COVID-19 aftermath: What things will change forever?

[homer]

I wonder if VR will become more mainstream? Holographic meetings? Yes, I am watching Westworld.

[nodakfan17]

A big misconception about the 2009 ‘bailout’ is that most companies received free money. In actuality, they received the equivalent of loans with a 7% interest rate. A total of $634 billion was disbursed in TARP funds. Only $390 billion was returned (some companies folded), but the taxpayers also earned another $364 billion in dividends, interest, and other fees. So, in total, the taxpayers collected $754 billion on their initial $634 billion investment (a profit of $120 billion).

 

https://projects.propublica.org/bailout/

[sveumrules]

Thanks for the corrections on 2008, I admittedly pay very little attention to finance because I read stuff about how American Billionaires have seen their wealth increase by 308 billion since the start of C19 or by 1,130% since 1990 & I kind of lose interest in the minutiae after that...

 

https://www.theguardian.com/world/2020/apr/26/heads-we-win-tails-you-lose-how-americas-rich-have-turned-pandemic-into-profit

[owbc]

If you have a good social safety net then you can allow poorly-managed corporations to fail. If executives fear their stock options becoming worthless they will run the company differently than they will with the knowledge that the government will bail them out. So even government loans can encourage reckless behavior.

 

Look at the airlines. Southwest Airlines has been well-managed for decades and has a huge stockpile of reserve cash on hand for a crisis like this. They will be fine. Is it fair to them that the government is going to prop up their competition? If American or United went bankrupt, Southwest could buy up their assets for cheap and expand.

 

Of course the United or American employees would be screwed in that process because it would take time for them to be rehired by Southwest. And travelers would be hurt in the short-term. But with good unemployment benefits and health care, the average employee gets a vacation while Southwest gets rewarded for running their company well.

 

But instead, the poorly-run companies are being rewarded because they are able to keep the extra profits they made during the time that they should have been saving.

[FVBrewerFan]

I have no problem allowing poorly run companies to fail. AIG should have been allowed to fail.

 

As far as SWA goes, no, they wouldn't take over AL/UAL business. Maybe a small amount of their routes, and their best pilots. But that's it. SWA is non-union, so they wouldn't want to take over East Coast, ORD, LAX etc. That's why SWA is successful to begin with, they purposely avoid that.

[Samurai Bucky]

Fortune 500 companies can't grow or operate with a billion dollars in a checking account.

The shareholders won't let them...

[homer]

Fortune 500 companies can't grow or operate with a billion dollars in a checking account.

The shareholders won't let them...

 

 

Some can:

https://www.investors.com/etfs-and-funds/sectors/sp500-companies-stockpile-325-billion-cash-financial-mayhem-cornavirus-stock-market-crash/

 

[DHonks]

Arguably America's best run company--Apple--reports earnings today. The April quarterly report is also when they revise their capital return plans. I look forward to hopefully another 10% dividend raise and increasing the share buyback. It's been very good to me since I first invested in them in 2012. But they are dramatically helped that their revenues are not reliant on brick and mortar. Thanks to online purchases and services, they'll probably report profits of something like $5-8B for this quarter.

 

I definitely feel for the brick and mortar stores. Many have struggled to reinvent their businesses in the Amazon-era. At least they were getting some business. But the pandemic has totally destroyed them.

 

I always tell my students that I have no problem with the 2008-09 Bush/Obama bailouts. Did we need GM and Chrysler going under? I can't speak for Chrysler, but GM is much leaner, stronger company today and is building great vehicles. Did we need another half million or million workers hitting the unemployment lines if those companies had eventually failed? In a strong economy we could have made it work, but not in a terrible recession. My only peeves with the bailouts were that there were no bailouts for proprietorships AND that there was no coordinated effort to prevent banks from foreclosing. Banks saw high home prices and an opportunity to re-sell an asset and were quick to foreclose. I like that this time our government is supporting many small businesses and restricting credit seizures. One odd quirk this time is that small business loans were meant to keep paying employees. But I have some friends whose employees are furious that they weren't laid off, and they feel their employers cheated them out of the "pay increase" they would have gotten on unemployment. That's an odd quirk of the plans this year. The people want the guarantees of the jobs returning, but they want the higher benefits.

[FVBrewerFan]

Apple's guidance will be far more important (and interesting) than results from last quarter.

[LouisEly]

I have no problem allowing poorly run companies to fail. AIG should have been allowed to fail.

 

As far as SWA goes, no, they wouldn't take over AL/UAL business. Maybe a small amount of their routes, and their best pilots. But that's it. SWA is non-union, so they wouldn't want to take over East Coast, ORD, LAX etc. That's why SWA is successful to begin with, they purposely avoid that.

