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We’re Not So Damn Smart
If you thought the coronavirus crisis was going to be short, sharp and over soon, Qantas CEO Alan Joyce has a message for you.
"The impact will be felt for some time," he said in the same press conference where he told reporters that he didn't expect international services to resume in the next financial year, which is just about to start.
That means Joyce is expecting Australia's international border to remain closed, at least for tourists, until July next year.
Even when that border reopens, he is expecting the number of international flights in 2021-22 to be just half of what they were before the coronavirus pandemic, and only back to two-thirds the following financial year.
That is a very different world from the globe-trotting lifestyle many Australians were leading before the pandemic, where a jaunt to Bali had become almost as commonplace, and often cheaper, than a road trip up or down the coast.
The Qantas boss is more optimistic about domestic travel, expecting that to get back up to 70 per cent of pre-pandemic levels this financial year, and totally back to normal by 2021-22.
That is, of course, assuming that regional outbreaks like Victoria's recent spike can be contained and state borders will therefore reopen.
But, make no mistake, this is far from a worst-case scenario.
As Alan Joyce said, the airline already had cash in the bank "that gave us enough runway to get to the end of 2021 with no borders opening and the environment in place".
Yet the Qantas management and board saw it prudent to hit shareholders up for an extra $1.9 billion to "take advantage of opportunities that emerge" after the crisis ends — no doubt in the hope there will be some bargains to be had snapping up airlines that were in a much worse state going into the crisis.
However, Joyce also observed that, "with the equity raise today, that gets us well through into 2022, into 2023.
"I don't think anybody is forecasting that this will continue [that long]. We have other, bigger problems if this continues well into that period of time."
Kiss goodbye to the 'V-shaped' recoveryRegardless, the move to permanently cut more than 6,000 jobs and save around $1 billion a year in costs proves Qantas doesn't see a rosy outlook — a so-called V-shaped recovery — even when international borders fully reopen.
And it's not alone.
A report out today from S&P Global Ratings, one of the three giant credit rating agencies, predicts it will take until at least 2023 for airlines to just get back to where they were in 2019.
"While consumers may be permitted to fly, ongoing and uncertain restrictions and the loss of confidence by passengers will likely keep air travel below 2019 utilisation levels through 2023," the analysts warned.
"More broadly, we expect consumers will make permanent shifts in how they work, shop, and spend their leisure time even after a vaccine becomes available."
Now we've been video-conferencing for the past few months, will there be as many business trips?
Probably not, given that most firms are desperately trying to cut costs to survive COVID-19 and will be hoping to keep them down as they recover lost profits.
Even if a vaccine becomes available, will people who are still unemployed, on reduced hours, or facing deferred mortgage or rental debts really be opening up their wallets for a holiday?
Share traders clearly got the message. The ASX was down around 2 per cent in the middle of the trading session, with virtually every sector lower, and travel agencies losing almost 10 per cent of their value.
The kangaroo in the coalmineThis is why Qantas is something of a kangaroo in the coalmine for Australia's entire economy.
While we often think of air travel as an essential part of modern life, it isn't.
The pandemic itself has demonstrated how life goes on — albeit perhaps diminished — without global, or even domestic, travel.
That's one reason why industry forecaster IBISWorld expects more than 7,000 tourism operators to go out of business in Australia due to the coronavirus recession.
It's also why it expects that it will take until 2024-25 for new businesses to replace the ones that folded.
But this doesn't just apply to airlines and tourism.
How many of us are going to be working more often from home even after the pandemic ends? What effect will that have on cafe spending, especially in CBDs, as people go out less often?
What impact will the accelerated shift from physical to online retailing have, as shop assistants are replaced by warehouse staff and delivery drivers?
Moreover, how long will it take for consumer spending just to return to pre-pandemic levels as unemployment remains high into 2022 and probably well beyond, especially once increased government benefits such as JobKeeper and JobSeeker come to an end?
Governments stand between recession and depressionThe difference between a recession and a depression is whether you get sucked into a downward spiral of falling demand and prices, rising unemployment and falling wages, and falling consumption that then leads to further declines in demand.
While the Qantas cost-cutting makes complete sense from an individual business point of view, if too many companies take the same approach then Australians will start to find out what a depression's downward spiral looks like.
This article first appeared on www.abc.net.au
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