The coronavirus, which has caused fears of a global pandemic, could end up costing the Australian economy more than $1 billion dollars, according to UBS. The investment bank noted that the travel ban instituted by the Chinese government in the wake of the outbreak, which prevented tourists from leaving the country during the Chinese New Year period, alone could cost Australia around $1 billion in direct services. The impact could be even greater if the ban was extended or expanded, according to the bank.
Global markets have fallen to some extent as fears over the spread of the virus have grown. The Chinese economy will be the most adversely affected, as there will have been a sharp drop in spending over the Lunar New Year holiday period which will not be made up in the future. However, given China’s position in global supply chains, as well as its demand for goods and services, other countries may also feel the pain for some time. Tourism is one of the sectors to be most affected, given China’s contribution to the sector. As an example, Chinese tourists generate $20 billion in export revenue for Australia, which is bound to take a hit.
There has been an immediate impact on companies, including Australian ones, which have a large Chinese customer base. One of the affected sectors is the gambling sector. Two of Australia’s biggest casino operators, Crown and Star, are heavily reliant on Chinese high-rollers who specially come to Australia to enjoy real money gambling and play pokies. However, the coronavirus outbreak is expected to be a drag on earnings for this sector and these companies, with UBS estimating that VIP volumes could be down by as much as 50%. This will cause earnings per share (EPS) for the 2020 financial year to fall by 10%, and that for FY 2021 by 20%. Clearly, the travel restrictions around the coronavirus will hurt the Australian gambling industry significantly.
Elsewhere, Corporate Travel is also going to be hit hard, with firms cutting business trips to China. Asian travel currently makes up 20% of its bookings. Other providers such as Webjet and Flight Centre are at much less risk at the moment though, and will only be moderately affected unless the crisis spreads to other popular destinations such as Bali and Thailand. Nevertheless, if the coronavirus outbreak has a similar impact to that of the SARS virus in 2003, it is estimated that Qantas would lose about $500 million in earnings, while Virgin would lose $60 million and Sydney airport would see a 5% drop in its operating cashflow.
Australian shopping centres and luxury retailers are also poised to take a hit, while a fall in Chinese students travelling to Australia would negatively impact companies like IDP Education, where 25% of enrolments are by Chinese nationals, along with the broader Australian university and education sector. Another company noted to be vulnerable to reduced demand from China is Treasury Wine Estates, with 15% of its earnings coming from exports to China.
Thus, the negative impact of the coronavirus on the Australian economy, especially sectors like tourism and gambling, is clearly evident.
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