Langton Capital – 2020-09-21 – PREMIUM – Further lockdowns, footfall, re-openings & other:
Further lockdowns, footfall, re-openings & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The next chapter in the Covid-19 saga could involve the government saying: ‘it’s your fault, you made me do it.’
Certainly, the mood music is positioning us for a nanny-like lecture about how people can’t be left to their own devices and how a ‘fire-break’ (two week lockdown) or (hopefully not) a second full-scale lockdown has been necessitated by all of those naughty, disrespectful members of society who didn’t hold up their end of the bargain when it came to sticking to the ever-changing rules.
And that’s a bit of a liberty because most people who’ve picked up the virus this time around simply rolled the dice once too often and were unlucky.
That’s what an R rate of 1.4 gets you. It’s not really anybody’s fault but rather a function of opening up the economy where everything you do, schools, non-essential retail, pubs etc adds up to an R rate of more than one and the virus won’t yield to bluster or big-talk.
Anyway, enough of that for the moment. The Mighty Hull City are still (joint) top of their (pitifully low) division and we’ve got two days of summer left. Good today, glorious tomorrow and then a major change, not necessarily to the advantage of sun-worshippers.
This note has been pre-written as getting out of bed at the hour required to write it in real time is still a bit beyond us. Follow us for real time developments on Twitter at @brumbymark.
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THE POSSIBILITY OF A SECOND LOCKDOWN: Does saying how much you wouldn’t like it make it less likely? 21 Sept 2020:
• See general email. We’re not epidemiologists but we now know what an R rate is and we know that all human interactions will move it, either up or down.
• Because bits of the economy cannot be shut down (healthcare, food production, transport etc), the R rate can’t get to zero. It might manage 0.6 or 0.7.
• And that doesn’t give a lot of wiggle-room when you 1) want to open the economy up but 2) need to keep the R rate below 1.0
• In fact, if schools are the ‘most important’ thing to reopen, there may not be much room for anything else.
• Those are the unpleasant facts. A sneaking herd immunity might depress R a little, as might the strict imposition of 2m distancing etc. but, left to its own devices, the Covid-19 virus will do what it does and any R > 1.0 will lead to exponential growth in cases
• Not all choices are pleasant. Witness the film Sophie’s Choice. And the government can’t duck this one and it can’t please everyone.
• Indeed, beyond the bluff and bluster, decisions have maybe been made already and bits of the economy could be thrown under the bus to keep schools open
• Because, what’s the alternative?
Deny or adapt:
• Saying just how much you don’t want another lockdown might not prevent it from happening.
• We can’s shut food shops, hospitals, care homes, transport, the police etc and we ‘don’t want to’ shut schools
• So, what’s left? Potentially pubs, restaurants and non-essential retail.
• And it would be disruptive. Having brought back staff, woken up supply relationships and physically reopened units, to close them down again would indeed be ‘devastating’.
• But devastating things happen every day and, despite any crocodile tears that might be shed by politicians, it could be more fruitful to talk about compensation than about closure-prevention. Just a thought.
PUBS & RESTAURANTS:
Nanny waving the big stick re possible second lockdown:
• Most of us have a dog in this race. We either work in the hospitality industry, have investments there or have family / friends who are dependent on it for their incomes. Some / many of us have all three.
• Hence, it’s hard to sift out the self-interest from the fact and, sometimes, it’s hardly worth doing so. we have more comment in the Premium Email but here we’ll stick to the facts, however skewed.
• Mr Hancock won’t rule out a second lockdown. It’s clear there are tables somewhere suggesting what various things do to the R rate. The natural R rate, if we were squirrels or rabbits and did nothing to depress it, is around 3.0 to 3.5. But we’re not squirrels or rabbits and we are capable of depressing the R rate whilst living a sort-of normal life.
• A couple of facts. If everyone, but everyone, remained indoors, the R rate would fall to zero.
