It's a temporary layoff and it's exactly what they should be doing. When they lay off the employees, they are able to collect unemployment benefits from the government. It's a perfect strategy so that the employees will be ok instead of not receiving wages. once things rebound, they can hire them back again and all is good.
While I agree with your point in general, Norwegian is done. They've got a heavy debt burden that's due soon. They will either go bankrupt and be restructured, or have to do a wipeout-level stock offering (unlikely in the current risk climate).
Let's see what happens. But Norwegian privately owned, so if the state does bail them out, I sure as hell hope they wipe out the common shareholders in the process. This culture of moral hazard, "privatize the profit, nationalize the risk", is pure bullshit.
I probably agree with providing liquidity in the form of some sort of short-term loan in order to live through a completely unexpected macro crisis, if it's done on equal terms to everyone. But Norwegian won't survive that either, I think.
Yes, this! I wouldn't be happy as a shareholder if this happened but if the last resort for a company is a government bailout the government should own the company and benefit from the recovery.
Well. We Norwegians joke that SAS stands for "svensk alt sammen" (Swedish all together). Some of us consider Norwegian Air Shuttle to be more of a Norwegian airline.
And yes, a bailout is likely. The govt will likely help keep Norwegian Air's planes flying during the Coronavirus period. Additional help is possible.
Looking only at state ownership, the Swedish and Danish governments own about the same share of SAS (~14%) and 1/3rd of the company stock is privately owned.[1]
> Having lost money each year from 2017 to 2019 and raised cash from shareholders on three occasions, the company’s debts and liabilities had grown to 82 billion Norwegian crowns ($7.9 billion) by the end of last year.
Some have debt, most of the ones where I am do not though. You have depreciation, which is non-cash. Even staff costs have a variable component based on hours flown, although (where I am) they still have to pay a base salary.
(Btw, just generally...most airlines are run very efficiently. They are huge enterprises deploying these big expensive assets, and they run with very little capital. Obviously, this does vary by strategy but the low-cost airlines usually turn their capital more than once...just looking at $LUV...134m passengers, 747 planes, $22bn revenue on invested capital of $10-12bn...just based on a quick calc)
Unsurprisingly, if you are an airline company and you stop running flights then you don't have many costs.
The issue airlines have is labour law. I think we will see countries like the Nordics manage this better (SAS appears to have been able to furlough 90% of their staff) because it is easier to lay off staff temporarily (I believe this is in sector-wide bargaining agreements). In the UK, as a counter-example, it is much harder because there are no sector-wide agreements so temporary lay-off needs to be in your contract. Maybe airlines have this, I don't know but it seems like some don't see what the option is between bailout to pay staff their base salary or layoffs (and btw, airlines could just sack everyone which would end up being massively costly to the rest of us). We aren't bailing out the airlines, we are bailing out the staff.
Especially the budget carriers, which tend to lease (not own) their planes. They are gonna be hemorrhaging an unfathomable amount of money if they can't get a several month pause on lease payments on their planes.
To be fair, the leasing companies may well be more inclined to give them a pause on their payments now than normal. If they repossess the aircraft for lack of payments, what other customers do they have for them in the short term?
None but they can sell them to another group of PE and recoup the Capital their investors are probably clamoring to reclaim in light of the industries issues.
Their LP’s would probably take a hit to unlock the cash and get into something more likely to rebound faster.
Norwegian and it's subsidiaries currently operate a fleet consisting mostly of 737-800, which were being upgraded to 737 MAX 8, with 3 delivered so far. Some subsidiaries have a few 787's, and they did have 30 A321LR on order.
The 787's and the A321LRs are good planes that they could sell, but the 737-800 is an obsolete plane which has a very hard time operating with a profit when competing against the new crop of fuel-efficient narrow bodies. You can't really sell them to anyone for any reasonable amount in the current market. MAX 8's are also hard to get rid off, but for a different reason.
Selling won't work. If suddenly "many" airlines start selling, the demand won't be that high, and 1) the prices will plummet and 2) there won't be enough buyers so some airlines will be severely damaged (anyway)(better fewer than all I guess).
