This is episode number tweleve in our series for 2020 and today’s date is Friday, April 24.
First I talk to Didier Moutia, the commissioner of St John Ambulance Australia (NSW). And we’ll be talking about how St John Ambulance is using technology to support its 130 strong team of volunteers to remain connected and engaged with the organisation during this period of strict social distancing. This is a critical component for the organisation as it relies on a team of volunteers who are engaged to support the community. The Granville Division of SJA exists to support its local health services with first aid support and services, and equipping individuals, families, and workplaces with high-quality equipment. The team also has a critical role in major incidents – like COVID-19 – where they will work alongside emergency services in times of need.
And then I’ll be talking to Indeed economist Callam Pickering, analysing Australia’s latest unemployment figures
But first, let’s talk to Didier Moutia.
Of all the wild, unprecedented swings in financial markets since the coronavirus pandemic broke out, none has been more jaw-dropping than Monday’s collapse in a key segment of U.S. oil trading. The price on the futures contract for West Texas crude fell below zero for the first time in history, into negative territory at minus $37.63 a barrel. The reason: with the pandemic bringing the economy to a standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it. The historic collapse in the price of oil is inflicting another shock on a weakened world economy mid the worst global slump since the Great Depression hit markets and reminded everyone that while it means cheaper fuel, the fact that so many are locked down by the coronavirus means this time it will likely do more harm than good to the recession-hit global economy.
Virgin Australia has entered voluntary administration after failing to receive financial assistance from the Morrison government. In a statement to the ASX, the airline said the move would help “recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis”.
The board of directors has appointed Vaughan Strawbridge, John Greig, Sal Algeri and Richard Hughes of Deloitte as voluntary administrators of the company and a number of its subsidiaries. The Federal Government had refused to step in with a $1.4 billion loan despite repeated pleas from company management. More than 10 parties have expressed interest in funding proposals or packages to save Virgin Australia, with some parties coming in overnight.
Private equity firm BGH Capital, airline investor Indigo Partners, distressed debt investor Oaktree Capital and entrepreneur Richard Branson head a field of more than 10 parties grappling for control of Virgin and Virgin Australia’s administrator is seeking to have the company’s sale wrapped up quickly, with a draft timetable targeting a deal in the next eight weeks or so… As the airline’s boss said the carrier was determined to fly again despite going into voluntary administrators on Tuesday. It remains unclear what will happen to its 16,000 staff but Mr. Strawbridge said there was no plan for job cuts. Wages will continue to be paid including for those who have been stood down and are accessing JobKeeper.
The company collapsed under a $5.3 billion debt pile and held only about $900 million in cash at this time. Virgin only raised $750 million of that debt last November to fund its full reacquisition of Velocity frequent flyer. The COVID-19 pandemic accentuated these troubles, as subsequent restrictions on movement took the axe to travel demand and activity. Paul Scurrah, who only took on the top job last March to turn the habitual loss-maker around, said the decision was about securing a future for Virgin on the other side of the crisis. Former Macquarie Group chief executive Nicholas Moore has been appointed by the Morrison government to work with administrators of Virgin Australia.
Redemptions on Velocity frequent flyer points have been temporarily paused for four weeks after Virgin went into voluntary administration this morning. The pause follows the Velocity site crashing on Sunday night as it was overloaded with members trying to redeem all their points as the inevitability of the airline entering administration grew. Points will remain in members’ accounts and they can continue to earn points through the pause. Velocity also warned members that the four week period may be extended. Velocity is not owned by Virgin, meaning the points businesses is not itself in voluntary administration.
Meanwhile, Richard Branson, founder of the multibillion-dollar conglomerate Virgin Group, has pledged to mortgage his home and luxury holiday resort in the British Virgin Islands to help his business empire navigate the coronavirus crisis. The pledge on his Necker Island home was made in a letter to staff, posted on Sir Richard’s personal blog on Monday. The letter tackles head-on many of the controversies that have dogged the Virgin founder in recent years, such as the tax status of his family and businesses, and which now may threaten government support for Virgin Atlantic, 51% owned by the billionaire. The carrier, like many airlines around the world, is facing a potentially fatal cash outflow as governments halt international air travel in the fight to contain the pandemic.
