Flu shakes travel industry

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NEW YORK (CNNMoney.com) -- The swine flu outbreak has set off alarm bells for the $770 billion U.S. travel industry, which one expert warns could become the "ground zero" of the economic impact from this latest health threat.

"How significant could the flu be for the industry is the $64,000 question," said Geoff Freeman, senior vice president with the non-profit U.S. Travel Association.

"From a global perspective, this story is just 36 hours old," he said. "But from 9 a.m. [Monday] we've gotten dozens of calls every hour from hotels, theme parks, car rental companies, gaming and other prominent destinations like Orlando and Las Vegas. Everyone is immensely concerned. They're asking what is the plan? What do we do?"

At Travel Partners, a Broomfield, Colo.-based travel agency, 75% of customers who had booked flights to beach resorts in Mexico have already rescheduled or cancelled their plans.

"Everyone is taking a wait-and-see approach to how this plays out," said Chris Russo, the agency's owner and chairman of the American Society of Travel Agents.

"This is bad for business since Mexico is the No. 1 [vacation] destination here in Denver because it is affordable," he said

Alert level: On Tuesday, the World Health Organization elevated its alert level from three to four on its six-level scale. That means the agency has determined that the virus is capable of significant human-to-human transmission -- a major step toward a pandemic but not necessarily inevitable. (CNN.com story)

The travel industry had already been hurting from the recession as more people cut back on both business and leisure travel.

"We can adapt to these business cycles," Freeman said. "But the last thing we need when the economy's got you down and out are other problems thrown on top of it."

For instance, in the SARS outbreak of 2003, Freeman said travel to Southeast Asia fell between 20% to 70%, resulting in $18 billion in lost travel-related revenue.

Similarly, if the swine flu scares visitors away from the United States, it could drain millions of dollars from the struggling economy.

"The average overseas visitor to the U.S. spends about $4,000 per person per visit," he said. "So these international visitors are critical to our economy."

Domestic fallout: At the same time, Freeman is also very concerned about the fallout that the flu scare could have on domestic travel, which accounts for close to 90% of the industry's total revenue.

"When you travel, you spend money on a plane ticket, car rental, hotel, a local drugstore and sometimes even a dry cleaner," he said. "Your travel money funnels through the economy to all levels."

Jonathan Coughtrey, managing director with research firm Action Economics, agreed that the flu scare is like "another kick in the teeth" to travel and tourism industries.

"It would be particularly bad if people hunker down and feel it's just unsafe to travel," he said.

"If history is any guide, like with the SARS outbreak, we'll see a lot of hysteria and one or two months of panic," Coughtrey said. "Everyone will wear masks and airports will be half empty. Then vaccines will be developed and the situation will eventually be contained."

In the meantime, the airline industry maintains that it hasn't yet seen any significant reduction in travel volume in the past few days.

"One thing to keep in mind is that U.S.-Mexico travel is a very small percentage of the business," said David Castelveter, spokesman with American Air Transportation Association. The trade group lists all major American air carriers as its members.

"U.S. carriers operate 4,000 flights every week to and from Mexico, out of 360,000 total flights," he said.

"It is still too early to tell, but airlines are saying that they're only seeing minor fallout in traffic," Castelveter said. He added that airlines were still operating their full schedules to and from Mexico, although "with an increased level of awareness."