transitioning to the new normal middle east updates · 2020-05-20 · pwc middle east - webcast...

PwC Middle East - Webcast Series 19 May 2020

Transitioning to the new normal

Middle East Updates

Our focus for today

Welcome

Stephen AndersonStrategy & Markets LeaderPwC Middle East

Economic update Transitioning to the ‘New Normal’: a healthcare perspective

Dr Walid TohmeHealth LeaderStrategy& Middle East

Richard BoxshallChief Economist PwC Middle East

Q&AWhat’s next for the travel & tourism industry?

Marwan Bejjani Partner - Strategy& Middle East Nicolas Mayer Global Hospitality & Tourism Leader - PwC Middle East

PwC Middle East - Webcast Series - 19 May 2020 3

A D A P TASYMMETRYIncreasing wealth disparity and the erosion of the middle class

● The crisis will hit poor people, poor regions, and poor countries hardest

● Unemployment at the bottom of the wealth pyramid will grow

● Small businesses will fail on a massive scale

DISRUPTIONThe pervasive nature of technology and its impact on individuals, society, and the climate

● The power of the big tech platform companies will increase

● Climate change will be less of a focus in the short term, but may become a stronger imperative in the longer term

AGEDemographic pressure on business, social institutions, and economies

● Fewer opportunities will be available for younger workers

● Pressure on pensions and social welfare systems will increase

● Developing markets will struggle to stimulate job creation

POLARISATIONBreakdown in global consensus and a fracturing world, with growing nationalism and populism

● Economies will become more localised owning to the reconfiguration of supply chains

● Humanity may come together to solve important problems

TRUSTDeclining confidence in the institutions that underpin society

● Distrust in institutions’ ability to respond fairly will grow

● Some institutions and leaders will come out of the crisis with stronger reputations

COVID-19 accelerates the trends transforming our world

Adapting to a new world - strategy + business


COVID-19 checklist and digital resources available

http://pwc.com/us/covid-19-navigator

Considerations checklist, prior webcasts and resourceswww.pwc.com/me/covid-19

https://digitaltrust-me.pwc.com/assess/COVID

Digital Trust Manager Our COVID-19 response module identifies any gaps in your organisation's pandemic response approach. Available in both English and Arabic, the assessment focuses on business resilience, and provides detailed recommendations on the steps to take to improve your ability to respond and recover.

COVID-19 - NavigatorNavigator is an online, interactive tool to help organisations better understand where they are on their path toward COVID-19 preparedness and response across six focus areas.

Digital Fitness for the WorldPwC’s upskilling contribution to the world in response to COVID-19. Access our free Digital Fitness App available from the Apple App store and Google Play store.

If registering with your personal email, use invite code (LRNALL) to access today

http://pwc.com/us/covid-19-navigator

http://pwc.com/me/covid-19

https://digitaltrust-me.pwc.com/assess/COVID

Quick poll

1 Economic update

Richard Boxshall

2 Transitioning to the ‘New Normal’ - a healthcare perspective

Dr. Walid Tohme

Transitioning to the “New Normal”: A Healthcare Perspective

May 2020

PwC Middle East - Webcast Series - 19 May 2020

As the number of COVID-19 cases exceed 4.5M globally – a number of countries have passed the peak in new casesCurrent COVID-19 situation

9

1) Index is calculated by starting point of 100 and multiplying with ratio of week total to previous total; i = 100 * (current week total/previous week total)2) While each US state has approached lockdown measures differently, the vast majority of American citizens is under some form of lockdown3) Excludes KSASource: WHO, Johns Hopkins, CDC, Worldometers

Currently +4,660,000 confirmed

cases of COVID-19

Global Situation (as of May 17th) Outbreak in GCC (as of May 17th)

Caseload

Indexed Number of New Cases per Country from Day of 100th Case

Weeks since 100th caseSize of bubble= Number of infected people0 51 2 3 64

Indexed New Case Growth1

The time elapsed from lockdown implementation to successful flattening3 of the curve ranged from 2 weeks (Austria) to 4 weeks (USA and Italy)

All countries imposed lockdowns within 2 weeks of 100th case2

The US, European countries, China, and the UAE managed to decrease the weekly number of new cases with different approaches

The US, European countries, China, and the UAE managed to decrease the weekly number of new cases with different approaches

