The travel and hospitality industries are being hit the hardest. Flight Centre extended a trading halt and scrapped its dividend on Monday, while Helloworld announced 275 job losses and stood down 1300 people. Qantas last week revealed that 20,000 staff would be stood down. Long queues at Centrelink offices around the country on Monday underlined the grim prospects ahead.
Crown chief executive Ken Barton said on Monday the coronavirus had ”created unprecedented challenges”. Joe Armao
An avalanche of more than 30 large ASX-listed companies scrapped any form of profit guidance or announced major cost-cutting plans on Monday as it became clear that accurately forecasting the effects of the crisis on business profits is futile. The extreme uncertainty, as governments and authorities rapidly change their rulings and restrictions, means survival is on the minds of Australia’s bosses instead of a growth strategy as it was just two months ago.
The forced shutdown of pubs, clubs and casinos at midday on Monday and curbs on restaurants and cafes to allow them to serve only takeaway customers brought home the practical realities of an economic freeze.
The precarious nature that it will leave businesses in was underlined by a 200-fold increase in calls to ANZ Bank’s inquiries line on Monday. The banking regulator, the Australian Prudential Regulation Authority, is also asking banks to report on how many customers are deferring loan repayments in the wake of the COVID-19 crisis, with the major banks having announced temporary loan holidays of up to six months last week.
Speed of downgrades astonishing
Casino group Crown, which runs casinos in Melbourne and Perth, has a workforce of 18,500 people and new chief executive Ken Barton said on Monday the coronavirus had ”created unprecedented challenges” and it was still assessing the fallout from the casino shutdown orders. But Crown would still offer limited accommodation options in its hotel business.
Along with heavy job losses across industry, big capital spending plans are being rapidly dumped. Battling oil and gas producer Santos put on ice the $7 billion Barossa gas project off the northern coast of Australia in a move chief executive Kevin Gallagher described as ”hunkering down” for extremely testing times, while Sydney Airport outlined it was scrambling to conserve cash as first international and then domestic passengers vanished because of widespread travel bans.
The stockmarket suffered another day of heavy falls although there was a minor recovery late in the day after an 8.6 per cent plunge at the opening of trading. The S&P/ASX 200 Index dropped 5.6 per cent to 4546 points and is now down 36.5 per cent from its record just over a month ago.
Economists said governments in the United Kingdom and Scandinavia are offering more generous payroll subsidies than Australia. Alex Ellinghausen
Investors are increasingly alarmed at the rapid destruction in the value of portfolios, with seemingly no end in sight. This is despite large federal government stimulus plans, and emergency Reserve Bank of Australia rate cuts and yield targeting measures, which have never been used before in Australia.
The Australian Hotels Association warned the pub industry will be devastated. AHA national chief executive Stephen Ferguson said the health of staff and customers was paramount to all other considerations, but ”there’s no doubt this move is already having a devastating impact on our direct national workforce of 250,000 and our millions of patrons”.
The accommodation sector is being hit particularly hard, and estimates that 70,000 direct employees, such as cleaners or hotel receptionists, will be laid off in the next three months.
“We are in complete freefall as a sector,” Dean Long, chief executive of the Accommodation Association of Australia, said.
“There are major job losses – about 50,000 – coming off the boil in the next 14 days and more in the coming months.”
The sheer speed and volume of ASX companies dumping any guidance or announcing downgrades and big cost-cutting programs is astonishing. Even Bingo Industries, which operates 300 waste collection trucks in Sydney and Melbourne, scrapped its guidance as the pubs and restaurants shutdown and rapidly diminishing numbers of shoppers at shopping centres means there is minimal waste to be picked up.
The federal government’s $14 billion boost for enhanced jobless payments over the next two financial years implied about 750,000 workers could lose paid work, AMP’s Mr Oliver said.
Jobless rate headed past 10pc
Economists guess the unemployment rate is likely to hit about 10 per cent with job losses to be the hardest felt across tourism, travel, hospitality, retail, entertainment and sport.