Rental relief has to work its way through the whole system, if anyone reneges on it they can bring the whole thing down. The lease company leasing aeroplanes to the airlines might have buildings they lease, hangars maybe. Suppose they spend lots of money re-possessing _all_ their aeroplanes because of non-payment (no one travelling). What now? They have no income from rental (and a heavy delay on people setting up new airlines to cover routes that have no people able to use them yet), they've spent heavily to re-possess, and now they also can't pay their own overheads. So, they too will go out of business, surely.
Then the company they got loans from has a repayment deficit, they can repossess the leasing companies assets, and pay to store them, and try to sell them ... but they're going to be getting pennies-on-the-dollar (who wants to pay to store aeroplanes they can't fly for profit?). Duplicate that over the other loans they called in in other industries; now they're burning cash as well??
If the top of the tree, the banks or capitalists, can hold out then they stand to make a tidy packet when markets rebuoy but even then there'll be a huge lag if they laid off multiple tiers of companies.
Either we all have to agree not to force each other to close down, or we all do each other over. It's not pretty.
I'm wondering what happened in 1918 with "Spanish Flu", people instigated social distancing then - closing down schools and churches - so presumably there were businesses too that couldn't pay their rents? I imagine things were less severe because more businesses would own their resources, and would be part of communities that would collapse if they called in what they were owed.
Isn’t that true of almost every business? Unless you’re all-remote and have only gig workers, you have to pay for the rent and upkeep of your facilities and resources.
Worst case scenario: several airliners go out of business. the remaining ones get a bailout from the gov. 1 to 2 years later, these few carriers will have a massive monopoly and incredible pricing power. Flights costs for consumers will go up and up and up every single year like clockwork, not all at once. But gradually, little by little they will become increasingly profitable like we've never seen before (because in the past we always had competition, that's what keeps prices low). Without competition, flight costs can continue to rise to really high levels.
The most important thing in a market economy (aka economies that are not communist), is competition. Competition is the primary thing that keeps costs low. Without it, we (consumers) are all toast - however it'd be great for the stocks of those few remaining airlines (with enormous upside potential). Flying in airplanes is a mostly ineclastic good. this means, people can't just stop flying. All this is extremely bullish for the remaining airlines, in the long run (2 years+).
That's a short term dip. People may be able to stop flying for a few weeks or months. but, all those businesses will still need people to move around the globe. then again, maybe this will prove to the world how unnecessary all those flights were to begin with.
According to some figures I found with an extremely cursory search, leisure flights account for over half of air travel. So even before we start asking how many business meetings and conferences really require physical presence, there's a vast amount of personal air travel that is largely optional.
If this pandemic leads people to realise that so much flying really isn't necessary, and actually changes long-term behavior, that could be at least one silver lining.
Starting a brand-new business to compete with an established monopoly/duopoly/oligopoly that's capital intensive doesn't seem like a thing that's likely to happen.
If people decided to enter markets purely based on profits then shouldn't there be a bunch of competitors for Google's search engine biz?
It depends how essential flights are deemed to be. If people want them and a market exists, fares will be very expensive at first and then eventually normalize as demand increases and capacity scales back up.
Since all of the infrastructure already exists it shouldn't take that long to scale back up.
Have they run out of shit to rub on door handles, y'know they're looking to get Asshole Of The Year by doing the least societally responsible things possible.
Sorry to be crude, but it beggars belief that people can afford flights, realise why they're discounted, and yet be so short sighted.
I do not know about that but hopefully they realize they can not pack passengers any more for the fear or spreading disease and move back at least to how seating used to be a couple of decades back ... more space rather than less.
The centimeters we're speaking of has no effect at all at how quickly disease spreads, the way the air circulates is more important than your leg room.
Seating like we used to have a few decades back is available. It costs about the same as it used to. People seem to forget how expensive air travel were back in the days, no wonder it was more luxurious.
I haven't seen anywhere suggesting that the transmission vectors between passengers are a major cause of the growth into a pandemic - even if that was the case, I doubt a once in 50 year disease is cause for them to change to a less profitable seating setup the other 49.
There are lots of cases of diseases spreading from one plane passenger to another.
That's part of the reason the airline requires you to sit in allocated seats - so they can notify the people sitting in neighbouring seats if you have a notifiable disease.
My personal hypothesis is the low pressure ultra-low humidity air in planes dries out mucus membranes in the nose and throat making it more likely for airborne things to get in.