32,604

OMAN

QATAR

KSA

KUWAIT

BAHRAIN

52,016

UAE23,358

14,850

6,747

5,186


Governments have taken immediate steps to address the crisis situation by deploying large amounts of capital and talent

101) Personal protective equipment (PPE), in vitro diagnostic (IVD)Source: Market research, Strategy& analysis


However, moving beyond these initial responses, governments and providers should now be looking to transition to a “new normal” Intervention impact on pandemic

1 – base-case is a continuous rise and fall of cases in the absence of a vaccine or development of herd immunity (Board of Innovation)Source: Strategy& analysis

11

ILLUSTRATIVE

STABILIZE and put in place gradual RECOVERY PHASE

STRATEGIZE for the NEW NORMAL in health system operations

• Step-wise and gradual re-opening for prioritized non-COVID-19 activities

• Managed discharge and tracking for COVID-19 patients

• Continued public health messaging, screening and investigations

• Adjustment to the “new normal” of healthcare operations

• Economic support, consolidation of the healthcare sector

• Long-term case management

• Prevention / preparation of 2nd wave

MOBILIZE to address the immediate crisis and scale up to address the peak

Cases over time without large scale interventions (quarantines, social distancing etc.)

Cases over time with sustained large-scale intervention

• Crisis management – COVID-19 patient triage and treatment, increased screening and contact tracing / case investigation,

• Postponement of all non-urgent care and elective procedures; discharge of non-COVID-19 patients

• Operationalization of field and temporary facilities

Time

Cases over time

Healthcare system capacityPossible

2nd peak1

1st peak

Tail-off1

1 2 3

Num

ber o

f new

cas

es


As the demand for healthcare shifts as we move into Phases 2 and 3, there may be increased strain on hospital financialsHealthcare demand evolution

Note: Demand assessments are relative to each other across phases; demand by facility type will differ based on scope of serviceSource: Strategy& analysis

12

1. MOBILIZECurrent Phase

2. RECOVERY PHASERecovery Phase

3. NEW NORMALLong-term Phase

COVID-19 Response(e.g. screening,

isolation, hospitalization, ICU)

Acute Care(e.g. stroke, cardiac

events, urgent trauma)

Chronic Disease(e.g. diabetes, hypertension)

Semi-Elective(e.g. mostly

primary care)

Purely Elective(e.g. plastic surgery)

Typical Demand in Normal conditions Actual shift in Demand that should be observed

Resulting Impact on Providers• Continuous need to maintain readiness for a

second wave (PPE stocks, isolation/ICU facilities etc.)

• Need to seek reimbursement and public health policy clarity on COVID-19-related costs

• Acute/emergency care has been ongoing• Potential hit to outcomes due to availability of

EMS, ICU and other facilities/equipment• Return to normal ER operations

• Emphasis on providing chronic disease management in outpatient setting

• Need to re-engage specialists and deploy to meet expected surge due to delayed treatment

• Semi-elective care may gradually rise – particularly in ambulatory/outpatient setting

• Delivery to largely shift to virtual consults• Potential declines in coverage due to job

losses among existing patient base

• Longer-term recovery expected for purely elective procedures

• Expected negative impact on hospital and clinic profitability

Possible 2nd peak

HIGH

LOW

LOW

LOW

NORMAL

LOW

NORMAL

NORMAL

NORMAL

NORMAL

HIGH

HIGH

LOW

DECLININGLOW

ILLUSTRATIVE

Prim

ary

&

Prev

entiv

e C

are

Inpa

tient

Pr

oced

ures


This requires each entity to chart out clear action on a set of new priorities in this substantially changed landscapeStakeholder specific priorities

Develop and disseminate guidelines for the resumption of non-COVID-19 services1

Strengthen public health readiness and capabilities to combat a possible 2nd wave3

REGULATORYPRIORITIES

PROVIDERPRIORITIES

PAYER PRIORITIES

Assess operational footprint to rationalize and create synergies where possible

Reassess clinical service lines to address shifting demand

Enhance and update clinical care models (i.e. mental health, home care, surgeries, ED)

Formalize and expand reimbursement for virtual care and other care delivery innovations