• But there are bus drivers, doctors, nurses, police officers, utility workers, power workers, farmers, food industry workers etc who have to leave their houses and the R rate at the height of the lockdown was perhaps 0.5 to 0.7.
• The R rate is currently between 1.1 and 1.4. It doesn’t take a genius to suggest that there will shortly be an ill wind blowing. The number of infections is rising by up to 7% per day compound.
• Looking back at the height of lockdown, the government therefore has only c0.4 R points to play with if it wants to keep infection numbers from growing exponentially.
• We’re not party to the ‘R-tables’ that we allege exist above but one thing we do know is that 0.4 R points is not a lot of flex.
• We’re not scientists but our view is that the Rule of Six, which is riddled with exceptions, is a palliative measure that will achieve nothing.
Tighter rules ahoy?
• Mr Hancock won’t rule it out. Mr Johnson is looking glum (and is silent).
• Oakman Inns’ Chairman, Peter Borg-Neal has told the BBC that he is challenging Matt Hancock to prove that the spike in England’s case increase emanates from pubs and restaurants. This is basically impossible. Only shutting down pubs & restaurants and seeing where the R rate moves to would achieve this. This may happen.
• Nobody denies that the economy is being smashed up. The argument is how to minimise both the damage and the R rate.
• Oakman says: ‘we employ over 1000 people and we are in comparison to many pub companies quite small and the impact of a second lockdown must lead to massive job cuts and a complete end to all capital expenditure and investment.’
• Keir Starmer has and Nicola Sturgeon are calling for “swift, decisive national action”. London Mayor Sadiq Khan is warning the government not to delay whatever measures it has in mind.
• 6,000 people tested positive in the week to 10 Sept (including MA Brumby), up from 3,200 the week before. This is an R rate of 1.4 in action
• Whack-a-mole (Mr Johnson painting a picture with words) is reactive & it is of little use if the mole is as big as the whole table and your mallet bounces off it with no effect
• Schools will only be shut as ‘a last resort’. We tend to believe this. If sending the kids back to school costs 0.3 or 0.4 R points (we have little idea if it does or not), then there is no room for the rest of the ‘non-essential’ economy to remain open
• Martin Wolstencroft of Arc Inspirations tells the BBCV ‘another lockdown would be disastrous for our business.’
• JD Wetherspoon chairman Tim Martin says a second lockdown would be ‘devastating’.
• There are understandable concerns being raised re Christmas.
• UKH’s Kate Nicholls says ‘despite the boost delivered by the Eat Out to Help Out scheme, consumer confidence is still low and it takes a further beating whenever lockdowns or restrictions are mentioned.’
• These comments are all correct but they do not change the facts. Ms Nicholls says ‘if lockdowns or restrictions are needed, they need to be formulated carefully, and come with government support, to minimise the damage to business.’ Yes, and perhaps focussing on compensation could be more fruitful than denial.
• Wireless Social says that ‘nationwide footfall continued to grow in the first two weeks of September following the August Bank Holiday and the conclusion of the Eat Out to Help Out scheme.’
• London footfall ‘on Saturday 12th and 5th September was tracking at 40% below pre-lockdown levels, which is an increase of 3% compared to Saturday 29th August.’
• Wireless Social says ‘it’s really encouraging that overall footfall is continuing to climb, and people have been gaining confidence in returning to support their favourite bars and restaurants. However, with the recent government announcements around social restrictions, it may have an impact on that level of trust and comfort and we are already seeing a decline in some cities.’
• S4 Labour says weekly hospitality sales were down 9% on last year but remain 10.4% on pre EOTHO levels.
• The ONS reports that 62% of workers are commuting again (compared with 36% in late-May). The BBC points out that the ‘government has been encouraging workers to return to offices to help revive city centres.’ This may be about to go sharply into reverse.
• New West End reports that West End footfall was up 4% week-on-week on Saturday, 19 September, up 3% week-on-week on Friday and was up 2% week-on-week on Thursday, 17 September. Footfall is still tracking around 50% down on the same period last year.
