You’ve read about the couple stuck in the Maldives. You’ve obsessively stalked ticket prices for Amsterdam in the fall. You’ve heard the cruise industry’s weary pleas for forgiveness. Now, it’s time to understand how—and if—the travel sector emerges from the pandemic that’s brought it to its knees.
You’ve read about the couple stuck in the Maldives. You’ve obsessively stalked ticket prices for Amsterdam in the fall. You’ve heard the cruise industry’s weary pleas for forgiveness. Now, it’s time to understand how—and if—the travel sector emerges from the pandemic that’s brought it to its knees.
Today on Morning Brew’s Business Casual podcast, Rafat Ali, founder and CEO of travel media and research company Skift, explains what’s at stake for the global travel sector, plus why the rest of the economy is finally recognizing just how impactful the travel industry is.
Ali breaks down what’s at stake for airlines, cruise lines, hotels, and one particular Silicon Valley home rental platform in this new norm—a norm that’s proving we can survive in a socially distant, vacation-free, remote-work world.
Ali will also give you the final answer to the question you’re all wondering: When is the right time to buy plane tickets?
Listen now to find out.
Note: Business Casual transcripts are generated using speech recognition software and human transcription. They may contain errors, although we do our best to avoid them. Please check the corresponding audio before quoting a transcript in print. Questions? Errors found in a transcript? Email firstname.lastname@example.org
Kinsey Grant, Morning Brew business editor and podcast host [00:00:08] Hey, everyone, and welcome to Business Casual, the podcast for Morning Brew, answering your biggest questions in business. I'm your host and Brew business editor, Kinsey Grant.
Kinsey [00:00:17] And now, [sound of a ding] let's get into it.
Kinsey [00:00:19] By now, we all know that the spread of COVID-19 is wreaking havoc on the global economy, likely in ways that we won't be able to accurately measure for months to come, if not longer. But in a few sectors, we've come to understand what the fallout looks like, because for those sectors, there's been no waiting for the negative impacts of COVID on business. One of those sectors: travel and tourism. Before the stores and restaurants officially closed, before we became these socially distant shells of our [chuckles] former selves, travel got gobsmacked. Flights were canceled, refund policies were revisited, and vacations were put on indefinite hold. And it matters—a lot. Oxford Economics projects that the expected downturn in travel alone is enough to send the U.S. economy into a protracted recession. So how big is that expected downturn? A decline of 34% for the year, with a 78% drop in revenue over the next two months, all coming together for astounding losses, topping $400 billion for the year. Now, $400 billion is a huge number. So how do we understand all of that, and how long will it take for us to get back to normal—if getting back to normal is even possible? To help me understand that, the CEO and founder of travel, media, and research company Skift, Rafat Ali. Thank you so much for joining me on Business Casual today.
Rafat Ali, CEO and founder of Skift [00:01:35] Thank you, Kinsey, for having me. [indistinct] your podcast.
Kinsey [00:01:38] Well, I appreciate it. It's great to connect. We've been in contact for a bit. We became Twitter friends now too. And it's been a long time coming, I think, for this conversation, especially in terms of the news cycle that we've been experiencing in recent days and weeks with everything going on with travel. We're recording this remotely. I said it on a couple episodes before, but I was on [laughs] what I imagine one of the last normal flights out of New York getting home to where I am now in Florida. But things have been changing really, really rapidly. And I want to better understand how travel and tourism in general are being impacted. Before we jump into the heavy stuff, I want to give everybody a little bit more background on Skift. All about travel industry, but not just like, hey, don't go to Bali [laughs] this time of year. It's actionable insights on how travel and tourism work, where they don't, what trends we should be watching for. You've called yourself the largest business information company in the global travel industry, providing news, research, conferences, and marketing services to the world's largest industry, which sounds like a quite the busy schedule [laughs] you're probably undertaking right now.
Rafat [00:02:42] Well, I think certainly the world's most consequential industry. That's what we found out over the last [indistinct]—certainly over March. I mean, obviously, this started before that. We've been around—coming up to about eight years now as a company. And we've been saying from day one, travel is one of the world's largest industries that start acting like it. This was a call to the travel industry to basically show to the larger world what it's importance is. And unfortunately, by lack of travel, by travel completely stopping, it's shown its size impact and how consequential not having travel is. And I think that's, in many ways, I would not have wanted this validation as a company, but certainly this has been a validation for everything we've been doing for the last eight years.