2

1 – PCR, antibody, antigen testing, delivered in community-based locations convenient to the population * Private sector providers will need to ensure that COVID treatments and telehealth-based care delivery will be appropriately reimbursed by insurers to maintain financial viability; Source: Strategy& analysis

Ramp up, extend and decentralize testing1 and tracing2

Assess and deploy measures to support and sustain private health sector operations4Dynamically re-assess capacity, workforce, access/coverage and utilization5

Deploy virtual health solutions at scale to deliver more care remotely*

1

3

2

4

Forecast impact on potential contraction in member base due to economic fallout

1

Review international treatment and referral plans to manage public health budgets6

13

3 What’s next for the travel & tourism industry? Marwan Bejjani & Nicolas Mayer


COVID-19 has severely impacted the travel sector,with ~90% of world’s population subject to travel restrictions

15

Situation

Impact

Passenger traffic globally decreased by more than 80% from prior levels last year

Commercial flights globally decreased by more than 70% since the start of the year

Travel restrictions are applied to countries with close to 90% of the world’s population

Jobs at risk within the aviation ecosystem globally

Revenue drop globally in 2020, a decline of more than 50% compared to 20191

25 Mn

$300 Bn

1) IATA’s estimation based on strict restrictions for at least 3 months for domestic flights, and some restrictions on international travel going beyond 3 monthsSource: IATA, Pew, Cirium, PwC, WorldACD, ACI, Strategy& analysis

Most GCC airlines are grounded (with few exceptions namely Qatar Airways)

Revenue drop for airlines in the Middle East, with UAE and KSA accounting for more than 5 billion USD each1

$19 Bn

COVID-19 impact on travel sector

Numerous fleet orders cancellations globally and regionally (e.g., Emirates, Etihad)


1996 1997 2003 201019991998 20022000 2001 2004 2005 2006 2007 2008 20192009 20182011 2012 2013 2015 2016 2017

In previous crises, air travel took 2-3 years to recover and led to permanent disruptions to the sector

16

COVID-199/11 Attacks and SARS

~30% drop in U.S. domestic traffic during first 5 months ~35% drop in demand in Asia-Pacific airlines at peakFull recovery took ~2 yearsImpact was rapid consolidation of airlines (e.g., in the US, nine airlines controlled 80% of the market consolidated into four airlines)

Impact of previous crises on air travel

Glo

bal A

ir Pa

ssen

ger I

n B

illio

ns

9/11 and SARS

1 to 2% decrease in passenger demand in

2001 and 2002

Financial Crisis and H1N1

Overall, no growth in traffic globally for 2 yearsSevere drop of 20-30% in the affected regions

Full recovery took ~2 yearsImpact was acceleration of the Low Cost Carrier businesses (LCC)

Source: ICAO, IATA, Strategy& analysis

More than 30% drop in traffic in the first four months of 2020

2014

Financial Crisis and H1N1

Flattened demand in 2008 and 2009


Air travel is expected to recover in a phased approach starting with domestic, followed by regional and last long haul

17Source: IATA, Strategy& analysis

Travel demand recovery

Rec

over

y S

peed

• Will be the first to recover as people feel safer closer to home and governments will incentivize local spend

• Will start to increase as neighboring countries open to each other as they standardize travel and hygiene protocols and build mutual trust

• May show signs of recovery as new travel protocols are fully embedded and essential business travel resumes

• Expected to be the last to recover until macro-economic indicators show signs of stability and consumer confidence recovers

Regional Business & Leisure

DomesticBusiness & Leisure

Long-haul Business

Long-haul Leisure


Travel “bubbles” and corridors may help accelerate the recovery, kick-starting cross-border economic and tourism activity

18Source: Literature research, Strategy& analysis

Travel Bubbles as a means to accelerate recovery

Countries in discussion to open up an international travel bubble

Potential regional travel bubbles

Travel Bubble is a group of selected countries that open to each other with limited / no travel restrictions with the objective to speed up the recovery of travel and trade activity between them

Enablers:• Countries that have similar protocols in tackling

Covid-19 and have achieved zero or low growth in new cases

• Countries that can leverage historical travel patterns (in case of Trans-Tasman, similar to GCC, both countries are large contributors of tourists to each other)

• Harmonized testing and isolation protocols (e.g., at borders) at both ends so all can safely rely on each other

• Ability to respond quickly should the situation change i.e., mount repatriation flights at short notice and stop travel completely again, should it be required

Travel Bubbles Concept

Example of travel corridor

Australia

New Zealand

AustriaGreece

Cyprus

NorwayDenmark

Czech Republic

Singapore

Caribbean GCC?

