The New Normal – Part 1

Posted by on Jun 3, 2020 in Blog | 0 comments

The Covid crisis continues and people have been wondering what will happen after a few months. Here are my thoughts on the New Normal. I have identified some industries which will be affected and suggested some actions they can take to reduce the negative impact. These are my thoughts as a thinker and the doers or entrepreneurs are more imaginative than thinkers or economists, so I will be happy to be proved wrong!!

In general, people will reduce touching each other and avoiding handshakes or hugs. Namaste might become the global greeting style for a couple of years. Similarly people will avoid paper or objects passing on from one person to
another. So currency notes will still be in circulation but e-payments will further rise. E-Tickets will rise and in general, whatever can be converted to an electronic-object will replace the physical object substantially.

Travel Industry:

The biggest loser in this case is the travel industry! Leisure travel is not the same anymore and even business travel will reduce as companies realize they could manage quite well with online meetings and would consider cost benefit ratios of physical meetings v/s online meetings & perhaps arrive at a solution that will substantially reduce business travel. This category has some subcategories

Airlines:

The airlines will have to follow the norms of social distancing (now renamed Physical Distancing)!! So they may sell only window and aisle seats and not sell middle seats for a while. Let’s look at an airbus with 180 seats. They can only sell 120 of those! They may not hike the price a lot since the demand supply ratio would work against that hike.
So what could they do? They may modify some planes to have more space per passenger and charge more. E.g. earlier you got only 2 inches space now it is 5 inches in front of you etc.

They may modify the chairs and make window and aisle seats wider. All the above would mean reinvestment and at present, the airlines which are already overburdened with debts, salaries etc may not consider that! Most governments will have to bail out their national carriers and US has private airlines with strong lobbying power, but all that money will go only in servicing existing liabilities. I can think of only a handful of airlines reinvesting in optimizing seats the way I have suggested. E.g. Singapore Airlines or Emirates! Others may not invest more and may not benefit due to that. What they all will do for sure is that they will reduce frequency of flights across all sectors. The trips one plane can do in a day will go down since each stopover would mean more cleaning, sanitizing and perhaps sometime fumigating as well. The new planes orders may be halted or delayed or even re-negotiated. So Boeing, Airbus would suffer more than the airlines themselves. The airlines can do one more thing!! They can cannibalise their seats from their own excess planes. Smaller aircrafts with wider seats taken from larger aircrafts, might work to their advantage and the reinvestment cost won’t be much. Amenities such as newspapers onboard would become redundant and the airlines may instead give free/paid wifi to the passengers.

Family discount is one more option for the airline. The family members who stay in the same home will not be bothering about leaving seats empty and can seat next to each other. The airlines could offer huge discounts for families with 3 or 6 members, as that would enable them to sell the middle seats.

Airline Checkin counters:

These might change with more or even mandatory e-boarding passes since less paper is to be handled. Even the airport kiosks for online check-in would have sanitizers and cleaning workers frequently cleaning the machine.
The security staff may check the temperature of the passengers before they enter the terminal. The people going to
see off their friends will probably have to stop as they won’t be allowed nearer to the gates. Family members may still drop each other at the airport, but may not wait to chat until the passenger has to go in since that won’t be allowed at airports where it was allowed till 2019.

Airline Catering:

For the full service airlines or long haul, the impact would be as much as the airlines themselves (33% or so reduction). For the budget airlines, it could be more! Passengers may be allowed or even encouraged to carry their own food inside the plane. (With due security checks) and the airlines may reduce one/more of the crew members. Some budget airlines may declare that they do not have any food on board and thus prevent wastage as well as manpower on ground needed for the logistics of this. The cleaning operations of an aircraft will go up and staff for that at the airports is anyway outsourced. But even the duties of crew on board will have a bit more time for cleaning and sanitizing and less or no time for serving food!

The customs and immigration staff were standing away from the passengers even earlier, now the distance may be even more with additional walls of glass or similar material. But the customs officers won’t worry much about your baggage if you are a tourist. They would also want reduced interaction with tourists and focus only on catching the people who may game the system, such as smugglers.

The governments of Covid affected countries such as Italy, Spain, Iran, China etc may do well to reduce visa formality and encourage tourism from qualified tourists by having liberal visa norms. This will help the tourism in their countries.
A new idea for embassies could be to shift the focus from country to individuals. E.g. If a country has stringent visa
norms for tourists from (say) South Asia, they may consider having liberal norms for frequent flyers. (Say having visa
stamps of 20 countries, OR those who worked in an advanced country earlier and repatriated, OR those who are travelling for business or tourism and are above 50 years of age etc)

Hotels, hostels and restaurants:

They will lose significantly. Business travelers might be told to return the same day to avoid expenditure for the company and avoid contact with more people in a different town. Tourists may postpone their travel for a while, especially to destinations which were affected by the virus such as Italy, Spain, France etc. The hostels may attract business travelers if they pitch that a room with 4 beds in a hostel is still cheaper than a room in a hotel and maybe price it at 3 times the price of a single bed. Star hotels will be affected and can offer family discount to families wanting to stay in a large hotel at a substantially reduced rate. Overall the large hotels will be affected, struggle to pay interest on their loans and some of them may go out of business if they are built on large mortgage.