Kinsey [00:03:34] Right. I can only imagine. And I want to talk more in this conversation about whether or not the global economy, quote unquote, has come to understand the impact of the travel industry. But before we get into some of that nitty-gritty, explain to me what exactly has happened in the past couple of weeks. I mean, I calculated I'm on now day 18 of working from home, day 17 of isolation, the day that we're recording this. At what point did you realize this was going to meaningfully shift what you're doing and what you're covering at Skift?
Rafat [00:04:05] We started seeing this as soon as it became public—what was happening in Wuhan in China. Chinese travelers are the world's biggest force in terms of getting to different parts of the world that became the world's largest spenders in travel about five, six years ago. So as soon as that started drying off, this was probably late January is what we started seeing. We knew this—we were headed in trouble. The whole industry, I mean, and I think travel got hit first. This is airline industry first. I would say hotels second. Events, which has conferences, etc., after that, because obviously that happened everywhere in the world in the last—certainly March was the biggest month for that. And so we started seeing, as I said in late January, and so we've been covering it since late January and February. We covered it pretty heavily. We started the live blog on Skift, I think late February, March, and unfortunately, has been extremely active, obviously just over the last month.
Kinsey [00:05:22] So this must have been an interesting kind of dichotomy for you to approach here as the leader of this company, knowing that what you're covering is going to change significantly, but also that might have more traffic. Was that ever a weird feeling for you that you might become more useful, even though there's this entire industry that's frankly falling apart?
Rafat [00:05:43] Yeah, I think on many levels I've been sort of trying to wrap my head around what is happening. And the only way that I can describe it is we're in the middle of a Category 10 storm. By the way, Category 10 does not exist, while covering the storm in the middle of it as well. So, obviously, both us as a company covering the industry were hit as badly as anybody else. And travel has been hit from a business perspective. And yet our journalism is probably the best we've ever done. It's the most needed at this point for the industry because the headlines are coming at you a thousand miles an hour. So our journalists and our analysts are doing the best work of their lives. We've been 24/7 for the last, certainly for the last month and more.
Kinsey [00:06:36] I'm curious about your experience as just a business leader. How you been leaning into that revenue stream of content and analysis when the well is drying up in other parts of your business?
Rafat [00:06:48] We know that the travel industry needs what we're doing right now. So we were going to launch a subscription paywall on Skift. We were working on the tech stack for the last six months.
Rafat [00:06:57] It was about to launch now. We decided not to do it because obviously, we don't want to get our content today.
Rafat [00:07:05] And so we launched basically what we call support Skift drive, which is we're going to keep it free. But if you want this crucial journalism in this time of your need, please do what you can to support us. So we launched that on March 18. So we've had quite a bit of success with that. People that really care about what we do, which is a huge part of the travel industry, that's been helpful. We do these high-price research reports for the travel industry. Some of them may not be able to afford it. So from our annual subscription, we have gone to a month-to-month subscription. Anybody who can afford for now that needs access to it. So we're doing things like that. It's money. However, you can basically get it at this point. It's not just us. I mean, obviously, I'm sure this is true for anybody.
Rafat [00:07:58] So the crazy part is you can you can plan for a recession—there are lots of known knowns for a recession. It's the uncertainty between now and when the official recession starts. That's the hard part, which is how do you scenario plan? I mean, nobody really can. And so I think that's the hardest part. And if we can hunker down for whatever that uncertainty period is, and even if the certain period is really slow, I can manage that.
Kinsey [00:08:28] So with your new adjustment to this new normal, how do you think the rest of the global economy either has or has not come to understand the importance of the global travel sector?
Rafat [00:08:40] Yeah, I think that historically, and I have personally written about this quite a bit on Skift in the past, the travel industry has always marketed itself as a leisure industry, which means disposable at the first instance versus the economic engine of the world.
Rafat [00:09:00] Marc Andreessen said, I think 10 years ago, maybe at this point, a very famous phrase. This was a Wall Street Journal article, "Software is eating the world." This was a seminal phrase that has become seminal over the last 10 years. I have said travel already ate the world 20 years ago, 30 years ago. This is when you could argue when the low-cost airlines started in Europe, in U.S., in Asia, that basically made a giant swath of the world mobile for the first time in history. And how that changed the world in so many different ways, not just in terms of leisure, travel, the business travel, logistics, cargo, etc., etc. And so we've been beating that drum. I wrote an article, ironically, before Trump got elected—two, three months before Trump got elected—whose headline was "Travel is Now the Geopolitical Center of the World. Deal With It."
