What Impact Will COVID-19 Potentially Have on the Travel Industry?

In recent news, the novel coronavirus was officially declared a pandemic. Even if you’re social distancing, it’s impossible to miss the deluge of reports about the coronavirus flooding news feeds one after another.

Gauging Fear Levels

By listening to consumer mentions of the coronavirus on social media, we, at LikeFolio, can monitor relative fear levels among the public in near real time. The consumer mentions data seeks to measure how news of the virus’s spread is impacting consumer spending behavior, and how it may potentially then impact company revenues. 

To give scale to the volume on figure 1, out of the more than 270,000 keyword phrases we track at LikeFolio, “coronavirus” is currently the most mentioned phrase.

LikeFolio Fear Index

The surge in coronavirus mentions is also palpable in the financial world. Compare how different indices have fared since the red close on Friday, February 21 (through research completion on March 24): 

• SPX: -28.2%
• DOW: -30.7%
• QQQ: -21.7%
• VIX: +246.0%                                                                                                                                                                                                                                                                       

We are closely monitoring the investor fears that are a major driving force behind this period of volatility. LikeFolio’s proprietary Fear Index analyzes and measures the velocity of tweets indicating negative investor sentiment over time. 

The only event in LikeFolio’s Fear Index history that resulted in a larger daily spike was related to the Dow’s single largest one-day point drop up to that point.

The LikeFolio Fear Index is an essential tool we use to identify tipping points in investor sentiment so that we can see signals around when investor fears begin to subside.

Industry Impacts Due to the Coronavirus

So, what industries are most impacted by consumer and investor fears tied to the coronavirus? 

The first sector that comes to mind is travel.

The estimated market size of the U.S. tourism industry (measured by revenue) was estimated to be $1.0 trillion in 2020. 

Recent travel restrictions and fears related to the coronavirus can be expected to severely impact this sector.

Impacts to the travel industry include:

• President Trump suspended travel from Europe for 30 days.
• Carnival Cruise announced the suspension of global operations for 60 days.
• Airlines across the globe reduced capacity to restrict global movement. See a breakdown of who is flying, and where. 

LikeFolio data confirms travel discussions are increasingly prevalent in coronavirus mentions. Figure 3 shows that the percentage of coronavirus mentions related to travel is increasing at a steep rate.

What action are consumers taking? Cancelation. 

Figure 4 below shows mentions of consumers canceling travel plans. From Tuesday, March 10, to Thursday, March 12 (a period when travel restrictions were announced), travel cancelation mentions increased by 347%. This number has since leveled off as many consumers in the U.S. heed government warnings to reduce social exposure.

In the meantime, the market has absolutely demolished the stock value of travel companies. However, it is notable that as of March 24, consumer sentiment for each airline has not been significantly impacted by the coronavirus outbreak.

The virus crisis, while certainly producing negative short-term effects on booking and revenue results, does not appear to be shifting the overall sentiment of the consumer toward the airline industry. 

Figure 6 below displays mentions of consumers indicating “I will never take a cruise.”

The only comparable spike to coronavirus fears was short-term and occurred when the Viking Sky cruise ship was stranded off the coast of Norway.

We’ve also noticed a rapid drop in consumer sentiment for two big cruise names: Carnival Corporation (CCL) and Royal Caribbean Crusies (RCL).

It’s important to note that the early winter months are typically the season when we expect an uptick of happy customers in the cruise lines as people generally comment on their positive travel experiences. In fact, January to March is what is known as “wave season” in the cruise industry because a large percentage of cruisers book trips in the early months of the year.

Conclusion

LikeFolio will continue to monitor consumer behavior in the travel industry, alongside consumer and investor fears related to the coronavirus. 

Andy Swan is not a representative of TD Ameritrade. TD Ameritrade and LikeFolio are separate and unaffiliated companies. The views and opinions expressed in this article are are solely those of the author.

Social and consumer sentiment data should not be used alone when making investment decisions. Please consult other sources of information and consider your individual financial position and goals before making an independent investment decision.