Hilton has recently closed down some 150 hotels in coronavirus-stricken China in expectation of plummeting revenues and an anticipated $25 million to $50 million loss for the upcoming year.
Hilton CEO Christopher Nassetta made the announcement at the company’s quarterly post-earnings conference call on Tuesday. The total number of closed locations roughly corresponds to 33,000 rooms.
Nassetta said the company based its expectations on the former SARS outbreak in China in 2003. “Assuming the outbreak lasts around three-to-six months, with an additional three-to-six month recovery period for the full year,” Nassetta calculated. He expected the measure would impact the company’s global RevPAR (revenue per available room) to go down by one percentage point, MarketWatch reported.
The coronavirus, officially named COVID-19, could impact the company’s worldwide profit by some $25 million to $50 million, when expressed in EBIDTA (earnings before interest, taxes, depreciation, and amortization—a commonly used metric in the industry). China roughly accounts for 2.7 percent of the company’s overall EBIDTA, according to The Motley Fool.
“We’re reporting at a time where we know a bunch but not that much relative to where this thing is going,” Nassetta said, indicating that these are preliminary assessments as the situation is evolving.
Hilton Shares were nonetheless up by 2 percent at $113.74 in afternoon trading following the announcement.
Coronavirus Outbreak Will Trigger ‘Deluge’ of Bankruptcies in China: Economist
As China expands lockdowns to many more cities to curb the spread of the novel coronavirus, a crisis of supply chain disruption will arise when all manufacturers run out of inventory due to the stagnation of labor, transportation, and procurement of supplies. A massive number of companies could collapse in China within one or two months, Liu Mengjun, a Taiwanese economist and researcher from the First Research Division of Chung-Hua Institution for Economic Research, predicted in an exclusive interview with the Epoch Times on Feb. 6.
Domestic Consumption and Urbanization
Currently, China’s service industry accounts for a higher share of GDP than the industrial sector, including manufacturing and construction industries; and in the long run, China will have to make the transition toward a domestic demand-driven economy, Liu said. But now, the coronavirus outbreak will have an impact on the country’s domestic consumption.
Urbanization, with tens of millions of people living in major cities, has also been an important factor driving China’s domestic demand, Liu noted. But it’s precisely the more urbanized regions that feel the greatest impact of the outbreak due to the lockdowns. The Wuhan coronavirus has thus also shaken China’s ambition to drive its economy through further urbanization.
Epoch Times reporter Wu Minzhou contributed to this report