Rafat [00:09:54] This was a call to the travel industry to say you need to be able to—you should be talked about a policy level by politicians and people who run the country's cities everywhere. And so historically, industry hasn't done a great job of that. There are a lot of silos in the travel industry. Airlines have their own associations. Hotels have their own associations, etc., etc. Each of them had their own media. And so a global voice. There are at least couple of large global travel industry associations that have still been very much stuck in, Oh, travel creates these many jobs versus the economic engine of the world that it needs to be.
Rafat [00:10:42] And so, I would say that the shock to the system is where, you know, if there's any silver lining, which is that people in the world realize the importance of travel by the silence of people not traveling or the world not traveling at all. And so there's deafening silence that has happened as a result of travel coming to a complete stop, is in the long run, a good thing for the travel industry in terms of its importance to the world. So that's the optimistic part of it.
Kinsey [00:11:16] Right. It's like this theme of silver linings. At the same time as you were speaking about that, all I can think is globalization as we know it today would be nothing without travel. And these open trade barriers that we've been talking about for so long have to be decided by people who need to meet in person. And it's not necessarily just disposible income travel. It's all kinds of travel. It's stopping travel for business. It's stopping travel for the government. It's definitely widespread and wide reaching.
Rafat [00:11:43] Yeah.
Rafat [00:11:43] And in terms of sort of what happens from here, how does the travel industry restart? The problem is that we don't know when the end is going to be. And so you're talking 12 to 18 months of pretty much the whole industry—international industry—stopped. The good news, I think, is at least as we flatten the curve, as we're seeing the effects on what's happening in China, Singapore, etc., etc., which is local travel, which I will distinguish with domestic travel. So domestically within the U.S., I think that will continue to hurt. It is very local travel. You in Florida going to some place within a drive distance, New York going to someplace within a drive distance, will make some sort of a comeback. Somebody said this last week radical localism will make a comeback. Which I like that phrase a lot. Radical localism, not just in travel, but in terms of buying local.
Kinsey [00:12:50] OK. I want to talk more about some of these specific industries that you brought up just then, especially hotels and short-term rentals like Airbnb. But quickly, let's take a short break to hear from our sponsor. — And now back to the conversation on COVID-19 and the impacts on the global travel sector with Rafat Ali. We were just talking about some of the broader impacts here of this immense screeching halt of travel globally. How it is kind of brought to the fore here. How important the industry is for the entire global economy. But like you were mentioning before, there are a lot of separate entities within this global travel sector that all have different business models. They have different responses.
Kinsey [00:13:30] And they're trying to manage these issues in probably different ways. So I want to go through some of them and get your perspective on how they're handling things, whether they're handling things well or not. Obviously, the most logical place to start here is airlines, like I mentioned at the top of the episode, this was one of the first places that I think the everyday person probably came to understand these massive impacts of COVID-19 on business because their flights are getting canceled or they suddenly got an email from JetBlue or Delta or American saying, hey, you can now do this, that, and the other that we would have charged you for before. So explain to me how the airline industry is coming to grips with this crisis and what their strategy has been.
Rafat [00:14:11] Yes. So panic to start with, but that's true for any industry. [indistinct] airlines have gone through a lot.
Rafat [00:14:20] This was obviously 9/11 happened. The financial crisis happened. 9/11 was a huge systemic blow to the airline industry. 2008 was slightly less so.
Rafat [00:14:34] To some extent, in the medium term—not the short term but the medium term—airlines are better insulated than they were after 9/11.
Kinsey [00:14:43] Why is that?
Rafat [00:14:44] They have enough cash in the business because they had been really profitable over the last 10 years. They [indistinct] less than the airlines in the U.S. Let's just talk about U.S. for now. There are four major airlines and then there's the smaller carriers, etc. They've all consolidated, merged. They've cut the flights to only the most profitable routes within the U.S. or international. The employees, etc., have been—to use awful phrase—rightsized, in general. And so they were very healthy. The fees, the extra fees that you and I have to pay for baggage and all these others, that has been a huge cash generator for these companies in general. So their balance sheets were really, really good before this.
Rafat [00:15:36] And it is clear that the U.S. government, and governments around the world, have deemed that airline is a sector that they will save.
Kinsey [00:15:43] Right.
Rafat [00:15:44] Essential sector. So while they're going through the short-term giant cuts of the routes and planes grounded and thousands and tens of thousands employees furloughed, they are getting a huge amount of money from the U.S. government, will get more in subsequent rounds of stimulus that I don't foresee.
Rafat [00:16:09] And our team at Skift, including Airline Weekly, which is our subscription newsletter that covers the aviation sector, we do not expect any U.S. airline to close down.
Kinsey [00:16:18] OK.
Rafat [00:16:19] And so that is the good news from just, you know, from that perspective. The other good news is, unlike the previous bailouts where money was given without any preconditions, there are lots of conditions that you have to take this money for. Employees are going to spend and you can't do stock buybacks. All the stuff that Morning Brew has been covering obviously for a while. So I think that's generally what's happening to the airline industry. From a reaction perspective, in terms of customer service, initially, as you very well know, I'm sure each of us went through this initially. They couldn't figure out what to do in terms of refunds. You know, change fees, the first change fees got waived, which is generally the first thing that airlines do. Then they have the wave of we'll give you vouchers for, or you can change your flight to a later date.
Rafat [00:17:06] But nobody knows what the data is going be because who knows how long it is? And then they said future vouchers. So you can get a voucher and you can book whenever. Then to refund. And so we are in the refund phase. Pretty much every airline. Same true for hotels. For most part, Airbnbs as well. You can basically—anybody who wanted to get a refund, if they can get through to these airlines and through the phone lines or social media channels, will pretty much get a refund for now. So I think this has been a rolling response, but I think at the end of the day, if as we're sitting here today, most of the travel companies have done the right thing. They may have messed up on individual cases because of the case loads and shortage of staff or overload, etc., etc. But from a broad perspective, we've sort of come to the right place.
Kinsey [00:17:58] Right. Which is not always the case with airlines. I mean, you brought [laughs] up the fees that have kept them flush with cash for so many of the past years. People love to complain about those fees; they love to complain about airlines. Like one of the most notorious Twitter complaints is to tweet at American Airlines and see if they'll give you a refund. But you see, we also talked here just a second ago about this stimulus package from the government. The package included—let's see if I got the numbers right here—provisions for grants of $25 billion to passenger carriers, $4 billion for air cargo haulers, and $3 billion for contractors such as meal providers. There have been a lot of conversations around the utility of that bailout for this industry. From what I understand of your perspective, this will be helpful. This will be what keep the major U.S. airlines, that we're so familiar with here, keep them afloat.
Kinsey [00:18:51] But there have been a lot of back and forth conversations here about some of those strings that are attached to that money, not the least of which being should the government take a stake in these airlines in exchange for the money that they're giving them. And part of the conversation has been the government is trying to basically create a poison pill for these airlines, saying if we give you this money, we get to get X% ownership in your company. That's not something that these airlines want. That makes them less likely to take money from the government in the form of a loan, which in turn puts their employees at risk. What's your perspective on this?
Rafat [00:19:21] Yes. So I think that there's, at least the 2008 crisis has proven, that the money that was given to the banks was definitely returned and more. So I think that is what's going to happen with airlines. It will come with conditions of payment down the line. So for now, this money is primarily for keeping the existing employees employed.
Kinsey [00:19:44] Right.
Rafat [00:19:44] And so we wrote a story on will we see any major changes in these airlines? Will they get better if the governments have stakes in it? Reality is, nothing much will change from a day-to-day operation when the normal operations do start. There'll still be those seats tightly packed together. There'll still be the smallest of toilets in these new planes, etc., etc.
Kinsey [00:20:11] So I'll still be too tall [laughs] to fit in there.
Rafat [00:20:14] Correct. And so, if anything, the lines at airports are going to get longer and the wait times are going to get longer, etc., etc.
Kinsey [00:20:22] OK. Speaking of these long time lines, and while we're [indistinct] about the topic of this government stimulus package, that was $2.2 trillion, part of that money was to send checks to Americans who make under a certain amount annually in income. Does the travel industry, do you think, especially airlines, are they thinking about those checks being used right now? I know a lot of conversation has revolved around should I buy an airline ticket right now because they are so cheap? Is that something people should be considering with that check if they want to take a trip? Is now the time to do it, you think? Or is there just too much uncertainty?
Rafat [00:20:55] There's so much uncertainty. And the reality is, whenever things become normal, again, we're always putting quotation marks against normal because we don't know what normal will look like.
Rafat [00:21:11] Ticket prices are going to be cheap for a long time to come. So if you are tired of the news, tired of podcasts, etc., etc., and have extra time, I think daydreaming is great. I just don't think it's worth the mental bandwidth to figure out when will I start traveling?
