It's looking increasingly like the battered U.S. travel sector will be bailed out by the U.S. government. A recession's impact on small businesses in the travel sector, though, is extremely worrisome.
With the U.S. travel industry in full collapse, industry groups flocked to Capitol Hill this week with the hopes of spurring the government to provide assistance and help restore consumer confidence in travel.
A coalition of more than 150 travel groups released a statement on Tuesday encouraging travelers to look at information from public health officials instead of giving into the fear surrounding the coronavirus. The subtext is that the news is causing people to avoid travel by reporting what is going on as the coronavirus spreads around the U.S.
“Health and government officials have continually assured the public that healthy Americans can ‘confidently travel in this country,’” reads the statement. “While it’s critically important to remain vigilant and take useful precautions in times like these, it’s equally important to make calm, rational, and fact-based decisions. Though the headlines may be worrisome, experts continue to say the overall coronavirus risk in the U.S. remains low. At-risk groups are older individuals and those with underlying health conditions, who should take extra precautions.”
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According to Tori Barnes, executive vice president of public affairs and policy at the US Travel Association, “there’s absolutely a recognition amidst both the Administration and Congress that the impact on the travel economy is significant and like never before there is a full understanding of how important our industry is to keeping things moving.”
Beyond saying Tuesday that he would be helping the cruise and airline industries, President Trump offered few details on what that aid would look like and when it would come.
Meanwhile, sources said there is the possibility of the House putting together a bill on Thursday with a bipartisan recovery package to follow soon after. The House is scheduled for a recess next week, though, so next week will be a crucial time as the virus continues to spread and legislators address their constituents back home.
A strong response to the virus would also boost domestic travel at a time when new cases are surging around the country. There is also the need to counter the effect of meeting and event cancellations piling up, directly hurting local economies around the country.
The expectation is that incoming data on travel demand will show a steep drop, making an easier case for lawmakers to act. Regardless, tax credits and access to capital made available to small businesses could help soften the blow on travel companies that have seen demand for their products plummet overnight.
U.S. hotel chains are global but insulated from the short-term effects of a business disruption because they are really franchising companies; the actual owners and operators of the hotels in the U.S. are feeling the brunt of a massive downturn in travel.
“The Hill is completely focused on this,” said Brian Crawford, executive vice president and head of government affairs for the American Hotel and Lodging Association. “We’ve also met with the White House, they want to contain the virus first and foremost and simultaneously figure out how to provide help to impacted industries and employees.
“We have urged the Administration and Congress to look at things that don’t require a legislative fix… the last thing we want is a situation like in ’08 and ’09 where small hoteliers cant meet their debt payments, banks foreclose, and they own those distressed assets. We want to keep people in place even though occupancy is taking a dive.”
Democrats, Republicans, and the White House will have to do some serious soul-searching over the next 10 days to craft an appropriate response to the crisis.
The goal of the hotel lobby is to prevent layoffs in the case of a short-term decline in business or grant hotels access to operating capital in the case of a long-term decline. The source declined to speculate on whether any hotel-specific aid was being considered by lawmakers.
For those owners and operators, it is likely payroll tax cuts and support for low-wage workers will provide at least some relief. If a coronavirus outbreak in the U.S. occurs at the scale of North Italy, though, the North American hotel sector will be devastated.
In the weeks after the 9/11 attacks, the U.S. airline industry received a $15 billion financial aid package from the government, granting $5 billion in cash and $10 billion in loan assistance. At the end of the day, the U.S. government actually made money off the loans.
“Compared with the immediate aftermath of the Sept. 11, 2001 terrorist attacks, the airline industry now is in much better financial health, after years of consolidation,” said Madhu Unnikrishnan, editor of Skift Airline Weekly. “Additionally, then, airlines were grappling with new security requirements both at the airport and onboard. A short-term drop in demand now will hurt the airline industry in the U.S., but will not be as debilitating as the Sept. 11 attacks.”
The airlines did not receive a bailout in the midst of the 2008 financial crisis and soon entered a period of consolidation that brought travelers the Big Three U.S. carriers they know today.
“If the demand shock continues, or if business travel changes fundamentally as a result of this pandemic, airline finances could become shakier, but the U.S. industry has taken steps to mitigate their networks’ exposure,” continued Unnikrishnan.
The disruption has already impacted the European aviation market, leading to the shuttering of Flybe. Even major airlines like Lufthansa are asking for support from the relevant authorities.
U.S. airlines are communicating that a worst-case scenario would be dire; United Airlines president Scott Kirby said a 70 percent revenue drop is possible for April and May, which exceeds the 40 percent decline experienced after 9/11.
Airlines for America, an industry trade group, is blaming “false news media” for the situation and did not respond to a request to talk about the industry’s efforts on Capitol Hill, although it signed the industry pledge mentioned above.
Cruising to Hell
The sector with the most pressing case for government support is cruising, though it’s unclear exactly what form it would take.
The major three U.S. cruise lines operate more than 180 vessels worldwide and while only a few ships have been affected by a coronavirus outbreak, cruise stocks are tanking as consumer concern for their safety onboard rises. In response, the cruise lines are framing the situation as a public health issue that it is working on resolving.
“We have committed to do even more to protect our guests, our crew and the communities where we sail,” wrote Cruise Lines International Association, the cruise industry’s trade group, in a comment following a meeting with Vice President Mike Pence. “This includes more stringent boarding procedures, adding additional onboard medical resources and temperature screenings at embarkation. We will also develop industry funded protocols to care for guests on land in the event of an incident to eliminate future incidents of onboard quarantine. We are pleased to know the government agencies are prepared to work with us in developing these aggressive new measures.”
As we saw before with the epochal Poop Cruise, public sentiment has a deep impact on the financial prospects of cruising at large.
It doesn’t help that cruise ships are flagged internationally, a practice which allows them to flirt select nautical laws and some maintain dodge U.S. taxes.
There is also the reality that while airlines and hotels are vital to not just U.S. industry but global commerce, the cruise industry has no structural place in the economy besides generating returns for investors. President Trump, though, is keen to provide relief, according to recent reports.
A decline is cruise bookings has already increased pressure on travel advisors, whose prospects are directly tied to the health of cruising. A recent study but the American Society of Travel Advisors found that 97 percent of agencies expect a negative impact from the coronavirus.
“As of today, our 2020 sales are down 20 percent year-over-year,” Jay Ellenby, president of corporate travel agency Safe Harbors Business Travel, said in testimony to the U.S. House Committee on Small Business. “We are seeing a 37 percent decline in international travel, and that is worsening by the day. We expect March to be devastating and are preparing for sales to be down by far more than 20 percent year-over. For April, we can only hope. We are having to start painful internal conversations about staff structure and size.”
Skift Contributor Maria Lenhart contributed to this story.
Photo credit: Spirit Airlines planes are shown at Fort Lauderdale-Hollywood International Airport in May 2018. jtocchialini / Flickr