But ok, they just go bankrupt right? Leasing companies repossess their planes, and that's it. Then new legal entities are established and planes are leased back to them, and they are debt free.
It's not like anyone is going to scrap the planes, or shoot the pilots.
Yes, investors have to accept the loss, not the govt. A new budget carrier will arise in a few months, buy any IP they need from the liquidators for a small fee, and re-hire 50% of the old staff straight away.
Provided COVID-19 doesn't get going again next winter.
When the stock get wiped out anyone holding the stock will loose their money. Those people are called investors and will loose anything they invested. They do not have a choice. They bought a stock for something, and now it is worth 0 and will never be worth anything ever again.
There are of course other options in restructuring etc, but investors can always face the possibility of loosing all the money they have invested.
That's exactly what i said. Some guys will just lose their money. It no way means that airlines that went bankrupt will be physically destroyed: no one will scrap the planes or machine-gun the pilots. They will all be flying again the day the demand rebounds and COVID restrictions lifted, just under new legal entities.
I'd say "will still be active". Look at MERS, SARS, H1N1, ..., active for much longer than I'd imagined; AFAICT in those cases the crises left the news long before they stopped being a widescale medical issue that needed special interventions.
MERS peaked in 2014 (and 2015, 2016, ...), but there are still cases.
IIRC, "layoff" originally meant the same thing as "furlough" until it became a euphemism for "terminated due to failing business" or just "terminated".
Some countries pay next to nothing unemployment benefits (e.g. UK) and must be seeking a new job for being eligible.
Still, this is what they are forced to do anyway.
* In progressive (semi socialist?) western countries
Don't forget that asterisk. USA unemployment benefits (even in liberal states, like California) are just truly awful. Losing my job "temporarily" for 2 months would cut my income drastically with no recourse (other than finding other employment), and say goodbye to affordable medical care (COBRA costs are outrageous)
This is why we need social safety nets people! I pay 47% of my income to the government and I am 100% fine with raising taxes to pay for Medicare For All and a real social safety net.
I think this misses the forest for the trees to the overall point I’m making: we need better social safety nets, and I for one am okay paying even more for that
I have savings, wasn’t my point, my point was that a lot of people aren’t as fortunate and choosing between having money to live (like basic needs live) and doing the right thing in a scenario like this shouldn’t be dependent on an employer per se
Norwegian was near death many many times before this hit. Coronavirus just makes the death inevitable. This is too bad, I really did love their product. Their premium economy seats were well priced, and only on 787, which really helped with jetlag due to the higher humidity and lower pressurization of the CFRP frame.
That said, it's going to be hard to see who doesn't go bankrupt with the virus. Airlines are on limited margins at the best of time, and parking half the fleet makes their business model untenable very quickly.
The other thing is that unlike almost all of the rest of the world, airports in the US are still publicly owned, and funded by per-passenger fees. A lot of cities are going to have a massive gaping hole in their budgets because of that.
$500 from you, but another $XXXX from the government subsidising the airports, the fuel (through zero rated tax), the air traffic controllers, the planes (through big military contracts to keep Boeing afloat), and not billing for environmental damage (CO2, noise pollution, etc.)
The fuel, the airports, the ATC are all offset by fees that are charged. The line about Boeing is a common airbus talking point, but Boeing never mixes those numbers in their financial numbers, and has actually lost the big recent contracts to Lockheed and SpaceX.
Norwegian is a slightly better than average low fare airline now when everything costs extra. Modern planes and nice crews compared to their competitors.
Not OP, but yes that would be correct. I think they meant lower altitude, higher pressure.
787s are at around ~6000ft pressure altitude, and most others are at 8000ft. [1]
Not firing, temporary full time leave without pay. Important to note that the Norwegian government will pay full salary for 20 days of the first.
At least we're talking about Norwegian employees on a Norwegian contract.
Probably not. The three main Scandinavian countries are all working on some sort of wage compensation package that includes SAS and Norwegian in the case of Norway, but they are each targeted at employees who live in the respective countries.
For a far smaller amount than their normal incomes, only for 26 weeks at most, ceasing as soon as they get any job, and requiring them to undertake job seeking activities. And provided they have worked for at least a quarter.