Kinsey [00:21:30] Alright. Let's move on to a different part of the travel sector here. Hotels and rental properties. We talked just briefly earlier in this conversation about Airbnb and the response that they've had to the pandemic right now. They've set aside $250 million for hosts affected by the virus because there are a lot of people who make their living renting properties on Airbnb, expanding no-penalty cancellations, and also opening up a lot of homes, based on volunteer basis here, for health responders and first responders who are trying to be on the front lines. We're working on the front lines to help people get better. Do you think this response was net good or needed work?
Rafat [00:22:15] Airbnb itself, Brian Chesky, the founder and CEO, did a sort of a fake townhall last week where they took questions from the hosts, not live, but the people who emailed them, and then they obviously selected some of them. And then admitted in that that they messed up on the host side.
Kinsey [00:22:38] Because this response was evolved greatly from day one. It wasn't always this package.
Rafat [00:22:43] Yeah. So initially, they made a decision to refund all the costs to all the people who booked, without consulting the hosts. And so the host community erupted. You can imagine, as you said, these are many of them—most of them are small, either mom-and-pop individuals or small businesses. And so that has hurt them a lot. And so the host community, it was really, really angry with their being [indistinct]. And so as a way to repair the relationship, Brian did this video chat and then they've announced this 250 million, which in general seems to be small from, well, the calculations that it doesn't really make a meaningful to each of the individual hosts, but at least it's something. It's to start. And so, you know, Airbnb has to answer to both sides, both the people who stay in it as well as the host as well. So I think this will fundamentally change how Airbnb's relationship with hosts go from here.
Kinsey [00:23:52] Yeah, I'm interested what the longer-term ramifications are. Do you think it's fewer hosts signing up? Are they going to have trouble getting hosts in the door to help people stay where they want to stay?
Rafat [00:24:02] Yeah, I think so. Depends on how long the recession is. I mean, all indications are that the recession after that's going to come will last a few years. During that time, I think the hosts, especially the smaller mom-and-pop hosts who pulled their property from long-term rental to do this short term over the last many years, will probably go back to trying for the long-term rental, which is stability over the volume of cash—which is if I can get a steady income from my property for the next year, two years, three years, I will take that. So I feel like the hosts will take the money. We'll take properties off Airbnb. There's already some early evidence of that happening. Obviously, nobody is renting long term as well, today.
Rafat [00:24:49] So they may have taken their property off Airbnb. It's just that they may not have gotten long-term renters for now. Obviously, any cancellation of events anywhere in the world affects Airbnb. Olympics. This was huge for Airbnb. I mean, not only it was making a huge investment as official sponsor for it, was also betting its experience as a business, which is tours and activities that you could buy through Airbnb. Obviously, that's completely shut. There were betting in a big way on the Olympics to make it more mainstream than historically has been. They launched it about two years ago. It hasn't made a huge dent. And so all of those hurt Airbnb be in a big way.
Rafat [00:25:32] And obviously, there are stories, and we have done this reporting, that they are raising money. They're open to raising money. They have enough cash in the bank. So they probably won't do layoffs anytime soon. May not have to do that. I'm sure they're cutting expenses in general. That's true for any company. But they're looking at raising money. Obviously, they were going to do an IPO this year that almost guaranteed there's zero chance that will happen this year.
Rafat [00:25:58] And so they'll have to take a hit on that. And so net-net, I don't think Airbnb will be in trouble long term. Meaning it's not like they're going to become bankrupt or etc. But some of the lofty valuations that it had will come down. But I do think, as I mentioned, that if local travel becomes big, Airbnb is the first thing that anybody, you and me as a normal citizen or normal person, that's the first thing that we think of. So we'll still go to Airbnb; it's not like Airbnb alternatives will emerge in the sector.
Kinsey [00:26:35] OK. So Airbnb is more likely than not to continue to exist. Maybe it just looks a little different two years from now.
Rafat [00:26:43] Yeah, I think hotels.
Kinsey [00:26:45] Yeah. That's what I was just about to say: let's get into the hotels here. How does that look differently from Airbnb's future?
Rafat [00:26:51] Yeah. So hotels have a very complex structure in general. So you know the top big chains. Marriott [indistinct], you know these giant companies [indistinct]. None of these companies own the hotels. These are what they call asset light companies, meaning these are the marketing layer on top of these properties that are owned by real estate folks that are then managed by separate companies that are management companies, that then pay fees up to these corporate brands. So it's a very complex structure. Everybody gets hit in a different way. Real estate folks get hit in the real estate way, which is they take the biggest hit in terms of that management.
