Conservation of Pressure: How Different Industries Have Reacted to the COVID Crisis

Nathan Johnson & Boaz Salik

Few areas of life will emerge from the COVID crisis untouched – if indeed any do at all. Though not everyone will sustain heavy losses, the gradation will be more of how severe the losses were, not whether there were any losses at all. In other words, the question will likely be less “who wasn’t hit?” and more “who was hit the least?” 

On the other end of that spectrum is the question of who was hit the most? Numerous possible answers can be found in countries, governments, populations, and communities disproportionately suffering under COVID. But what of the markets? Amid countless disruptions to the regular workings of commerce, a handful of industries have taken heavy fire from the pandemic. 

We’re reminded often that “no playbook exists” for how to respond during a pandemic. Hopefully after COVID, that playbook will be written. The circumstances compelling businesses in 2020 to toss their strategy documents into the trash could be the proving ground for real-world examples of what worked and what didn’t for industry responses in a time of unprecedented crisis. Within this shifting landscape, then, which industries have been impacted the most by COVID, and how have they reacted? 

Conservation of Pressure – A Framework 

To account for the differences in company responses, we need a common language of comparison – a framework to accommodate disparate business models and customer bases and structure data to create a holistic picture of an organization’s response to the pressure of the pandemic. For a company in crisis, maintaining stability depends on five potential outlets for the tremendous pressure of staying afloat through and past a global catastrophe.

1. Workforce Pressure – company engages in workforce layoffs, furloughs, storefront closures, or reduction of hours
   
   
2. Shareholder/Bondholder Pressure – company reduces or eliminates dividend payouts, share buybacks, or restructures debt
   
   
3. Government Intervention – company receives federal aid via capital injection, increased revenue, or other government assistance.
   
   
4. Customer Indifference – company cannot respond to customer needs because of internal pressure.
   
   
5. Community Indifference – company cannot give back to communities or charity organizations because of internal pressure. 

These five dimensions can now become the basis of comparison for some of the industries impacted most by COVID – airlines, banking & finance, energy, hotels, automotive (GM & Ford), manufacturing, and aerospace. Top companies within each industry were assessed based on a numerical scale derived from the above criteria (Fig. 1). 

* Emphasis on employee layoffs

** Emphasis on suspended dividends/buybacks

Each company assessed was assigned a number within each category, with the composite score for each company determining their net pressure index at both company and industry levels (an industry composite represents an average of numbers from each company).

Plotting the net pressure index against an industry’s stock performance reveals the key finding of this experiment: in general, the more pressure an industry is experiencing relative to their stock price, the more pressure they exert outward in one or more of the dimensions above (Fig. 2). 

For the purposes of this article, we will look at the pressure dynamics of the two industries exerting highest pressure relative to stock impact: airlines and hotels. 

Airline Response 

The travel industry has shouldered a heavy burden from the pandemic. With substantial percentages of airline fleets grounded due to closed borders and close-quarters contagion fears, airlines are all but on life support. Airlines in general are exerting more shareholder than workforce pressure; every airline assessed moved to suspend shareholder dividends and stock buybacks, while also taking significant government aid. This is likely what enabled them to mostly avoid directing the pressure to the workforce via layoffs, though this does vary by company. Compare, for instance, the reactions from Southwest vs. Delta. 

Despite consistently high pressure toward shareholders and government aid, these airlines responded well to customers and communities with benefits like extension of change fees and comped flights for first responders to high-impact regions. Additionally, Delta saw a furlough of 1000 employees (1) while Southwest publicly stated their intentions to avoid involuntary furloughs (2).

Hotel Response 

The key difference between the airline and hotel industries here is the conditions surrounding their workforce pressure. Every hotel assessed saw furloughs of varying severity either planned or implemented, as well as company-wide pay cuts including executive salaries. Though representatives from these companies were present at a White House briefing with the tourism industry (1), it seems hotels will be passed over for federal assistance – at least for the time being. By contrast, airlines feature the inverse scenario – high government aid, low workforce pressure. This could be owed in part to the highly unionized nature of the airline industry but may also indicate strings attached to government funding limiting workforce pressure. 

Putting the Info to Use 

Assuming the “Conservation of Pressure” principle applies across a broader range of industries and companies, the ramifications for planning and policy setting may be significant.  Since the pressure a given company or industry experiences may be difficult to control in the near-term, its corresponding Pressure Index can be taken as fixed over that time frame.  For example, a company experiencing a 20% decline in its stock price can be expected to exhibit a Pressure Index of about 3.5. However, how that pressure is distributed across Employees, Shareholders, Government, Customers, and Community is to a large degree controllable, and can have significant micro- and macro-economic ramifications when taken in aggregate.  Similarly, the terms of any government assistance can significantly affect which stakeholders are impacted and by how much. 

Time may tell the longer-term implications of these pressure readings – whether government involvement comes with strings attached, whether companies will draw ire for customer and community indifference and face an uphill PR battle. What remains to be seen is whether the conservation of pressure law remains innate to an industry’s ecosystem – with potential new spikes in different directions when the world begins to stabilize once again. 

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An expanded version of this article originally appeared on FischerJordan.com