I expect all Airlines to cancel many of their flights and have to temporarily lay off a lot of their people. It is unlikely a lot of people will be doing travel for mamy weeks, and I suspect the ramp back up to normal will be slow.
The problem with the airlines is that pretty much everyone has been bitten by them one way or another(unexpected fees, unreasonable policies, etc..) so it will be difficult to get any sympathy from the public.
My and my partner regularly fly Norwegian in Europe and they are the best airline we can imagine. They are cheap; booking a flight is a breeze; you get meaningful benefits quite fast if you fly often; planes are modern. They stopped operating the main line that we use to visit, and you can see it immediately on the price.
They recently introduced a fee for cabin-luggage which could be disputed but:
1. I don’t mind, I generally fly with a small bag;
2. my partner has enough miles to get free upgrades.
Unfortunately most of the fees you are referring to are a result of consumer behaviour.
Most people use price checking sites to purchase tickets, and because people only look at the initial price tag and fees aren't calculated until the end.. budget airlines started gaming the system to appear even cheaper. (shifting costs into fees and away from the fare)
Since consumers won't change their habits, many or even most airlines had to adopt the same practices in order to compete.
If you've ever used a price checking site to search for airline tickets, you've likely contributed to creating this problem.
The irony is that airlines because they are running such a tight rope profitability wise has to make 'extras & service' cost money to be profitable. And the definition of extras is ambiguous to say the least.
As an industry they provide an exceptional service, but it's rarely that they as comapnies are profitable over time.
We cannot permit American and other airlines to use federal assistance, whether labeled a bailout or not, to weather the coronavirus crisis and then return to business as usual. Before providing any loan relief, tax breaks or cash transfers, we must demand that the airlines change how they treat their customers and employees and make basic changes in industry ownership structure.
You seem to have falsely generalised based on your experiences with whatever local airlines you use. Norwegian and other european carriers have quite a good reputation, people understand that the low cost has a price.
Do you think most of these laid-off workers are responsible for the pricing structure and policies? Or do you think most of them are just working people trying to earn a living?
> By the same token I shouldn’t hold accountable Google or FB engineers who are just trying to make a living.
No you shouldn't - they need to put food on their families' tables just like you do.
> Or soldiers who did atrocities because they were just trying to be good soldiers.
Well committing an atrocity is a crime. If people are acting criminally that's different. And if they're committing atrocities then they aren't good soldiers, are they?
> > By the same token I shouldn’t hold accountable Google or FB engineers who are just trying to make a living.
> No you shouldn't - they need to put food on their families' tables just like you do.
I disagree. They have any option who to work for, as you and I, and they chose to work for unethical companies. They don't need to put food on their families' table. I am not judging as everyone makes their own choices, but it's good to hold them responsible. Maybe I would have done the same or do so in the future. But I wouldn't expect people to feel empathy for me when shit hit the fan.
Many people don't. Tech interviews are unforgiving. Some people have to take the opportunities they get offered to them. Even if you can pass an elite Google interview one time that doesn't mean you'd get past the interview anywhere else.
> They don't need to put food on their families' table.
Their families can starve?
> I wouldn't expect people to feel empathy for me when shit hit the fan
Hows about we all practice empathy with everyone, no matter what good or bad choices they've had to make to survive in the past?
I'm sure some folks who are upset already will remain upset.
However I don't expect any kind of real 'new' outrage from this particular action though. There aren't people flying... so yeah this result is pretty understandable.
Most folks are understandably busy with other news.
Gov is handing out money like the printing presses are fired up, everyone will be asking. The major US carriers are not in terrible shape unlike Norwegian.
I'll be fascinated to see which airlines make it out of this alive (with and without a bailout) and the long term repercussions. Seems like the cheapo airlines will probably go under relatively quickly because they're on razor thin margins but even United and anyone with global route exposure is going to get hurt really badly by this.
Yes, interesting. Hope Norwegian survive.
Before Norwegian I often paid like 350$ for a trip to Oslo (40 minutes). It was only one single provider, SAS.
After Norwegian arrived usually around 100, often 50.
To me it feels that the deciding factor will be in the differences of how different airlines have structured their airplane ownership/rentals/leasing/whatever; for some airlines downsizing to a smaller number of planes will be much cheaper than others.
