Key performance metrics are down in the Caribbean. Could Zika virus fears be to blame?
BROOMFIELD, Colorado—Concerns surrounding the Zika virus’ impact on the travel industry have taken center stage in recent weeks. From warnings about this summer’s Olympic Games in Brazil to Major League Baseball’s decision to move its scheduled series out of Puerto Rico due to Zika fears, the public is watching and worrying.
A survey in April by Travel Leaders Group showed that 96.1% of American consumers indicated that the Zika virus has not affected their travel plans this year.
While that sounds very positive, the converse is that 3.9% of Americans did change their travel plans. A 3.9% drop in demand would have a fairly noticeable impact on occupancies, and data through April for the Caribbean hotel industry shows the effects already. Coming off a strong 2015, and despite a very modest increase in supply, all of the key performance metrics are down.
With close to half of the Caribbean demand base originating from the United States, we typically do not see such a sharp turn in performance unless the U.S. economy is in decline as well. While U.S. hotel performance through April hasn’t been robust, we continue to see respectable growth. The disparity in trends prompted a more granular review of Caribbean data, which revealed some startling numbers through the first four months of 2016:
It’s important to note that a weakened Canadian dollar and an East Coast blizzard in January also had some negative impact, and the Easter shift usually creates positive lift in March, but the overriding issue dragging down performance appears to be Zika fears.
On Marriott International’s first quarter earnings call, Arne Sorenson stated, “We're all watching for Zika in the Caribbean and Latin America and that could have had a few points of RevPAR impact to us in Q1 in that region. It will certainly have a few points of impact at least if not a bit more in Q2.”
Meliá Hotels International’s first quarter earnings narrative indicated that Zika caused some group cancellations and postponed reservations, thus affecting occupancy levels. Company officials further stated that due to this trend, they foresee hotels in the region using aggressive pricing strategies for the second and third quarters.
The public relations battle for the travel industry is difficult, in part because the media coverage of Zika is far more significant than other conditions that are more serious and more widespread. For example, dengue fever has a higher mortality rate and infections are at a record level in Brazil, yet there are calls to postpone the Olympics due to Zika. The World Health Organization even has aZika app, but they don’t have apps for Ebola or dengue fever, both of which are considered more serious.
To be fair, the Zika infection itself is not the problem, as it is fairly similar to a treatable bout of dengue. It’s the fact that Zika causes microcephaly and possibly other complications with fetal development that makes it so dangerous. So it is understandable that certain key demand segments will rethink plans for trips to Zika-infected locations. Pregnant women, honeymooners, destination weddings and groups with women of childbearing age are the mostly likely to alter their plans. A quick glance at U.S. census data shows that approximately 1.25% of the population is pregnant each year, and the majority of women giving birth are between the ages of 20 and 39, a core demographic of the traveling public.
While the focus has been on South America, Central America and the Caribbean, mosquito transmission of the disease has already spread to Cape Verde in Africa and parts of the South Pacific. The Centers for Disease Control and Prevention has issued travel advisories or more than half of the Caribbean island destinations as well as Mexico, Central America, most of South America and several Pacific islands.
Currently, all of the major airlines allow for flight refunds due to Zika concerns. The map below illustrates the areas most suitable for the Zika virus to thrive: