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Signs now point to carnage on the jobs front

Richard Curran


Dalata: Executive Officer Pat McCann seen in one of the group’s Clayton Hotels. Photo: David Conachy

Dalata: Executive Officer Pat McCann seen in one of the group’s Clayton Hotels. Photo: David Conachy

Dalata: Executive Officer Pat McCann seen in one of the group’s Clayton Hotels. Photo: David Conachy

Fear and loathing are becoming more prevalent as people really struggle to assess and manage the risks and uncertainty around coronavirus. The political fallout from the Galway "golfgate" dinner reflects how the mood in the country is hardening when it comes to implementing very strict and at times confusing public health advice.

I heard of one case recently of a priest who had neither a coffin or participants at a funeral mass in the local church because many of the relatives of the deceased had arrived from the United States to attend.

Instead, it was suggested that the funeral mass would be live streamed as relatives gathered at the deceased's house. Strange as it seems, approaching the service in this way would have been fully compliant with government advice.

People's attitudes to those travelling to Ireland stand out as quite different to other European countries.

The approach taken by government to travel is impacting the economy in lots of ways.

So much has been written about how small businesses will struggle to get through this economic crisis. However, we are starting to see the toll it is having on big business too.

Dalata Hotel Group announced first half losses of €70.9m during the week following a substantial 60pc fall in revenues. Despite the obvious challenges this brings, the group's financial position has been very robust.

It had €110m of cash resources and undrawn bank facilities of €111m at the end of August. Yet, it announced a share placing to bolster its balance sheet.

It raised €94.7m by placing shares at a 7pc discount to Monday's closing share price.

At the beginning of this crisis, companies like Dalata, a major player in its sector in Ireland, was tipped to benefit from the buying opportunities that might come along as less capitalised operators suffered.

Dalata said it wants to use the new cash to give it an advantage in securing new lease opportunities at competitive terms. It also said the money would provide additional headroom in the event of a more prolonged impact from Covid-19.

The group has a positive medium term story to tell, it's the short term that is much more uncertain and more difficult to price. Dalata may be the first of several large companies to raise new equity.

Prolonging quarantine or self-isolation measures for people arriving in Ireland is particularly worrying for the airlines. Ryanair, which went into this crisis with cash resources of around €5bn, has consistently underestimated the depth of the crisis.

In July it announced a return to 40pc of its previous schedule capacity. Now it has announced a 20pc cut in capacity due to a slowdown in bookings.

Unlike other major European airlines, Ryanair has not sought a state bailout or sought to raise new equity. But it was tipped as an airline that would avail of buying opportunities that should arise. Nobody is talking about consolidation right now.

The chairman of United Airlines, Oscar Munoz told CNN on Tuesday the industry would need to cut its labour costs by 50pc to survive. Some don't expect the industry to enjoy a return to 2019 trading levels until 2025.

Incredibly Ryanair's share price was trading at the start of this week at a higher level than in early March before the crisis broke.

Aer Lingus parent IAG is in the process of raising €2.75bn in new equity as the crisis bites in a deeper than expected way. IAG chief executive Willie Walsh said the money was for one thing: "to survive the most severe crisis in aviation history."

In Ireland Aer Lingus is talking about cutting back on its transatlantic routes from Shannon by shifting two mothballed Airbus planes to a UK regional airport.

The airline is playing the politics well. At least one local Fine Gael TD has said there would be state support to ensure this didn't happen. There is nothing quite like threatening anything at Shannon Airport to get politicians exercised.

By mid-summer Aer Lingus was losing €1.5m to €2m per day. Something has to give. It will have to either receive subsidies from the state in return for commitments to regions in Ireland; slash jobs; or go ahead and shift capacity to places where people can fly without quarantining.

This is an Aer Lingus financial issue that will very quickly become a Mid-West political hornets nest. Tensions may well emerge between small business owners seeking a slice of state funds, and big international giants also caught up in the pandemic.

Hard choices will have to made by government as things get even more difficult.

Big businesses that were thought to be very well insulated from the financial cost of Covid-19 are coming under pressure. This isn't just about small firms, and their owners trying to get through this crisis.

We are likely to see a winter in which bigger firms begin to slash jobs and in some cases opt for more state assistance whether its guaranteed loans or direct subvention.

In the case of the travel and hospitality sector, the best run companies went into this crisis in a stronger position, but nobody is immune. The longer the strict measures on international travel remain, the tougher it will be even for the most robust large employers.

If anything the mood in the country is moving further away from the idea of lifting restrictions. This all points to a tougher and more prolonged downturn in Ireland and real carnage on the jobs front.

Irish Independent