‘Disrupted firms’ could use crisis to offload employees

Paul was speaking primarily about the US market and highlighted incumbents such as American Airlines, which have already been ‘disrupted’ by changing tech trends and have been brought close to standstill by the coronavirus crisis.

He sees the crisis accelerating the decline of such ‘commodity’ businesses with tech firms the key beneficiaries.

“We have QE-to-infinity money printing, and despite that shares are down a lot.”

At the time of writing, American Airlines has 120,000 employees and a market capitalisation of $6bn. In contrast, Facebook has 45,000 employees and a market capitalisation of $454bn.

“Many large companies will seek to use this event as a catalyst to justify layoffs. Why? If you are a company with hundreds of thousands of employees, you are not able to be as flexible and pivot as quickly as newcomer companies with lots of cashflow. As time goes by, tech companies will become more powerful, they will have more touch points with customers. This is just the beginning of what they are doing. They have some of the best talent in the world. If you are an American Airlines, you are going to be relegated to a commodity player.

“There is a real tension between Government and industry. After the crisis, Government will be thinking, ‘let’s get people back to work’ but it will be a handicapped ecosystem, going against a huge, growing, fast-moving tech sector. Perhaps almost inevitably airlines will end up nationalised, which will not be great for training, development and innovation against tech starts ups. That what’s really going on here, right in the biggest shock since the Black Plague.

“If you are a large operator, you must partner with tech companies. You can’t beat them, so join them. Own the tech disruptors in a spirit of partnership.”

Hyper-inflation 

Paul, who has a background in investment banking advising tech firms, and now specialises in advising non-tech firms about the implications of technology, added that inflation would be a concern.

“With enhanced QE, we could have inflation, and maybe hyper-inflation, in a few years. This’ll be a big problem for companies with debt. Many big companies don’t have access to capital like they used to and the capital markets are now distressed.

“If there is a debasement of currency, there will be a flight to safety, but where is the safety? Gold? Hard assets? Boeing? Where is safety? It is big tech, in my view. The problem will be with the disrupted companies.”

Silver lining for aviation?

Paul said falling oil and gas prices could help aviation and supply chain firms.

“We could see the price of a barrel of oil go under $10. This is due to much lower demand, over-supply and maxed-out storage. The price could theoretically go negative, as companies try to get oil off their hands. We have also seen dramatic falls in the price of jet fuel.

“This has led to airlines converting planes to cargo. This has also become economically interesting because you only need two pilots, and it’s quite easy to operate. This could ease the pain for the airlines but the entire ecosystem is in a state of shock.”