George Choi

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Dana M Peterson

While the shutdown hit all non-essential industries at the same time, the recovery is likely to result in a diversity of recovery times depending on the sector. To help identify when different industries might rebound from the coronavirus globally, we looked at eight sectors which we segmented into “play” and “work” based on attributes including whether they are structured/mandatory or unstructured/discretionary and the ease of social distancing. Play sectors include hotels & restaurants, air transport, arts/entertainment/personal services, and retail & wholesale trade while work sectors include manufacturing, financial services, business services and high-tech manufacturing. Given the large amount of uncertainty, not just surrounding the virus itself but also around the depth of the downturn and the speed of the recovery, we felt it wasn’t enough to just estimate the time to recovery based on our base case economic forecasts. Instead, we widened the analysis to look at recovery scenarios for industries under a rapid recovery, a U-shaped recovery and a worst-case scenario. For all sectors and recovery scenarios, we estimated the number of quarters it would take to get back to pre-COVID-19 levels of global GDP from trough levels. We also estimate how long each sector would take to get back to pre-Great Financial Crisis levels of growth. What we found was that sectors associated with discretionary activities — "play" — may experience deeper contractions and lengthier returns to pre-COVID-19 levels than "work" sectors. For these sectors, we think the time it takes to recover may extend between six and eight quarters. Shallower contractions in growth and likely shorter recovery periods are predicted for ‘work’ sectors —between four and seven quarters — which is consistent with the duration of recovery for those sectors during the Great Financial Crisis. The industry which proved to be an exception is manufacturing. Although it is classified as a "work" industry, we believe it may suffer deeper contractions and lengthy recovery periods as some of its large sub-sectors (i.e., autos and aerospace) may struggle longer in recovery due to the nature of the crisis and the fact that certain geographies with heavy manufacturing presence (i.e. Western Europe and China) were affected the most by the crisis.Authors: Dana M Peterson,

While the shutdown hit all non-essential industries at the same time, the recovery is &nbsp;likely to result in a diversity of recovery times depending on the sector.&nbsp; To help identify when different industries might rebound from the coronavirus globally, we looked at eight sectors which we segmented into &ldquo;play&rdquo; and &ldquo;work&rdquo; based on attributes including whether they are structured/mandatory or unstructured/discretionary and the ease of social distancing. &nbsp;Play sectors include hotels &amp; restaurants, air transport, arts/entertainment/personal services, and retail &amp; wholesale trade while work sectors include manufacturing, financial services, business services and high-tech manufacturing. Given the large amount of uncertainty, not just surrounding the virus itself but also around the depth of the downturn and the speed of the recovery, we felt it wasn&rsquo;t enough to just estimate the time to recovery based on our base case economic forecasts. Instead, we widened the analysis to look at recovery scenarios for industries under a rapid recovery, a U-shaped recovery and a worst-case scenario.&nbsp; For all sectors and recovery scenarios, we estimated the number of quarters it would take to get back to pre-COVID-19 &nbsp;levels of global GDP from trough levels. We also estimate how long each sector would take to get back to pre-Great Financial Crisis levels of growth.
<img class="alignnone wp-image-9134" src="https://www.citivelocity.com/citigps/wp-content/uploads/2020/05/Industry-Recovery-Scenarios.png" alt="" width="1290" height="422" />
 What we found was that sectors associated with discretionary activities &mdash; "play" &mdash; may experience deeper contractions and lengthier returns to pre-COVID-19 levels than "work" sectors. For these sectors, we think the time it takes to recover may extend between six and eight quarters. Shallower contractions in growth and likely shorter recovery periods are predicted for &lsquo;work&rsquo; sectors &mdash;between four and seven quarters &mdash; which is consistent with the duration of recovery for those sectors during the Great Financial Crisis.
<img class="alignnone size-full wp-image-9133" src="https://www.citivelocity.com/citigps/wp-content/uploads/2020/05/Industry-GVA.png" alt="" width="865" height="481" />
 The industry which proved to be an exception is manufacturing. Although it is classified as a "work" industry, we believe it may suffer deeper contractions and lengthy recovery periods as some of its large sub-sectors (i.e., autos and aerospace) may struggle longer in recovery due to the nature of the crisis and the fact that certain geographies with heavy manufacturing presence (i.e. Western Europe and China) were affected the most by the crisis.Authors: Dana M Peterson,

COVID-19 Global Impact

May 7, 2020 - To combat the COVID-19 pandemic, countries across the globe  started issuing ’stay-at-home’  and ‘lockdown’ orders to help flatten the curve of infection and protect their citizens. This essentially shut down all businesses and services that weren’t deemed ‘essential’. With a number of countries starting to lift restrictions and more planning to do so soon, people will be returning to work and consumers will  hopefully be getting out of the house and spending their money. As businesses reopen, the hope is that the economy recovers quickly and gets back to pre-COVID-19 levels.

