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Here's How Bad The Coronavirus Could Be For American Hotels

As the number of coronavirus cases escalates, the outbreak and a sharp drop in tourism from China could have a significant impact on America's hotel market.

An aerial view of D.C.'s Central Business District and East End.

The daily death toll from the coronavirus surpassed 100 for the first time Tuesday, the Associated Press reports, pushing the total number of deaths above 1,000. The number of total cases on the Chinese mainland reached more than 42,000. The spread of the virus led several airlines, including United, American and Delta, to halt trips between the U.S. and China.

The number of visits from China to the U.S. is expected to drop 28% this year, according to a report from Tourism Economics.  That drop in tourists is expected to lead to a $5.8B loss in visitor spending this year across the U.S., and the loss of 4.6 million hotel room nights, the report found. Last year, Chinese visitors to the U.S. spent $34B on travel and transportation costs, representing 16% of all international travel spending in the country. 

"When you’re looking at the strongest market in terms of economic impact and spend not being able to travel to the U.S., there’s nothing ever good about that from our perspective, so there remains a degree of concern," said Destination D.C. President and CEO Elliott Ferguson, who also serves as chair of the U.S. Travel Association. 

D.C. ranked No. 10 among U.S. cities for visits from China in 2019.

The Tourism Economics report made its projections by looking at historical precedents such the SARS crisis in 2003 and its impact on the hotel market. STR Senior Vice President of Lodging Insights Jan Freitag said because of the way the coronavirus spreads and the airlines halting flights, it could lead to a larger impact on the hotel market than the SARS virus.  

"It is possible the impact could be more pronounced because of this complete travel shutdown," Frietag said. 

The decline in Chinese tourism could hit the D.C. area especially hard. China has been the No. 1 country for tourists coming to D.C. since 2013, and roughly 226,000 Chinese tourists visited D.C. in 2018, according to Destination D.C., the city's tourism organization. 

While the number of Chinese tourists coming to D.C. in 2018 was down 25% from the prior year, those tourists stayed for longer periods of time. The number of hotel room nights for Chinese tourists in 2018 was 442,000, up 72% from the prior year, according to Destination D.C. Total spending from all visitors to D.C. in 2018 was a record $7.8B. 

Destination D.C. has also taken special steps to court travelers from China, including a program called Welcome China, which certifies hotels and other businesses that are trained to accommodate Chinese travelers. Ferguson said Destination D.C. was scheduled to travel to China later this month but has postponed that trip, and is focusing instead on increasing tourism from other countries. 

“We’re watching this very carefully and realizing that until flights are allowed back in the U.S., we’re looking at a no-go in terms of the potential for visitation," Ferguson said. "But we’re cautiously optimistic that this is something we’ll be able to rebound from, and we’re looking at the opportunities for us in other international markets that continue to strengthen."

In addition to the direct impact of decreasing visitation from China, fears about the spread of the virus could lead to an overall drop in travel from within the U.S. and other overseas markets. R.W. Baird Director of Equity Research Michael Bellisario, who analyzes hotel REITs, said he sees more of an impact related to overall business travel than tourism from China. 

"It’s still early, but the indirect impact is what’s scarier, and business confidence," Bellisario said. "You don't have to have coronavirus in the U.S., but if companies are worried about it and say 'I don’t want my employees to travel,' then the markets they travel to like New York, Chicago, San Francisco, Los Angeles, Boston and Washington, D.C., those markets are going to get hit first."

The Hyatt Place National mall, a hotel owned by City Partners that is on the Welcome China program's list of certified hotels for Chinese tourists.

Foxhall Partners Managing Partner Matt Wexler said a group canceled a stay at one of his company's D.C. hotels recently and cited the coronavirus as the reason, even though they were not coming from China.  

"There's no doubt it could impact the D.C. hotel market and our hotels," Wexler said. "I'm not losing sleep over this today, but it's worrisome, and there's not a whole lot we can do about it. It's just another one of these external threats."

Wexler noted that in January 2019, D.C.'s hospitality industry was impacted by the federal government shutdown, another factor out of the control of the hotel industry. Just as with the shutdown, the coronavirus outbreak is occurring in the first two months of the year, which tend to be the slowest months for tourism in D.C.

"Frankly, December, January and February are not big tourist months," said CityPartners founder Geoffrey Griffis, whose firm owns multiple D.C. hotels. "Our business guests are still very strong, but I think that we should be anticipating some change in the tourism demand, depending on how long this runs for."

Donohoe Hospitality President Thomas Penny said he has not seen a material impact on the performance of his company's hotels because of the coronavirus, but he also said it could become a larger issue if it does not end soon.  

"We’re paying attention because historically, we see an increased number of Chinese visitors coming into the spring, summer and fall, so we’re monitoring it closely with the hopes it will begin to subside," Penny said. 

But even if the outbreak does end soon, hotel demand in the spring and summer could be impacted because many Chinese tourists begin planning their trips months in advance, Ferguson said. 

"The reality is for those that make plans three to six months out, and those that need to obtain a visa, they’re probably not going through that process, and therefore we’re going to see a hit, and the U.S. is going to see a hit," Ferguson said.