Some time ago, I wrote a post on business survival using a cash flow waterfall. (Cash Flow Waterfalls.)

In the past few weeks, we have seen the emergence of the Coronavirus (2019-nCoV) in China. Airline travel has led to the spread of the virus to numerous countries, including Australia. Strict air travel policies are now in force restricting travel from China and requiring self-quarantine measures by Australians returning from China.

South East Asia is in the middle of its tourism high season. Typically, this runs from November to March in places such as Thailand, Vietnam, Cambodia and Myanmar. Cash flow from the high season allows tourism operators to get through low season when less travellers visit these countries.

Travel restrictions on flights from China and Chinese travellers are likely to have a catastrophic impact on tourism operators relying on outbound tourism from China.

The 'fear factor' will impact other markets who normally visit South East Asia at this time. Traditionally, the US market is hyper-sensitive to disaster and medical-related events in Asia (think SARS, MERS, 2004 Tsunami). Expect significant cancellations.

Most tourism operators would now be throwing their 2020 sales forecasts in the bin. Thailand's tourism authority is pessimistically forecasting a drop in tourism of 80% year-on-year for January to April.

It is not clear how long it will take authorities in China and elsewhere to reach the point where new Coronavirus infections plateau and decrease.

For any tourism operator or ancillary business, it is essential to look at adopting a cash flow waterfall to manage creditor payments over the coming high season months and then over low season.

For those around during SARS, we remember the impact on tourism and companies asking employees to take leave or reduce to 3 or 4 day work weeks. There is always a light at the end of the tunnel but there will be some juggling of business cash flow between now and then.

PELEN

February 2020

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