How business fared in its coronavirus quarter

You may have mastered the present: calling colleagues on Zoom, schooling children at home, doing state-sanctioned exercises, incorporating live information, and looking for food.

You may even have a grip on the future, as one of the new breeds of amateur epidemiologists who confidently predict the path of the coronavirus.

But for me, and I suspect others, it is difficult enough to digest the recent past. The flood of news – as well as the reorganization of our lives at work and at home – made monitoring difficult.

It is therefore an attempt to recap three deadly months in business.

Airlines companies

Rescue agreements for airlines can imply that governments take stakes: dilute or destroy existing shareholders © REUTERS

It started in January with the cancellation of a few flights to China. Several weeks later, many countries banned travel from overseas cities, and airlines immobilized most of their fleets. The shares of Boeing, Airbus, Qantas, United Airlines and IAG, owner of British Airways, have all fallen by more than 50% this year.

Industry is pushing for bailouts. But there is public anger at the high rewards from investors who have left far too little capitalized to withstand this crisis. Rescue agreements can ultimately imply that governments take stakes: dilute or wipe out existing shareholders.

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Linear diagram of flights per day (7-day moving average) showing that the number of global flights has decreased

It is not all dark. While Virgin Atlantic is in trouble, the shares of its sister company Virgin Galactic are up by a third this year. If land destinations are banned, is there still space?

Hospitality

It will be more difficult for cruise lines to bounce back © AP

The travel crisis has also affected hotels. Marriott International announced last week that its hotels in China have occupancy rates below 15%. In North America and Europe, where closures are only widening, occupancy rates are less than 25%.

At least, hotels should rebound when the virus is controlled. It will be more difficult for cruise passengers, who have subjected passengers to horrible journeys. Carnival Corporation operated the Diamond Princess, which was trapped off the coast of Japan, trapping 3,700 passengers as the disease spread and killing at least 11 people. Westerdam bounced off the South China Sea after being refused port after port entry, and the Grand Princess was left floating off California.

Linear graph of rebased stock prices showing cruise lines affected by coronavirus

Cruise lines want a bailout but they are not at the top of the list. Part of their problem is that, although most of their operations are in the United States, their domicile is not: Carnival’s is Panama, Royal Caribbean’s is Liberia and Norwegian’s is Bermuda.

Energy

The shale boom has turned into a collapse, which is terrible news for Occidental Petroleum, which acquired Anadarko last year © REUTERS

The energy sector is even worse this year. Saudi Arabia’s decision to increase oil production while the coronavirus caused a drop in demand had a huge effect on prices, sending the benchmark crude below $ 30 a barrel.

The bottom of the stock market is littered with American producers with cool names and hard and cold declines: Targa, Apache, Diamondback, all down more than 70%.

At these oil prices, a large part of American production is not profitable: the shale boom has collapsed. This is bad news for Occidental Petroleum, which outbid Chevron last year to acquire Anadarko as part of a $ 38 billion deal, a major bet on shale. Now, Occidental is on a cost-cutting frenzy to try to redeem itself in the eyes of shareholders, including seasoned corporate thief Carl Icahn, and lenders, including Warren Buffett.

GM260307_20X Some of the big shale spenders cut hard

The rest of the industry is also embracing austerity. The problem is that the only remaining attraction for oil producers was a big dividend. It is now threatened. Among companies worth more than $ 100 billion, ExxonMobil is the worst performer this year. Even Saudi Aramco, the kingdom’s new oil champion, was hit by the low price. But it remains the world’s largest company at market value, at $ 1.5 billion.

Retail

Boom times for supermarkets as panicked consumers store toilet paper © AFP via Getty Images

As the stores lower the shutters, there are questions that will reopen. Take Kohl’s, one of the less successful large retailers this year. Before the crisis, incomes stagnated and profits were low. He has now had to close more than 1,100 department stores in the United States, withdraw his profit forecasts, warn of the dividend and use a $ 1 billion line of credit.

In theory, retailers with large online operations can stay in business, but in practice there is pressure to close them. Then one of the UK’s biggest fashion chains said this week that it would stop taking orders online because warehouse workers are “feeling more and more that they should be at home” .