Restaurants are asked to reduce the number of chairs and tables and increase distance between them. That would hit their revenue in the first place even before the customers decide whether they want to eat out! And that would be the
second factor affecting the restaurants. I used to have my breakfast in restaurants almost every day. (Except when I had assignment earlier in the day). I even used to meet some people I was mentoring for a walk and a leisurely breakfast totaling 60~90 minutes. This will go down now. My group of friends would think the same and our group of a dozen or so may not be allowed on the same table/s by the new rules which may prevent gatherings like this.
I also used to have dinners outside often, with friends and family members. This will reduce substantially due to two
factors. Firstly I will have reduced turnover and hence reduced disposable cash and secondly I would want to avoid
social contact to prevent contagion.

The demand is going to be less and supply would not change immediately. The rents for large restaurants will make many restaurateurs lose lot of money if not go bankrupt or make them leave the premises or even business. So rents are expected to come down. A restaurant near my home on Senapati Bapat Road has changed tenants every year or so due to unreasonably high rent. It has been unoccupied for the past 6 months or so anyway. Now the rent may come down or the owner may sell it off. The selling will also have to be at a discount!

 

Tourists:

If you have surplus cash, you should travel after a few months as you would get never-before-deals. The airlines will offer discounted seats for the person who can decide at the last minute and travel long distance. The hotels will offer
discounts to improve occupancy. This can change however, if many businesses in this category go down and people switch professions as mentioned above, which will reduce supply substantially.

But the daredevils who have cash in hand now, can exploit the situation to their advantage. The probability that Italy would be hit by next wave of virus is less. Yet fear would prevent many tourists from going there. So if you take risk and visit Italy in (say) summer of 2021, you might really get some great offers.

Travel Agents and middlemen:

With increasing use of online bookings, these guys were losing sleep anyway. Now even more clients would postpone
plans and those who decide to travel may seek cheaper online options. The airtickets had not left much margin for them even prior to Covid. The current income for them comes from inbound and outbound tourism. The organized tours may go down in numbers as costs would increase. The buses arranged for the tour group will have reduced occupancy due to social distancing. The airlines can sell the adjoining seats for families travelling together. The tour group organizers would exploit that. The intercontinental travel such as Asians going on a group tour to Europe etc would go down substantially due to fear. Many smaller travel agencies may close shop or move to a different domain as mentioned below.

What can the tour operators do to survive?

They can think of newer tours. E.g. India has a scope for agro tourism which has not been exploited so far. So a tour group visiting a village, watching farmers work in the field, having local food, seeing potters and other artists work, smashing grapes themselves to help make wine, etc can be a new idea which can be explored. Mumbai has a tour of the slums in Dharavi, costing some 50 Dollars. (including transportation and breakfast at a five star hotel). It was a great new idea when it was launched and they have made good money from it. Other cities will have to find their own Dharavis. It need not be a slum, it could be heritage walks/industrial visits unique to their cities.

It need not be low cost tour. It can even be a good idea to visit a dairy or plant of milk conversion near another city. It will be a high end tour with limited permits granted by the many milk federations as well as the time taken to travel from the nearby larger city. One challenge to overcome here is that the rural folks won’t want too many foreigners now since the belief is that the virus came from ‘abroad’! They may not want too many urban folks to come for a while!

Media

The print media is affected. They have two clients: the buyers of their print edition (readers) and the advertisers. They will be affected since they cannot sell advertisements presently the way they sold till 2019. The advertisers will have less budget for advertising on print media due to two factors- reduced revenue and the reduction in print copies. Most individuals still do not want a printed copy of newspaper. Some of them have shifted to online reading of the same and are realizing that it might not be a bad idea to continue the same. The purchase price of a good newspaper in India is Rs 5 and the annual cost becomes about 1800 Rupees minus the annual receipts from selling month’s papers for recycling (say) 300 Rs for one daily, Thus Rs 1500/= If the newspapers offer digital edition for subscribers at (say) 300 Rs a year, there might be many takers. That would enable targeted marketing of products based on the profile of the readers as well.

The advertisers had to pay earlier for advertising in the entire city edition /print run. Now they may opt for online ads if they know the specific segment. E.g age group, gender, income group etc. The same newspaper might have many editions for the same city. The affluent may get ads from luxury cars while the middle class may get ads from 2-wheelers and the poor from FMCG in the same newspaper.

The electronic media may not be affected much. TV viewership might have gone up recently due to the lockdown. Radio has gained ground in the last few months and according to a report the listenership has gone up by 86%. So radio can sell more ads that may turn some budget of companies from print media.

Billboards or hoardings may lose their sheen since people may not travel much on the roads for a start and may look less at the ads placed at a height on the roads since they may be wearing masks or PPE kits.

Mask advertising may become a new trend. People will get bored of the same masks and they have to use it anyway, so companies may think of masks with their own logo on it.

What about pharma, education, real estate, entertainment industries? Please read that in part 2 of this!

-Prasad Sovani

 

To be continued in part 2 Click here

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