Second statement, agree - SWA doesn't have the regional jets or long-haul international jets/experience, in addition to being non-union. Part of their streamline in costs is that they only fly two different types of airplanes (two versions of the Boeing 737; technically three with the MAX-8, but those aren't flying now), and only pick routes that can support the capacity of those 737s.

 

First statement (AIG) - disagree pretty strongly. They are the backbone of far, far more than many people realize. Watch the documentaries on the 2008 crash.

[LouisEly]

One of the things that I pray will change - but have little to no faith will change - is that a significant percentage of the people who are obese, smoke, and generally treat their body like crap and expect everyone else to take care of them will realize how lethal their lifestyle choices are and will be shocked into lifestyle changes.

 

Highly doubt that will happen, and it hasn't been emphasized enough how most of the non-elderly people who are dying are dying because of their poor lifestyle habits, but if just 1/3rd of the obese/smoking population changes their behavior it will have a major beneficial change on society and the overall cost of healthcare.

[FVBrewerFan]

I have no problem allowing poorly run companies to fail. AIG should have been allowed to fail.

 

As far as SWA goes, no, they wouldn't take over AL/UAL business. Maybe a small amount of their routes, and their best pilots. But that's it. SWA is non-union, so they wouldn't want to take over East Coast, ORD, LAX etc. That's why SWA is successful to begin with, they purposely avoid that.

Second statement, agree - SWA doesn't have the regional jets or long-haul international jets/experience, in addition to being non-union. Part of their streamline in costs is that they only fly two different types of airplanes (two versions of the Boeing 737; technically three with the MAX-8, but those aren't flying now), and only pick routes that can support the capacity of those 737s.

 

First statement (AIG) - disagree pretty strongly. They are the backbone of far, far more than many people realize. Watch the documentaries on the 2008 crash.

 

I'm getting pretty far OT, but most business units of AIG were profitable. They could have weathered the storm if they sold off a lot of their business units to raise capital. AIG was too big to fail, you're right about that. I just think the feds didn't want to take any chances.

 

Back to the airlines a minute, without help UAL and American would likely have to merge. That's fine, except for people wondering why a flight is now $1,500 instead of $300.

[homer]

Approximately 83% of Southwest employees are members of a union.

 

The Aircraft Maintenance Technicians are represented by the Aircraft Mechanics Fraternal Association (AMFA).[52] Customer Service Agents and Reservation Agents are represented by the International Association of Machinists and Aerospace Workers Union (IAM). Flight Dispatchers, Flight Attendants, Ramp agents and Operations agents are represented by the Transport Workers Union (TWU).

 

"Kelleher, who rarely actually involved himself personally in such talks, demonstrated uncanny ability at keeping the carrier's labor costs low despite paying Southwest's heavily unionized workers (the most heavily unionized by percentage in the industry) industry-leading wages."

[thebruce44]

If you have a good social safety net then you can allow poorly-managed corporations to fail. If executives fear their stock options becoming worthless they will run the company differently than they will with the knowledge that the government will bail them out. So even government loans can encourage reckless behavior.

 

Look at the airlines. Southwest Airlines has been well-managed for decades and has a huge stockpile of reserve cash on hand for a crisis like this. They will be fine. Is it fair to them that the government is going to prop up their competition? If American or United went bankrupt, Southwest could buy up their assets for cheap and expand.

 

Of course the United or American employees would be screwed in that process because it would take time for them to be rehired by Southwest. And travelers would be hurt in the short-term. But with good unemployment benefits and health care, the average employee gets a vacation while Southwest gets rewarded for running their company well.

 

But instead, the poorly-run companies are being rewarded because they are able to keep the extra profits they made during the time that they should have been saving.

 

Its worth noting that American Airlines CEO, Doug Parker, actually said this in 2016 in regards to stock buybacks and investor profit:

 

“My personal view is that you won’t see losses in the industry at all,” said Parker, speaking June 8 at American’s annual meeting. “We have gotten to the point where we like other businesses will have good years and bad years, but the bad years will not be cataclysmic. They will just be less good than the good years.”

 

The misconception that airlines run on razor thin margins is incorrect thanks to all of the consolidation.

[LouisEly]

Its worth noting that American Airlines CEO, Doug Parker, actually said this in 2016 in regards to stock buybacks and investor profit:

 

“My personal view is that you won’t see losses in the industry at all,” said Parker, speaking June 8 at American’s annual meeting. “We have gotten to the point where we like other businesses will have good years and bad years, but the bad years will not be cataclysmic. They will just be less good than the good years.”

 

The misconception that airlines run on razor thin margins is incorrect thanks to all of the consolidation.

It's not due to consolidation. That statement was made based on projections of demand and not margins. It's why I (mistakenly) invested (thankfully a relatively small amount) in American back then - because every flight I was on was full.

 

The industry had been incentivized to not expand supply (routes, seats) and use demand to raise seat prices because of low margins. Whenever airlines would announce that they were increasing supply (more seats/flights), their stock price would actually drop because investors would freak out and think it would decrease already low margins that are very sensitive to oil prices.