It's basically a doomed industry in the medium to long term (unless humanity collectively decides to fly straight into a wall wrt global CO2 emissions). Any politician using tax money to prop this up is acting irresponsibly and unethically.
With all the european countries closing their borders on a small continent, it's pretty easy to guess that the european airlines will be hit worst. They don't have much domestic traffic to fall back to.
I think the airlines from the middle east might survive since they are propped up by the state. For example Emirates and Etihad. And of course China is in good shape to prop up their own airlines.
I really hope governments will realize what a bad investment bailout money to airlines would be, given their doomed future as one of the main CO2 villain industries. (Not to mention casual air travel's role in spreading epidemics)
There should probably be a sense in which it is criminally negligent to run a business of this size in such a way that a ~6 week period of market crash behavior can imply a need to to layoff 90% of staff.
I understand businesses have to make tough choices, but this seems like egregiously irresponsible planning, akin to using every paycheck for exorbitant luxury while figuring you can use a credit card for necessities and coast on some equilibrium of credit card payments.
It’s ridiculous for large corporations like this to not have sufficient reserves to ride it out for lengthy periods of time while disallowing “lay everyone off” from being a side effect.
That is impossible. No business can see a 50% drop in revenue over an extended period of time and survive. That is, unless we assume that the price setting function of markets is suspended. Supply and demand will result in razor thin margins unless we get rid of competition and allow monopolies.
Is 6 weeks really an "extended period of time" ?, we are barely a few weeks into a global crisis and already companies are collapsing, that's an indicator of just how insanely fragile things are.
If there was absolute certainty that the disruption would only be 6 weeks then a business could take the hit and recover over time; this may be a longer term drop in demand such that they have to make drastic cuts immediately.
Many countries have companies that are strategic assets that will be protected in crisis, auto manufacturers, farming, airlines, banks etc. This means that they are some times shielded from the full force of market competition. I would be curious about British Airways posture.
British Airways is totally private, the state unloaded it a long time ago. My understanding is Ryanair have a reasonable cash position. Virgin have the begging bowl out at the moment though.
In a financial crisis every company is at risk, without support, you get a fire sale, and the cascading effect takes down more than just the irresponsible companies. The time to regulate irresponsible action is before the crisis not during the crisis. We learned that in the 1929 Great Depression. There is a lot of research to that effect. We saw that in the recovery from 2008 which used the lessons learned about 1929 to adopt different responses that the 'liquidationists' recommended (google that term and you will see your exact argument used and followed by the government in 1929 and the devastating effect it had on the economy).
I’m with you on this, but then it should be executives and shareholders required to fully support unemployment for the workers affected by the company failing due to financial mismanagement.
Instead we see executives get out with huge severance or even just accumulated wealth, and stick taxpayers with unemployment bills.
The problem isn't the trailing 6 weeks but the upcoming {unknown} weeks of little to no travel. It makes no sense to bleed money indefinitely out of generosity to your employees. This pandemic is what a social safety net is supposed to exist for.
I agree with you this is precisely what a social safety net is for, but given that the United States seems to be vehemently opposed to universal health Care and UBI, there should at least be regulations in place to ensure the businesses we depend on aren't operating on the edge of bankruptcy. The whole argument against government safety nets is that companies will take care of their employees in a time of crisis (I disagree with this idea, but we hear it all the time).
It naturally reminds me of reserve requirements for banks.
Couple of major considerations come into my mind, some of which I think you touched on:
- Would have to rethink private business financial reporting because private businesses (in the US, anyway) have to share much less of their financials to the public & government.
- I'm assuming there'd have to be gradients of how this is applied. I mean, big companies like Uber and Tesla operate at a huge loss for years after their startup phase, intentionally, to grow their capital and tech, in the hope of being a profit-center eventually.
- To your point, maybe such rules would apply primarily to mission-critical industries: airlines, hospitals, telecom/internet, fuel/utilities/water/electric.
- Maybe you get an exemption up to X employees, and it doesn't kick in until Y years after opening. Like, if you can't find profitability after 15 years, then something, something happens?
There is, but instead of putting this requirement on the companies (making it more expensive to hire), the government supplies the guarantees.
So in a situation like this, companies can temporarily let employees go home without pay and the government pays them.
