Tuesday, 9 June 2020

3 Industries That are Doomed - At least For The Near Future: Part 2


doomed industries




We already highlighted some industries that are taking a hit from the COVID-19 pandemic in our previous post. As things are changing rapidly and the COVID-19 situation is getting worse day-by-day, our list needs to be updated.

In this post, we’ll touch those industries that we left in Part-1.



1. Restaurant Industry


Although restaurants will see a spike in online and takeaway orders, experts think that the restaurant industry will experience a sharp decline in gross profits and eventually face mass closures. The reason industry experts give is that as 75% of any restaurant’s revenue is dependent upon its dine-in customer and as dine-in is not possible the way it used to be, restaurants earning will fall drastically and the rent and salaries will supersede the profits, forcing closures.



Adding to the miseries of the restaurant industry, restaurant owners have started charging ‘COVID-19 surcharge’ to customers’ bills. In these times of massive unemployment all over the globe and business shutdowns, are you willing to pay a COVID-19 surcharge?

After an outcry on social media for a COVID-19 surcharge, some restaurants withdrew the surplus tax.

Even if you decide to risk the virus and go have delicious à la carte, below are the things you have to do before you’re allowed to be seated by the restaurant management.

  1. Wear a mask
  2. Bring alcohol wipes plus a sanitizer bottle
  3. Keep a safe distance
  4. Wash hands frequently

According to new SOPs, you must enter a restaurant with a face covering and remove it while you eat or drink. If you want to talk in-between, put on the mask and talk. Now, that’s annoying. Hold on, you went there for a pleasurable experience. Wait a minute, that’s not pleasurable. According to a recent research, droplets produced in a conversation can stay afloat in the air for 14 minutes.

In short, if it’s so much of a hassle to dine-in, most of us would prefer staying home or ordering online or prefer a takeaway.


2. Airline (Travel Industry)


As of now, everyone has been affected by COVID-19 one way or the other and the travel industry is no exception. As a matter of fact, if I say the travel industry is the worst hit by the pandemic it would not be an exaggeration. Below is some research supporting my point.



Among others, Australia has officially banned international air travel because of the ongoing pandemic. Two of the largest countries in the world, the U.S and China, have completely banned air travel to-and-from their respective countries.

In late March, IATA (International Air Transport Association) estimated a $252 billion revenue loss due to low demand in air travel, overall, which is below 44 percent from last year, 2019. In May, IATA predicted the airline industry’s total debt could increase to a whopping $550 billion by the end of 2020.

Airports Council International (ACI) predicted a total loss of $97 billion due to low traffic and fewer passengers traveling. At present, there’s only demand for goods carriers and storage aircraft in the airline industry.

A world leading airliner, Delta Air, was celebrating $1.6 billion in net profits at the start of 2020, but soon came out to be the worst affected by the pandemic as it was short of cash and is planning to drop 10 air routes due to low demand.

In the US, experts predict 23 passengers on each domestic flight and losses amounting to $400 million per day as expenses like rent and aircraft maintenance, salaries would far exceed profits.

As people are reluctant to board a plane due to the fear of disease contraction and no vaccine in sight, the future of air travel looks bleak. Even if a vaccine is available experts say, it may be months, if not years, for airlines to operate as pre-COVID era.

Aviation consultant CAPA estimates a large number of bankruptcies by smaller airlines in the near future. As these estimates are already becoming a reality, Avancia is the latest one to file for Chapter 11 bankruptcy. Earlier Flybe (UK), Trans States (US), Compass Airlines (US), and Virgin Australia filed for bankruptcy due to the unforeseen impact of the ongoing pandemic.

Out of frustration, airlines have increased ticket fares manifolds making it almost impossible for a commoner to do air travel.

It is not all gloom and doom, S&P predicts that in the long term, once this disease subsides, air travel will resume to pre-pandemic levels. But the question is when will this disease subside? The answer is, no one knows yet.


3. Auto Industry


In times of pandemic/disaster, people go for life necessities rather than a luxury. I

would not necessarily buy a car during a pandemic and so would many of you. As a matter of fact, why would I go buy a car? Movement is restricted, people fear contracting the disease, most multinationals have allowed their employees to work from home even after lock-down is lifted, so if most of us need not to go to offices, we just don’t need a car. Now, let’s do a fact-check on why all is not well for the auto industry.

The global automobile industry was already going through a patchy path pre-COVID. Climate change, global trade wars, and competition due to technical innovation were already affecting the sales of new cars, and thus COVID-19 added fuel to the fire. Passenger car sales saw an 18.6% YoY decline in January. Car sales declined an astonishing 79.1% in February, which was the biggest fall recorded since 2008.

Experts are of the view that the auto industry may shrink to 15–25% matching the levels of the 2008 financial crisis, but there’s a difference between then and now. It was a financial crisis, big banks dissolved, there were a few bankruptcies, and that’s it, things started to get in order. Now, we’re facing a pandemic that has long-term repercussions. No one is thinking of investing, movement is restricted and people are in survival mode rather than going for luxuries.

The bad news for the auto industry doesn’t end there, large-scale manufacturing units remained closed for most of the first half of 2020, and it’s a simple calculation, no production, no sale. Although there’s virtually no demand, opening production units is just going to help spread the disease rather than spread the business.

On the finance side, things are not good either. It is estimated that auto industry losses would be around $5.7 billion, and Europe would be the worst-hit with overall losses amounting to $2.5 billion mainly due to disruption in the supply chain. International events like, Qatar Grand Prix, New York International Auto Show, 2020 Geneva Motor Show, that used to boost sales and investment are canceled or postponed.

The European Central Bank announced Pandemic Emergency Purchase Program amounting to €750 billion, which may help the auto industry survive for the rest of 2020. The ECB has relaxed its norms and expressed willingness to increase its size of asset purchase for as long as needed.

Here’s another terrible news, industry giants, BMW, Tesla and Honda remained closed for most of the first half of 2020. Even if they resumed production, there’s no guarantee of a rebound in sales as people are stocking up grocery and medicine rather than thinking of buying a car.

New health and safety protocols proved to be a final nail in the coffin as employees that already feared contracting the disease from crowded areas would now have to wear a face shield, gloves, protective gear, et cetera, prompting them to stay home rather than to go to the factory area in a spacesuit.

Yet another factor for the auto industry decline is the closure of dealerships. As most of the cars are sold via dealerships, if dealerships are closed down and car dealers are not dealing with customers, there’s no sale.


Conclusion


I think the devastating impact of COVID-19 is yet to be seen. Only time will tell that the industries that are mentioned above and in our previous post are able to survive the onslaught brought by this pandemic.


Tags: COVID19, future, doomed, industries


Related:

15 Future Predictions That Might Come True in The Year 2020 

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