In the UK, Sir Richard said Virgin Atlantic could only “keep going” with government support. The group has asked for a package of £500m in commercial loans and state guarantees to help pay fixed costs and bolster cash. While it’s true that Branson has been hit hard by the economic fallout from COVID-19, the move to put his own home on the line is also a result of the lukewarm response to his pleas for government bailouts of Virgin Atlantic Airways and Virgin Australia Holdings. Colouring that reluctance is Necker Island itself, with the British Virgin Islands retreat portrayed as nothing more than a tax haven by some UK politicians for billionaires like Branson.
Virgin Australia’s administration requires an unprecedented response from both industry and governments to help aviation recover from COVID-19, Melbourne Airport chief executive Lyell Strambi said after warning passenger numbers were on track to tumble 97%. Melbourne Airport’s March passenger numbers slid 44% compared with February, and by the end of the month, were down 95% on the previous year. It had 473,846 international passengers pass through the airport in March – the lowest number since June 2010. Domestic passengers for the same month totaled 1.2 million, the lowest number since February 2004. The slump in passengers due to COVID-19 was worse than any previous crisis, including the terrorist attacks of September 11, 2001, and the SARS outbreak in 2003.
Sydney Airport has scrapped its interim dividend and slashed the pay of its board and chief executive by 20% after reporting a 45% slump in March passenger traffic due to COVID-19. Most domestic and international flights through the airport have now stopped, with a 96% drop in international passengers in the first two weeks of April, and a 97% drop in domestic travelers compared to the same period a year earlier. The airport warned most planes would stay on the ground until the government relaxed travel restrictions.
ANZ data shows that total employee jobs fell 5.5% and total employee wages paid fell 5.1% in the week ending 4 April. Unsurprisingly, hospitality and arts and recreation are bearing the brunt of job and wage losses due to COVID-19 restrictions, as are the youngest and oldest workers. Of those who had a job in the first week of April, almost a quarter had their hours reduced due to COVID-19.
Reserve Bank governor Philip Lowe has warned Australia is this year likely to experience its biggest contraction in national output since the Great Depression. Dr. Lowe says the national output is likely to fall by about 10% over the first half of 2020 and the unemployment rate is likely to be around 10% by June. He also cautioned against lifting social-distancing restrictions too quickly, and said if coronavirus re-emerges and the tough restrictions had to be reimposed “the loss of incomes and jobs would be even more pronounced”.
The Grattan Institute has crunched the numbers on the unemployment fallout we can expect from the coronavirus pandemic by analysing how many Australians’ jobs rely on working in close physical proximity to others, such as performers. Researcher Brendan Coates said the institute’s analysis found between 14 and 26% of the entire Australian workforce will lose their job, if they haven’t already, as a result of government shutdowns and physical distancing rules. This more than doubles the Federal Treasury forecast unemployment would rise to 10% in the June quarter — a figure which hasn’t reached double digits since 1994.
Mr. Coates said the Grattan Institute figures were slightly higher, probably because they included people who were expected to fall out of the job market altogether while the Treasury figures included people who would still be employed under the JobKeeper program. Unsurprisingly, the Grattan Institute found hospitality workers would be the hardest hit, with about 60% of jobs lost across the industry. Arts and recreation were also greatly affected, with more than 50% of jobs lost. Mr. Coates said the effects of the response to the pandemic would not be felt evenly, with many higher-paying jobs able to be performed remotely, or from home.
At least 540,000 people have lost their jobs in less than a month because of the impact of COVID-19, according to the Australian Bureau of Statistics. A survey of 1000 households asking about jobs, hours worked, health precautions, hygiene, social distancing, self-isolation, flu vaccination, and travel showed that even with the government’s $130 billion JobKeeper wage subsidy there was still a big rise in unemployment. The survey found that the proportion of people who had a job fell by 3 percentage points between early March and early April.
Since that time thousands of workers have either been laid off or stood down by companies hard hit by travel and social distancing restrictions in response to the pandemic. They include Qantas. Telstra, Corporate Travel Management, Flight Centre, Star Entertainment and retailers such as Myer and Country Road, Sussan Group and Michael Hill.
Global economics experts have warned the Prime Minister and National Cabinet that relaxing social distancing measures too quickly could lead to long term damage to the economy and risks a second-wave outbreak of COVID-19. The open letter was penned by economics professors from the University of Melbourne, the University of NSW and George Washington University in the US and has been signed by 246 economists, including from superannuation fund Sunsuper, Oxford University and the Reserve Bank of Philadelphia.
