INTRODUCTION
2. MICRO RESET (INDUSTRY AND BUSINESS)
2.2. Industry reset
2.2.1. Social interaction and de-densification
travel and tourism, leisure, sport, events and entertainment. For months and possibly years, they will be forced to operate at reduced capacity, hit by the double whammy of fears about the virus restraining consumption and the imposition of regulations aimed at countering these fears by creating more physical space between consumers. Public pressure for physical distancing will endure until a vaccine is developed and commercialized at scale
(which, again, according to most experts, is most unlikely to happen before the first or second quarter of 2021 at the earliest). In the intervening period, it is likely that people may travel much less for both vacation and/or
business, they may go less frequently to restaurants, cinemas and theatres, and may decide that it is safer to buy online rather than physically go to the shops. For these fundamental reasons, the industries hit the hardest by the pandemic will also be the slowest to recover. Hotels, restaurants, airlines, shops and cultural venues in particular will be forced to make expensive alterations in the way they deliver their offerings in order to adapt to a post- pandemic new normal that will demand the implementation of drastic
changes involving introducing extra space, regular cleaning, protections for staff and technology that limits customers’ interactions with workers.
In many of these industries, but particularly in hospitality and retail, small businesses will suffer disproportionately, having to walk a very fine line between surviving the closures imposed by the lockdowns (or sharply reduced business) and bankruptcy. Operating at reduced capacity with even tighter margins means that many will not survive. The fallout from their failure will have hard-felt ramifications both for national economies and local communities. Small businesses are the main engine of employment growth and account in most advanced economies for half of all private- sector jobs. If significant numbers of them go to the wall, if there are fewer shops, restaurants and bars in a particular neighbourhood, the whole
community will be impacted as unemployment rises and demand dries up, setting in motion a vicious and downward spiral and affecting ever greater numbers of small businesses in a particular community. The ripples will eventually spread beyond the confines of the local community, affecting, albeit hopefully to a lesser extent, other more distant areas. The highly interdependent and interconnected nature of today’s economy, industries and businesses, comparable to the dynamic linking the macro categories, means that each has a rapid knock-on effect on the others in a myriad of
different manners. Take restaurants. This sector of activity has been hit by the pandemic to such a dramatic extent that it is not even sure how the restaurant business will ever come back. As one restaurateur put it: “I, like hundreds of other chefs across the city and thousands around the country, am now staring down the question of what our restaurants, our careers, our lives, might look like if we can even get them back.” [139] In France and the UK, several industry voices estimate that up to 75% of independent
restaurants might not survive the lockdowns and subsequent social-
distancing measures. The large chains and fast-food giants will. This in turn suggests that big businesses will get bigger while the smallest shrink or disappear. A large restaurant chain, for example, has a better chance of staying operational as it benefits from more resources and, ultimately, less competition in the wake of bankruptcies among smaller outfits. The small restaurants that survive the crisis will have to reinvent themselves entirely.
In the meantime, in the cases of those that close their doors forever, the closure will impact not only the restaurant and its immediate staff but also all the businesses that operate in its orbit: the suppliers, the farmers and the truck drivers.
At the other end of the size spectrum, some very large companies will fall victim to the same predicament as the very small ones. Airline companies, in particular, will face similar constraints in terms of consumer demand and social-distancing rules. The three-month shutdown has left carriers around the world with a cataclysmic situation of virtually zero revenues and the prospect of tens of thousands of job cuts. British Airways, for one, has announced that it will cut up to 30% of its current workforce of 42,000 employees. At the time of writing (mid-June 2020), the restart may be just about to begin. It will prove extremely challenging, with a recovery
expected to take years. The improvement will begin in leisure travel, with corporate travel to follow. However, as discussed in the next section,
consumption habits may change permanently. If many businesses decide to travel less to reduce costs and to replace physical meetings by virtual ones whenever possible, the impact on the recovery and ultimate profitability of airlines may be dramatic and lasting. Prior to the pandemic, corporate travel accounted for 30% of airline volumes but 50% of revenues (thanks to
higher priced seats and last-minute bookings). In the future, this is set to change, making the profitability outcome of some individual airlines highly
uncertain, and forcing the entire industry to reconsider the long-term structure of the global aviation market.
When assessing the ultimate effect on a particular industry, the complete chain of consequences needs to take into account what happens in adjacent industries, whose fate largely depends on what happens in the one
upstream, or “at the top”. To illustrate this, we take a brief look at three industries that entirely depend on the aviation sector: airports (infrastructure and retail), planes (aerospace) and car rentals (automotive).
Airports face the same challenges as airlines: the less people fly, the less they transit via airports. This in turn affects the level of consumption in the various shops and restaurants that make up the ecosystem of all
international airports throughout the world. Furthermore, the experience of airports in a post-COVID-19 world, involving longer waiting times, highly restricted or even no hand luggage and other potentially inconvenient
social-distancing measures, could erode the consumer desire to travel by air for pleasure and leisure. Various trade associations warn that the
implementation of social-distancing policies would not only limit airport capacity to 20-40% but would also likely render the whole experience so disagreeable as to become a deterrent.
Dramatically affected by the lockdowns, airlines began to cancel or defer orders for new aircraft and to change their choice of particular model, in so doing severely impacting the aerospace industry. As a direct consequence and for the foreseeable future, the major civil aircraft assembly plants will operate at reduced capacity, with cascading effects on the entirety of their value chain and supplier network. In the longer term, changes in demand by airline companies that re-evaluate their needs will lead to a complete
reassessment of the production of civilian aircraft. This makes the defence aerospace sector an exception and a relatively safe haven. For nation states, the uncertain geopolitical outlook makes it imperative to maintain orders and procurement, but cash-constrained governments will demand better payment terms.
Like airports, car rental companies depend almost entirely on aviation volumes. Hertz, a highly indebted company with a fleet of 700,000 cars overwhelmingly idled during the lockdowns, filed for bankruptcy in May.
Like for so many companies, COVID-19 proved to be the proverbial last straw.