asked.
Anecdotally, I can speak to our Cranky Concierge sample size. We had clients going to Wuhan and other parts of China, and obviously, that was canceled long ago. This week we’ve seen heightened concern around Italy and South Korea, which is understandable. We’ve also seen travelers cancel trips in places that you wouldn’t imagine including Germany, Israel, and Australia.
Even more ridiculous is a study that shows that 38 percent of American won’t buy Corona beer due to the coronavirus. This doesn’t really pass the smell test, so I’ll assume it’s just a fake (and ingenious) study commissioned by Tecate. But we’re in a world right now where this sounds somewhat plausible. This just makes me want to…
How did we get to this point when the impact of the virus seems largely like what you’d expect from a bad flu? This is a great question. I liken it to a doomsday layer cake.
Layer 1 – Media Coverage
When the outbreak first occurred in the Hubei province in China, the media was all over it. The Chinese government, afraid of messing up like it did with SARS years ago, was quick to lock the place down. How could the media resist such a striking move with great visuals showing a massive, deserted city?
Even though this was far from having an impact on the US, it was still big news for a long time. The evacuation of US citizens in Wuhan along with the quarantine and subsequent infection of people on the Diamond Princess cruise ship just kept feeding the news cycle with still small but increasing relevance to the US.
The drip, drip, drip of news kept this at the top of every newscast, something almost unheard of during primary season when politics usually pushes everything else aside. As it crept into South Korea, Iran, and Italy, people got more scared. Then the news that there was a transmission of “unknown origin” to someone in the US ramped things up even further. Throw in the first death from the virus in the US over the weekend, and the media coverage has continued relentlessly. You know it’s bad when you start wishing you could see more coverage of the primaries.
Layer 2 – Businesses Clamp Down
With people already on edge, businesses have made the decision to avoid risk and shut down business travel. We had a client cancel a trip to Germany, because the company called off the meeting due to coronavirus fears. Companies all over are cutting back or banning business travel in the near term, and events are being canceled. We had one business client reach out to tell us specifically that their event was NOT canceled.
It’s not hard to understand why some businesses are doing this; they don’t want to take any risk here if they can avoid it. But they are also shooting themselves in the foot. We had a client going to an unaffected part of Italy who had to cancel plans, because she said her business would require she quarantine herself for 14 days upon her return. She knew she couldn’t make that happen, so she just canceled her plans.
Layer 3 – Governments Gone Wild
I’ve already mentioned how the government of China had a very strong — arguably too strong — reaction when the outbreak first occurred. But the madness isn’t limited to China.
- Switzerland has bizzarely banned gatherings of more than 1,000 people through March 15. (As if 1,000 is some magic number.)
- Saudi Arabia is blocking pilgrims from entering the country.
- Japan is closing schools for the month of March, and rumors swirl about what will happen to the Olympics which begin in Tokyo in late July.
These are just some of the reactions from around the world, but it’s the response from the US government that’s of most interest to readers of this blog. The US Department of State has four levels of travel advisories.
As you can see, Level 4 with its red color and dire warning is meant to be scary. China has been in that zone for a bit, but on Saturday, the government upgraded parts of South Korea and Italy. When the news first came out, it was widely misinterpreted to be applicable to entire countries. When the State website was finally updated, it was clear that it only applied to northern Italy (Lombardy and Venetia) and southern South Korea (Daegu). The damage, however, was done. The headlines made people think it was broader than it was, and that stirred the pot further.
Layer 4 – Airline-Imposed Hysteria
The signs of a demand slowdown are all over the place, and that puts airlines in a tough spot. Both Hawaiian and Delta have cut or outright canceled Korea flying in the near-term. United slashed service throughout Asia late last week. American pulled out of Milan through April 24 with Delta gone from there through the end of April. Airlines around the world are cutting back. As concerning as that is, it’s moves started by JetBlue and Alaska that provide the biggest clue to how severe things are.
