From Peggy Noonan, WSJ, April 24
“Governors who make the decision should stay aware of the creativity of their citizens. A guy who runs a hair salon shared with me this week his reopening plans: face shields for stylists, masks for workers and clients, gloves, gun thermometers for everyone who walks in. ‘Robes will be individually wrapped and there will be someone wiping door handles.’ He knows business starts only when people feel safe. He’s going to see they do for their sake and his.”
This is a reflection on the ingenuity of American entrepreneurs, as Noonan writes, the “creativity of our citizens.” People to people services are a huge part of our economy. People in close, on airplanes, trains, buses, sub-ways. Massages. Trainers. Doctors. Restaurants. Hair salons and barbers. Cruise Ships. Yosemite Park. Beaches. Stadiums. It is stated that consumer purchases amount to a huge part of our GDP, perhaps more than 70%. Not all of that is people to people. But it is a big number.
The COVID-19 world rules are straight forward. Protect yourself from close proximity to other people. The six foot rule probably works for asymptomatic carriers, at least in most case. Nothing really works for symptomatic carriers because, in the people to people world, you’ll be inside 25 feet. You simply cannot be around such people. Wipe everything off, constantly.
So you have two approaches. First abandon all close in people to people services until we have a universally distributed vaccine; or second, make such services as safe as possible. Noonan is saying, give our creative citizens an opportunity to make these services as safe as possible. We may be in for some delightful surprises. Risk taking, during war, is not irresponsible if it is calculated, undesired, and pursued with genuine purpose.
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CEO of a Major fast Food Restaurant
This is how we are applying the CDC rules to our workers at a number of our MacDonald’s Restaurants. It starts with a simple principle: Do your damnedest to stay within the rules, and depart only when you must. So at MacDonald’s, we are only using the drive-thru option at this time. There is a plastic shield between the cashier and the customer. They actually use a kind of stick instrument to collect the credit card and pass it back. They don’t touch it. Inside, everyone is wearing a mask. Everyone is wearing gloves. Sanitation measures are occurring every hour. Gloves are exchanged out 4-5 times a day. And everybody does their best to operate this way, though surely there are times when the cooks cannot, or others. The key goal is don’t stand around two feet from your colleagues face. Brushing by someone as you work, with a mask on, is not how you will contract the virus, say the experts. In other words, we do our best. Interestingly, we are 70% as productive as we were before.
I would imagine that when we are allowed to fully open we will open the inside of the restaurant very carefully: limit the number of people, have spacing in the order lines, perhaps suggest to people to wear a mask until they sit down, sanitize regularly, and of course, don’t allow sick people to enter the premises.
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RESTARTING A RESTAURANT, WSJ, May 2
“This isn’t a restart. It is a start-up” is the way one restaurant owner described the current situation. We have discussed in this space the notion of finding a new paradigm to fit the CDC guidelines.
This owner calls that “reshaping the business around new realities.”
Reshaping a small business can be quite different from a large one. Small businesses are much closer to their customers. They may be nimbler. They may have opportunities for reinvention.
In a recent essay posted on 4THQTR.com’s Coronavirus Diary, we discussed how the sweeping blow of COVID-19 may create less guilt and self-doubt because, in this case, we really did not do it to ourselves. The Journal writes that “closing things that were failing can be liberating” because there is no guilt. You are closing because of the virus, not because your business, or a part of it, was failing before the virus.
This owner thinks he can re-open at about 50% of capacity. For other restaurateurs, even the table ordering process may be very different. “App based ordering” may apply to a sit-down meal. One could even imagine a Zoom based discussion with the chef, directly to the kitchen, on what to order, and how to cook it.
Dining rooms will be sprayed down, as well as kitchen and restrooms, “with a food safe disinfectant, followed up with a microbial solution” which is a level of cleaning not done in the past.
At 50% capacity, tables will be further apart. Table sitting may be angled to avoid directly facing each other. Access into the restaurant will be controlled. People already understand that they are not entering a restaurant with any symptoms, of anything – cold, flu, etc.
Perhaps more than anything, diners who have lived in a relaxed world where things are pretty safe and constant surveillance seems unnecessary are likely to have a very dramatic change in behavior. They may demand more assurance for years to come that the people who cook their food, serve their food, take their orders, and wash their plates are taking measures that would have seemed extreme yesterday to make sure they cannot contaminate anything.
