Mass event and travel cancellations will hit companies and the economy hard, but the short-term pain could enable both individual industries and the economy to recover faster if COVID-19 is quickly contained.
That’s the main takeaway for Canadians, according to Lisa Kramer, professor of finance at the University of Toronto.
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Consumers and businesses cancelling or postponing travel plans and social gatherings will deal a serious blow to airlines, hotels, event planners and conference organizers, among others, Kramer said.
“But if we’re doing this right, this will be a relatively short-term phenomenon.”
The focus right now has to be on following the advice of health authorities, not only because the economy must take a backseat to the imperative of protecting the population but because business activity itself will benefit from a swift response to the virus, Kramer said.
How long the current turmoil lasts is the key question facing the airline industry, said aviation expert John Korenic.
If airline travel sees a bounce-back by the end of April, then the impact of the current cancellations and travel restrictions wouldn’t be “as dramatic,” Korenic said.
Airline stocks plunged on Thursday after U.S. President Donald Trump announced a 30-day travel ban between the U.S. and Europe, a move the administration hopes will help limit the spread of the virus.
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German carrier Lufthansa closed 14 per cent lower, ending at a near eight-year low as the epidemic forced it to halt the sale of the international operations of its airline caterer LSG.
On Wall Street, airline stocks tanked 11 per cent, while cruise liner Carnival plummeted after its Princess Cruises said it would suspend global operations for two months.
It’s uncertain whether Canadians airlines will see a temporary boost in passenger volumes from the U.S. travel ban, Korenic said. While Americans abroad will be allowed to return home, it remains unclear whether Europeans travelling through Canada would be allowed into the U.S.
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The International Air Transport Association has estimated losses of up to $113 billion in 2020 for the passenger side of the aviation industry.
The cost of a Boeing 737 Next Generation jet, for example, runs around $300,000 per month, Korenic said.
“So if it’s sitting on the ground, obviously this is quite an impact there,” Korenic said.
Still, Canada’s major airlines are well-capitalized, which puts them in a better position to weather the storm compared to their international peers, he added.
However, whether and to what extent passenger travel bounces back during the summer months remains the crucial unknown for the industry right now, Korenic said.
Travel and event cancellations will also have a significant effect on consumer demand in Canada, Kramer said.
Both the National Hockey League and the National Basketball Association have suspended their 2019-20 season in response to rising number of COVID-19 cases in North America — among them Utah Jazz player Rudy Gobert.
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In the music industry, artists postponing planned events and tours include Mariah Carey, Pearl Jam, KISS and Ciara. On March 6, South By Southwest, the beloved Austin, Texas-based music festival, become the first officially cancelled music gathering in the U.S. Coachella, one of North America’s largest music festivals, has been postponed until October.
A number of conferences are on the chopping block as well, including Facebook’s Global Marketing Summit and Google’s I/O developer event.
“We’re not accustomed to seeing this kind of broad response across all sectors to something like a pandemic,” Kramer said.
Cancelled events are just one aspect of how people are being encouraged to limit social interactions, which will have an impact on overall consumption levels.
While some are ramping up spending by stocking up on goods like canned food and toilet paper, “it wouldn’t be unexpected for consumption to decline a bit going forward,” Kramer said.
Still, it’s too soon to tell whether Canada is headed for a recession, she added.
“If consumption goes down, we have measures in place in this country … to dampen the effect of that.”
On Wednesday, Prime Minister Justin Trudeau announced a $1-billion stimulus package for the Canadian economy, including special government benefits for workers who must go on sick leave or see their work hours reduced.
From a business and economic point of view, right now, the priority is to stop the virus, Kramer said.
“If we’re sensible about this and continue to follow the advice of the public health authorities, we’ll really be grateful for it after … because this will just prepare us longer-term for getting back to business.”
— With files from Reuters and Adam Wallis at Global News
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