COVID-19 brought a seismic shift to peoples’ lifestyles across the world. All industries have been affected by the pandemic to some degree, but lockdowns, shutdowns, and social distancing have hit some sectors much harder than others. Will businesses in these sectors be able to recover from the pandemic’s impact?
Five sectors – airlines, hospitality, sports, real estate and oil and gas/autos – were affected particularly badly by the COVID-19 pandemic. While it is not clear how businesses in these sectors will need to adapt to survive and thrive as the world enters the post COVID-19 recovery phase, it is clear that this recovering phase will be powered and led by technology and entrepreneurship.
International travel was one of the first things to be impacted by the COVID-19 pandemic. As countries closed their borders to halt the spread of the novel coronavirus, airlines saw passenger numbers plummet. A report from the International Civil Aviation Organization found that passenger numbers dropped by almost 2.7 billion in 2020 as airlines saw a reduction in revenue of $371 billion.
Most airlines saw their stock prices fall sharply as markets began to recognize the pandemic’s severity. Delta Airlines’ share price fell from above $62 in January 2020 to below $20 by mid-March. All other major airlines saw similarly steep declines. Delta and American Airlines are the United States’ largest commercial carriers. In 2019, both saw revenue from domestic flights of between $30 and $31 billion compared to international flight revenue of between $11 and $12 billion. In 2020 those numbers fell off sharply getting to historic 10-year lows. Prices for most airlines have recovered since then, but they remain far below their previous highs. As the COVID-19 vaccine is rolled out across the United States, domestic travel should see a more rapid return to previous levels than international travel. However, even domestically, airlines have a long way to go before they see a return to pre-pandemic passenger levels.
US President Joe Biden has made tackling climate change a key goal of his presidency. In the UK, the idea of a tax on frequent fliers has been widely discussed as a measure which could help the country reduce its emissions. These and other developments in this area may give airlines still more cause for concern.
2. Hotels, Food and Leisure Industries
The hotel industry was another industry hit hard by pandemic travel restrictions. By May 2020, economy hotels in the United States were reporting occupancy rates of around 40%, while luxury hotels saw less than 15% of rooms filled. Budget accommodation has fared better during the pandemic, as it is often used by essential workers such as long-distance truckers. The picture is similar around the world: management consultancy McKinsey & Company released a report in June 2020 which predicted that hotels wouldn’t see a return to 2019 occupancy levels until 2023.
Restaurants, bars, and other leisure venues were also affected immediately and dramatically by COVID-19. The picture has varied considerably across these industries, as the kinds and degrees of restrictions have differed over time and across countries and regions. Some areas have seen these businesses closed for most of the past year, while others have allowed these businesses to continue as normal. Between these two extremes, many businesses have seen their capacity reduced to allow for social distancing between customers.
The gradual easing of restrictions has had its most immediate impact on hospitality businesses, but social distancing restrictions remain widespread and the average food and drinks venue in some affected areas is operating at just 19% of its pre-pandemic capacity. The increasing rollout of vaccines means that restrictions on this sector should now be moving toward full relaxation. After an extremely difficult year, businesses that have weathered the storm can likely expect a bumper recovery period.
3. Sports and Live Events
While entertainment venues in general have seen a steep decline in revenue, the live events industry shut down almost entirely throughout the pandemic. This trend has also been subject to a great deal of regional and international variation. While many of Europe’s biggest music festivals have gone two years without being able to stage an event, the Sturgis Motorcycle Rally brought an estimated 460,000 attendees to South Dakota in August 2020. The latter event was later blamed for leading to the spread of 260,000 new cases of coronavirus.
Sports leagues across the world have seen games played at empty stadiums for most of the past year, but venues are beginning to open to spectators. After successfully curbing the spread of the coronavirus, Australia allowed 50,000 fans to attend a rugby league match in November 2020. In the United States, the NFL allowed a limited 25,000 fans to attend January 2021’s Super Bowl clash between the Kansas City Chiefs and the Tampa Bay Buccaneers. Similar restricted attendance levels have been allowed for some English soccer games.
Music events similarly appear to be opening up. The 2021 Reading and Leeds Festival – the event typically attracts crowds of over 100,000 across three days in two cities in the UK each August – is currently scheduled to go ahead. Many other music festivals across Europe are also expected to be welcoming fans this summer.
The picture across the United States varies from state to state. In March, Texas Governor Greg Abbott announced his state was eliminating all restrictions related to COVID-19. While other states have moved towards a more cautious reopening, it seems likely that concerts and other live events will proceed as normal by the summer.