“Unemployment is going to rise sharply. It’s just a question of how high,” Dr Oliver said.
“It probably goes to 10 per cent, but the risk is it’s even worse than that.”
The worker layoffs will outstrip the relatively benign 2008-09 global financial crisis when an additional 193,000 Australians became unemployed and the unemployment rate peaked at 5.9 per cent.
The unfolding labour market collapse may even threaten to match the 1991 “recession we had to have” when unemployment soared over 11 per cent.
Reserve Bank of Australia governor Philip Lowe has conceded there will be “significant” job losses.
Goldman Sachs economist Andrew Boak warned that the government injecting up to $100,000 into small and medium enterprises – via refunding PAYG employee income tax firms pay – won’t be enough to prevent mass job losses.
“By linking this payment to income tax withheld, we are wary that this wage subsidy may not sufficiently incentivise ‘labour hoarding’ – as many businesses will be operating with negative cashflow,” Mr Boak noted.
Governments in the United Kingdom and Scandinavia are offering more generous payroll subsidies, which will be paid contingent on employers continuing to pay staff.
“Australia is covering about 20 per cent of payroll but the Brits are doing 80 per cent and the Americans 100 per cent,” said George Washington University economics professor Steven Hamilton.
In the United States, Federal Reserve Bank of St Louis president James Bullard tipped the unemployment rate may hit 30 per cent in the June quarter due to large parts of the economy shutting down.
Measuring the worker layoffs will be tricky, because workers temporarily “stood down” – but not officially redundant – by companies such as Qantas may not show up in the official jobless statistics.
If employers in just five industries of retail, construction, hospitality, recreation and education cut their workforce by a quarter, Australia’s jobless rate would jump to about 13.8 per cent – the highest the country has seen in generations.
Aviation, one of the sectors hardest hit by the virus, has been quick to respond, with Qantas standing down 20,000 staff last week and Virgin Australia grounding its entire international fleet.
Both airlines have also slashed domestic capacity and travel agencies have been closing stores and sacking staff.
But airports to date provided relatively little information on the likely impact on their businesses.
Sydney Airport, Australia’s only ASX-listed airport, said on Monday that it was planning for “a significant but temporary reduction in international and domestic traffic” but didn’t quantify the expected effect on future passenger numbers.
The airport said on March 10 that international passenger numbers had fallen 25 per cent in the first nine days of the month, and that domestic passengers had dropped 6 per cent.
But that was before Qantas announced it was shutting down international flights from the end of the month, and before most state and territory governments announced plans to shut borders.
The only information the airport has given to date on how it will manage the impact of COVID-19 is to say it will slash spending on non-essential projects and cut costs.
Tollroad group Atlas Arteria, which operates roads in France, the US and Germany, on Monday ditched dividend guidance after revealing shutdowns in Europe and the US have had a massive impact on the numbers of people using tollroads.
Traffic on Atlas Arteria’s US Dulles Greenway tollroad near Washington DC, which is used by commuters, has slumped 56 per cent since Virginia’s governor on March 17 ordered bars and restaurants to reduce capacity to 10 people or close and told older people to self-isolate, with schools also shutting down.
But Transurban, which operates most of Australia’s tollroads and is one of the country’s biggest companies, has not to date said anything about the impact the virus will have on traffic flows or whether it will delay the massive new roads it is building, like Melbourne’s West Gate Tunnel.
Governments remain optimistic that construction projects will continue and workers will stay employed, with Infrastructure NSW’s chief executive Simon Draper writing to contractors to tell them that construction projects were not affected by the shutdowns in NSW and will continue.
Infrastructure NSW said it has been having talks with other government agencies over how they can work co-operatively with the industry to maintain “cash flow, employment and delivery” on projects. NSW Treasurer Dominic Perrottet has said the government is “resolved to continue delivery of its infrastructure project.”
But two of Australia’s biggest contractors, CIMIC and John Holland, were already struggling with losses before COVID-19, and will find it difficult to deliver projects on budget and on schedule if their workforces become ill or are forced to stay at home.