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Delta Air Lines CEO today outlined its response to the COVID-19 global pandemic.
“Government travel restrictions and stay-at-home orders have been effective in slowing the spread of the virus but have also severely impacted near- term demand for air travel, reducing our expected June quarter revenues by 90 percent, compared to a year ago” said Ed Bastian, Delta’s chief executive officer. “Delta is taking decisive action to prioritize the safety of our employees and customers while protecting our business and bolstering liquidity.”
Response to COVID-19
Network and Customer Experience
To address the challenges of COVID-19, the company is taking the following actions:
- Making significant capacity reductions for the June quarter versus prior year with total system capacity down 85 percent, including domestic down by 80 and international capacity down by 90 percent.
- Adopting new cleaning procedures on all flights, including fogging on all aircraft overnight and sanitizing high-touch areas like tray tables, entertainment screens, armrests and seat-back pockets before boarding.
- Taking steps to help employees and customers practice social distancing, including blocking middle seats, pausing automatic upgrades, modifying our boarding process and moving to essential meal service only.
Community Response
Delta and its 90,000 employees are taking an active role in our nation’s fight against the virus by:
- Offering free flights to medical professionals fighting COVID-19 in the hardest-hit areas of the U.S.
- Chartering international cargo-only flights to provide healthcare workers with materials needed to do their jobs.
- Operating charters and specially approved scheduled flights to nations around the world to repatriate more than 28,000 people displaced by the virus to the U.S.
- Manufacturing tens of thousands of face shields and masks at Delta Flight Products to aid healthcare workers.
- Partnering with the U.S. military to develop and manufacture secure, sterile transport pods at Delta TechOps, which will safely transit infected personnel to hospitals and medical centers.
- Donating over 200,000 pounds of food to hospitals, first responders, community food banks, and organizations including Feeding America
Expense Management
The company expects June quarter total expenses to decline by approximately 50%, or $5 billion, over prior year due to reduced capacity, lower fuel and cost initiatives, including:
- Parking more than 650 aircraft
- Consolidating airport facilities, with temporary concourse and Delta Sky Club closures
- Instituting a company-wide hiring freeze and offering voluntary leave options with 37,000 employees taking short-term unpaid leave
- Reducing salary expense through pay reductions for executive management and reduced work schedules across the organization.
Balance Sheet, Cash and Liquidity
Delta’s top financial priority remains preserving cash and enhancing liquidity. Accordingly, the company has taken the following actions:
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- Raised $5.4 billion of capital since early March, including securing a $3.0 billion secured term loan, closing $1.2 billion in aircraft sale leasebacks, issuing $1.1 billion in AA, A and B tranches of our 2020-1 Enhanced Equipment Trust Certificates (EETC), and funding $150 million in private aircraft mortgages to enhance liquidity and satisfy maturing obligations
- Drew down $3 billion under existing revolving credit facilities
- Reduced planned capital expenditures by more than $3 billion, including working with original equipment manufacturers to optimize the timing of our future aircraft deliveries and deferring aircraft mods, IT initiatives, and ground equipment refreshment.
- Extended payment terms with airports, vendors and lessors.
- Suspended shareholder returns, including the Company’s stock repurchase program and future dividend payments.
CARES Act Relief
The company expects to receive relief from the Coronavirus Aid, Relief and Economic Security (CARES) Act in the following forms:
- Payroll support of $5.4 billion, comprised of $3.8 billion of direct relief and a $1.6 billion low-interest, unsecured 10-year loan. Delta has already received $2.7 billion of these funds and expects to receive the remainder over the next three months. As consideration, the U.S. Treasury will receive warrants to purchase over 6.5 million shares of Delta common stock at a strike price of $24.39 with a 5-year maturity
- Eligibility for $4.6 billion in secured loans, if the company chooses to apply and accept funds.
“With the significant impact of COVID-19 on Delta’s revenue, we were burning $100 million per day at the end of March. Through our decisive actions, we expect that cash burn to moderate to approximately $50 million per day by the end of the June quarter,” said Paul Jacobson, Delta’s chief financial officer. “The decade of work we put into the balance sheet to lower debt and build unencumbered assets has been critical to our success in raising capital and we expect to end the June quarter with approximately $10 billion in liquidity.”