[owbc]

I remember when the AA CEO said that and I thought it was complete BS at the time for a number of reasons (it's a shareholder meeting after all...). If it wasn't COVID or the 737 MAX it would have eventually been something else. Airfare is one of the easiest things to chop from a personal or corporate budget. And the absurd growth projections are dependent on an infinite supply of oil, no climate change, and a massive increase in travel demand in increasingly cramped airplanes.

 

I didn't mean to derail the thread with my Southwest analogy but I disagree with many of the responses. Southwest still owns a bunch of 717s from the AirTran acquisition that they lease to Delta. Alaska was "proudly all Boeing" until they acquired Virgin America and subsequently ordered a bunch of new A321s. If one of the big airlines when bankrupt the other airlines would be tripping over each other to acquire the assets and grow their market share. Especially the gate space which they are constantly fighting over--hence why Southwest succeeded in carving out a niche at cheaper airports.

[AKCheesehead]

Speaking of air carriers being hit, our largest in-state airline, RAVN air group, had to file for chapter 11, have a liquidation plan in place and appears likely to be done for good. They announced a $90million deficit which I imagine largely already existed prior to covid, but covid made them unable to make the gains they were banking on during their busy season. It's going to have a tremendous impact in state, as so many people and communities rely on air travel. My job requires a lot of flying to very remote places, and that is going to become much more complicated to accomplish than it already was.

[OldSchoolSnapper]

And AA to the list of places requires masks for customers now. I was supposed to go to the Jersey shore in June but I doubt that's happening. Waiting on an official word the boardwalks and beaches are closed but that feels like a formality at this point. I'd wear the stupid mask if required but this is all starting to feel like safety theater.

[LouisEly]

Airfare is one of the easiest things to chop from a personal or corporate budget.

Not really. Most business travel is flying to customers/clients, and for sales and consultants you really need to meet the customer/client where they are to truly understand their business and deliver service/solutions. Really hard to attend industry conferences/conventions virtually too. If you're demoing a product, training on how to use something, or if you need to discuss or demonstrate something that is a trade secret/in development/highly sensitive, it's better and more secure to do that in person.

 

In my world, I can do research virtually to a point. But I'm working on a product that won't launch for another year, so doing some things virtually pose risk to the company because it isn't in the public domain yet. Hacking, recording screens, all of those things are risks.

 

Company meetings are also a morale booster, especially for field/remote employees. Seeing and interacting with your colleagues develops loyalty and makes it less likely that you leave - reduces the cost of turnover.

[DHonks]

Its worth noting that American Airlines CEO, Doug Parker, actually said this in 2016 in regards to stock buybacks and investor profit:

 

“My personal view is that you won’t see losses in the industry at all,” said Parker, speaking June 8 at American’s annual meeting. “We have gotten to the point where we like other businesses will have good years and bad years, but the bad years will not be cataclysmic. They will just be less good than the good years.”

 

The misconception that airlines run on razor thin margins is incorrect thanks to all of the consolidation.

It's not due to consolidation. That statement was made based on projections of demand and not margins. It's why I (mistakenly) invested (thankfully a relatively small amount) in American back then - because every flight I was on was full.

 

The industry had been incentivized to not expand supply (routes, seats) and use demand to raise seat prices because of low margins. Whenever airlines would announce that they were increasing supply (more seats/flights), their stock price would actually drop because investors would freak out and think it would decrease already low margins that are very sensitive to oil prices.

 

I intentionally stayed away from American. They ran the oldest fleet in the US, were getting killed by high jet fuel prices, and somehow worked out the deal with US Airways that kept them afloat.

 

As for praise of Southwest, part of their success in the last 10 years is the con-job they've pulled. In the 1990s and early 2000's they were a discount carrier. They eventually broke away from expedia and the travel sites, leveraging their loyal fan base against the market. They jacked up their prices and were upset when they were being out-competed by a better, true discount carrier that they ultimately decided to buy once they bumped into each other over routes (AirTran...I'm generally for the market and allowing mergers, but that was a big mistake by the gov't). Last study I found said that Southwest is only the cheapest airline around 20% of the time, but I still frequently hear people talk about how it's a great value. When people actually price shop, they are shocked to find SW is usually more expensive. It's brilliant on SW's behalf, as they're creating brand stickiness like we see with Coca-Cola, Apple, Google, and Amazon. I saw that a non-Prime shopper on Amazon only completes the purchase about 5% of the time, while Prime members were something like 80+%, with people buying unnecessary items because they perceive them as a deal. I personally try to avoid "Southworst." I give them credit for friendly staff, but I dislike their higher prices and that my flights are nearly always 30+ minutes late.