Trans-Tasman

Baltic


In the short term the new normal will include fewer airlines, smaller fleets, and reduced networks and flight options

19Source: IATA, Strategy& analysis

Reduced Networks3

• With demand drop in the short term, traffic between many city pairs may not justify profitable operations for airlines in the future, hence routes cancellations

• Even on routes that airlines will retain, there will be a reduction in the frequency of flights and size of aircraft deployed

1 Fewer Airlines

• Airlines typically have 2-3 months of cash reserves; most airlines are expected to deplete their cash in the next few weeks ($60 Bn worth of cash reserves is expected to be burned in the second quarter alone), hence many airlines are expected to be dissolved without government support

• Companies with strong balance sheet and liquidity, and with high variabilized costs are better equipped to weather the storm

2 Smaller Fleets & Aircraft

• As demand drops in the short term, less capacity would be required to serve the market, leading many airlines to continue grounding a substantial part of their fleet even after the lift of restrictions

• Early retirement of aircraft and cancellation of orders is expected by many airlines

• Narrow-body aircraft (A320, B737, etc.) will be favored over wide-body aircraft (B777, A380, etc.) as it will be challenging to fill them and achieve the required load factor required to break-even; the rise of Middle Market Aircraft (MMA) is anticipated

Short-term impact on travel


In light of the new normal, travel players should take urgent actions across several fronts

20

AIRLINES

• Rebalancing routes with high overall revenue • Increased focus on selling travel experiences• Targeted loyalty campaigns

• Agile network once flying resumes• Down-gauging of aircraft and frequency• Heavy maintenance and major upgrades

• Re-shape business models for longer-term resilience – e.g. full-scale network and fleet restructure

AIRPORTS

• Travel safety assurance campaigns with the airline(s) and duty free upon ramp-up of operations

• Closure of parts of the airport• Operations of single-runway, where feasible*• Improvements in customer experience e.g.,

renovations, fit-outs, etc.

• Enhance digitalization and customer journey and build deeper integration with airlines

• Renegotiation of payment arrangements with suppliers

• Taking advantage of low debt cost, if needed

• Flexible work arrangements, paid/unpaid leave and shift-roster optimization*

• Review of key supplier contracts

• Cash flow forecasts with preservation measures• Agreements of payment deferrals with suppliers• Claiming due tax refunds• Delaying of non-critical OpEx and CapEx

• “Variabalization” of costs in an attempt to become more resilient

• Increased adoption of digital channels• Hedging fuel requirements to benefit from price drop

Revenues

Capacity

Cost

Liquidity

SHO

RT

TER

MM

EDIU

M

TER

M

AIR TRANSPORT

* upon ramp-up of operationsSource: Strategy& analysis

The case of air transport – actions required


Governments play a key role in supporting and reactivating the travel sector

21

Government support in the travel sector

• Provide stimulus for travelers into GCC by reimbursing the various travel taxes (e.g., municipality tax, entry tax at airport, etc.), in the form of incentives that would be given back to consumers (e.g., vouchers)

• Provide stimulus to enhance demand by introducing incentives to Travel Operators to bring in additional passengers (e.g., reduced fees and taxes)

• Ensure travel insurances are in place and enforced

1Incentives,

Promotions and Insurance

• Support the industry navigate the crisis through different forms of direct and indirect support:• Tax relief• Fee waiver (e.g., landing fees)• Direct financial support• Loans and loan guarantees

2 Direct and Indirect Financial Support

• Accelerate bilateral discussions with selected countries to resume travel in a safe manner, specifically with countries that have achieved zero or low growth in new cases to speed up the recovery of travel and trade activity

3 Travel Resumption

Source: Strategy& analysis


Industries affected Estimated tourism and hospitality GCC Impact for 2020In Million $/Day - Based on sector output estimates for the remainder of year 2020

96.2 BillionTotal GDP Loss

The hospitality sector in the GCC has seen heavy losses due to the pandemic, as 20% of its revenue comes from travel

75

10 Kuwait

50 UAE30 Qatar

9 Bahrain

6 Oman

2.6 MillionJob Losses

HotelsNearly 6 out of 10 hotels rooms in the GCC are empty. Others have shut down. Hotel industry is estimated to lose 400 million per day.Food & BeverageSome GCC countries have shut down all offline restaurants and cafes, with some going on sale.