When Will Industries Rebound?

Craig Woolford

Once restrictions are eased, we expect a bounceback in spending as people venture back outside and try to shift back to normal. But the speed of any recover is still a big unknown as questions linger about safety which could potentially dampen demand. Will people get comfortable again being among large groups of people, or sitting on a crowded airplane? Until they are, the thought of traveling abroad to a busy tourist destination may not be appealing. In addition to consumer fears, border restrictions in certain countries around the world could also limit the resumption of international travel. In the attached report, we look at Australia, where border restrictions mean international travel is suspended for the foreseeable future. This is a concern as Australians like to travel — they made 11 million offshore trips last year. The silver lining is that a portion of the money Australians would have spent overseas — some A$50 billion — could remain in Australia and benefit the domestic economy. Overall, we expect domestic tourism in Australia to rise 7% and retail growth to be boosted by 1 percentage point as a result of this shift in spending.Authors: Craig Woolford,

Once restrictions are eased, we expect a bounceback in spending as people venture back outside and try to shift back to normal. But the speed of any recover is still a big unknown as questions linger about safety which could potentially dampen demand. Will people get comfortable again being among large groups of people, or sitting on a crowded airplane? Until they are, the thought of traveling abroad to a busy tourist destination may not be appealing. In addition to consumer fears, border restrictions in certain countries around the world could also limit the resumption of international travel. In the attached report, we look at Australia, where border restrictions mean international travel is suspended for the foreseeable future. This is a concern as Australians like to travel &mdash;&nbsp; they made 11 million offshore trips last year. The silver lining is that a portion of the money Australians would have spent overseas &mdash; some A$50 billion &mdash; could remain in Australia and benefit the domestic economy. Overall, we expect domestic tourism in Australia to rise 7% and retail growth to be boosted by 1 percentage point as a result of this shift in spending.Authors: Craig Woolford,

A Source of Increased Domestic Spending

May 19, 2020 - The economic fallout from the COVID-19  virus is expected to be huge. Millions of people are out of work and economic activity is at a standstill while we wait for the virus curve to flatten. Although many industries are affected, one of the hardest hit sectors has been tourism, with the lockdown grounding both business and leisure travel. Restaurants are also struggling as social-distancing restrictions mean they can't open up to sit-down diners, forcing consumers to shift their spending towards at home options.

Locking Down Australian Tourists

Like most other public spaces, temperature checks are likely required at the door and initially, masks will need to be worn at all times. But the biggest change will be at gaming tables, where regulators have issued conditions stating that gaming tables can only operate at 50% capacity — every other seat must be empty — and players cannot place bets while standing at the table. Many are concerned that these restrictions will mean that gross gaming revenue for casino operators will not be able to recover to previous levels. We disagree. Based on the proprietary table surveys which we’ve collected since January 2014, we don’t believe the newly imposed conditions will be a bottleneck. Based on our observations, mass market Baccarat table utilization historically is below 100%. And in the premium mass segment, which makes up 60% of gross gaming revenue, only ~46% of Baccarat tables are generally at play and each table had on average around two players. This is below the upper limit of four with the social distancing measures. Ironically, the new measures may also increase gaming volumes. Time spend per game is one of the major factors that determine casino gaming volumes. As top wagering players will be able to play at higher speeds due to fewer players at the table, increasing the speed at which top wagering players are able to play should lead to higher gaming volumes. But will people flock back to casinos once travel restrictions are lifted? Preliminary signs on Chinese domestic tourism are encouraging. We view this is a positive for Macau casino volumes and supports our view that gross gaming revenues will swiftly recover soon after the quarantine requirements and travel restrictions are lifted. Authors: George Choi, CFA,

Like most other public spaces, temperature checks are likely required at the door and initially, masks will need to be worn at all times. But the biggest change will be at gaming tables, where regulators have issued conditions stating that gaming tables can only operate at 50% capacity &mdash; every other seat must be empty &mdash; and players cannot place bets while standing at the table. Many are concerned that these restrictions will mean that gross gaming revenue for casino operators will not be able to recover to previous levels. We disagree. Based on the proprietary table surveys which we&rsquo;ve collected since January 2014, we don&rsquo;t believe the newly imposed conditions will be a bottleneck. Based on our observations, mass market Baccarat table utilization historically is below 100%. And in the premium mass segment, which makes up 60% of gross gaming revenue, only ~46% of Baccarat tables are generally at play and each table had on average around two players. This is below the upper limit of four with the social distancing measures. Ironically, the new&nbsp; measures may also increase gaming volumes. Time spend per game is one of the major factors that determine casino gaming volumes. As top wagering players will be able to play at higher speeds due to fewer players at the table, increasing the speed at which top wagering players are able to play should lead to higher gaming volumes. But will people flock back to casinos once travel restrictions are lifted?&nbsp; Preliminary signs on Chinese domestic tourism are encouraging. We view this is a positive for Macau casino volumes and supports our view that gross gaming revenues will swiftly recover soon after the quarantine requirements and travel restrictions are lifted. Authors: George Choi, CFA,

