Industry Sectors Most Impacted by COVID-19: United States
The reasons why the restaurant industry, the casino gaming industry, the airline industry, the hotel industry, the cruise industry, the auto industry, the oil and gas sector, the retail industry, the technology sector, theme parks, the fitness industry, and transportation industry are, or will be, affected by the COVID-19 pandemic have been curated and presented below. Additionally, a high level overview has been presented surrounding some of those twelve industries, and which ones might be potentially and possibly receptive to an approach by a management consulting service during a COVID-19 or a crisis similar to it, and the reasons why.
- Most restaurants are likely to see a steep drop in customers as more consumers are choosing to stock up on groceries and have their food delivered. The Congressional Budget Office estimated, in 2005, when the avian-flu pandemic occurred, that spending on food services, arts and accommodations would temporarily decline by about 80% during a major pandemic.
- According to Mollie O’Dell, Vice President, Communications & Media Relations for the National Restaurant Association, “America’s restaurant and food-service industry is home to nearly 16 million trained and skilled employees, and the industry is a key economic driver in communities. We are carefully monitoring the impact that COVID-19 will have on our workforce.” The restaurant industry will likely see at least a $225 billion loss and will be compelled, as a result, to eliminate between 5 to 7 million jobs over the next three-months, according to early economic forecasts.
Casino Gaming Industry
- The United States casino gaming industry, valued at $261 billion, has been completely shut down due to measures taken to halt the spread of COVID-19. Casinos in Las Vegas and other major gaming locations have been shut down, and most employees have been let go. Massachusetts and Illinois casinos in were told to close for fourteen days, and Maryland's betting facilities, which includes all casinos and racetracks, were ordered to close until further notice.
- Major casino hotel chains like MGM and Wynn had already announced temporary shutdowns, but the Venetian and some others attempted to stay open until the Governor’s announcement.
- All the United States commercial casinos and additionally ninety-seven percent of America's tribal casinos, have closed. That represents 973 casino closings which translates to 98 percent of all gaming properties nationwide.
- The U.S. economy will lose $43.5 billion in economic activity, if the country's casinos stay shuttered until May 2020.
- The primary reason behind the devastation rippling across the casino gaming industry is obvious. Most people are restricting their outdoor activities and only go out for necessities, and many local governments have required their citizens to shelter in place. One bright spot, is online gambling. In America, states with legal online options will likely be seeing a boost in revenue as more and more people stay home. Those living in states without it may instead search for illegal, off-shore options.
- As international and domestic flights are restricted, it is not hard to see that the airline industry will be especially hard hit by the COVID-19 pandemic. The U.S. and Canadian airline industry could possibly lose as much as $21.1 billion in revenue, according to projections made by the International Air Transport Association.
- A reduction in passenger revenue of nearly 20%, in the industry globally, would mean an estimated $113 billion in lost revenue. The CAPA has reported that by the end of May 2020, most airlines in the world will likely go bankrupt.
- United Airlines reported it was preparing for a $1.5 billion revenue drop in March 2020 juxtaposed against March 2019. The beleaguered airline also plans to reduce capacity by 50% for April and May. Other U.S. airlines are moving in the same direction, as well as halting all hiring and asking workers to take unpaid leave.
- The American hotel industry employs over 1.6 million people, making it the ninth-largest sector in the U.S. in terms of total workers. However, as people have stayed home, the demand for hotels has dipped drastically.
- According to the respected hotel research firm STR, there was an 11.6% decline in revenue per room available in United States hotels in the first week of March, compared to the same week in 2019.
- Hotel workers in key tourist spots have been told to expect job losses. As an example, Marriott just indicated that they anticipate they will lay off tens of thousands of workers country wide. To help the hotel industry through the COVID-19 crisis, industry groups have put pressure on Congress to pass a supplemental aid package.
- After a luxury Diamond Princess ship became the first large outbreak cluster outside China, with at least 634 confirmed COVID-19 infections among passengers and crew and two deaths, the cruise industry has taken a huge hit. More recently, a Grand Princess cruise docking in Oakland resulted in 28 cases of the disease. As of March 16, there were at least seven cruise ships in limbo because passengers tested positive or were showing symptoms of the virus and no country was willing to take them in.
- Shares of three major cruise companies, specifically, Royal Caribbean, Carnival Corp., and Norwegian Cruise Line Holdings, plummeted over 50% in the aftermath of the COVID-19 pandemic. The CLIA (Cruise Lines International Association) has reported the cruise industry is responsible for $53 billion being added to the American economy every year. The White House has signaled it has every intention of assisting the industry get through the financial difficulty with some sort of relief bill.
