Can Industries Bounce Back after the Coronavirus Outbreak?

Dealing with Consequences:

Can Industries Bounce Back after the Coronavirus Outbreak?

Massive layoffs, bankruptcies, complete closures, billions in lost revenue… Since the beginning of the coronavirus outbreak, global sectors and industries have been facing overwhelming challenges. Travel and transportaঞ on, automoঞ ve, manufacturing, electronics, retail, oil, and gas — the spread of the virus have forced many industries to stop or slow down their physical operaঞ ons, and while each of these industries is juggling with its own specifi c set of struggles, many of their challenges are shared ones. What is more, as the number of infecঞ ons in different countries is beginning to rise again, businesses and industries are facing some more bad news and uncertainঞ es about the future. Let’s take a closer look. When you think about it, few industries have fallen as far and as fast as tourism. Before the pandemic, the industry counted as much as billion trips per year. But the coronavirus outbreak managed to erase more than a decade of growth, returning the industry to 2006 levels. The Internaঞ onal Air Transport Associaঞ on (IATA), which has 290 member airlines, predicts a global loss of $84,3 billion this year. The global industry group expects airline revenues to plunge as much as 50 percent, to $419 billion this year from $838 billion in 2019. Alexandre de Juniac, CEO of the group noted that “Financially, 2020 will go down as the

worst year in the history of aviation. There is no comparison. On average, every day of this year will add $230 million to industry losses.“ To illustrate this even be‚ er, we have one more impressive number for you right here: about 17,000 aircra[ — or more than 60 percent of all planes — are currently grounded due to the coronavirus pandemic. The passenger numbers are also in decline by 50 percent — to 2,25 billion — in 2020, roughly matching the level seen in 2006. Roger Dow, president and CEO of the US Travel Associaঞ on, said that “The impact on travel is 6 or 7 ࢼ mes greater than the 9/11 a‚ acks.“ Many airlines haven’t survived the coronavirus pandemic: Virgin Australia, LATAM, Thai Airways, Flybe, Miami Air Internaঞ onal, SunExpress Deutschland, Level Europe, South African Airways, Compass Airlines, RavnAir… And others are facing uncertainties about the future: for example, the Middle Eastern operator Emirates Group noted that they “expect it will take 18 months at least before travel demand returns to a semblance of normality.“ Those airlines that managed to survive the coronavirus pandemic, on the other hand, did it mostly because of the ability to access government support. In May, IATA estimated governments had provided around $123 billion in fi nancial aid to airlines during the crisis, which $67 billion has to be repaid. Hoping to take the fi rst steps towards jumpstarঞ ng air travel and tourism, a growing number of countries have allowed the travel industry to promote the so-called ‘travel bubbles’ and ‘corona corridors’. Basically, these agreements with neighboring regions allow travel across borders for non-essenঞ al trips without having to stay in quaranঞ ne once arrived. Peter Cerda, the Regional Vice President in the Americas for IATA, says that “We are at a period of ࢼ me where we need to learn how to co-exist with the virus. We are confi dent we can transport passengers safely, effi ciently, and ensure we are not a vector of the virus.” However, passengers are not so eager to come back to planes just yet: IATA released public opinion research, which showed that 55 percent of passengers say they’ll wait at least 6 months before traveling again, and 66 percent noted that they would travel less for leisure and business in the post-pandemic world. Despite these numbers, commenঞ ng on the current situaঞ on, Cerda noted that “We have to slowly start reopening air travel. It’s not only about people but about helping to generate economic prosperity again and getting the economic engines going in each country.” Speaking about the future, IATA says that the worst of the coronavirus crisis may be over for the airline industry, provided that another and more damaging wave of COVID-19 infections is prevented. However, even under its most posiঞ ve outlook, IATA sঞ ll projects passenger traffi c in 2025 will remain 10 percent below the levels originally anঞ cipated before the crisis. The revenues are projected to rise to $598 billion in 2021, reducing the industry’s net loss that year to $15,8 billion. Another industry that has been hit extremely hard by the coronavirus pandemic is energy, specifically oil and gas. With demand falling off the cliff , the markets have been thrown into turmoil, with a barrel of crude dropping to just over $22, it’s lowest level in almost 18 years. To compare, at the beginning of 2020, crude indices were trading at $60-$70 per barrel. The spread of the virus has forced many oil and gas companies to either stop or slow down their physical operaঞ ons, and the impact of the pandemic is sঞ ll very real in this sector, as companies are struggling with declining demand, ensuring employee safety and business stability, as well as oil price war between Russia and Saudi Arabia. Speaking about the future, the International Energy Agency (IEA) says that it did not expect oil demand to return to pre-pandemic levels before 2022 due to a slump in air travel. Faঞ h Birol, the head of the IEA, noted that “In a few years’ ࢼ me when we look back on 2020, we may well see that it was the worst year in the history of global oil markets.“ However, Ben van Beurden, Royal Dutch Shell’s CEO, has a different view on the current situaঞ on. In April, in the very midst of the coronavirus pandemic, the company set an ambition of becoming ‘a net-zero emissions energy business’ by 2050. Van Beurden noted that such a crisis was “a moment of opportunity“ for people to re-evaluate what was important in their lives, “and emerge more united in tackling the urgent challenge of climate change.“ He also added that “Society must remain focused on the longer-term challenge of climate change. Because it hasn’t gone away. It sࢼ ll needs urgent acࢼ on.” But just like with every industry, the pandemic did not hurt every player in this fi eld equally. Smaller companies are struggling to survive and many of them are deeply indebted a[ er years of producing oil at a loss. Analysts esঞ mate that many of those small companies could go bankrupt even with prices at $20 per barrel. At the same ঞ me, bigger players may emerge with greater market share and greater profitability, as some

