Associated Press
HEADWINDS: Germany’s biggest airline, Lufthansa, says it will cut up to 50% of its flights in the next few weeks, depending on how the virus outbreak develops. It said it had seen a drastic drop in reservations, with all regions now affected. Lufthansa, which also owns Swiss airlines and several smaller regional European carriers, operates over 83,000 flights a month. The airline earlier announced plans to cancel all flights to and from Israel for three weeks after Israeli authorities announced tough restrictions on travelers from several countries.
The airline industry is among the hardest hit since the outbreak, forcing carriers to reassess their near-term financial expectations. An industry group said the spreading coronavirus could cost airlines as much as $113 billion in lost revenue. That figure, released Thursday, is four times the number released just two weeks ago by the The International Air Transport Association, which is imploring governments for assistance.
Declining reservations have rippled outward to commercial aerospace companies. “The impact on airline profitability appears to be worsening by the day, and the spread of the virus and the impact on air travel has rapidly exceeded expectations of just a few days and weeks ago,” wrote Ken Herbert, an industry analyst with Canaccord Genuity.
THE MACRO VIEW: Citing the outbreak Friday, Moody’s lowered its baseline growth forecasts for G20 economies to 2.1%, from 2.4%. It lowered its U.S. growth forecast for 2020 to 1.5%, from 1.7% and dialed back growth expectations in China as well. Moody’s said more downgrades are possible.
“Several plausible developments could lead to a far more negative scenario than our baseline forecast,” said Moody’s Vice President Madhavi Bokil. “A sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics.”
“Several plausible developments could lead to a far more negative scenario than our baseline forecast,” said Moody’s Vice President Madhavi Bokil. “A sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics.”
STOCKPILE ECONOMY: The spread of coronavirus, which has sickened more than 100,000 people worldwide and killed more than 3,400, has led to a wave of stockpiling. People are loading up on canned goods, frozen dinners, toilet paper, and cleaning products. Heavy supply runs are expected to last for weeks, resulting in a boon c or stores and also food delivery services.
Costco’s Chief Financial Officer Richard Galanti described the buying frenzy as “off the charts″ in a conference call this week. Shares of Wholesale Corp. of jumped almost 11% this week, one of the few gainers on Wall Street.
Instacart has reported a surge in demand for pantry items such as powdered milk and canned goods, as well as personal care products like hand sanitizer and vitamins. Sales of hand sanitizers in the U.S. soared 73% in the four weeks ending Feb. 22 compared with the same period last year, according to market research firm Nielsen. Sales of thermometers spiked 47% during that same period. Online purchases of toilet paper have nearly doubled and non-perishable items like canned goods rose nearly 70% during the January and February period, according to Adobe Analytics.
“This is a big time of anxiety, and we know the biggest source of anxiety is uncertainty,” says Stewart Shankman, professor of psychiatry and behavioral sciences at Northwestern University. “People are trying to get a sense of control by buying things you really don’t need. It’s a false sense of control.”
Thursday’s sell-off was triggered when Southwest Airlines warned of a “significant decline” in bookings and a rise in cancellations, and an industry trade group estimated that airlines globally could lose up to $113 billion in revenue this year. On Friday, Cowen analyst Helane Becker said the virus will test airlines’ claim that consolidation makes them better able to withstand big shocks.
Amusement parks could get hit by a double whammy with fewer people willing to travel or willing to be a part of large crowds. Walt Disney Co.’s Shanghai Disneyland and Hong Kong Disneyland parks have been closed since late January. The company announced earlier this week that its parks in Japan will be closed until the middle of the month. Shares of other theme park companies, like Six Flags, Cedar Fair and SeaWorld Entertainment have fallen between 30% and 45% in the past month.plan
Gyms are also getting hit on the anticipation that health buffs will shift to workouts at home. Planet Fitness has fallen 22% this month in heavy trading. Brunswick, which sells fitness gear, is down an equal percentage.
BUSINESS NOT AS USUAL: New disruptions in the work place are picking up pace. Gap closed its New York office and is asking employees to work from home until further notice after one of its employees became infected. The San Francisco clothing chain told The Associated Press that the individual was not in the office Thursday and is recovering at home. It could not be learned how the Gap employee contracted COVID-19.
Microsoft has asked its employees who can work from home to do so in the Seattle area. This means there’s less of a need for many of the company’s hourly workers, but Microsoft said it will continue to pay those workers their regular pay during this period.
Facebook temporarily closed a Seattle office after a worker was diagnosed with the virus. Amazon this week said one of its employees in Seattle, and two in Milan had contracted the coronavirus. All were quarantined. The company told told its Seattle area employees to work from home if possible.
Walmart restricted cross-border international travel to the most critical business trips, according to an internal memo shared by the company. Trips to its stores and clubs will continue, but the country’s largest employer has restricted travel to conferences, trade shows and other events. It canceled its U.S. Customer Conference in Dallas Dallas next week, opting to hold a virtual conference in its place.
ENERGY: Oil prices slumped more than 9% after talks between OPEC and non-member allies like Russia ended Friday without a deal on cutting oil production. The global economy was already slowing and the spread of the virus is certain to be a further drag on energy use. A barrel of oil could be had for about $42. The price was $60 per barrel at the start of the year, and that has fallen 17% in just the past month.
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