- The demand for cars is rapidly decreasing with orders of self-isolation increasing and as the coronavirus crisis continues. Quite understandably, Americans are more focused on their job security as well as saving their money in case of an emergency, and the unknown factor of whether they will have their jobs in the long term. The last thing they are thinking about is buying a car, especially as there is nowhere to go. This directly threatens the jobs of the almost 1.3 million Americans who are employed by both new and used car dealerships.
- American automobile sales could decrease year-over-year by as much as 20% in 2020, according to researchers. Since the first week of March, the shares of General Motors, Ford, and Fiat Chrysler have all lost more than a quarter of their value.
- Supply chain disruptions have also plagued auto manufacturers as parts brought in from China have become much more difficult to obtain, as that country battles the outbreak. Out of every five cars made in the world, four of them rely on parts manufactured in China.
Oil and Gas Industry
- The demand for oil and gas has dropped drastically as Americans work from home and avoid travel due to governmental restrictions. In fact, the IEA (International Energy Agency) predicts a decline in demand of 90,000 barrels of oil in 2020 when juxtaposed with 2019.
- The IEA had already projected an increase in demand of over 800,000 barrels before the COVID-19 pandemic, The effects on the oil industry have been especially problematic because China, the globe's number one energy consumer, was the first to be affected as they were the source of the virus.
- The price of oil has been in a never before seen free fall, selling for under $30 per barrel as of March 16.
- The retail industry in the United States has been rocked by the COVID-19 outbreak, with multiple stores shuttering their brick and mortar locations. As an example, Apple has closed all their stores in the United States, and other major companies and brands in fashion, sporting goods, and tech have made similar decisions, with more coming in every day.
- In some good news for employees that work for Urban Outfitters and Nike, they announced plans to pay workers at least in the short term for lost wages. As wonderful as that is though, this decision will result in the companies' profitability will decline.
- One Jefferies analyst told CNBC: "With stores accounting for 75% of sales for most retailers, we anticipate massive EPS [earnings per share] declines for the first quarter of 2020, especially as most retailers appear to be paying employees during the 2-week closures."
- Many Chinese factories in locked-down areas have closed operations since late January. This has had a major impact on the ability of many American tech companies to continue producing their products regularly.
- Predicted to decline by over ten percent, the manufacturing and production of video game consoles, smartphones, and smartwatches are all in jeopardy. In fact, because of an iPhone shortage, Apple could lose as much as $67 billion. Nvidia, a graphics card producer, reduced its predicted earnings for the first quarter of 2020 by $100 million, blaming the pandemic as interfering with its supply chain.
- Seattle, Washington happens to be one of the areas hardest hit by COVID-19. Many major tech companies are headquartered in and around that area which is taking a toll on day to day operations. Microsoft said it would continue to pay its 4,500 hourly employees, even as it sent many workers home. This will impact their profits.
Theme Park Industry
- Large theme parks are a massive industry in the United States but because of the COVID-19 crisis, they have had to close up and stop welcoming people.
- With six parks under its umbrella, Disney is by far the largest theme park operator in the world. In 2019, Disney had over 26.2 billion in revenue from its theme parks. Assuming the same sort of revenue would be earned for 2020, that means if you divide that number by 52 for the number of weeks in a year, the company could potentially lose revenue of around $500 million for every week they remain closed to the public.
- Many other American theme parks have been affected as well. For example, all SeaWorld parks are shuttered; ten parks belonging to Six Flags have temporarily closed; and both the Orlando and Hollywood parks belonging to Universal Studios are closed at least until April 19th. In the United States there are over 200,000 people who are employed at theme parks, many of whom could be out of work throughout the worst of the coronavirus outbreak.
- Fitness clubs, both large and small, were already facing challenges from home exercise companies like Peloton. Now with COVID-19 protocols like social distancing recommendations, and fears of the spread of the coronavirus, this has compounded the challenges gyms and group fitness classes face.
- Equinox and Soul Cycle had to close their locations in New York, New Jersey, and Connecticut, and Barry’s Bootcamp cut capacity in half. In the city of Los Angeles, the mayor of that city ordered all gyms to be closed. In response to that, Gold’s Gym and Orangetheory shuttered all corporate-owned locations. Planet Fitness stock lost 48% of its market value.