of their biggest compeঞ tors will be gone. Mark Haefele, a chief investment offi cer of UBS, a Swiss mulঞ naঞ onal investment bank and fi nancial services company, noted that “Current low prices will force some companies out of business, but we are also convinced that the global oil industry will survive this crisis.“ One of the most interesঞ ng aspects when it comes to the coronavirus impact on diff erent industries is the fact that the eff ects of the pandemic can vary signifi cantly from sector to sector, product to product and service to service. This is what’s been happening in the retail industry lately. For example, some companies are reporting negative trends in one branch of their business, while reporting positive numbers in the other. John Frigo, an affi liate manager for My Supplement Store, noted that “While tradiࢼ onal sports nutriࢼ on supplements like fat burners, prohormones and pre-workouts are down in sales, vitamins and immune-boosࢼ ng supplements are up, we’re having some of our biggest sales weeks ever.“ According to data from IMRG, UK’s online retail associaঞ on, a few sectors that have recorded impressive online growth in the retail industry are the beauty sector, followed by electricals, home and garden, and alcohol. In the meanঞ me, the clothing market saw online sales drop 20 percent year-on-year. While we’re speaking numbers, Emarketer, an independent market research company that provides insights and trends related to digital markeঞ ng, media, and e-commerce, esঞ mates that worldwide retail sales are expected to hit $23,4 trillion in 2020, down 5,7 percent from 2019, noঞ ng that both the magnitude of the downturn and the pace of the recovery will be harder on the retail market than the 2008 fi nancial crisis. Recovery of the industry is expected to be slower not only because consumers have changed their habits, but also because of disrupted supply chains, slow exports, and high unemployment. Richard Lim, chief executive of Retail Economics, an independent economics research consultancy firm, noted that “Clothing retailers were the hardest hit as the absence of social interaction, whether that's going to work, seeing friends or heading off on holiday, decimated demand for new outfi ts.“ For example, in China, physical retail locaঞ ons have already

reopened, but consumer spending is nowhere near where it was before. One case study shows that nearly 90 percent of H&M locaঞ ons in China were open by mid-March, but sales were still down 79 percent yearover-year, according to Inside Retail Asia, Asia’s leading authority on retail industry news and trends. And when demand does rebound, it might be too late for some retailers, keeping in mind that many of them were already struggling even before the pandemic, mostly because of a long-term shi[ to online sales. When you think about it, the challenges caused by the impact of the coronavirus pandemic are unprecedented. Diff erent industries are put under abnormous pressure by the current crisis and have to fi nd new ways to cope with the upcoming uncertainঞ es. Some of them will probably bounce back more easily than others, but, as Machiavelli once said, we should “Never waste the opportuniࢼ es off ered by a good crisis.“