Rafat [00:27:36] Companies that manage these properties and operate these properties get hit in a certain way because they can't pay the fees up to Marriott, etc., because obviously nobody's staying at those hotels. The large hotels have been hit in obviously a big way. They're seeing early signs of China coming back. So there's that green shoots that are happening. The independent hotels obviously are hit because they don't have any type of safety net that a large company would have. Many of them, on an individual level, if they have 500 or less employees, this is U.S. I'm talking about, do qualify for the small business loan. So there's a lot of other layers in it. But that's my general sense is that I think airlines will have to come back first for hotels to then come back.
Kinsey [00:28:24] [laughs] Yeah, they have to get to the hotel in some way.
Rafat [00:28:25] Correct.
Kinsey [00:28:27] Yeah. It's interesting to think about size as almost an insulating factor here in both ways, that if you are too small, you might not survive, if you're small enough, you can apply for these loans. If you're big enough, you might have that safety net you're talking about.
Rafat [00:28:40] And then banks will obviously lend you money that all of them have. They've drawn on their line of credits and all other types of facilities, whether it's airlines, whether it's cruises, which we haven't talked about, or hotels. So they have the ability to be able to draw these lines and basically keep this money for when they need it.
Kinsey [00:29:01] Yeah. All right. Let's talk cruises. This has been one of the most—I don't know.
Rafat [00:29:06] Can we use the word "shit show"? [indistinct]
Kinsey [00:29:09] Yeah, we can. That's exactly the word that I was thinking of. This is a shit show. We have, you know, the cruise idea of people getting stuck on a ship and it kind of being this hellacious experience, not of a prolonged vacation, was one of the early stories here.
Kinsey [00:29:25] I saw it on CNBC when we first started talking about this being a story. I'm stuck on a cruise ship. I've been here for 14 days. Get me out of here. It's now been basically a month since then. There are still people stuck there. Carnival said it had 6,000 people still stuck at sea, which is crazy. On the last day, it believed that they could start new new voyages was mid-March, like March 13th or so. But these people have stuck for so long. What are the business implications of this? Are people going to be less likely to take a cruise?
Rafat [00:29:55] I have a personal opinion and then I have a professional opinion.
Kinsey [00:29:58] Alright. Alright. Let's hear both of them.
Rafat [00:30:00] You'd be crazy to go on a cruise anytime soon. Years. That's my personal opinion.
Kinsey [00:30:08] Why is that?
Rafat [00:30:12] Until the vaccine gets and propagates, and people can double-check and double-verify that the world is insulated. This is a petri dish just waiting to explode.
Kinsey [00:30:22] Is an airplane not like that?
Rafat [00:30:24] At least it's less. You're not stuck on it. You're [indistinct] on the other end of it.
Kinsey [00:30:29] OK.
Rafat [00:30:31] And I think it's going to be a long, long time. The challenge for cruise industry has always been how to attract new cruisers because it has this image of a certain demographic, certain age that are very loyal to it. Correct. Where you are, Florida seems to be a big hub of it. [Kinsey laughs]
Rafat [00:30:54] And so it has always had trouble attracting younger crowds for all these reasons. And obviously, this doesn't do it any favors at all. Even the diehard loyalists—it will it will chip off that. So they're in trouble for a long time. They are part of the bailout. There has been some issue because all of the cruise lines are not flagged in U.S., meaning these are not U.S. companies. These are flagged in places where they can avoid taxes, they can avoid the labor laws, etc., etc. And so the one good thing that could happen is, as a precondition for these cruise companies, they will have to re-flag in U.S. or at least have some sort of structure, corporate structure that has financial implications in U.S., such that they pay taxes or something like that.
Rafat [00:31:49] So that is the one good thing that will potentially come out of this in terms of if we're looking as journalists that want accountability for these industries, that's a good thing that could potentially come out of it. So the other good news is, if you wanted to do a cruise, it will be dirt cheap. You may die as a result. [Kinsey laughs] You know, you may die as a result. But sure, it will be really cheap to die.
Rafat [00:32:13] So I think it will be a long time. I think smaller ships, which is not ocean cruises, but more of the river cruise industry, which has been on the rise for a while for the last 10 years, more on the upscale side of things. I think they've become a more attractive proposition.
Rafat [00:32:36] Like for me personally, I'm attracted to Amazon River Cruise. Seems like a great idea. And with the requisite social distancing and a smaller ship that actually people get off every day to do things as opposed to sort of just being on the ship. I think those things become more troubling. [indistinct] So I think that becomes more attractive. So there's some silver lining there.