[madbad2000]

"I personally try to avoid "Southworst." I give them credit for friendly staff, but I dislike their higher prices and that my flights are nearly always 30+ minutes late."

 

This is interesting to me because I have not heard this very often. I love Southwest for pretty much the exact opposite opinions. They tend to consistently be the best value, on time, I love their boarding system and friendly attitudes from ticketing, gate personnel, flight attendants, etc. I hate how the other large airlines play games with pricing to appear cheaper and then nickel and dime you with paying for seats, baggage, regular beverage service, etc. I also was spoiled the past 5 years because I lived close to BWI which is a Southwest hub and easily the best option to get to Milwaukee on a direct flight. I flew regularly for work and Southwest usually ended up being the cheapest and fastest option for me to get to my main destination of Phoenix, 5 hours direct from BWI. Now that I am in Huntsville, Southwest is still a strong player for me out of Nashville even though it's 2 hours away. I actually had them booked for a flight to Pittsburgh this year because the flight was direct and over $200 cheaper. Factoring in time, gas and parking I was still saving over $100 and about 3 hours travel time each way. They also offer direct flights to Milwaukee which is great for my family as its easier to travel with small children in the car and a quick flight instead of dealing with airport connections. I can only remember one flight that was delayed for me due to a mechanical issue. The gate did a quick rebook to the next flight through Midway and they held up that connecting flight by 5 minutes to make sure we all caught it. An interesting thing I saw with Southwest is that they have a lot of emergency ticketing support when needed. During this mechanical rebook, I saw ground guides and baggage handlers man the computers to rebook people quickly. It is usually the opposite with other airlines who have long queues and angry people all stewing in line together.

 

Just my personal opinion and experience I would rate my top experiences/options for the major airlines as Southwest, Delta, United, American. American takes the cake for the most consistently delayed and worst experience with staff and overall enjoyment. It is also fair to acknowledge where you travel from and to matters a lot since some routes are dominated by certain airlines. Right now I'm tied to Delta since its a 30-40 min hop to Atlanta. American a second option with a short flight to their hub in Charlotte. Huntsville Airport is courting Southwest openly and I hope that deal is made. Easily the best airport I have ever used and I would love more flight options.

[LouisEly]

As for praise of Southwest, part of their success in the last 10 years is the con-job they've pulled. In the 1990s and early 2000's they were a discount carrier. Last study I found said that Southwest is only the cheapest airline around 20% of the time, but I still frequently hear people talk about how it's a great value. When people actually price shop, they are shocked to find SW is usually more expensive.

This is true. I've often seen them more expensive - sometimes by a couple hundred dollars. They also leverage behavioral economics - people irrationally overvalue things that are free, thus the promotion of "bags fly free". It's not hard to do the math on bag checks, but that adds $60/bag/flight for people who rarely fly and don't have status on an airline. It also helps eliminate the time and chaos of finding overhead space on the plane and taking bags off to gate check them, which helps with being on-time (but weather and runway delays are the biggest cause of not being on-time).

 

That being said, I just looked at prices going from Chicago to Austin, TX, over Memorial Day. For direct routes with similar flight times, Southwest came in at $300 whereas United came in at $360. This factors in what it costs to not get a middle seat (regular economy on United, paying $20/flight on Southwest for automatic early check-in). If I switch the destination to Denver, similar parameters (direct flights, no middle seat), it comes to $366 for United and $265 for Southwest.

 

However, if I switch to Labor Day weekend, United is $168 to Denver or Austin, Southwest is $319 to Denver and $200 to Austin.

[homer]

If it's basic economy from United or an extra $100 on Southwest I am picking Southwest every single time. I will never sit in those seats again. Its the most cramped way to fly.

[madbad2000]

If it's basic economy from United or an extra $100 on Southwest I am picking Southwest every single time. I will never sit in those seats again. Its the most cramped way to fly.

 

Another point that is true for me. I'm 6'4", so every inch of leg room is noticed. I have had no issues with the size of Southwest seats on any plane. I cannot say the same for the other carriers at all. Delta does seem to be the better option there too with just enough leg room in basic.

[owbc]

One thing I liked about Southwest is that I got a ton of free credit from their tendency to overbook...once I got $1,100 ($550/person) and got to my destination only about 5 hours late--and you could still get a good seat when you took the bump thanks to the open seating policy. A definite advantage to the "no change fees" policy if you have the patience to exploit it.

 

Haven't flown them since I got status on Alaska...there isn't really a benefit anymore since I can get free checked bags and exit row seats now. Plus Alaska successfully took over the MKE-SEA nonstop from SWA and has a stronger presence on the west coast than SWA in general.

 

Anyway, still waiting on the first airline to report that they are in significant financial distress. Already have seen it happen with Hertz and Norwegian Cruise Lines. It would be a huge win for the planet if this virus wipes out the cruise ship industry, or at least significantly reduces it.