First detected by the Chinese officials on 31 December 2019 in Central China’s Wuhan city, a new strain of coronavirus (2019-nCoV) has been spreading rapidly with at least 17 reported deaths and ~570 people infected by the virus within China. After spreading regionally within China, coronavirus cases have also been reported in countries including the US, Japan, South Korea, Taiwan, Macau, the Philippines and Thailand.
As the number of countries with at least one reported coronavirus case increases, there is an urgent need to discover a vaccine for treating infected patients. While the virus has severe implications concerning public health, it has also had an unfavourable impact on the global economy, particularly the travel industry.
Source: National Health Commission of the PRC
What is coronavirus?
Coronavirus is a group of viruses that was first found in humans in the 1960s. These viruses range from being mildly harmful, causing cold to acute illness such as severe acute respiratory syndrome (SARS) and the Middle East respiratory syndrome (MERS).
The virus, when seen under a microscope, looks like a crown (called corona in Latin) and thus, the name coronavirus.
Impact on the Travel Industry
There has been a widespread fear around the coronavirus outbreak and its potential impact on travel and commerce industries, leading to a decline in global markets.
The source country China, along with Hong Kong, bore the brunt on 22 January 2020 with a decline of 1.5%, 1.86% and 1.719% respectively on the Shanghai Composite, Shenzhen Component and Shenzhen Composite indices, while Hong Kong’s Hang Seng index declined by 1.65%. Markets in Japan (NIKKEI: -0.98%), Korea (KOSPI: -0.92%) and Australia (ASX 200: -0.63%) were also hit.
Chinese travel stocks including the three largest airlines in the country - Air China, China Southern Airlines and China Eastern Airlines witnessed a decline in share price in the range 5.9% to 6.7% on 22 January 2020.
Also, online travel agencies such as Trip.com, Qunar.com, and Fliggy have waived off the cancellation fees for trips to Wuhan including hotels, tickets and car rentals. Also, Hainan Airlines and Tianjin Airlines have allowed a certain section of people to cancel their flight tickets without having to pay the penalty. These measures, while scoring high on social responsibility, are likely to have a negative impact on these stocks.
In the US, where the first case was reported on 21 January 2020, the Dow Jones Industrial Average (DJIA), S&P 500 index (SPX) and Nasdaq Composite Index (COMP) fell by 0.5%, 0.3%, and 0.2%, respectively. Specifically, stocks related to the travel industry such as airlines, hotels and online booking companies, such as Hilton Worldwide, Wynn Resorts, Booking Holdings, Expedia, Delta Air Lines, and United Airlines, among others, took a hit on 21 January.
The markets, however, recovered slightly the next day, 22 January, with DJIA, SPX and COMP closing at 0.03% below, 0.03 above and 0.14% above the previous close, respectively. However, things are likely to go down if the incidence of 2019-nCoV increases.
Australian Travel Industry Feels the Heat
As in the case of travel stocks worldwide, especially China and the US, ASX-listed stocks from the travel industry took a significant hit as well following the rapid spreading of coronavirus. Below are the respective performances of four Australian travel stocks that we have shortlisted.
The four stocks – SYD, WEB, FLT and QAN, ended in red (Except Webjet’s one-month return) over the last five days and last month, primarily impacted by the coronavirus outbreak. However, apart from QAN, all the other stocks returned to growth on 23 January 2020.
It must be noted that the travel stocks in Australia have already been under pressure due to the bushfires that have impacted the Australian travel industry.
Sydney Airport (ASX:SYD)
Sydney Airport owns and manages the operations of the international airport in Sydney, Australia.
SYD stock closed at $8.640 on 23 January 2020, with an increase of 0.582% over the previous close. The company generated returns of -4.56% and -4.24% in the last five days and one month, respectively.
Webjet Limited (ASX:WEB)
Webjet Limited is engaged in the business of digital travel. The company caters to both consumer markets and wholesale markets globally through B2C and B2B strategies, respectively.
WEB stock closed at $14.380 on 23 January 2020, reflecting a rise of 5.04% over the previous close. The company generated returns of -3.05% and 3.32% in the last five days and last month, respectively.
Flight Centre Travel Group Limited (ASX:FLT)
One of the biggest travel group, Flight Centre Travel Group Limited is involved in travel retailing with a focus on four major regions: Australia and New Zealand, the Americas, EMEA and Asia. The company caters to the leisure as well as corporate travel sectors.
FLT stock closed at $42.200 on 23 January 2020, moving up by 2.927% over the previous close. The company generated returns of -7.41% and 7.37% in the last five days and last month, respectively.
Qantas Airways Limited (ASX:QAN)
Qantas Airways Limited offers domestic and international air transport services as well as freight services.
Qantas Airways operates under two brands – Qantas and Jetstar. The company is also involved in holidays and travel operations, through its subsidiaries and collaborations.
QAN stock closed at $6.660 on 23 January 2020, with decline of 1.915% over the previous close. The company generated returns of -3.96% and -8.12% in the last five days and last month, respectively.
Even though the new virus is expanding at a significant rate, Mr Zhong Nanshan, head of an expert team set up by the China’s National Health Commission, believes that the outbreak is unlikely to become as enormous as the SARS outbreak in 2002-2003.
Also, some analysts inadvertently corroborated Mr Nanshan’s viewpoint believing that the Chinese government is managing the recent outbreak in a better way. Thus, the impact is likely to be milder than the SARS outbreak.
However, with China confirming that the virus can be transmitted from human to human, coupled with uncertainty around its origin, the upcoming Lunar New Year holidays in China where both domestic and international travel increases, and the lack of a treatment option, the impact of 2019-nCoV outbreak to expected to have a lasting effect on the global economy, especially the travel industry.
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