The reckoning of our age
With COVID-19 entering pandemic stage, any hopes of brushing away the outbreak as ‘business as usual’ have been dashed – it is difficult to be certain of how hard this will impact our interconnected existence but there are early indicators to give a taste of what is to come
A recent estimate by the International Labour Organisation put the resulting job loss from the economic slowdown at 25 million worldwide, which to put it into perspective, is a greater loss than that incurred during the 2008-09 Financial Crisis. This is no doubt a worst-case scenario, based on the supposition that governments around the world fail to act or act too late. This is also a preliminary estimate, with exact figures being quite some time away. All the same, there is first-hand proof-a-plenty for what happens when our fragile systems of commerce, healthcare and even governance are dealt an unexpected hand. Let us explore the evolving scenario for certain key industries with particular regard to the Indian context.
A crisis that emphasises isolation and social distancing as a response is going to hit the travel industry quite hard. The aviation industry has been the first major victim. An easy to understand summation of the panic and fears in the industry is the assertion made by the Centre for Aviation that states in no uncertain terms, most airlines across the world will go bankrupt by May this year if the current crisis continues. The report goes on to warns of the tendency for world leaders to respond to this aviation crisis with a fragmented action plan, largely drawn upon national lines and limited to bailing out a flag carrier airline or two without making any efforts to protect the larger industry. If the recent responses by several nations are any indicators, a fragmented response is indeed what we can expect.
Just this week, Qantas Airlines, Australia's national carrier announced that they were grounding all their international flights and standing down around 20,000 workers without pay until further notice and regarded it as the "biggest crisis aviation has ever gone through". It is important to note that the airlines did so even after being party to a $715 million bailout made available by the government for the Australian aviation industry.
Qantas isn't alone in this reduction, Austrian Airlines, Royal Jordanian and Ukraine International Airlines, among others have almost completely grounded operations and waylaid their employees with unpaid leaves. Most of the airlines, however, are in between phases with their operations limping along with cutbacks. Indian airlines are in this particular stage. Vistara has grounded all international operations but competitor IndiGo has made do with grounding 16 of its planes and asking all its staff to accept pay cuts to keep operations floating during the lull in flight bookings. Air India has also reduced its operations and made cost cuts across the board like reducing layover and subsistence allowance of flight crews. Rotational leaves without pay may also be on the cards. All in all, the Centre for Aviation has estimated that Indian airlines will see a cumulative loss of around $600 million during the January-March period. As such, the Indian government is considering a bailout worth almost $1.6 billion for the distressed industry to stop the situation from degrading further.
Tourism & hospitality
The World Travel & Tourism Council has estimated that the pandemic could in time affect close to 50 million jobs in the tourism industry worldwide to varying degrees. There are cascading effects for the hospitality industry, with everything from live entertainment groups to food and beverage caterers being affected. Conservative estimates for post-disaster recovery put the time required at ten months for the industry to largely bounce back, though this doesn't say all that much for the state of employment. Furthermore, the Council has stated that of these 50 million jobs to be lost, close to 30 million were limited to Asia. The numbers get even more discouraging when one considers the estimates released by the United Nation World Tourism Organisation (UNWTO) during the recent convening of the Global Tourism Crisis Committee. The organisation estimates that international tourist arrivals worldwide could see a 3 to 4 per cent drop in 2020, a reduction that amounts to $30-50 billion in lost revenue. The prospects for Asia and Pacific are even grimmer, with a reduction of 9-12 per cent for the same period in international tourist arrivals. In what can be defined as a commonly repeated warning and plea in the COVID-19 times, the organisation urged the world community to work together on averting the crisis rather than going it alone and suggested that this starts with giving potential travellers the confidence to postpone and not cancel their travel plans. The body also warned their mere infusion of cash into the industry will not be enough to save the innumerable small scale businesses that will be the first to fold during the crisis, a wider response is needed.
The hotel industry worldwide has given out scattered reports of occupancy rates, regardless of the size or scale of the hotel chain, not rising above 10 per cent across the board. The scale of the hotel chain is largely irrelevant in making this assessment because, as with most things, system shocks travel down the system and not up.
The scenario for the Indian hospitality industry is made even harsher by the fact that 15 to 25 per cent of the workers employed in large hospitality chains are contracted or casual labourers with little job security. These workers are already being subjected to the first rounds of cost-cutting. The Federation of Associations in Indian Tourism & Hospitality (FAITH) has put job losses in the tourism and hospitality industry at 3.8 crore or 70 per cent of the current workforce. A similar report by the Confederation of Indian Industry (CII) highlighted that the close to 80 per cent cancellation rate that has been reached in March for the whole tourism value chain in India is indicative of a pattern that will likely persist the entire year. Even the guaranteed April to September NRI footfall for Indian tourism, which accounts for 60 per cent of the total inbound visits during the time period is not encouraging with an expectation of more cancellations as the COVID-19 crisis drags on. Industry lobbies in India are looking for constructive government aid along similar lines as the rest of the world. They are asking a twelve-month moratorium on interest payments on loans from financial institutions. Additionally, they have asked for a twelve-month deferment of statutory dues such as the GST. There have also been calls for the PM to set up a direct fund that may be used to support basic salaries for employees in the industry for this year.
