"How to Revive Reduced Demand"… Companies 'Worried' Despite Resumption of Economic Activities

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] As the United States and European countries grapple with restarting economic activities limited by the novel coronavirus disease (COVID-19), companies are expressing concerns that even if lockdown measures are lifted, demand may not recover, leading to continued impacts not only on profits but also on employment.

The airline industry, which has been hit hardest by COVID-19, is a prime example. According to Bloomberg and other sources on the 18th (local time), Oscar Munoz, CEO of United Airlines, and Scott Kirby, President, stated in a message to employees on the 15th that travel demand is "basically at zero," and there are no signs of improvement in the near term.

They said that flight schedules next month are expected to be reduced by about 10% compared to what was planned earlier this year, with similar cuts anticipated in June. They emphasized, "Demand is expected to remain suppressed throughout this year and may continue into next year," calling it "the biggest challenge in United Airlines' 94-year history."

Airlines have managed to put out the immediate fire. Ten major U.S. airlines received $25 billion in support from the federal government on the 14th. They secured cash through direct subsidies and low-interest loans, agreeing to maintain employee employment until October. However, customer demand remains low. Due to severe travel restrictions caused by COVID-19, airline demand has dropped by 95%, and most routes have been canceled due to lack of customers.

Beyond airlines, major tourist facilities such as hotels and amusement parks are worried about the prolonged COVID-19 situation ahead of the summer vacation season. Even if health authorities lift lockdown measures, fears of COVID-19 infection may deter customers, increasing the likelihood of failing to generate revenue during the peak season. The Wall Street Journal (WSJ) reported, "It may take several weeks or more to clarify which lockdown measures will be lifted and the total losses for the season."

[Image source=Reuters Yonhap News]

Not only the service industry but also manufacturing is facing similar circumstances. European automobile manufacturers, which had closed factories due to COVID-19, have begun resuming operations one after another. Volkswagen decided to reopen factories in Germany and Slovakia starting on the 20th. From the 27th, production will resume at factories in Portugal, Russia, and Spain. Audi restarted its Hungarian factory on the 14th, and Volvo began operating its Swedish factory on the 15th. Other major car manufacturers such as BMW and Toyota also plan to resume factory operations in Europe.

However, even if production restarts, the dominant view is that it will take some time for demand to recover amid extremely depressed consumer sentiment. In China, where the COVID-19 situation had calmed last month, automobile sales fell by 30% year-on-year compared to the previous month. Although there was some recovery compared to February, it did not immediately return to pre-COVID-19 levels.

If demand recovery is slow, employment will inevitably be affected. This is because employees who were temporarily laid off according to demand are likely to be reinstated. Moreover, since employees will return without a COVID-19 vaccine being developed, work environments must be improved to prevent the spread of infection. Hand sanitizers and masks will become essential in the workplace, and social distancing measures among employees are expected to continue for the time being.

The Washington Post (WP) recently reported on the situation at the Port of Los Angeles, where ship arrivals had stopped due to COVID-19 but have partially recovered, stating, "The resumption of economic activities will feature more masks, fewer employees, and high anxiety." At the Port of Los Angeles, which was empty in early last month, ships began arriving from the 1st of this month, and employees returned to work, but workloads were reduced compared to before, resulting in salaries being cut to 80%. Masks had to be worn during work, and the port was closed for 60 minutes each morning and evening for disinfection.

WP noted, "Companies cannot bring back 100% of employees who were temporarily laid off," and "Economists expect companies to start with programs bringing back about 50% of employees." Even when rehiring begins, the speed and scale will be determined by safety issues, customer demand, and consumer sentiment. WP added, "In the coming months, corporate efficiency will decline due to the necessary safety measures."

This content was produced with the assistance of AI translation services.