Kinsey [00:33:04] OK. I've got one more thorny question here about cruises. So a writer who I respect a great deal, David Wallace-Wells, he writes about the environment. When everything started to, frankly, go to shit with the oil market, he wrote that these companies should not be bailed out because as he sees it, they're a net bad for the world. They are these shell companies are wrecking—borrowing his words, of course, not my personal opinion—wrecking the world and they shouldn't be bailed out. They need to fail because we don't need this industry in the first place. I think a lot of people could probably make the same argument for cruising for all of their efforts to become greener. As someone who used to cover cruises in a former life, these efforts seemed for naught in a lot of ways that they are still these giant floating, gas-guzzling machines. Should we let them fail? Would that be a possibility? Or is there too much money tied up in this industry to ever see that happen?
Rafat [00:33:57] Well, that's what the cruise companies will certainly argue. You're right. We've been covering, even until recently, the environmental effects. And you know, there's a big issue with Carnival and these new scrubbers, etc., that I don't completely, fully understand it, but our team does, on the fact that whatever the government mandated to make sure that these ships have these things, even that's not been working the way it should. So shipping is not going to go away because a huge part of the world's cargo moves to the shipping lanes.
Rafat [00:34:34] I think that you could make a case that net-net consumer cruising has more of a negative effect on the world than positive. And so there's legitimate arguments about not bailing them out. And if you ask me personally, I would probably buy into some of those arguments.
Kinsey [00:34:55] OK. Checks out. OK. Rafat, we are going to talk more about looking ahead and how this all ends and try our best to not make any crazy prognostications in just a second. But quickly, let's take a break to hear from our partners. — And now back to the conversation on the global travel sector with Rapha Ali of Skift. How does this all end? And I know we spent the last several hours, not hours, minutes [laughs] here talking about how it will be difficult to ever predict it. And we just don't know how long this will last. But let's say we can put a time stamp on when social distancing measures will not be enforced as heavily. What does the travel sector look like as soon as those measures are lifted?
Rafat [00:35:38] Yeah, I think I talked a little bit. I think people would want to travel small. Let's say the flights. And, you know, this is post-vaccination. I still think it will be relatively local. I'm not talking about business travel. I'm talking about leisure travel. Let's talk business travel for a second.
Rafat [00:36:00] Business travel, which is a huge profit engine for the travel industry—that's where the seats on the airlines, the business class, these first-class seats, the hotels get a majority of their profits from business travelers—will be hugely affected, may not ever come back to the level that it was pre-coronavirus.
Kinsey [00:36:20] Ever?
Rafat [00:36:21] Ever. I think we have hit peak business travel.
Kinsey [00:36:25] Do you think that's because we've come to understand how to do business remotely?
Rafat [00:36:28] Correct. I think this has shown, and, you know, if we think Zoom is the apex of virtual technology, I think we're mistaken. There's so much more new virtual technologies yet to be born. I think [indistinct] get born in this phase.
Kinsey [00:36:46] This is probably the time when a lot of these are going to be created.
Rafat [00:36:48] Yeah. And we may be talking about a whole different level of interactivity, virtual interactivity in three to five years. So I do think that a huge amount of business travel is gone forever. In terms of leisure travel, it will be what I said, which is local to domestic. Hopefully more supporting independent businesses. That's my personal preference. Given a choice between staying in a chain hotel and a boutique independent, I would always choose boutique independent on my own. This is true for a huge part of my generation as well as generations younger than me as well. And so I think that that comes back.
Rafat [00:37:36] I do think that personal space—airlines will have to figure out how to give passengers more personal space. That was becoming a premium of the [indistinct] over the last 10, 15 years. When we start, I think this may be happening in China as well, they're taking out the middle seats, meaning nobody can sit in the middle seat. You can sit in the aisle or the window seat for now in these planes. I think that will be a norm for a bit, until we get the vaccine, obviously, as well. So I do think personal space makes a comeback in travel.
Kinsey [00:38:08] No complaints from me on that one. [indistinct]
Rafat [00:38:13] Yeah. So that will have to be, otherwise people won't travel.
Kinsey [00:38:17] Right. So we've talked a little bit here about what's going on in China. You mentioned that China has the world's largest travel spenders as a group. As China has come to, and certainly not fully recovered, but has come to enter into what looks a little bit more like a recovery phase in terms of new COVID-19 cases. What can we learn from them that will inform what to expect in the U.S. Travel sector?
Rafat [00:38:46] That's very early to say. I think Wuhan is opening up on April 8th is what they said for travel. So we'll start seeing some of that early effects of that.
Rafat [00:38:59] I think it's going to be just a lot more checks. You know, people at airports before you enter an airport, taking your temperature. The security lines being longer, not because they're checking on security, but because checking on you as a person. And so I do think things like that will help.
