Via Wolf Street

It’s not only Chinese tourists, business travelers, and property buyers who’re not showing up, but also travelers from all over the world who’ve gotten second thoughts about sitting on a plane.

By Wolf Richter. This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:

Starting Saturday, February 15th, there won’t be any flights between San Francisco and mainland China, until at least through the end of March, down from 90 roundtrip flights a week. In 2019, over half a million Chinese tourists, business travelers, and people coming to buy houses and condos as investment properties visited San Francisco.

There have been local reports that foot traffic at San Francisco Airport eateries has dropped by 50%. Due to the cancelled flights, the airport itself is missing out on landing fees.

And air fares have plunged. Which is good for people who still fly. But not for the airlines. My wife had made reservations in mid-January to fly from San Francisco to Japan in March. At the time, ticket prices were on up there, and there had been no good deals available. A few days ago, she checked again, and flights that had had little availability suddenly had lots of availability.

These are flights from San Francisco SFO to Tokyo Narita or Tokyo Haneda. They have nothing to do with China. They don’t go anywhere near China. But apparently, there had been cancellations, and not enough new tickets had been sold. And for the flight she has booked, current ticket prices have plunged by half. So she did some checking and found out what people who still want to travel to Japan are doing: they’re cancelling their old ticket and pay the cancellation fee, and then they’re booking a new flight, perhaps at a more convenient time and with better connections, now that prices have come down hard.

Think about this scenario for a moment: Airlines face a shutdown of travel to and from China. And on their non-China routes to Asia, they’re facing cancellations of tickets they already sold, as tourists and business travelers are choosing to stay home. And they’re facing a plunge in new ticket sales. To fill those seats, they do what airlines do: they cut fares. And then those fare cuts trigger a new wave of cancellations of the high-fare tickets they’d sold earlier, and these people are rebooking at the current low fares. This is called revenue evaporation.

Last year, visitors from China spent $1.3 billion in the three Bay Area counties of San Francisco County, San Mateo County, which is the northern part of Silicon Valley, and Marin County, which is just north of the Golden Gate Bridge.

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In the fall semester of 2019, there were over 4,000 foreign students from China at four local universities, UC Berkeley, University of San Francisco, San Francisco State University, and Santa Clara University.

All this is getting shut down or has already been shut down. San Francisco isn’t the only place. The same is happening in other major travel destinations in the US, and outside the US, such as Paris, Barcelona, and even Tokyo and Kyoto, which Chinese tourists suddenly discovered in very large numbers a few years ago.

And it’s not only mainland-Chinese tourists, business travelers, and people coming to buy houses and condos as investment properties. It’s people from all over the world who’ve gotten second thoughts about getting on a plane and sitting next to a person who has been infected with the coronavirus.

So let me tell you what this actually looks like. We live in the touristy part of San Francisco, between the section of Lombard Street that is called the “crookedest street in the world,” and Fisherman’s Wharf. Even on the beautiful warm sunny afternoons we’ve been having recently, which would normally bring huge crowds to Fisherman’s Wharf and masses balling up at the top and at the bottom of Crooked Street, well, there were some people, but the masses are gone.

The mainland Chinese are gone. But also, some other international tourists are gone as apparently many have chosen to wait it out at home, rather than get on a plane.

San Francisco is also a big destination and departure point for cruise ships. So who wants to be on a cruise after several cruise ships in Asia turned into pariah-ships that weren’t allowed to dock, or whose passengers weren’t allowed to disembark due to a coronavirus outbreak on board, which turns a cruise vacation into a total nightmare.

Royal Caribbean Cruises said on Thursday that it had canceled 18 cruises in Southeast Asia.  Carnival Cruise Line said earlier that it already canceled some cruises in Asia and might cancel all remaining cruises in Asia through the end of April.

And who is going to buy the houses and condos that the investors in China had planned on buying, but who now cannot even come and look at?

