US companies suspend China operations, restrict travel as coronavirus outbreak becomes global crisis - CNBC

Staff members, wearing protective suits, watch as a plane carrying 32 Mongolian citizens for their evacuation from the Chinese city of Wuhan arrives in Ulaanbaatar, the capital of Mongolia on February 1, 2020.

Byambasuren Byamba-ochir | AFP | Getty Images

Disney, Tesla, countless airlines and other global companies with significant footprints in China are suspending operations, temporarily shutting factories and instituting travel restrictions as they grapple with the coronavirus outbreak that's derailed commerce in China and sent global markets spinning.

Infections from the virus skyrocketed this week, topping 11,000 as of Friday and surpassing the total number of infections from the nine-month SARS outbreak in less than a month. The World Health Organization formally declared the pneumonia-like virus a global health emergency on Thursday, citing concern that the outbreak continues to spread to other countries with weaker health systems. U.S. officials followed suit on Friday, imposing mandatory quarantines on U.S. citizens who have recently traveled to the Hubei province, the epicenter of the outbreak.

Local governments in China have extended mandatory factory shutdowns for the Lunar New Year from Jan. 31 to Feb. 9, impacting U.S. companies from Walmart to Tesla. Analysts are beginning to sour on companies with exposure to China, pressuring some stocks. A slew of companies this week warned investors that as the impact of the virus continues to spread, and institutions respond, it threatens to disrupt sectors from travel and retail to technology that look to the Chinese market for consumer demand or cheaper manufacturing in China.

Most of the economic cost of the outbreak "is not related to the virus," said CEO of the World Travel and Tourism Council Gloria Guevara, who was the tourism minister for Mexico during the H1N1 outbreak. "It's related to the panic," and it can take between ten months and 19 months for tourism and spending in an area to fully recover from a local outbreak.

Most of the consequences of an outbreak like this are caused by mismanagement, lack of communication and panicked responses, Guevara said. She pointed to the SARS outbreak of 2003 as one example, saying it cost the global economy between $40 billion and $60 billion and cost China 2.8 million jobs.

"The management of the crisis is crucial. They need to be proactive and transparent. They need to work closely with the private sector and we need to not panic," she said of international health officials. "They need to contain the spread of the virus and we fully support that, but at the same time we need to take the necessary measurements to protect the sector."

Each company is responding to the situation in its own way: suspending operations, restricting employee travel, canceling holiday celebrations and more. Here's how some companies have responded so far:

Airlines

Delta airplanes sit on the tarmac at John F. Kennedy Airport (JFK) on January 31, 2020 in New York City.

Spencer Platt | Getty Images

The airlines sector is feeling the immediate impact of the coronavirus. Demand for travel to China has plummeted as the virus spreads. Many airlines reduced service to China earlier in the week, but after the State Department placed a "Do Not Travel" warning on China Thursday, airlines began to cut service entirely to China.

• Air Canada said Wednesday it is suspending all flights to Beijing and Shanghai from Jan. 30 to Feb. 29.

• British Airways, KLM Airlines, Cathay Pacific, Finnair, Turkish Airlines, Air France, Air Seoul, EgyptAir, Lion Air, Austrian Airlines, Kenya Airways, Vietjet and Lufthansa have also reduced or totally cut service to China.

Entertainment

People wearing protective masks sit with a Minnie Mouse balloon inside the departure hall at West Kowloon Station, operated by MTR Corp., in Hong Kong, China, on Tuesday, Jan. 28, 2020.

Justin Chin | Bloomberg | Getty Images

Similarly to airlines, entertainment companies with offerings in China are responding to the outbreak by suspending service. Disney has closed both its Shanghai resort and its park in Hong Kong. Meanwhile, cruise lines with ships in China are halting service and refunding customers. Here's how major entertainment companies in China are responding:

• Disney closed its Shanghai Disney Resort on Jan. 25, and it will remain closed until further notice. The company added on Sunday that it will temporarily close its Hong Kong Disneyland Park.