Rafat [00:39:22] It will have to come from governments as it's very, very hard to foresee how it comes voluntarily from companies that make up the travel industry. So in terms of what shape the recovery take is certainly not going to be a V-shaped recovery. If the world doesn't do a V-shaped recovery, how can travel expect [indistinct] a V-shaped recovery.
Kinsey [00:39:45] V-shaped, meaning start at the top, straight to the bottom, tstraight back up.
Rafat [00:39:51] That was what the initial reaction from the travel industry was, which is what we have criticized from the start. I have been a more realist on social media, etc., on it being an L-shaped recovery to start with.
Kinsey [00:40:05] Which is not the one you want.
Rafat [00:40:07] Not the one anybody wants. But I think that, beyond the short term, we are really looking at a five-year recovery from here. So as I said, corporate travel may never come back to the level, but leisure travel is probably in a five-year cycle here. So that's kind of what I'm expecting.
Kinsey [00:40:31] OK. I like to end on a forward-looking note here.
Rafat [00:40:34] So I'm looking forward to 2025. [indistinct chatter between Rafat and Kinsey]
Kinsey [00:40:40] 2025 is going to be lit. OK. So I'm going to bring out the wheel here on my phone. Just turn up my volume. Really good.
Rafat [00:40:46] You have an actual wheel?
Kinsey [00:40:47] Oh, there's an app for that. [Rafat laughs] Someday, someday I'll convince the team to get me a real wheel. Maybe when we're all back in the office, we'll celebrate by building an actual wheel that we can spin. But for now, it is an app. So I'm going to take it for a spin for you. You can see what comes up [sound of wheel spinning] and it's going to be [sound of a ding] oh, shit.
Kinsey [00:41:09] So what was a moment in your career that made you say, oh, shit, either really positive, really negative. You realized everything was going to change or you realized you'd made a huge mistake. But either way, you said, oh, shit.
Rafat [00:41:22] Well, I mean, that's an easy one, right? I mean, for everyone at this point, it's really January. February. Oh, shit. This thing is going to be really, really—is going to go really, really bad, really fast. You know, I've had others in the past, you know, 2008. I had a previous startup. So we sold our company, my previous company, to Guardian in July of 2008. And the financial crisis came three months later. We were about 22 people and we had to lay off about half the staff then. We were a tiny company to begin with. So certainly I've had a lot of oh, shit moments [laughs] like that, unfortunately. Yeah.
Kinsey [00:42:12] [sound of wheel spinning] [sound of a ding] Day in the life. So what does a day in your life right now look like as you are kind of self-isolating, of quarantining, whatever we call social distancing? What's your typical day?
Rafat [00:42:22] Yeah. So at this point, we're obviously not going out of the house, but getting up in the morning, having my tea. I'm Indian, so I have a lot of chai. Like at least five or six cups of chai. Is usually half in normal day, but I'm consuming a lot of a lot of tea these days. This is black tea with milk, etc. So this is not like the [indistinct] tea. And unfortunately, way too much time spent on Twitter and LinkedIn, not Facebook, but those two, primarily for work. New York Times is the one source that I have in terms of news, at least the considered news, if you will. And then it's, you know, we're focused on our team. We're focused on new things that we're doing in terms of the business, whether it's virtual events or new things that we're launching right now to make money for the business right now. You know, I check in with our management team multiple times a day on all kinds of stuff. And this is true for anybody in any business today. Cash is king. So how to make sure no cash goes out? [Kinsey laughs] So I think that's really pretty much that. And then trying to make sure that my son, who's 5 years old and runs around and has tons of energy, that I'm able to take him in the back alley, which is behind where we are, for him to run just a little bit.
Kinsey [00:43:51] Yeah. So honestly, getting out in the backyard, because I'm at home like many people probably know now, going live for my backyard has been a lifesaver. And I am glad to be out of New York sometimes, some silver linings out there. Rafat Ali, thank you so much for coming on Business Casual and doing this live with us.
Rafat [00:44:11] Thank you, Kinsey.
Kinsey [00:44:12] Bye, Rafat.
Rafat [00:44:12] Bye.
Kinsey [00:44:17] Thank you so much for listening to this episode of Business Casual. Now, a lot of people are posting throwback pictures of vacations and maybe even posting some inspiration for future trips. If you are one of those people, tag us on Instagram @businesscasualpod so we can check them out.
Kinsey [00:44:34] And until then, I'll see you next time!