May 20, 2020 - Some of the more striking images from the COVID-19 lockdowns have been from places like Macau and Las Vegas, where casinos which would normally be filled with activity, are seen empty and dark. While casinos in Macau were allowed to open back on February 20th, travel restrictions across Mainland China remained in place as did border restrictions in Hong Kong. As these begin to lift, players are starting to return to the gaming tables. However, their new casino experience will be markedly different from the one they experienced before COVID-19.

Why Social Distancing Won’t Put the Brakes on a Macau Gaming Recovery

Mark A Manduca

With the current global lockdown, business travel has for all extents and purposes been grounded. Businesses that were able to shift to remote working also shifted their in-person meetings and conferences to phone calls, video calls, and virtual meetings. Over the next few months, countries around the world will start to ease restrictions and get their economies back open for business, but to what extent will things change on the corporate travel front?. Will corporate travel return to the pre-COVID-19 levels? We think corporate travel will likely come under pressure both in the long and short term. First, varying border and quarantining rules in place globally will make travel itself difficult and possibly create significant litigation risks for corporates. Second, the accelerating use of digital meetings throughout the crisis could create a secular shift which replaces costly and time-consuming corporate travel. In the short term, a 1% impact on corporate travel volumes has a 10% impact on airlines profits, keeping other variables static including lower fuel costs and the industries high level of fixed costs. In the attached note, we also look at the volume of business vs. leisure travelers and domestic vs. international travel for major cities. In the longer term, the secular shift could hit the portion of the industry that travels more than five times a year as well as the corporate traveler that visits other offices versus visiting clients. A decline in the first could come from the increased difficulty of travel while a decline in the second could come from corporates seeing a cost saving as virtual meetings and video conference calls have been effective substitutes for in-person meetings. If the number of trips is cut in half for both the high-volume traveler and the "own office" traveler, corporate travel overall could be secularly impaired by 25% from 2019 levels.Authors: Mark A Manduca,

With the current global lockdown, business travel has for all extents and purposes been grounded. Businesses that were able to shift to remote working also shifted their&nbsp; in-person meetings and conferences to phone calls, video calls, and virtual meetings. Over the next few months, countries around the world will start to ease restrictions and get their economies back open for business, but to what extent will things change on the corporate travel front?. Will corporate travel return to the pre-COVID-19 levels? We think corporate travel will likely come under pressure both in the long and short term. First, varying border and quarantining rules in place globally will make travel itself difficult and possibly create significant litigation risks for corporates. Second, the accelerating use of digital meetings throughout the crisis&nbsp; could create a secular shift which replaces costly and time-consuming corporate travel. In the short term, a 1% impact on corporate travel volumes has a 10% impact on airlines profits, keeping other variables static including lower fuel costs and the industries high level of fixed costs. In the attached note, we also look at the volume of business vs. leisure travelers and domestic vs.&nbsp; international&nbsp; travel for major cities. In the longer term, the secular shift could hit the portion of the industry that travels more than five times a year as well as the corporate traveler that visits other offices versus visiting clients. A decline in the first could come from the increased difficulty of travel while a decline in the second could come from corporates seeing a cost saving as virtual meetings and video conference calls have been effective substitutes for in-person meetings. If the number of trips is cut in half for both the high-volume traveler and the "own office" traveler, corporate travel overall could be secularly impaired by 25% from 2019 levels.Authors: Mark A Manduca,

A 1% Impact on Corporate Volumes Impacts Airline Profits by 10%

May 18, 2020 - Corporate travel has been a cornerstone of business for decades. Whether it's a traveling salesman, sitting in the middle seat of a regional flight between small cities in his sales coverage or the global businessman who travels around the world meeting meet clients and colleagues, business travel for many involves being on an airplane. For airlines, although almost 85% of their passengers fly to visit family and go on vacation, the smaller corporate category generates 40% of airline revenues. 

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Why Social Distancing Won’t Put the Brakes on a Macau Gaming Recovery

When Will Industries Rebound?

Locking Down Australian Tourists

Corporate Travel

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