13/02/2020 - 10:22

Virus threat to group travel model

13/02/2020 - 10:22

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Individual tourists may get a more positive welcome than group tours. Photo: Du Preez on Unsplash

Tourism is the canary in the coalmine ahead of the global economic hit expected as China slows while dealing with the coronavirus.

Tourism may make a sizeable contribution to the Western Australian economy, but its sometimes-destructive effects on the environment and absorption of public services and facilities mean it’s not everyone’s favourite industry.

Governments may like tourism’s capacity to create jobs, but the coronavirus outbreak has introduced a new reason to suspect that the world is approaching peak tourism, which is concerning to WA when it’s considered Chinese visitors spent $347 million in the state for the year to September 2019.

Moving large numbers of people into small and often historic locations has always been a problem. Venice is the classic example of a destination that became so popular the locals left town.

Venice today is little more than an overgrown Disneyland on the Adriatic selling cheap souvenirs to hordes of tourists pouring in on trains, planes and monstrous cruise ships (with these ocean liners having played a role in accelerating the sinking of the city).

Bali is another example of a tourism favourite under pressure, in part overrun by badly behaved Australians, who give their home country a bad name while also annoying the locals.

However, the public health issues raised by the coronavirus are in another league because they create the potential for host countries to put up a ‘Tourists not welcome’ sign, which is already starting with the way some Chinese tourists are being treated.

Right or wrong, and probably based to some degree on racial and cultural prejudice, it is likely that the days of large Chinese tour groups being greeted enthusiastically are over.

Individual tourists from China will receive a warmer welcome but it’s in the group tours (when they restart after a Chinese government ban) that the real message is evident, because a lot of tourist accommodation and attractions have been built on the assumption of continued strong growth from group tours.

Cruise ship operators, especially those with vessels designed to cater for several thousand travellers per voyage, face a daunting challenge in marketing their appeal after what’s happened with the quarantining of passengers aboard the Diamond Princess in Japan.

It’s stretching the point but also understandable that the luxury ship has been called a contaminated prison.

In time, and assuming either the coronavirus is contained or a vaccine is developed (a task that could take years), the cruise industry will rebuild; but there will be a smaller pool of potential customers because of concern about what can happen when a large number of people are squeezed into a relatively small space, whether aboard a ship, a plane or a train.

The fact the coronavirus is believed to have originated in the densely packed Chinese city of Wuhan is also a fresh warning that overpopulation of any species brings health issues.

The biggest worry for businesses built around housing or transporting people in large numbers is that it’s highly likely several viruses similar to coronavirus are lying dormant, capable of causing future crises, given that this is the third of its type to emerge in less than 20 years (starting with SARS and then MERS).

It will take time to assess whether the latest coronavirus has a lasting effect on tourism and whether the world is heading to a point of peak tourism, but a failure by tourism-focused businesses to plan for slower future growth would be unwise.

What’s happened in other industries is a pointer to how a peak can be reached, though it’s generally only in hindsight that the tipping point can be seen.

Oil production is believed to be close to a peak as demand growth slows.

Conventional petrol and diesel cars are also approaching a change of direction as governments mandate a switch to electric vehicles.

Australia may have already reached peak car with January sales reportedly the worst in a decade, hit by economic uncertainty, bushfires along the east and south coasts, and warnings from government that a forced switch to electric cars could be on the way.

The increasing popularity of ride-sharing services such as Uber and Ola are also eating into car sales.

Younger potential car buyers are increasingly asking why should they buy a new car when it depreciates dramatically the moment it leaves the showroom, costs a small fortune to insure, license and run, and then faces the prospect of zero resale at some point in the future if petrol and diesel cars really are banned.

The tourism experience is like the car industry. After decades of unquestioned growth, a change could have started with potential customers wary of being exposed to health issues and host countries questioning the benefits.

Centralised retail

The decline of retailing, which has been analysed here on many occasions, took another big step-down recently in the US with the once-mighty Macy’s announcing plans to close 125 stores across the country over the next three years

Macy’s move followed similar cutbacks by other well known US retailing names, including JC Penney.

While the cause of the cutbacks is an accelerating shift by shoppers to online transactions, the effect on the once rock-solid business of owning a shopping centre is looking less attractive by the day, particularly second-ranking centres.

The Macy’s plan is to withdraw from what it calls ‘neighbourhood centres’, which are losing customers to bigger centres (a process also evident in Perth, where a similar culling process is under way).

A possible growth segment for centre owners is in the field of ghost kitchens, which are enjoying a boom thanks to the growth of home-delivered meals via services such as Deliveroo and Uber Eats.

International hotel operator Accor and the Simon Property Group are working together in the US to develop what they call ‘commissary kitchens’ in empty shopping centre space to fill orders for restaurant-quality food.

Like tourism, it is possible that the world is also approaching peak conventional retail thanks to the migration to online trading.

Pay for play

Sticking with a theme of an industry peaking, it’s hard to not see a familiar pattern developing in conventional free-to-air television as online services enjoy boom-time demand.

In Australia, Netflix has until now been the major threat to commercial television, but other services emerging from the US are enjoying the same high level of success.

Disney, which launched its Disney Plus streaming service in the US just three months ago, has already signed up 28.6 million paying customers, a perfect example of the shift by viewers away from free-to-air to a paid service model.

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