You could argue that a reserve requirement would be better (e.g in order to hire someone a company must place 6 months pay in reserve), but that would just put a lot of capital to no use.
A layoff is not necessarily temporary. You’d need a system that compels the company to hire them back at their previous wages / benefits, or not allow any kind of “terminated” status but just transfer payroll (at a reduced rate) to the government.
Firing + collecting unemployment is not the same as requiring fiscal responsibility, not even in terms of superficial intentions.
These Norwegian ones are temporary and surrounded by a lot of regulation. Effectively the employer doesn’t provide any tasks nor any pay, but doesn’t end the employment. It’s a suspension of employment rather than an ending. Such a suspension obviously only has any meaning in a situation where being employed actually brings security. For example, the company can’t hire other people.
To any Norwegians around HN: Were they in trouble before the corona crisis ? Stock value[1] started a heavy downward trend around Feb 2018, from 171 down to 41 before corona crisis, down to 7 as of today.
I am based in Spain, and I am seeing this same trend in some local companies. It seems that coronavirus is the trigger for an existing, latent problem.
The Norwegian was in trouble way before the virus.
They had to be rescued due to mounting losses. The 737 MAX crisis also hit them hard to which they were exposed more than average. Some links (there are much more):
https://www.forbes.com/sites/davidnikel/2019/09/16/norwegian...https://qz.com/1688156/why-is-norwegian-air-failing/
Because of the troubles I avoided them for transatlantic travel not risking last minute cancellations due to bankruptcy. I doubt that I was alone.
They also signed a contract pegging fuel prices for the foreseeable future when oil price was $70. Several unlucky breaks in a row, I don’t really think it will be saved. SAS might though.
Yes they were, cheap longhaul flights stopped being profitable and they were having huge issues. I think low cost longhaul will die after this epidemic.
Really? In my experience, they were the best "cheap" airline, by far. Their airplanes were pretty comfortable, compared to United, Alaska, or Spirit, to name a few.
To be fair, comparing most european airlines seems good when you compare them to US airlines. Would be more fair to compare them to other european airlines.
The most famous "cheap" European airline, RyanAir, is substantially worse than Norwegian. And personally I find Norwegian better than WizzAir, easyJet or Vueling.
20 days of full pay during the temporary lay-off. Then unemployment benefits for up to two years with 62% of full salary (cut off at about 30000 NOK per month)
The ones employed in Norway: full pay first 20 days, then 80% to 62,4% depending on salary. Company only pays the first 2 days, the government the rest.
nickel and diming is good because it gives you the option to choose what you want to pay for, rather than, just paying for everything whether or not you use it.
Most of Norwegian's employees are not in Norway. Their staff in Norway will have extensive employee protections. Their staff at their UK and US hubs are in far weaker positions.
Throwaway for obvious reasons. It's not only about the pilots, crew, administration, etc. A major airline I am working for will lay off pretty much ~90% of its IT departement within 1 month as well.
My fiancé is currently in Orlando and booked her flight back to Germany with Norwegian for March 24. Does that mean the flight is cancelled? She hasn't received any notification from them.
Yes, the flight isn't going to happen. The EU will close all external borders for 30 days tomorrow at noon. If she is a citizen of Germany and doesn't have any symptoms, she can expect a seat on a repatriation flight. Contact appropriate embassies.
airlines are expecting a full travel ban soon (including domestic). Projections have United revenue down 9% this quarter and 95% next quarter (not a typo).
Whether people like it or not, shrinking global economic activity in fuel-heavy and extractive industries (by extension, via demand destruction) is inevitably linked to reducing carbon emissions. We must be prepared to give up certain things for the sake of our ecosystem.
The reason economic recessions kill people is because our system doesn't currently guarantee people the basic necessities of life: food, shelter, and health care. This is a political choice to let people die in order to preserve the status quo -- it is not an inevitability.
Norwegian was struggling financially before COVID 19. This isn't surprising. Norway has one of the world's most robust social support systems. I'm confident that they will deploy it well here.
I just don't see how these closures aren't going to ripple through the global economy. The market is down 25% YTD after two desperate stimulus measures - $1.5T injection and interest rates cut to zero.
What are you going to prop up when world travel and trade is shut down? And domestic regions are locked down too?
