Contagion Rages Through Economy – 1

The rapidly spreading coronavirus has reached every corner of the U.S. economy, upending the jobs of Seattle taxi drivers, Texas oil workers and Wall Street traders — and nearly everyone in between.
The virulent invader, which swept through Asia and Europe, is leading many U.S. businesses to hoard cash, pare spending and rethink how they operate without knowing how long the troubles will last. Some that lost business may never get that revenue back. Thinner profit margins and a focus on cost cutting mean some firms may lose key workers, vendors and the ability to invest for the future.
The pain is acute at companies with high levels of debt or that were struggling before the outbreak. Already, shale oil driller Occidental Petroleum Corp., laden with debt from its $38 billion purchase last year of a rival, has slashed its dividend and spending plans. Boeing Co., wounded by the grounding of its 737 Max jet, has frozen its hiring and maxed out its credit lines.
“If this lasts a few months, we will start seeing retail casualties pile up,” said Jerry Storch, the former chief executive of Toys “R” Us Inc. and Hudson’s Bay Co.
The respiratory illness, which first paralyzed many of China’s factories, has now frozen businesses across industries. Airlines have cancelled thousands of flights. Americans are now expected to buy 1.5 million fewer cars this year, one analyst predicted. Major sports leagues have suspended play indefinitely, dealing a blow to venues and broadcasters.
“I’m tossing and turning at night about it,” said Aron Ain, chief executive of Kronos Inc., a software maker with 6,000 employees. “I’m uncomfortable because I haven’t been through it before.”
The spread of the virus has led to a nearly endless stream of hard-to-answer questions from Kronos staff, like whether or not to travel to client meetings. Some clients are starting to put off purchasing decisions, Mr. Ain said, adding that, a week from now, it could be more.
There have been few mass layoffs so far in the U.S., which before the outbreak had the lowest levels of unemployment in decades. During the 2008 financial crisis, nearly six in 10 companies stopped hiring or decreased staffing, while 35% froze pay, according to executive search firm Korn Ferry.
“Cutting muscle and hurting your ability to recover is far more damaging to an organization than limping along with a couple of quarters of extra expense,” said Bob Wesselkamper, a vice chairman at Korn Ferry.
Declared a global pandemic on Wednesday, the new coronavirus had infected more than 125,000 people in more than 100 countries. More than a third of the infections globally have been outside of China. They include a Fiat Chrysler Automobiles NV worker at an Indiana plant and the CEO of British telecom giant BT Group PLC.
Inside China, the rate of infection has slowed after the government locked down much of the country for more than a month. Factories are restarting production and workers are returning to their jobs. Apple Inc. reopened all 42 of its stores in China on Friday.
Businesses are adapting to the rapidly changing public-health guidance, sending workers home, canceling events and switching to teleconferencing. BT said its chief executive, 53-year-old Philip Jansen, has self-isolated and will work remotely. It will deep-clean its London headquarters. Fiat Chrysler said it would quarantine some workers from the Indiana factory but the transmission plant would continue normal operations.
U.S. consumer spending was strong before the virus surfaced, and not all business activity has stalled. PepsiCo Inc. struck a nearly $4 billion deal this week to acquire the maker of Rockstar energy drinks. Insurance broker Aon PLC agreed to buy a rival for nearly $30 billion, the biggest deal of the year on one of the wildest days for markets.
Just as households are stocking up on supplies and preparing for an uncertain future, companies are making similar moves by making sure they have credit lined up and cash they may need, said Gregory Daco, chief U.S. economist at Oxford Economics. “The shock has morphed in the last couple of weeks,” he said.
Here is a look at how the virus is rippling through every corner of the economy:
Energy
The oil and gas industry is facing twin shocks: a demand drop caused by coronavirus, and a supply glut caused by overproduction. A spat between OPEC and Russia over production worsened the situation last week, sending U.S. benchmark prices crashing to $30 a barrel. The result is that companies — especially many American shale drillers who were already on the ropes — now face a serious threat to their survival in the months ahead. Companies including Occidental Petroleum Corp., Apache Corp., Matador Resources Co. and Marathon Oil Corp. have begun belt tightening, with many slashing spending and reducing drilling rigs. The idling of rigs results in less work for the contract crews that operate them, rippling through the economy. It also eventually leads to reductions in overall production.
— Miguel Bustillo
Airlines
A fear of flying has taken hold, and airlines are preparing for the prospect that it could depress demand for months. Carriers slashed scheduled flights, froze hiring, and offered employees unpaid time off in an effort to conserve cash and prevent layoffs. A trade group estimated a potential loss of $113 billion in global passenger revenue, and the outlook worsened after the U.S. announced aggressive new restrictions on travelers from Europe. “The speed of the demand fall-off is unlike anything we’ve seen — and we’ve seen a lot in our business,” Delta CEO Ed Bastian wrote to employees Friday. United Airlines Holdings Inc. President Scott Kirby offered a “dire scenario” United is using for planning purposes: Revenue drops 70% in April and May, 60% in June and remains depressed the rest of the year.
— Alison Sider
Consumer products
Makers of everything from hand sanitizer to cleaning products to baby diapers are racing to increase production as they work with U.S. retailers to keep shelves stocked. Clorox Co. is uniquely advantaged as a major producer of cleaning products that both sells and produces most its products in the U.S. For truly global consumer-products companies like Procter & Gamble Co., for which China is the second biggest market and home to hundreds of suppliers, the upside of increased sales could be well outweighed by the impact production disruptions in China and slowed consumer spending globally. Another challenge is for companies like Amazon.com Inc. and eBay Inc. to control price gouging by third-party sellers.
— Sharon Terlep
Sports
Three big sports leagues — the National Basketball Association, National Hockey League and Major League Baseball — all suspended their operations, aiming to protect fans as well as players. The leagues will lose revenue from ticket sales, but the biggest impact may be on media partners. Sports TV networks including Walt Disney Co.’s ESPN, AT&T Inc.’s Turner, Comcast Corp.’s NBC Sports and Fox Corp.’s Fox Sports will take a hit on advertising sales. The NBA alone brought in nearly $1.6 billion in ad revenue in the last season, according to research firm Kantar. And networks may be on the hook for billions of dollars in rights-fees obligations even if games aren’t played. The leagues and networks are hopeful the break is just that — a break — and that they’ll be able to resume their seasons.
— Amol Sharma
Movies
Hollywood studios will likely feel the sting of postponing major movie releases for several months, if not years. Delaying a $200 million film like Walt Disney Co.’s live-action remake “Mulan” has long-term ramifications not only for the studio but for the industry as a whole. Studios typically plan years in advance to decide when to release movies, weighing both the time of year and what the competition has slated. As the number of delayed releases grows so too do the chances that other films will suffer. MGM Holdings Inc. moved the release of its James Bond film “No Time to Die” to November from April, a month already chock full of big franchise films. The coronavirus scare has also caused studios to delay the production of big-budget films like Paramount Pictures “Mission: Impossible 7,” which could lead to a drought in future years.
— R.T. Watson
Hotels
Conference cancellations and a pullback in business travel are dragging down revenue in the hotel industry, which just suffered one of its worst weeks in years. Some operators lowered room rates, a move they usually try to avoid because it can be hard to push rates up again even if the outlook improves. Historically leisure travelers are quicker to return, as they did after the Sept. 11 terrorist attacks and the 2008 financial crisis. Business travel typically takes longer to snap back, as companies want more clarity before approving most trips again. It’s also possible that some business never comes back if fears about future virus outbreaks — along with emerging environmental concerns about plane travel — prompt more businesses to rely increasingly on teleconferencing.
— Craig Karmin
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