- IHRSA, the trade association for commercial club operators, is lobbying for health clubs, gyms, studios and fitness industry suppliers to be included in a third stimulus package that the United States federal government is working on. This is specifically to help targeted industries that have been affected by the spread of COVOID-19.
- Instead of visiting bars and restaurants, Americans are being compelled to work from home and shelter in place. Both Uber and Lyft have been left reeling, watching helplessly as their ridership declines rapidly. Both Uber and Lyft committed to stopping different people sharing the same car, in order to help with social distancing.
- Uber has promised to provide financial assistance to drivers who are not able to work because of being quarantined. There are an estimated 900,000 United States Uber drivers and many of them are revealing that they are experiencing a fifty percent reduction in income, as fewer Americans need ride sharing services. Uber's stock has experienced some fluctuation. In February, it was sitting at just over forty dollars per share, but by Match 17th it had dropped to less than nineteen dollars.
Potential Industries Receptive to Management Consulting Firms
In light of the unprecedented and rapidly changing operating environment, consultancies are having to work up plans to deal with the coronavirus (COVID-19) outbreak to protect their staff, clients and stakeholder communities as well as to ensure business resilience as the global economy possibly moves towards a recession. However, one thing is clear, most of the industries mentioned above might be amenable to a management company approaching them in the wake of this pandemic to get them back on track.
With few exceptions, the twelve industries being battered by COVID-19 are being hurt overwhelmingly for one reason: the American government's orders for the closing down of businesses, social distancing, and mandated self-isolation. Additionally, all these industries are consumer driven and rely heavily on how confident consumers feel about the economy. For example the casino gaming industry is extremely tied to consumer confidence, so if the US economy does not bounce back quickly after the COVID-19 crisis is over, then this industry may continue to suffer. On the other hand, food and restaurants industries typically do well as people need food and can only cut spending by so much. As much is speculative as to how quickly the US economy will recover and how the jobless rate will be, understanding which industries would be in need, and therefore be open to spending on a management consulting service, is difficult to predict, but some assumptions can be made. Insights on that are presented below.
- In the airline sector a number of the world’s largest airlines are already plotting to stabilize their bottom-lines with a cull of their external advisers. Illustrating this, a letter to Air France management from CFO Steven Zaat announced a tightening of “discretionary” expenses such as travel and receptions, while limiting hiring and the use of consultants. Similar plans have also been announced by Delta Airways, KLM and Virgin Australia.
- It could take up to 10 months for the travel and tourism industry to recover, once the COVOID-19 pandemic is over.
- According to McKinsey, many companies are finding it hard to get the major actions surrounding COVID-19 right. They have consistently heard about five challenges companies from all sectors are struggling with, which could be an opportunity for a management consulting service. One: having an intellectual understanding isn’t the same as internalizing the reality; Two: employee safety is paramount, but mechanisms are ineffective; Three: optimism about the return of demand is dangerous; Four: assumptions across the enterprise are misaligned; and Five: the near term is essential, but don’t lose focus on the longer term (which might be worse).
- According to Bain & Company, consumer products companies dealing with COVID-19 causing spikes and dips in demand for their products have created intense stress. It has required them to quickly change their strategies for production, transportation and distribution, key account management, and marketing. These are all key areas that a management consulting service could assist with.
- Supply-chain disruptions due to COVID-19 are likely to increase the cost of business for manufacturing and construction companies, so both of those industries are likely to need help to get that back on track.
- "It is expected that global automakers and suppliers will face intense credit pressures, which will test their liquidity management and the headroom in their credit metrics." They might not have the budget to spend on a management consulting service because of this fact.
- Tech companies have healthy balance sheets and will likely, as a result, be open to a consulting firm to help guide them without them considering the costs too closely.
- Apple, Qualcomm, Cisco, Intel, Amazon, Nvidia, and Oracle are seven tech companies that are likely to recover quickly from the coronavirus because of have the customer base, balance-sheet strength, cash flow as well as the right products and services that could lead to a fast bounce back.
The development and the trajectory of the coronavirus in the United States (and worldwide) will probably require social distancing measures to be continued for an entire year or longer until a vaccine can be produced to avoid grave public health and economic consequences. The economic costs of social distancing will be felt drastically across every state's economy as companies close and employees are told to stay home. Based on the insights offered in this brief, it is likely almost all industries will require the services of a management consulting service to navigate this Black Swan event.