The kicker is that we had been seeing negative long term indicators for a while before this - inverted yield curve, and long overdue for the approximately 7 year recession cycle, among other indicators.
I would love to be convinced otherwise but, regardless of the outcome of the 2019ncov situation, this is shaping up to be a trigger for a global recession, possibly a depression. Modern society cannot sustain itself indoors without radical measures. The vast majority of people probably work at jobs that cannot be performed remotely.
It almost certainly will. But there's a reason virtually every macro-economist is forecasting a rapid V-shaped recovery after the quarantine eventually ends.
At the end of the day, 90% of the population will still be working through the quarantine. And most of the rest will still receive unemployment benefits. Think about all those people collecting a paycheck, and just sitting at home. Now what happens when the quarantine ends?
They take all that money they've built up, and unleash it all at once. All those big-ticket purchases, vacations, and events, that got deferred happen in a short burst. All those people cooped up at home, will flood into restaurants, stores, and concerts. Think Chicago on the first warm day of spring. It's likely to be the greatest one-time surge in consumer spending in all of recorded history.
That's virtually guaranteed to jump-start the economy near instantaneously. And unlike 2008, the chance of systemic financial contagion is extremely low in today's environment. Banks are extremely well capitalized, and the vast majority of risky investment has been moved to non-bank entities, like corporate debt markets, private equity funds, and CLOs.
Sure, but business travel only accounts for 1.5% of GDP. And it's pretty unlikely that it permanently falls by more than 50%. Then you have the fact that if company's spend less on business travel, they'll have more to spend on other things. In particular expect to see products like Zoom and Slack get much more spending as virtual meetings become the norm.
Finally even if business travel falls, expect consumers to make up a lot of the reduction in demand. The capacity exists and isn't going anywhere. Those airline seats and hotel rooms aren't going to sit empty. The price may fall, but tourists will take more trips when given discounts on the prices they're used to.
In general you can extend this reasoning to most of the pessimistic scenarios. First, real productive capacity will still be the same after the quarantine as it was before. Second, money spent in some sector isn't just going to get thrown into a hole if people stop consuming those products. One industry's loss is almost always another industry's gain. Finally, when demand contracts that means falling prices. When prices fall that enables new consumers and business models in the market.
In Europe many industries, including air travel are at or over capacity. Airlines operate at razer thin margins. We might see some consolidation in the market which could decrease the overhead costs, but not by much. There is simply no room to decrease prices that much. And there is not much evidence that the demand is very price-elastic either. Air travel has more competition by other forms of travel with less safety restrictions, less climate impact stigma, etc.
All indications are that this virus will take more than two months to deal with - you should carefully monitor China for the next few weeks because their self reported recovery may not be genuine.
How long can businesses hold out? What's stopping authoritarianism from taking hold, left and/or right, if this drags on for 3-6 months? We don't even know if you build lasting immunity to this virus yet. It could become endemic.
> What's stopping authoritarianism from taking hold, left and/or right, if this drags on for 3-6 months?
On a different planet this topic would be discussed, at length, along with measures to contain the virus. Once we're in lockdown mode worldwide with only the shiny screen to tell us what is going on, it is game over, and rather too late to discuss and set the ground rules for "emergency" regimes.
> I just don't see how these closures aren't going to ripple through the global economy.
I can see it not rippling if (a) a vaccine comes out in time, or (b) people just give up and work anyway, accepting coronavirus as a risk of life. Unlike sacrificing everything for the sake of not getting coronavirus, that can actually go on indefinitely.
"Unlike sacrificing everything for the sake of not getting coronavirus, that can actually go on indefinitely."
Not even remotely true.
If people go back to normal (against the advice from every agency with experience handling communicable diseases) the disease will spread at an exponential rate. Healthcare systems across the globe will be overwhelmed (like Italy and China but vastly worse) and people start suffering and dying from curable illnesses due to lack of capacity.
Then, once people start dying by thousands, everyone will quarantine themselves anyway.
The vaccine will take like 1 year to test and be sure that it is effective and that it is safe and cause no nasty side effects. So for 2020, let's ignore (a).
I don't know why this is being downvoted. A year is actually a fairly aggressive schedule. Of course there may be certain elected officials who will push to certify anything at all before November but nothing will be proven safe in that little time.
