These industries need a lifeline — fast


March 18, 2020

The government wants to give you some $$$. On Tuesday, the Trump administration made the surprising announcement that it supported the idea of sending people checks to shore up the faltering economy. Meanwhile, on Twitter…

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Bailout Bingo

These 3 industries are looking for fast lifelines to keep them afloat

For many businesses, the coronavirus pandemic threatened cash flows almost immediately. 

The Trump administration wants to fix that by letting people defer tax payments and sending them $$$ directly, but it’s clear that some industries still need the power brokers to throw them a rope — and quickly.

Here’s a look at 3 of them.

Airlines

What’s happened so far: Governments are telling residents to stop traveling (and, in some cases, to shelter in place). Major carriers are slashing flights. The slowdown could have huge consequences:

  • Most carriers worldwide could go bankrupt by the end of May.
  • US airlines alone employed ~747k people as of January. 

What they’re asking for: A lifeline of $50B+ from the federal government.

  • That’s more than 3x what the industry received after 9/11.
  • The ~$850B in stimulus money that President Trump wants includes that support for airlines.

What might happen next: The airlines need support, but some people are skeptical.

  • That’s because the biggest US ones spent their free cash flow on stock buybacks (more on those below).
  • An example of the side-eye: “As the government considers what we, the public, should do for the airlines,” wrote Tim Wu of The New York Times, “We should ask, Just what have they done for us?”

Restaurants

What’s happened so far: Dining destinations are being forced to shift to takeout and delivery only — or to shut down entirely.

What they’re asking for: They’re urging patrons to buy gift cards, reschedule reservations, and get that grub delivered. 

  • But the industry’s 15m+ workers are losing out on shifts and tips right now, and owners still have bills to pay.

What might happen next: Governments might have to step in to prevent widespread industry collapse. As Eater put it: “Restaurants Are F*cked — Unless They Get a Bailout.”

Casinos

What’s happened so far: The pandemic created a bizarre scene on the Las Vegas Strip and at other gambling hotspots: Lights out at the slot machines and craps tables.

What they’re asking for: Casino kingpins are doubling down on the idea that the government should help their $260B industry, too. 

  • In 2017, US casinos employed 360k+ people. 
  • In 2018, casinos generated ~$9.7B in tax revenue.

What might happen next: So far, there’s no sign that the government will put more chips on the table. Any movement would cause controversy due to President Trump’s deep industry connections.

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Bye-bye buybacks

Why is everyone talking about buybacks?

Yesterday, China’s JD.com made news when it announced it would buy back $2B in stocks.

This past weekend, a consortium of 8 big banks — including Goldman Sachs and Bank of America — teamed up to halt stock buybacks at their own companies.

And recently the airline industry has faced huge criticism — even as it falls out of the sky — for investing big bucks in big buybacks over the past decade. 

So… why’s everyone bickering over buybacks?

They’re a good deal for investors

When cash-rich companies repurchase their own shares, the supply of outstanding shares shrinks — increasing stock values for existing investors. 

Many of the world’s richest companies are known for their big buyback programs: Apple recently spent $234.7B over a 5-year period buying back its shares.

But buybacks can be a bad deal

Since buybacks still cost companies real cash, some critics argue that buybacks aren’t worth it because they merely manipulate stock prices without adding any real value for the company’s customers

Apple’s buyback budget, for example, was $234.7B the company didn’t spend improving its products or driving down costs for customers. 

And the corona-chaos is highlighting Big Buyback issues

In the last decade, the biggest US airlines spent 96% of their free cash flow on stock buybacks. A big focus on buybacks helped American Airlines increase its profits from >$250m in 2006 to $7.6B in 2015. 

With the airline industry on the brink of a bailout, some observers point to the buybacks as one reason why American is now $30B of debt (~5x the company’s valuation).

Even Goldman Sachs and the other 7 members of the Financial Services Forum agree, saying halting buybacks “is consistent with our collective objective to use our significant capital and liquidity to provide maximum support to individuals, small businesses, and the broader economy.” 

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Coping With Coronavirus

‘For us it was really just 100 to 0 overnight’

We asked readers to tell us about how their businesses are coping with the coronavirus. We’re featuring highlights of those conversations here.

Many couples who are knee-deep in wedding planning now have to make a heartbreaking decision: postpone the big day until the pandemic recedes or scrap the plan outright.

For companies like SnapBar, either choice means trouble. 

Sam and Joe Eitzen started building custom photo booths for weddings in 2012 as a side hustle. The business took off, and they expected to bring in $4-$5m this year.

Now they’re just focused on keeping the lights on. 

“It’s not like we’re still able to operate like a restaurant and still serve some customers food through a drive-through,” Sam said. “For us it was really just 100 to 0 overnight.”

SnapBar is focusing on 3 things: The customer-service team is doubling down on weddings that can be planned far in advance, the engineering team is working on a virtual photo booth, and the leadership team is considering D2C sales in a different vertical.

Want your story featured? Fill out our survey to tell us more about how your company is navigating these uncertain waters. 

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A TP Turnaround

Americans took awhile to warm up to them, but now bidets are making a splash

Toilet paper is flying off the shelves. So in loo of those quilted rolls, Americans are turning to their next-best option for posterior hygiene. 

In the midst of the pandemic, sales of bidets — basins and toilet add-ons that clean your delicate bits with a jet stream of water — have been out the wazoo. 

Bidet brands like the startup Tushy told Business Insider that they’re flush with demand: they’ve witnessed a “huge uptick” in sales — as much as 50% in some cases — since the arrival of COVID-19.

At first, Americans were slow to get off the pot

The first bidets hit the scene in 1600s France — initially, as an upper-class instrument fashioned with wood and a leather cushion. The word “bidet” comes from the French word for “pony,” which hints at an essential engineering feature: you have to straddle it. 

Although bidets have since crossed oceans, becoming a mainstay in much of Asia, Europe, and Latin America, Americans have avoided them. 

Their reluctance dates back to World War II: American troops stationed in Europe mostly encountered bidets in the context of sex work, cementing them as a symbol of sex — and as the butt of jokes.

But when it comes to TP, hindsight is 20/20 

Americans spin through as many as 3 rolls each week, but some rear-facing experts insist that bidets are way more sanitary.

As rectal surgeon Evan Goldstein said during last year’s appropriately named Butt-Con, “Charmin and all these brands have done a great job making us think that toilet paper is hygienic. It’s not.”

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Snippets

Yesterday, we pointed you to a few golden tweets that (hopefully) made you laugh. Today, we want to highlight a few tips to keep you sane.

❤️ How not to hate the person you’re quarantined with.

⚔️ How to deal with conflict when you’re WFH.

😇 How to be emotionally resilient.

📹 Who knew? There’s a video filter to help you look better on Zoom calls.

🔌 Unplug from the stress. Here are 25 happy sites to visit if you’re sick of the news.

Got your own favorite WFH tunes? Tweet ’em to us @TheHustle.

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