The shutdown of businesses across the world to halt the spread of the coronavirus has led to a collapse in corporate income. Government support schemes, whether ad hoc bailouts or loan guarantees and employment subsidies, have helped shield some businesses from the worst of the storm. Many, however, are quickly approaching the crunch point when the economic pain will need to be shared between shareholders, management and employees. Wise business leaders should not shy away from these difficult decisions but they should proceed carefully and ensure they are not seen to take advantage of a crisis.
Airlines, which are already in the most acute phase of this crisis, provide a cautionary tale for other sectors. Lufthansa, the German flag carrier, reported its largest ever quarterly loss for the three months to the end of June. Despite taking a €9bn bailout, the group’s chief executive Carsten Spohr said that it would be “forced to make hard and painful cuts”. British Airways staff meanwhile are on the verge of taking industrial action over the company’s mooted plan to cut 12,000 jobs and cabin crews’ wages.
International air travel was an early casualty of the crisis and is likely to be one of the last areas of life to go back to normal, if it ever does. But other businesses should be under no illusions: they, too, will have to face up to the upsetting reality of billions of dollars of lost revenue and higher levels of debt. Bridgewater, the hedge fund, estimates that a hole in corporate income will open up worth between $15tn to $20tn by the end of 2021.