The economists said the successful measures Australia had implemented to cut down the virus’ spread has “put Australia in an enviable position compared to other countries, and we must not squander that success.” The economists acknowledged that the lockdown has stifled economic activity and jobs but said that was outweighed by the lives that had been saved, and wrote the economic cost would have been far greater if the virus had run rampant.
The Morrison government is resisting growing calls to make key changes to its $130 billion JobKeeper program as firms rush to enroll in the scheme and find the cash to cover their staff wage bills. On Monday the Australian Tax Office and accountants reported a rush by businesses to enroll in JobKeeper, which will provide $1500 a fortnight to firms for each eligible staff member, with payments due to start rolling out next month. It is a pivotal part of the government’s response to the economic consequences of the social distancing rules introduced to stop the spread of the coronavirus. Treasury modeling suggests that without the scheme the nation’s unemployment rate could reach 15%.
But firms and their tax advisers are discovering issues with the program including a requirement cash-strapped operations cover the wages of their staff while the business is effectively not operating. Firms set up as partnerships, which account for 9% of all small businesses, can only access JobKeeper for one partner. Other partners must go on to the lower JobSeeker payment.
Facebook and Google will be forced to pay Australian media companies for publishing their news stories, under a world-first mandatory code of conduct, after negotiations with the two global digital giants failed. Treasurer Josh Frydenberg and Communications Minister Paul Fletcher ordered the Australian Competition and Consumer Commission to draw up a mandatory code of conduct to correct the imbalance of bargaining power between local media companies and global technology platforms. This follows complaints from local media companies that Facebook and Google did not genuinely engage in negotiations over a voluntary code.
The government was motivated to act by the collapse in advertising caused by the corona-virus induced economic downturn, which put further pressure on the viability of media companies. The new code being drawn up by the competition watchdog, headed by Rod Sims, will include enforcement, penalties, and ways to sort out arguments between the global platforms and local media companies. It will include the sharing of revenue generated from news, ranking, and display of local news content on Facebook and Google’s sites as well as data sharing.
Hostplus is seeking to withdraw $1.5 billion from one of the country’s biggest property investment funds ahead of what could be an avalanche of requests by out-of-work hospitality and tourism workers for early access to their retirement savings. The Australian Tax Office will today begin processing applications for early access to superannuation under relaxed hardship rules, with Treasury anticipating up to $27 billion will be removed by 1.6 million members nationwide. Hostplus has notified property fund ISPT that it wants to redeem $1.5 billion, which is about 10% of total assets in the ISPT Core fund. For Hostplus, $1.5 billion represents nearly a third of the property holdings in its flagship MySuper balanced option.
National Australia Bank’s first-half earnings will take a $1.14 billion after-tax hit – even before the impact of the coronavirus is accounted for – with the bank flagging additional remediation costs, a reduction in the value of its wealth business, and additional software expenses, which will combine to slice profits. The additional charges, which represent around 18% of NAB’s expected earnings for the full-year, will add to the pressure on NAB’s dividend as it considers whether to defer payments to shareholders after the prudential regulator’s warning that dividends may need to be suspended until the COVID-19 outlook is clearer.
NAB said investors will have to wait until it reports its half-year numbers on May 7 to see the impact of the pandemic on its “earnings and balance sheet including provisions, combined with capital and dividend implications”. Before that, after-tax profits will be hit by $188 million tax due to additional customer remediation costs; by $742 million, due to changes in policies concerning the capitalisation of software; and by a further $214 million after an impairment in its investment in MLC Life.
Australian wine exports to mainland China have slumped by almost half, with other markets predicted to follow. Similar lockdowns across Europe and North America will impact the $45 billion industry, with exports to China already down 43% on last year. Despite a spike in wine sales in Australia as pubs, clubs, cafes, and restaurants shut down and Australians stay home, experts warn one-third of Australia’s wineries could go under because of the pandemic.
And that’s it for this week. And next week, I’ll be interviewing Andreas Dzulma, the founder of Longtail UX which managed to secure $5 million of funding when so many Australian businesses are struggling with the impact of COVID-19. How did he do it? And then I’ll be talking to Rabobank economist Michael Every about how China’s economy is coping with the global recession and whether it will recover.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Wishing you all a safe and healthy week and looking forward to bringing you Talking Business next week.