23+ BillionHospitality Losses

Sources: WTTC, AHLA, STR.com

Performance decline in Q1 2020

Q1 2019

Q1 2020

Occupancy Average Daily Rate

Revenue per Available Room

71% 148 105

59%(-16.7%)

136(-7.9%)

80(-23.2%)

KSA


Will working capital be sufficient to fund the re-opening?

Are governments supporting the industry by regulating,

coordinating, promoting travel?

23

Critical questions for a recovery in the hospitality industry

Which corridors, bubbles and flights will operate first?

Will there be a “COVID-19 Travel pass”, and when will

there be a vaccine in adequate quantity available?

Where, when and for whom are travel bans lifted?

Lifting of bans and opening of borders, and vaccine

Trust in Travel & Hospitality Airlines back in service Hospitality sector ready to welcome tourists?

Will trust be back immediately or phased?

How will their pricing reflect on packaged offers?

Are distribution partners offering collaborative solutions?

Are adequate sanitation / hygiene procedures in place?

RecoveryResponse


Look to solve the following elements for tourism to take off again...

Governments

■ Provide safe travel facilities

■ Inject liquidity into market to finance pick up

■ Fiscal relief

■ Create travel bubbles or corridors

■ Promote travel

■ Promote travel

■ Support members with coordinated approach for relief

■ Coordinate and develop “hygiene” certificates and support training

■ Focus on best suited hotel(s) for “new normal”

■ Implement and promote hygiene standards

■ Focus on TREVPAR

■ Secure funding for “ramp-up liquidity squeeze”

■ Defer rent payments

■ Perform CAPEX work in slow period

■ Identify alternative uses

■ Make the property fit for the “new normal”

■ Update cancellation conditions and policies

■ Work with insurance companies to offer adequate refunds

■ Redesign payment terms and conditions with hotel partners

■ Get tested

■ Continue to travel adhering to the safety measures

■ Share the cancellation risk in booking contracts

Associations and Trade bodies

Operating Companies

Property Companies

Distribution (Online Travel Agents, Tour Operators, etc)

Guests


In the short term the new normal will include...

Local rather than international

demand3

• With on-going travel restrictions marketing and service offerings will have to be re-focused to domestic and regional demand, with correspondingly adapted offerings

• Demand will likely be more leisure rather than business in nature

1First signs of

consolidation of operators

• Market participants with high-lease exposure and other fixed costs, combined with stretched cash flow situations will likely be take-over targets or driven out of the market completely

2Focus on FIT and

customized product offering

• The industry is likely to focus more on the ‘rooms’ product, the individual traveller and on bespoke experiences, easier to adapt to social distancing norms and has higher margins

• Pure F&B (Food & Beverage) and MICE (Meetings, Incentives, Conferences & Exhibitions) players will face a very difficult market environment and might face an industry wide reduction in competitors

Short-term impact on hospitality

25


What does this mean for your next vacation?

Continue to explore, dine out, and stay at hotels, albeit locally and within the restrictions

You can expect: What can you do for the industry:

Share the risk of uncertainty by accepting flexibility in cancellation terms

Tip the waiter

More Staycations and (initially) great deals

More bespoke experiences

Increased service quality and hygiene standards

Less options (Food & Beverage) and Meetings, Incentives, Conferences & Exhibitions

You will be flying less, driving more... ...and be tested more often


Stephen Anderson ME Strategy and Markets Leader

PwC Middle [email protected]

Contact us

Richard BoxshallChief Economist


Marwan Bejjani Partner

Strategy& Middle [email protected]

Nicolas Mayer Global Hospitality and Tourism Leader


Dr Walid Tohme Health Leader

Strategy& Middle [email protected]

pwc.com/me

Thank you

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.Established in the Middle East for 40 years, PwC has 22 offices across 12 countries in the region with around 5,600 people. (www.pwc.com/me).PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

© 2020 PwC. All rights reserved

transitioning to the new normal middle east updates · 2020-05-20 · pwc middle east - webcast...

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