In 2018, 163 million people from mainland China made international trips. That would be about half the US population! They spent $130 billion overseas, according to the China Tourism Academy. And this has suddenly stopped.

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At least 14 countries, including the US, have limited or banned flights from mainland China. Other countries have imposed quarantine requirements on travelers from China. China itself has banned all outbound group tourism.

The number of trips Chinese tourists have taken over the Chinese New Year holidays has collapsed by 73% this year, from last year, according to the Ministry of Transport in China.

An industry group for south-east Asian tourism said that 90-100% of trips by mainland Chinese to Thailand have been cancelled. Hong Kong has essentially shut down tourism from China, imposing a 14-day quarantine on anyone from mainland China.

Macau, the gambling mecca for mainland Chinese, experienced a near-80% year-over-year plunge in total visits over the Chinese New Year holidays, according to government data. Casinos were shut down for two weeks, and gambling revenues for the rest of the month of February are expected to collapse to near-nothing.

Airbnb has experienced an 80% plunge in business in China, a person close to the company told the Wall Street Journal. China is an important factor in the growth story that Airbnb is trying to weave for its IPO this year. And the coronavirus might derail that IPO this year, the person said. But it’s not just bookings in China: it’s also bookings by Chinese travelers in other countries. Those Airbnb hosts in those countries are now confronted with cancellations.

In Singapore, Chinese tourists account for about 20% of all tourists, and they’re not showing up. But as in many places, it’s not just Chinese tourists that are not showing up, it’s frazzled tourists from other countries too, and Singapore is seeing a decline of about 30% of tourist arrivals from all countries, the CEO of the Singapore Tourism Board told Bloomberg TV. And those arrivals could plunge further if the situation persists.

Numerous global conferences have been cancelled around the world for fear of spreading the virus at the conference, including the world’s biggest mobile trade fair, the Mobile World Congress in Barcelona, which had been scheduled to take place later this month, after dozens of global tech giants, telecom equipment makers, and telecom carriers pulled out due to contagion fears.

Last year, the Mobile World Congress had attracted 110,000 people from nearly 200 countries, including many from China. They’re now busy cancelling their flight reservations and lodgings, including on Airbnb. These business travelers were expected to spend money liberally on their expense accounts, including in fancy eating and drinking establishments. But now they’re not coming.

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And this is what I’m seeing in San Francisco too: It’s not only the tourist and business travelers and property buyers from China that have suddenly evaporated; it’s that many tourists and business travelers from other countries have also cancelled, in fear of sitting next to an infected person on the plane or whatever.

When you drive around San Francisco or the Bay Area in general, the commuter arteries where tourists rarely travel are as horribly congested as ever, and the local weekend traffic is as bad as ever. But in the tourist areas, there is now a sort of a relaxed calm, with people leisurely circulating, enjoying the nice weather and the absence of massive crowds.

And where we live, it has gotten a little more laid-back for locals. If you’re not in the tourist trade, this is a welcome thing.

I heard the same thing about Kyoto, Japan, which in recent years had become overrun with Chinese mass-tourism, on top of having already been overrun with tourism from around the world. Kyoto is a spiritual place in the soul of the Japanese. But it had been impossible to get the spiritual side in recent years. All they got were huge, huge crowds. Now the people that are not making their living off those crowds, they’re reflecting on this sense of having returned to something like semi-serenity where there are still crowds, but not as relentlessly huge.

But for everyone in the travel and tourist industry, from airlines and airports, to restaurants, hotels, Airbnb hosts, event organizers, and to the cities’ revenue departments, which extract money from travelers at every twist and turn, this sudden disappearance of tourists and business travelers and potential property buyers already has major consequences.

If it persists for more than just a few weeks, if it drags out, as is likely, for months and perhaps for much of the year, for many enterprises in the travel and tourist industry – and we’re talking travel and tourist industry outside China – this kind of revenue evaporation will have catastrophic consequences.

You can listen to and subscribe to my podcast on YouTube.

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