It might not take that long. If the vaccine candidate is viable, Stage 1 trials could be completed in a few months since there's already tons of patients with COVID-19 going to hospitals where they can be monitored for a maximum safe dose trial. The FDA might be able to waive most of Phase 1 similar to some oncology drugs and once it hits Phase 2, they just needs enough data about efficacy and safety to declare it a breakthrough therapy. The reality is that many clinical trials take time because of how long it takes to set up the infrastructure, get patients, and coordinate with an understaffed and underfunded FDA. If the entire agency is ordered to focus on COVID-19, I think it could happen a lot faster.
That's only if the vaccine works though. If do that process and it turns out it doesn't, it could make the situation a whole lot worse.
There is a high probability that at least many candidate vaccines could have induce a deadly autoimmune reaction upon exposure to the virus, because of antibody dependent enhancement (ADE), which is shared by other coronaviruses like the previous SARS. At least one paper I read trialing multiple vaccine candidates on animals reported failures in all cases due to autoimmune damage to lung tissue.
Can a vaccine be released in such a short timeframe? I don't think anyone is suggesting a vaccine can be released in less than several months. But it is suggested that the pandemic itself could subside within that timeframe.
If you develop symptoms you may need serious medical attention (intubation) in order to survive regardless of age.
Wether or not you develop symptoms you can develop serious organ damage that results in life long chronic health problems (due to damage to lungs, kidneys and testes.)
It sounds to me like this virus is in fact much more serious than most people thought even with the hype.
Whether or not it's too serious for b depends on the alternatives. When the alternative is you don't make any money or have anything to eat, coronavirus might seem like the inevitable alternative, especially for younger/healthier folks.
I didn't want to write it out again but you took the words out of my mouth.
All of the worst [pending] peer reviewer papers are gradually being confirmed, it seems. The news has been getting consistently worse for literally two months now and we now have at least a dozen countries on lockdown, and growing.
vaccine take a year more more to develop people should stop saying this. Whats gonna happen is the same thing that will happen with chickenpox. Everyone will get it and you'll be ok unless you have a underlining condition
IMHO it’s futile to try to keep the economy “on the up” at a time like this, we’re basically throwing good money into a fire. Just take the hit and try to keep people alive; as soon as the emergency phase is over, the market will rebound on its own. Humanity existed before capitalism, surely it can live a few months without it.
I think the point is that the measures are overblown in relation to the hazard COVID-19 actually constitutes. It is a pandemic, and relatively virulent.
However, symptoms and mortality rate have been exaggerated by the media, causing more panic than necessary. If a wave of Influenza would get the same attention and monitoring, it would expose similarly shocking stats ("exponential" growth, and around half a million deaths yearly). Yet there are very few measures actually taken by governments there, because it's difficult and basically an uphill fight.
For what it's worth, note that alleged mortality rates for COVID-19 are in fact just very rough upper bounds, since there is no systematic testing happening yet on a large scale. The closest to that is probably South Korea, where deaths make up less than 1% of confirmed cases. In contrast, Influenza mortality rates are always based on estimations, not just on documented infections.
> symptoms and mortality rate have been exaggerated by the media
Dude, believe what you will, but in the most affected areas, they can't even bury bodies fast enough, they are literally filling up churches with coffins. This does not happen with influenza, because we have vaccines and mitigation techniques that we do not have with Covid19. We don't even know for sure if or when reinfection can occur.
In a regular year, influenza in Italy kills 400-500 people, and simple pneumonia kills another 6,000 to 8,000. We've had 2,000 deaths from covid19 in 2 weeks, and concentrated in 20% of the country. Do we really want to "let it run its course" for a full year over the whole of Europe? At this rate, in two months we'll have broken all records.
>In a regular year, influenza in Italy kills 400-500 people
Data is literally one query away.
>We estimated excess deaths of 7,027, 20,259, 15,801 and 24,981 attributable to influenza epidemics in the 2013/14, 2014/15, 2015/16 and 2016/17, respectively, using the Goldstein index.
Airlines are companies like any other, and they have a lot of employees that aren't flight crew. Someone has to negotiate benefits, write HR handbooks, forecast the weather, dispatch flights, update their website, "reimagine cabin interiors", etc. I am sure you can end up with a very large organization outside of people that show up at the airport to deal with customers.