Even though they only fly within North America, JetBlue and Alaska felt the need to announce they would suspend change fees. JetBlue is suspending them for all bookings made between February 27 and March 11 with travel before June 1. Alaska is doing it for bookings through March 12. No airline does that if it isn’t seeing bookings dry up, but you can understand the marketing angle.
But now, American has gotten in on the act for tickets bought through March 16. It is broadening the promise to include all travel dates, but it’s more restrictive in that it only allows changes outside of 14 days before travel. JetBlue and Alaska each make about $50 million a quarter on change fees, but American makes more than four times that, over $2 million a day.
By waiving those fees for leisure travelers (assuming business travelers aren’t as likely to change outside of 14 days), American is admitting two things. First, it is so worried about demand that it will do just about anything to fill those seats, even if it means sacrificing fee revenue opportunities. Second, it is signaling to travelers that there is something to be scared about. That’s really the problem with this and all airline waivers. They are drawing attention to the problem and giving it credibility. That is going to have the opposite of the desired effect.
Those blanket waivers allowing changes without any cost to travelers are dangerous. Right now, they are primarily for travel to places like China, Iran, South Korea, and Italy to help out concerned travelers. It’s good customer service, but it is also giving a clear sign to travelers that they should rethink their trip. It deepens the hole that has already been dug.
Layer 5 – The Community Effect
After all this, you’d think that people would never leave their homes. But if they do, they’ll just be greeted by another blood pressure-elevating sign. Go to an airport and you’ll see people walking around with their faces covered by masks. It looks like a post-apocalyptic scene, and it’s not calming.
This isn’t just an issue in airports; it’s impacting people all over. Forget that the masks are unlikely to be effective. This is just a knee-jerk reaction and it’s having at least a mental impact on everyone who comes into contact with them.
Pop It In the Oven and…
With all of this coming together to scare people, it’s going to be very, very bad. The stock market would agree. Last week was a bad week for all stocks, but the airlines… ooof. Just look at stock performance for the last two weeks of February.
I know it’s hard to see, but the thick black line is the S&P 500. It was down about 12.4 percent. That’s bad, but it’s nothing compared to the clump of airlines down between 20 and 24 percent or American down more than 35 percent.
The reason airlines are getting hit so hard is obvious. It’s a double whammy. Cancellations of existing bookings rise while future bookings drop as people take a “wait-and-see” approach to travel as fear continues to rise.
Have Your Cake and Eat It Too
This is where everyone needs to take a deep breath. First, read this article comparing this new virus to the flu. Put in context, it doesn’t sound nearly as scary.
I suppose the difference here is that it’s a new virus that isn’t fully understood, and there is no vaccine. Without those two things, this basically is a flu from an impact perspective. All that being said, no country wants to be the one that failed to contain it and caused a pandemic. So, countries are stepping up to show that they are doing the work necessary to make sure they don’t get blamed. Combine the government warnings with the airline waivers and everything else, and now you’re really cooking with gas.
What can you do? Just… breathe. I’d start by taking the advice of the WHO and go about living your life. Just take smart precautions like you would for the flu.
- Wash your hands frequently.
- Maintain 3 feet between yourself and anyone who is coughing or sneezing.
- Avoid touching your eyes, nose, and mouth.
- Cover your mouth and nose with your bent elbow or tissue when you cough or sneeze. Then dispose of the used tissue immediately.
- Stay home if you feel unwell. If you have a fever, cough and difficulty breathing, seek medical attention and call in advance.
While you’re at it, go buy a plane ticket. It’ll probably be cheap. The airlines are going to become increasingly desperate if things don’t change soon.
We don’t know when this particular outbreak is going to end, but it sounds like we can expect the virus to stick with us for a long time in one form or another. As scientists race to understand how it works and hopefully create a vaccine sooner rather than later, the paranoia will begin to let up. Until then, however, it’s going to be a really rocky ride for everyone in the airline business. Hang on, tighten your belts, and ride this one out. It’s going to be ugly.