It is, however, the time of the boom for supermarkets, as panicked consumers store toilet paper. Walmart is looking to hire 150,000 employees. The British supermarket chain Tesco is trying to hire 20,000 people.

Bar chart of advertised hiring plans (in thousands) showing some relief for the US job market

It should be time to shine for Ocado, the online-only grocer who has licensed his technology worldwide to supermarkets such as Kroger in the United States and Casino in France. But like many online retailers, it cannot move fast enough to keep up with the surge in demand. An alternative model, Instacart, based in the United States, which allows buyers to use a concert employee to do their shopping in a store, seems to have a more resilient model: it seeks to hire 300,000 buyers.

Technology

Office refugees turn to online communication tools © REUTERS

It is time for communication tools to extend beyond their first users. It’s a boom period for Slack instant messaging service – “simultaneous” users jumped 25% in two weeks to more than 12.5 million, he said.

Many office refugees have turned to the video chat site Zoom, which has doubled its share this year, making it the top performer among companies worth more than $ 1 billion. The second is Teladoc Health, which provides online medical consultations, useful when medical offices are closed and hospitals are full of coronavirus patients.

Facebook and Alphabet are enjoying higher traffic but are preparing for a drop in advertising revenue. Amazon has seen a surge in demand, but even its vast logistics network cannot fully manage the growth: it has started to restrict shipments to its warehouses of anything, except medical supplies and items of current consumption.

Column chart of millions showing that Slack benefits from a sudden increase in homework

For another batch of companies, uncertainty reigns. Private “unicorns” supported by SoftBank, like the real estate group WeWork, cannot continue to burn money forever in this environment. SoftBank itself seems fragile. Moody’s has reduced its credit rating, which has prompted the Japanese group to complain about its “biased and wrong opinions.” Meanwhile, the FT revealed that SoftBank had been discussing the privatization of Elliott Management and the sovereign wealth fund of Abu Dhabi Mubadala.

Media and entertainment

It’s time for Disney to launch its streaming service in Europe when kids are stuck at home © Bloomberg

Cinemas, casinos and sports stadiums are closed. But for media companies specializing in home entertainment, there has never been a captive audience.

But taking advantage of it is not easy. If you are a cable operator whose main selling point is live sport: no luck. Same problem, if you depend a lot on advertising. As the crisis continues and television production is halted, it will even be difficult to attract viewers with new series.

Column chart of operating profit (billions of dollars) showing Disney's profits by business unit

Many large media groups make hay in one part of their business while struggling in others. It’s a good time for Disney to launch its streaming service in Europe when kids are stuck at home, but that doesn’t outweigh the closure of theme parks and movie studios.

Industrial

Cars don’t sell, or even drive © AFP via Getty Images

It was all an act of bravado. While markets are already plummeting due to concerns over the spread of the coronavirus, private equity firms Advent and Cinven signed one of the largest takeovers ever in Europe, acquiring $ 17.2 billion euros from the Thyssenkrupp elevators activity.

They seem to think the ups and downs are manageable.

Top 10 European leveraged buyouts

The auto industry has suspended production in much of the world and is trying to keep money. Cars are not sold, or even driven. Ford got a $ 15.4 billion line of credit, General Motors executives are cutting wages, and Volkswagen has called on the European Central Bank to buy short-term debt.

Banks

© AP

The stock prices of lenders were hammered. The yield curve spent most of the quarter flat or negative, which gives them little prospect of net interest income.

But they are now in a better position than they were during the financial crisis, and those in the front row are reckless. It may be quite an act but it is done with panache. Goldman Sachs halted pandemic programming to announce a large salary increase for CEO David Solomon.

Bar chart showing the level one common share ratio (%) showing that banks are better placed now than they were during the financial crisis

Market volatility means trading revenues are expected to increase by approximately 20-30%. There are exceptions: ABN Amro managed to lose $ 200 million when a client went bankrupt. And while it is true that banks, particularly in the United States, have strong balance sheets since the 2008 crisis, they cannot withstand a depression. However, governments use them to get money to consumers. They will not be allowed to fail.

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