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Suddenly, That Beach Holiday Has Lost Its Appeal

Andrea Felsted

(Bloomberg Opinion) -- The deadly coronavirus has spread to European holiday destinations. That’s of huge concern to a travel industry that will soon be gearing up for its peak summer season.

When the outbreak emerged in China, worries centered on airlines and hotels in that region, as well as valuable outbound tourism from the country. But now the disease has shown up in Italy, and notably in Spain’s Canary Islands, shorter haul European travel is being drawn into the fray.

Shares in TUI AG, Europe’s biggest travel operator, have fallen about 18% this week, while those of the budget airlines EasyJet Plc and Ryanair Holdings Plc are down by about 20%.

Already reeling from the “flight shame” phenomenon, which has seen some environmentally conscious consumers shunning air travel, and disruption from grounded Boeing 737 Max jets, a global viral outbreak will have a profound effect on the confidence of travelers and vacationers everywhere.

Europe’s peak period for early holiday bookings, stretching from Boxing Day to the third week of January, ended just as the virus was emerging. The first Saturday in January is known as “Sunshine Saturday,” when holidaymakers hit the travel agents or, more probably, buy their flight and accommodation on the internet.

But even booked trips are at risk of cancellation as Europeans digest what’s happening in the Spanish holiday island of Tenerife, where 700 people have been contained in a hotel after several guests were found to have the virus. What’s more troubling for the travel industry is that most of their profit doesn’t come from early bookers, but rather from people who are buying holidays from now onward.

The outbreak in northern Italy is equally difficult for the airlines (it is a big part of Ryanair’s business) and travel companies, but that country tends to offer more upmarket destinations. The Canary Islands and mainland Spain — where some cases have also been identified —  are firmly in the middle and mass markets, so the impact there could be bigger. TUI AG’s RIU hotel chain has a strong presence in Spain and the Canary Islands.

Cruises, obviously, have been hit hard by the outbreak, given the pictures of passengers quarantined on ships being beamed around the world. That’s another big worry for TUI, which which has been building its ships business. Analysts at Morgan Stanley estimate that the volume of bookings has fallen by double digits across the whole of the cruise market in the U.S. and Europe in recent weeks.

If the outbreak is contained relatively soon, the effect on tour operators might be short-lived. Holidaymakers who have held off from booking should come back to the market. But if infections continue beyond May, as looks increasingly likely, the industry’s problems will intensify.

At this point, the travel groups are usually snapping up airline capacity for the peak summer months. As they make all of their profit during this period, a prolonged outbreak now would be doubly damaging. One poor summer season in 2018, because of a European heatwave, helped to sink the British travel giant Thomas Cook. That company was also burdened by more than 1 billion pounds ($1.3 billion) of debt, but it’s fate underlines just how dependent the travel industry is on the traditional beach getaway.

To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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