AS I SEE IT
Some tough decisions are ahead that may see some firms sacrificed to the pandemic, writes TERRY MURDEN
It’s never easy to let go, but as we edge closer towards the end of furlough it looks worryingly likely that some of those businesses clinging to the government’s jobs lifebuoy may be cast adrift.
Chancellor Rishi Sunak made it clear from the off that however many billions he threw at the economy to combat the impact of the coroanvirus he could not offer a guarantee of survival for every company. That is becoming a dawning reality for many running businesses at the frontline of the pandemic.
Airlines, cruise operators, travel agencies, hotels, tourist destinations, events, pubs and restaurants. They were sent over the top in the battle with virus and they won’t all come back.
Some have already shut their doors. The sad sight of Glasgow’s famous Rogano’s restaurant boarded up is symbolic of our times. The events and conference sector is clinging to the hope that it will survive with a blend of physical and virtual events, though many delegates and guests are now enjoying connectivity through cost and travel free online meetings. There is a tough test ahead persuading them to hop on planes and trains and fork out hundreds of pounds to listen to speakers they can currently hear from the comfort of their own homes.
What next? Could there be casualties among some of the bigger players in the economy?
The aviation industry is clearly exposed and the knock-on effects of a prolonged absence of passengers are obvious. As Russ Mould, investment director at AJ Bell said, investors in Rolls-Royce need a lot of belief that a recovery of some sort is on the horizon if they are to support aero engine maker Rolls-Royce’s £2 billion rights issue.
A big casualty among the airlines cannot be discounted. Virgin Atlantic survived, helped by having a billionaire shareholder. A turnaround in the sector’s fortunes cannot come soon enough for British Airways and EasyJet.
Fewer passengers and possibly fewer airlines could lead to airports shrinking or closing. In May last year 100,000 passengers passed through Exeter airport. A year later it handled just nine. The local council has deferred a chunk of its business rates, the best it can do under EU state aid rules.
Exeter’s plight is echoed throughout the industry. Prestwick’s potential – and still unidentified bidder – has pulled out, leaving its future once again uncertain. Regional airports rely heavily on one operator. Exeter was already in difficulty after the collapse of locally-based Flybe before the Covid crisis. Prestwick is heavily dependent on Ryanair maintaining services.
The crisis is not limited to smaller regional airports. Heathrow and Gatwick have been forced to make drastic cuts amid forecasts that overall, passenger numbers at UK airports could plunge by 40% year on year for the 12 months to July 2021 (Airlines UK).
Short of widespread and prolonged state intervention, some of which is prohibited by competition law, some big decisions will have to be taken on whether companies are rescued, or sacrificed. It won’t be easy, but the pandemic is creating conditions that make some businesses unsustainable.
Structural change is normally a result of advancements in technology. Ever since the arrival of factories swept away thousands of cottage industries, the economy has been constantly re-inventing itself. Horse-drawn carriages made way for motorised vehicles, steam trains were replaced by diesel, then electric. King coal was dethroned by nuclear, gas and wind power. Nothing is forever.
The aviation and hospitality industries are beginning to realise that this adage also applies to them.