WSJ: U.S. Companies Lose Hope for Quick Rebound From Covid-19
Big U.S. companies are deciding March and April moves won’t cut it.
The fierce resurgence of Covid-19 cases and related business shutdowns are dashing hopes of a quick recovery, prompting businesses from airlines to restaurant chains to again shift their strategies and staffing or ramp up previous plans to do so. They are turning furloughs into permanent layoffs, de-emphasizing their core businesses and downsizing production indefinitely.
Delta Air Lines Inc. DAL -2.31% curtailed plans to add more summer flights and said it doesn’t expect business flying to recover to pre-pandemic levels. Chipotle Mexican Grill Inc. CMG 1.87% is adding staff and changing operations to accommodate more to-go business. Vox Media, the publisher of New York magazine and several news websites, said it would lay off 6% of its workforce as the company confronts a prolonged drought for its lucrative events business.
DAL -2.33% “We cannot defy gravity and continue with the business model we had before the pandemic,” Pret A Manger Chief Executive Pano Christou said on Friday as the sandwich chain reported an 87% drop in U.S. sales and announced plans to close nearly 20 stores.
Executives who were bracing for a monthslong disruption are now thinking in terms of years. Their job has changed from riding it out to reinventing. Roles once thought core are now an extravagance. Strategies set in the spring are obsolete.
“It’s going to be a different game,” said Bill George, former CEO of medical-device company Medtronic PLC and a senior fellow at Harvard Business School. Mr. George said many companies now need to explore strategies they might have once deemed unthinkable, from hospital chains embracing a long-term shift to telemedicine to apparel makers figuring out how to market and sell their wares in an environment where many stores don’t reopen.
U.S. airlines had been signaling an easing of the broad grounding that analysts say will lead to combined losses of $23 billion this year. Some of them had begun expanding summer flights in anticipation of a pickup in demand. Much of that hope faded last week.
Both Delta and United Airlines Holdings Inc. UAL -3.08% said they would scale back their ambitions to fly more later this summer. Delta said it would halve the number of extra flights it adds in August to 500 and that capacity in the September quarter would at best be 25% of the level a year ago.
“We’re seeing stalling demand growth at this point,” Delta Chief Executive Ed Bastian said in an interview with The Wall Street Journal. The company opened the airline earnings-reporting season with a loss that Mr. Bastian called a staggering illustration of the pandemic’s impact, and he told analysts he didn’t expect the level of business flying to ever recover to its pre-pandemic level as companies rethink the need for putting employees on the road. Leisure traffic could take two years or more to recover, assuming a vaccine or treatment becomes widely available, he said.
Meanwhile, American Airlines Group Inc. AAL -2.81% told 25,000 workers that their jobs are at risk after federal aid expires Oct. 1 and United said it is exploring shedding 36,000 employees, or nearly half of its U.S. workforce, as both airlines said they expect it to take years for demand to approach normal levels.
There are some signs of strength in consumer spending. The Commerce Department on Thursday said U.S. retail sales—a measure of purchases at stores, at restaurants and online—increased 7.5% in June, driven by a pickup in sales at motor-vehicle dealers, furniture, clothing and electronic stores. Spending has also been buoyed by enhanced unemployment benefits that are set to expire at the end of the month.
Still, some economists say the data obscure the reality on the ground, where consumers are increasingly fearful of the economic impact of a new surge of Covid-19 cases in much of the U.S.
“The risk of a relapse in demand is rising,” said Gregory Daco, an economist at Oxford Economics. Mr. Daco’s measure of states’ recovery finds the economic rebound has slowed week-over-week in 14 states and declined in 15, with confirmed infections rising in 39 states that together account for 90% of the U.S. economy.
The U.S. posted a single-day record of more than 77,000 new cases on Thursday and its case count on Sunday was more than 3.7 million, a little over a week after reaching 3 million. The accelerating spread has derailed what many businesses had hoped would be a smooth transition to normal levels of activity. Executives are increasingly resigned to the idea that a vaccine is the only path back to normal.
“The real endpoint is the biology,” Gary Burnison, CEO of executive-search firm Korn Ferry, KFY -1.90% said on an earnings call this month.
California halted indoor activities at bars, restaurants, salons and gyms—many of which were already struggling to recover from earlier shelter-in-place orders—less than a month after allowing them to reopen. School districts in a growing number of cities, from Houston to San Francisco, said remote-only learning would continue this fall, another blow to businesses hoping to get working parents back in the office. Job site Indeed said it won’t require employees to return to its offices before July 2021.
Chipotle opened its first drive-through lane two years ago. On Wednesday, the burrito chain said it expected at least 60% of new locations would have them, adding that it had hired 8,000 people since May in part to staff reformatted stores with windows where customers who drive can pick up orders placed in advance online.
Vox Media, the publisher of New York magazine, the Verge and SB Nation, furloughed about 100 employees in the spring after it suffered sharp revenue declines as the pandemic drove down advertising spending and caused it to stop producing lucrative events.
On Wednesday it said it would lay off about 70 employees, many of them from the events business, in an acknowledgment that it doesn’t expect parts of the business to bounce back. Also last week, the Guardian announced the British newspaper would reduce its staff by 12%, or 180 people, with cuts to the newsroom and business side of its operation.
“It’s becoming increasingly clear that the second half of the year will not rebound anywhere near our pre-Covid forecasts,” Vox Media Chief Executive Jim Bankoff wrote in a memo to staff. “Furthermore, as cases rise tragically across the country and many of our elected leaders avoid decisive action, we have very limited visibility into the timing or strength of a recovery.”