The COVID-19 crisis has worked to push retail even further into the direction of e-commerce as physical stores shutdown across the globe. No contact deliveries are set to become more common (so cash on delivery will see a slump) and brick and mortar stores will likely seek e-commerce tie-ups to move stalled product. Interestingly enough, initial studies have found that this shift to e-commerce has not affected the grocery segment quite as much with no country except Italy and now India seeing any real spike in online grocery shopping.
By and large, most larger retail brands have been able to set up some kind of safety net for their employees in physical stores with hazard pay becoming a more common phenomenon. Again, this is limited to larger retail organisations and smaller less organised retailers will likely suffer greatly, though the degree will vary. As some experts note, fashion stores will see a significant dip but furniture stores will likely see a rise. Luxury brands, in particular, are set to suffer setbacks as people spend less and the Chinese market, the largest target audience for the luxury goods market, remains in lockdown.
As of this moment, temporary shutdowns of retail stores and malls will have its immediate effects with global losses in the billions but its the future scenario which warrants most caution as there is simply no way of knowing how the fate of retail will work out if quarantine and isolation measures drag on past a few weeks. Detailed figures for loss on mall and brick and mortar store footfall will likely start pouring in when the current stage of shutdowns ends. Some brands have had a more public showing of their corona troubles. Case in point is Apple, which began the year with predictably strong growth expectations. Soon, however, expectations soured as Apple's reliance on China bit deep into its shares as factories and stores shut down indefinitely. Since then, the company stocks have fallen by as much as 19 per cent though many have called this as a temporary reaction to the crisis, with full expectations for a turn around when production kicks back into scale. All the same, much like any other company, Apple is expected to take its launch events this year to the digital space.
The Indian scenario is largely tied to the fate of the informal sector worker. In retail alone, the informal employment numbers reach 40 million, considerably larger than the 6 million formal sector employees. And it is these 40 million that work on a contract or daily wage basis that warrant concern as their fate in this crisis is unknowable for the most part. Physical stores are in similar straits, with 85 per cent of their monthly running costs being fixed, meaning a continuing shutdown will be crushing. Cash handouts are being considered as temporary relief for the industry but details are yet to be finalised.
As previously stated, e-commerce, already a dominant force in Indian retail, is further set to see profits in this period. Worth noting is the e-commerce section that caters to grocery needs and how they have gained considerable profit from the hoarding panic that is sweeping the nation. Fast-moving consumer goods such as rice, tea, biscuits, instant noodles, soaps, frozen foods, etc., are flying off the shelves with sales up by 15-45 per cent depending on product types. The larger cities have seen spikes of almost 80 per cent in online grocery shopping as panic buying takes hold. To keep up with demand, companies are expanding stock and ramping up deliveries while sticking to government guidelines on the sale of essential goods to discourage black market activity.
A sector with perhaps the least amount of quantifiable data to study in terms of COVID-19 impacts, banking, nevertheless, has very real concerns to address stemming from the failures of other related industries bringing up the old phantoms of mass loan defaults and deferred interest payments creating severe stress on the already fragile banking structures. Asia, which is seen as the main breeding ground for digital banking is expected to exert a negative influence as spending goes down across the board and potential investors are put off by increasingly insecure investment prospects. NPA levels for banks are expected to take a sharp turn up everywhere, particularly in Asia.
India has already seen a great deal of turmoil in its banking sector from the Yes Bank fiasco and the oncoming industry jolts will only serve to increase doubts about the health of Indian banks and the economy at large. With nearly 80 per cent of registered Indian companies reporting virus-related losses, RBI is expected to once again step in through various measures like reduction in policy rates, capital flow interventions and suspension of bankruptcy code for sectors like aviation and hospitality. Banks throughout India stand ready to offer relief to affected industries through eased up interest rates but only if RBI is willing to pick up the slack. These are early days for the panic and conclusive estimations of loss will follow shortly as and if the quarantine drags on.
Work from home
The biggest point of discussion amongst all this is whether our modernised, face-paced economic systems can accommodate the flexibility needed for effective work from home scenarios. The onset is not encouraging as 'stay at home' is more of a preferred industry norm than 'work at home'. There is a fair share of employee grievance accounts online about employees complaining about being made to come in for work and then being fired for inciting panic as certain organisations refuse to adjust its work structure. Tech companies have been the first adopters of the 'work at home' model with industry giants like Twitter, Microsoft and Amazon readying its staff with work at home capabilities. Cue the many productivity tools and apps that are seeing a surge in these trying times to decentralise the work structure like Slack and Basecamp 3. There are even encouraging discussions about a new 'work at home revolution' that could set in as the duration of the pandemic makes working from home the norm.
Encouraging innovations and wistful hopes aside, the 'work at home' scenario will likely remain a sadly limited scenario as non-tech companies will find themselves left out in the cold, with the brunt of that reality being pushed down on the workers. Many industry leaders, particularly in India have blamed poor technical literacy amongst its workers for this stagnant scenario. There has been a call for employers to take the effort to train non-IT employees in the needed technical skill to acquire a basic understanding of cloud productivity apps. Still, this isn't likely to become a norm with a fair few downsides.
To conclude, it is necessary to state that while this article has relied heavily on numbers to push points, numbers do have their limits. While numbers do add concrete impact to statements, they hide a much-needed human element. This can be evinced by the fact that while all industries are reporting bad numbers, there is clear optimism for a bounce back. Some of it based on prior experiences, while much of the rest is based on the faith that good sense and humane consideration will carry the day. Such trust is perhaps only possible in dire circumstances such as the one this pandemic has created.