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Coronavirus: ‘severe’ impact looms for Asian travel-retail sector

Asian travel-retail sales in Hong Kong and globally are expected to be heavily impacted by the growing coronavirus crisis.

With airlines cancelling flights to and from heavily-affected areas of Mainland China and the Chinese government banning outbound tour groups, travel-retail giants are anticipating a hit in airport stores. China Duty Free Group has already closed its mall in Haitang Bay.

Airlines all over the world are cancelling flights to China, including Korea Air, Cathay Pacific, United Airlines and ANA. British Airways has suspended all direct flights to Mainland China until January 31, although its website shows no direct flights to the mainland through February as well. while the likes of United Airlines and Cathay Pacific Airways have also cancelled selected flights to China.

Stephanie Wissink, an equity analyst at Jeffries, said the coronavirus outbreak ahead of China’s peak travel season may impact travel retail sales, a high volume growth channel for beauty companies. 

“China outbound travel has been the largest driver of travel retail demand in the Asia-Pacific region and European and North American markets.

“Hundreds of millions Chinese consumers typically travel for Lunar New Year (January 25 this year). With the government now enforcing restrictions and limiting large celebratory gatherings, it is possible travel retail sales are negatively impacted,” she said.

“If health risks are severe and prolonged, we expect softer travel-retail sales  and higher China mainland sales. This impact coincides with the Hong Kong protests which have also diverted demand back into mainland China. 

“The coronavirus outbreak comes atop the Hong Kong protests which have impacted travel to Hong Kong.”

However, Wissink said reports from the ground in the mainland suggest compensating demand in stores there as locals purchase at home rather than abroad.

GlobalData predicted this week that global airport retail sales would reach US$48.2 billion this year, up 6.1 per cent over last, however it cautioned that the escalation of the severity of coronavirus could have a detrimental impact on airport passenger numbers, causing concern for airport operators and retailers.

Honor Strachan, principal analyst at GlobalData, said the prevention of travel for Chinese consumers will impact the performance of airport retail worldwide. 

“Over the last few years airport retailers, especially those in Europe, have tailored their propositions, integrated Chinese payment solutions and invested in Mandarin-speaking staff to target Chinese passengers and maximise sales growth opportunities. If outbound tourism from China suffers as a result of coronavirus, airport operators and retailers must adapt their strategies to target other passengers.”

It is nearly 17 years since the last major virus scare impacted the region – the Sars outbreak in 2003. Strachan said tourism spend in China collapsed during Sars, while visitor numbers to Thailand, Malaysia, Singapore and Hong Kong significantly dropped off, causing airlines to ground planes and reduce flight schedules. The Asian travel-retail sector was heavily hit at the time.

“Coronavirus has already dented retail and leisure spending across the Chinese New Year holiday due to consumers being encouraged – and in some cases forced – to stay in and avoid travel.”

He says any moves by foreign governments to extend advice to their citizens to avoid travel to China, passenger numbers and airports in tourism hubs such as Beijing, Shanghai, Chengdu and Xi’an will be negatively hit.

“Asia Pacific is forecast to be the fastest performing region for airport retail spend in 2020, with sales rising 8.4 per cent to US$21.7 billion – 45.1 per cent of the global channel. While this recent coronavirus outbreak cannot yet be compared to the impact of Sars, if the coronavirus continues to spread globally over the course of this year, its impact on tourism and economies, particularly across APAC, could be severe.

“Controlling the spread and severity of coronavirus over the next two months is vital.”

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