• The Telegraph reports ‘office staff will be given a “work from home” order within a fortnight if the “rule of six” fails to bring down coronavirus infection rates, ministers have been warned.’
Other Covid news:
• CGA and Alix Partners report that 76.3% of licensed ‘sites have returned to trading since the sector was given permission to open in early July. This is an increase of more than 14 percentage points on the total of 61.7% sites trading at the end of July, but indicates that nearly 27,000 licensed premises had not yet opened their doors.’
• AlixPartners says ‘bolstering consumer confidence has been critical to kick-starting the rebuilding of the hospitality sector, as well as the wider economy. In that regard, the Government’s Eat Out to Help Out scheme and reduction in VAT prompted operators to reopen more of their venues sooner than they might have and benefit from the positive impact of robust August trading.’
• CGA reports that the Rule of Six has ‘left nearly a third (31%) feeling less confident about visiting pubs, bars and restaurants. Just 4% said the new measures had lifted their confidence.’
• A total of 32.5 million people are reported to have visited bars, pubs and restaurants in Britain since lockdown lifted, up from 22.5 million in July.
• The ONS has mentioned EOTHO as a factor in reducing the UK’s overall level of inflation from 1% in July to 0.2% in August.
• The US National Restaurant Association has released results of a survey that indicate that six months after the start of the pandemic as many as 1 in 6 restaurants have closed in 2020. It suggests that 100,000 restaurants could be closed permanently.
• British retail sales rose for the 4th consecutive month in August
• Will be interesting to see how Various Eateries is getting on with its fund-raise.
• Carlsberg has raised its full-year earnings expectations saying that sales in Eastern Europe and an improved outlook in China have driven the upturn.
• Fuller’s is to open what will be London’s newest pub, The White Horse, in Wembley Park.
• Europe’s leading online booking site, The Fork, has launched in the UK
HOTELS & LEISURE TRAVEL:
• Welcome Break, which is owned by Applegreen, has reported H1 sales down to €1.1bn from €1.5bn last year. Adjusted EBITDA was down to €25.3m from €58.9m. The company says ‘the first half of 2020 has been an unprecedented period due to the Covid-19 pandemic…Applegreen carried good momentum from last year and traded strongly for the first ten weeks of the year, however, we saw a sudden and significant impact on the business from mid-March, particularly in our motorway service areas.’
• The BBC reports that Butlin’s has yet to tell 1,000 furloughed workers whether or not they will have jobs to return to when the furlough scheme ends next month.
• Menzies Aviation may cut around 200 jobs at Luton Airport.
• STR reports that the US hotel industry saw occupancy down 32% in August this year compared with last. Rates were down 23% with REVPAR some 47% lower.
• Jet2holidays has extended its suspension of flights and holidays to the Algarve until October 31
• Some railway franchises may be renationalised as a result of emergency deals brought on by the Covid-19 crisis
• Everyman Media Group has announced that CEO Crispin Lilly has tendered his resignation after almost six years as Group Chief Executive, in order to pursue personal interests. It says ‘Paul Wise, the Group’s Executive Chairman will assume day to day leadership of the business until a suitable replacement is found. The Board is commencing a full search for a replacement.’
• Escape Hunt has announced a new game launch ‘for the anticipated release of a Netflix Original Film. Escape Hunt are creating a Print and Play game for fans to enjoy and continue their at home immersive entertainment experience.’
• Former Labour deputy leader Tom Watson has taken a role as an advisor to Flutter, the owner of the Paddy Power and Betfair brands.
FINANCE & MARKETS:
• The CBI reports 46% of respondents to a recent poll said they planned jobs cuts or hiring freezes in the next 12 months
• The Bank of England says its ‘MPC had been briefed on the Bank of England’s plans to explore how a negative Bank rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates.’
• The Bank of England has warned that the upturn in Covid-19 infections could threaten the economic recovery.