• MGM Resorts said it scaled back a Chinese New Year celebration at its Macao resort this past weekend.

• Royal Caribbean announced the suspension of three scheduled voyages through Feb. 8 for its only ship home-ported in China. The company said it expects the outbreak to hurt its 2020 financial results by 10 cents per share. If the travel restrictions in China continue past February, the company said it could cost the cruise line another 10 cents per share.

Tech

Tech companies this week warned shareholders on their quarterly conference calls about how coronavirus might impact their bottom-lines to kick off the year. Production at Tesla's new Shanghai factory has helped boost the stock over the past few months. The factory, Tesla told shareholders this week, will remain closed amid the outbreak. Here's how other tech companies are responding:

• Tesla CFO Zach Kirkhorn said on the company's quarterly investor call Wednesday that its new factory in Shanghai will remain closed for an extra week to week-and-a-half due to government restrictions caused by the coronavirus. "This may slightly impact profitability for the quarter but is limited as the profit contribution from Model 3 Shanghai remains in the early stages," he said.

• Microsoft said employees should "cancel all non-essential business travel" and that employees in China should work from home until Feb. 9.

• Apple CEO Tim Cook said the company is restricting employee travel in China. The company closed all of its corporate offices, stores and contact centers in mainland China through February 9. Apple has "some suppliers" in the Wuhan area, Cook told investors on Apple's quarterly conference call, and added that at least some of its manufacturing facilities elsewhere in China will remain closed until Feb. 10. Apple set an unusually large guidance range for the next quarter, which Cook said reflects the coronavirus outbreak and "the uncertainty around that."

Autos

Car manufacturers have said the outbreak likely won't hit U.S. consumers or substantially impact company operations. However, the largest car companies all have exposure in China whether it be through manufacturing or supply chain. Here's how the biggest manufacturers are responding:

• Fiat Chrysler said it has restricted travel to Wuhan as well as ten other Chinese cities, adding that the number could change as the situation evolves.

• GM said last week it has placed a temporary restriction on travel to Wuhan, where the company has a manufacturing base as part of a joint venture with China's SAIC Motor.

• Ford Motor said Friday it is extending the Chinese New Year holiday for two days until Feb. 2 and asking employees in China to work from home Feb. 3 to Feb. 7. The company said it expects to resume normal operations on Feb. 10. Meanwhile, the company said it has suspended all business travel to Wuhan and requests employees who have traveled to China to self-quarantine for 14 days upon their return.

• Toyota is keeping factories in China shut down until Feb. 9, a spokesperson said, adding that they "don't anticipate any impact to U.S. consumers."

Retail

A worker uses a thermometer to check the temperature of a customer as she enters a Starbucks shop as the country is hit by an outbreak of the new coronavirus, in Beijing, China January 30, 2020.

A worker uses a thermometer to check the temperature of a customer as she enters a Starbucks shop as the country is hit by an outbreak of the new coronavirus, in Beijing, China January 30, 2020.

Stores throughout the country are suspending operations and extending the Chinese New Year holiday for employees. The hardest-hit provinces have released official recommendations for company operations there, with some calling for suspension of operations and reduced hours at factories and stores. Here's how store owners are responding:

• Walmart, which has more than 400 retail locations throughout China, said last week it is following official recommendations but did not say if it has closed any locations.

• McDonald's said it has closed "several hundred" restaurants in Hubei province, the province of the epicenter of the outbreak, Wuhan. McDonald's CEO Chris Kempczinski told investors that while "China is a critical market for us and we're very concerned about the situation over there, its actual impact on our business is going to be fairly small."

• Starbucks said it has closed nearly half of its China retail locations. Executives said the Chinese locations that are still open have seen sales slow down.

• Coca-Cola has closed its China offices and a "good number" of factories are closed, CEO James Quincey said, adding that it's too early to determine the short-term economic impact.

— CNBC's Sunny Kim, Leslie Josephs, Amelia Lucas, Michael Wayland, Sarah Whitten, Dawn Kopecki and Reuters contributed to this report.

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2020-02-01 14:15:00Z
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