As the travel industry reels from the impact of global pandemic, here’s what experts say is likely to play out in the aftermath.
A Carnival Corp. cruise ship sits docked. Photographer: Luke Sharrett/Bloomberg
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This is just the beginning. Key findings released this month by the U.S. Travel Association and Tourism Economics indicate that the slowdown in the travel sector alone will push the U.S. economy into a protracted recession.
By the end of April, the impact of the coronavirus on the industry is expected to add up to a loss of 5.9 million jobs and $910 billion in travel-related economic output. That’s seven times the impact of 9/11.
“The coronavirus crisis is hitting the travel economy hard, and it’s also hitting fast,” said U.S. Travel Association President and CEO Roger Dow. “Not only are workers suffering right now, but if employers are forced to close their doors, it is unknown when or if those jobs will ever come back.”
One of the largest industries in the world is struggling to grapple with just that: the Great Unknown. Here to help us navigate this strange new reality are three market-moving predictions, based on fact-checked expert research and opinion.
1. Expedia Will Sell
Expedia is the world’s largest online travel agency by bookings. But bookings have come to a standstill, sparking a sharp decline in the company’s margins and sending its stock price into free fall (EXPE closed today at $56.27 per share, compared to $131 six months ago).
As a result, Expedia tapped its $2 billion credit facility to provide near-term liquidity in March, just one month after its interim CEO Barry Diller called it a bloated company. “We were a bloated organization,” Diller said during 2019’s fourth quarter earnings call in February. “I mean not because people were lazy or whatever, but over the years, just chasing the tail of growth and all that, we’re just adding people and people and complexity and all this stuff until, frankly very few people could figure out what the hell they were supposed to do during the day.”
Diller is running Expedia after the removal of former CEO Mark Okerstrom in December 2019. To many equity investors, his earnings call sounded like a fire sale. After losing more than half its value, Expedia is considered an attractive buy for a tech giant such as Amazon, which has $55 billion in cash and equivalents, according to Q4 2019 financial statements.
Does billionaire Barry Diller, Chairman of InterActiveCorp (IAC) need to hang on to this problem? Because he’s already ‘got 99’ in IAC’s portfolio, which included Tinder, OkCupid and Match.com. How are they doing, now that hookups are essentially banned by government mandate?
At the right price, selling Expedia is both Diller’s golden parachute and a way to save the company. Here are the companies best positioned to buy it:
“Growth of the online travel booking market remains attractive, and there is an ongoing threat that large companies with sizable user traffic could enter the industry. Focused entry from companies such as Google, Amazon, Alibaba, Costco, and Facebook would have a meaningful impact on Expedia’s growth.”
2. Airbnb Will Thrive
Private vacation rental companies stand to benefit in a post-COVID world, compared to large chain hotels with hundreds of rooms and shared communal spaces built to encourage large gatherings. Consumers will re-enter the travel market with caution and social distancing still top-of-mind. At least, this is the argument Airbnb is making to investors.
With a private market valuation of $31 billion, according to data provider PitchBook, the company has received inquiries from venture capitalists and sovereign wealth funds who choose to see past the near-term coronavirus risk, and assume Airbnb will recover in the wake of the outbreak.
Logic holds that the world’s biggest home-sharing company’s listings in more than 220 countries and regions will meet pent-up travel demand. Airbnb CEO Brian Chesky also quickly positioned his company during the COVID-19 crises as a pro-consumer brand by offering guest refunds on a global basis. An inevitable backlash from hosts forced to pick up the slack ensued, leading Chesky to earmark $250 million for their troubles and publicly address their concerns in this letter.
There is an inherent optimism to the hospitality industry in general, and Airbnb has managed to both capture and hang on to it. Competitors such as OneFineStay, an online home rental platform acquired by Accor Hotels, are taking note.
“What we’re going through is unprecedented. People who don’t want to stay in a hotel because of social distancing are booking private homes. We don’t want to say we’re actively capitalizing on this, but it is happening.”
3. Cruise Ships Will Shrink, Not Sink
Coronavirus might be the best thing (or worst thing, depending on your perspective) that ever happened to the cruise business, which has, for decades, skirted the labor laws and environmental regulations that typically apply to income tax-paying industries.
The $2 trillion stimulus signed by President Donald Trump last week implicitly excludes cruise lines. The allocated $500 billion in government loans and loan guarantees that might otherwise apply to cruise companies must be paid to businesses “created or organized in the United States or under the laws of the United States and has significant operations in and a majority of its employees based in the United States.”
Sorry, sailor. The top three cruise line holding companies — Carnival Corp., Royal Caribbean, and Norwegian Cruise Lines — are incorporated in other nations.
Even if they receive stimulus by way of some legal loophole, it would likely come with serious strings. In this letter to Congress, eight U.S. Senators argue that airline and cruise industries should only receive financial aid if they are forced to clean up their environmental practices: “Requiring reductions in carbon pollution from foreign-flagged cruise ships, as well as reductions in other air pollutants and increased penalties for illegal dumping, would result in cleaner air and a healthier ocean.”
Senators put it lightly. In another letter to Congress, environmentalists don’t: “The environmental violations of this industry in the U.S. and abroad are appalling. Carnival Corporation has been on criminal probation for the last three years as part of a record-setting $40 million fine and plea agreement for illegally dumping oily waste into the ocean for nearly a decade, as well as obstruction of justice for hiding its criminal activities from regulators.”
Going forward, this means the cruise companies who want to continue operating within the U.S. market will quickly transition to becoming “Zero-emission cruise ship vessels.” Enter the age of electric cruise ships, starring travel tech as its new hero. An early sign of this ‘trend’ is already here in the form of the world’s first hybrid electric-powered ship, the 530-passenger MS Roald Amundsen, which set sail from Norway last July. Trouble is, the ship’s owner, Norwegian cruise operator Hurtigruten suspended almost all voyages and laid off 2,600 staff this month as a result of the coronavirus outbreak.
It will likely take years to see a Tesla-like transformation of the dirty cruise business, but it is also more likely to happen than ever before.
For now, Washington’s call for a massive cleanup doesn’t begin to address public health concerns onboard what were “floating petri dishes” before anyone knew what coronavirus was. Think ahead. If you’re worried about disease spread, you’d probably rather be sailing on a ship of 50 than 5,000, right? If you need confirmation, take it from the Centers for Disease Control.
“U.S. citizens, particularly travelers with underlying health conditions, should not travel by cruise ship. CDC notes increased risk of infection of COVID-19 in a cruise ship environment.”
More predictions for aviation and the hotel industry will soon follow. Keep an eye on this beat. For now, consensus suggests that travel tech will help lead struggling companies out of crisis and define our new normal.