4. Commercial Real Estate
Streets usually packed with shoppers, diners, or drinkers fell silent across the world as the pandemic brought major restrictions on everyday life. Many commuters started working from home during the pandemic. Both of these developments had a significant impact on the commercial real estate sector.
A report from the International Monetary Fund found a major year-on-year drop in transactions for hotel, retail, office and industrial real estate in all regions of the world for Q2 2020. The same report found that countries in the Asia Pacific region saw most commercial real estate sectors post positive year-on-year growth for Q4 2020. Industrial real estate in North and Latin America returned to previous levels by Q4 2020. All other regions saw commercial real estate transactions remain at a much lower level in Q4 2020 than Q4 2019.
Analysts recognized that many companies with an extensive main street presence have faced enormous financial difficulties amid the pandemic. In the United States, retailers such as J. Crew, Neiman Marcus, and JCPenney all filed for bankruptcy since the pandemic began. Other businesses which filed for bankruptcy include fitness centers such as Gold’s Gym and 24 Hour Fitness and movie theater chains Alamo Drafthouse and CMX Cinemas.
Other countries have seen a similar wave of high-profile bankruptcy proceedings. In the United Kingdom, the Arcadia Group sold its numerous bricks-and-mortar retail businesses to online retailers ASOS and Boohoo. All stores were closed as part of the deal. Other major UK retailers such as department store John Lewis have announced rafts of store closures.
The IMF report mentioned above predicts that a 5% occupancy rate resulting from the pandemic will lead to a 15% decrease in commercial real estate values over the next five years. This could have unpredictable knock-on effects for companies as many banks hold a stake in commercial real estate portfolios.
While the easing of restrictions on businesses means the worst of the pandemic has now passed for commercial real estate, it is likely that working from home and online shopping are going to permanently alter the sector.
5. Oil, Gas and the Automotive Sector
Existing trends in the oil and gas drilling sector were similarly compounded by the pandemic. Restrictions on travel and a big drop in commuting both led to a decrease in demand for oil. The sector which was already under societal pressure as world governments move to reduce fossil fuel consumption and emissions. These factors combined with an oversupply of oil to produce historically low per-barrel prices; in April 2020, the price of a barrel of oil entered negative territory for the first time ever, making a barrel of oil cost more to store than it could be sold for. The International Energy Agency projected that a $30 per barrel price for oil would lead to a drop in revenue of between 50% and 85% for leading global producers in 2020.
The countries hardest hit by the crisis facing the oil and gas drilling sector are developing economies with heavy reliance on energy exports. Countries with economies more than 50% dependent on this sector include Algeria, Iraq, Iran, and Timor-Leste. The contraction in oil prices has presented these countries with an enormous challenge.
Like oil and gas drilling, existential challenges to dominant business models in the automotive industry were exacerbated by pandemic conditions. As part of moves to tackle emissions and climate change, many countries are moving toward mandating that all vehicles sold be electric. It is little surprise, therefore, that Tesla is one of the few automotive companies which has emerged from the pandemic in a stronger position: the company’s stock price soared from just $85 in March 2020 to more than $880 in January 2021. Though the price has fallen back since then, Tesla has still made incredible year-on-year returns for its investors.
The automotive sector has also been impacted by the move toward working from home during the pandemic. COVID-19 saw 95% of German automotive workers furloughed. A report from McKinsey predicted a $100 billion decline in profits for the automotive sector in 2020.
Analysts therefore believe that the outlook for traditional automotive companies is mixed. Those that can adapt to the new circumstances surrounding the industry and transition to producing electric vehicles will be the market leaders in the near future.
There has been much discussion about what forms COVID-19 recovery will take. Many politicians have expressed their belief in a V-shaped recovery, where industries see sharp rises to return to previous pre-pandemic levels. As the world moves into the recovery phase from COVID-19, stakeholders in all business sectors will be hoping those optimistic predictions hold true.
While COVID-19 has brought sudden shocks to many industries, it has simply accelerated existing trends in others. The world will undoubtedly be permanently changed by the COVID-19 pandemic. Businesses will have to be agile in adapting to the new economic realities of the post-pandemic world, reinforcing the need for creative consultancy services at all stages of business development. Established consultancies have been tracking economic trends across regions throughout this period, providing industry-leading intelligence enabling investors and managers to minimize risk. Some boutique firms, such as Brazos Wealth (whose offices are in London), have turned to offering packages developed specifically with an eye to pandemic conditions, which enable clients and investors to keep abreast of the latest technological and organizational developments emerging in these unusually unsettled circumstances. Whatever form economic recovery from the pandemic will take, adaptation and support for adaptation will be key.
Rosie Patel, Brazos Wealth
+44 20 7199 5813