As an optimist by nature most news items don’t warrant too much worry or concern, they are temporary ripples in life’s pond. COVID-19, or Coronavirus as it is still referred to, should if it hasn’t already concern most people, and certainly those in the hospitality business.
Why and what are the signals? It is worrying the people who control and legislate the world’s money.
World Banks
The US Federal Reserve cut US interest rates by half a percentage point last week, its biggest single cut in more than a decade, as a pre-emptive move to protect the economy from COVID-19. In the world of economics this is a very significant step and clearly indicates that the US Government is concerned.
Jerome H. Powell, Chairman of The US Federal Reserve on the same day as the cut said that further rate cut moves were possible. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, and for some time,” Mr. Powell said, adding: the ‘Fed’ was “prepared to use tools and act appropriately, depending on the flow of events.” Some US economists are even suggesting a return to zero rates being required.
President Trump has also made clear that he is prepared to further tighten limits on international travel in hopes of blocking the arrival of more visitors infected by COVID-19.
World Stock Markets
Today, as I write, stock markets around the world are plummeting, or maybe I should say continuing to plummet further from last week’s shocking downward spiral.
The FTSE 100 currently is down circa 7% and there is also wide reporting of the S&P 500 Index trading being ‘automatically’ closed earlier today to limit trading losses.
Trading on the S&P 500 Index today had a 15 minute halt take hold after it fell 7% to 2,764.21 as of 9:34 a.m. in New York, triggering the breaker for the first time since December 2008. The index extended losses to 7.2% when trading resumed at 9:49 a.m.
Another 15 minute stop will be triggered if losses reach 13%, a drop that would put the S&P 500 at 2,585.96. If the decline hits 20%, or 2,377.9, markets will close for the day. US traders have never seen a 13% or 20% breaker trip.
Oil
The key word across financial markets today is oil, and the fast falling price of oil is further driving down stock markets worldwide. One of the fundamental basics of economics is supply and demand, and demand for oil is diminishing. Commodity brokers are forecasting that Russia and Saudi Arabia’s disagreements over oil production levels will continue after oil consumption in Asia dropped as a consequence of the COVID-19 outbreak in the region, sparking the spat. The spat continues and grows as world travel drops and ego’s on both sides sees neither willing to have meaningful talks. There is lower demand for travel, and as a consequence less oil is required. As a consequence of less travel, less hotel rooms are needed, in China currently 80-90% of hotel rooms are empty.
COVID-19 the unwanted solution to hospitality’s people and skills shortages
For the UK hospitality and catering industry this crisis has only just started. This is true for the whole UK population as well as all businesses within it.
As I opened up with, I am an optimist by nature, always have been and always will be hopefully, but current circumstances requires pragmatism…
The potential scale of the impact on hospitality and catering businesses is still to be seen, and whilst the UK Government could potentially minimise that impact, much is still yet to unfold including the Government’s ability.
How bad can it get? Italy over the weekend effectively put 16 million people into lockdown. The unprecedented decree, that affects more than a quarter of Italians, forbids anyone from leaving or entering the new red zones except for exceptional circumstances until at least 3 April.
It applies to some 10 million residents in Lombardy – which includes the financial capital Milan – and another six million in the provinces of Modena, Parma, Piacenza, Reggio Emilia, Rimini, Pesaro and Urbino, Alessandria, Asti, Novara, Verbano-Cusio-Ossola, Vercelli, Padua, Treviso and the tourist hotspot of Venice.
What is happening to hotels and restaurants within this lockdown zone? Nobody knows for sure but everything other than essential services will stop.
One good sign from the UK Government is that it has recently stated it will act on science and fact, actions that many across the UK population have ignored through panic buying. Fear is a primary human emotion caused by a perception of threat of danger, pain, or harm. And it is fear that is driving many if not most people’s reactions to the threat from COVID-19 to date.
Also, this is the first ‘real stress test’ of the UK economy since the banking crisis, let’s hope the trial runs were robust and we are well prepared.
The impact on hospitality and catering businesses will be similar to the impact of the disease, it will affect most those businesses already in ill health or in a high risk category. The demise of Flybe last week being the best example. An airline with many ills that one more was just too much for.
Due to people and skills shortages already being endured, and other sometimes unseen difficulties, it is not difficult to see if the UK acts similarly to Italy it will bring about the demise of many hospitality and catering businesses. Germany and France are already showing signs of following Italy.
The unprecedented impact of COVID-19 worldwide currently indicates: unless it is managed by the UK Government with exquisite effectiveness, we will see a volume of business closures across hospitality and catering that is also unprecedented.
This could potentially see an end to hospitality’s people and skills shortages, but not how we had all hoped. I hope I am wrong with my instincts here, the indicators so far tell me I might not be.
Readers will notice that the ‘timing’ and ‘tense’ of this article was early afternoon today. It was, I then sat on it and watched live satellite television reports from the US and Europe mid and late afternoon to further gauge the situation. My perspective hasn’t changed and listening to many financial commentators from around the world, some may still call me an optimist.
I also received the notes below from UK Hospitality Chief Executive, Kate Nicholls, just after 8pm this evening. Nicholls is calling on Government for wide-ranging business support to deal with the threat of the coronavirus.
UK Hospitality Chief Executive, Kate Nicholls – “Hotel occupancy has (recently) fallen 15% while eating and drinking out has declined by 7%. The trade body has also warned that forward bookings across hotels, restaurants, pubs and bars has fallen by up to 50%.”
Nicholls has written today to Prime Minister Johnson saying: “Businesses are likely to be hit further as self-isolation becomes more widespread,” her letter calls on the Government to implement urgent measures.
The measured requested include:
- A moratorium on business rates for a minimum of 3 months, extendable dependent on the extent of virus spread; any quarantined area to have business rates annulled for the period of non-trading
- Business payment delay to ease cash flow (i.e. on VAT, PAYE and NICs)
- VAT cut for hospitality and tourism, to incentivise bookings, so that trade can resume as quickly as possible when the virus threat subsides
Nicholls went on to say: “Hospitality businesses are on the front line, so to speak. There has been a significant impact on the sector. Bookings are down, footfall is down, and all signs point to it getting worse before it gets better.
“This is now an emergency for our sector. If Government doesn’t act to mitigate the impact and give us support, businesses are in danger. This means cash flow becomes a problem, venues are under threat and jobs at risk.
“By the time the immediate threat of the virus has subsided it may be too late for some businesses. Support is needed and it is needed now.”
The measures proposed by Nicholls may seem ‘extreme’ to some, but we are at the onset of a world crisis that demands quick and decisive action.
STOP THE PRESS: As we publish Italy has just announced the entire country is now in lockdown, that’s 60 million people. The announcement at 9pm from Prime Minister Giuseppe Conte said: People would only be permitted to travel for work or family emergencies”.
