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Patrick Watson of Mauldin Economics says airlines and travel, the sharing economy and commercial real estate may never be the same thanks to COVID-19

Patrick Watson of Mauldin Economics says airlines and travel, the sharing economy and commercial real estate may never be the same thanks to COVID-19
Photo: Pixabay.

By Patrick Watson*

We’ve escaped the frying pan and found the fire. COVID-19 cases are now growing faster than they were when the first US lockdowns occurred last March.

I live near Austin, Texas, one of the hotspots where hospitals are filling fast. The governor has paused his reopening plan. It seems likely much of the state will shut down again, whether he orders it or not. Businesses can’t stay open if customers stay home, or workers get sick.

Nationally, it took four to six weeks for the first shutdowns just to begin reducing infections. We are in for a rough summer if the milder measures now being taken show a similar lag. And economically, hopes for a quick recovery (which were always dim, in my view) are likely gone.

All this was predictable and preventable. Viruses reproduce as long as they can find new hosts. They don’t care who it is. They stop only when something deprives them of opportunity.

Yet here we are. We will get through this, but the economy will be far different on the other side.

When staying close to home becomes a matter of life or death, someone has to pay the price.

Trapped on a plane

The pandemic’s economic impact doesn’t fall equally. Some industries feel it more because the conditions that spread the virus (crowds and confined spaces) are integral to their business models.

For instance, crowds are hard to escape when you travel.

Consider airlines. Even if you’re fortunate enough to fly first class, simply being on a plane puts you dangerously close to other people for extended periods. Not to mention the whole process of getting to the airport, through security, and to your gate.

Every person you are near is a potential virus carrier, and the virus is potentially deadly, particularly to older people and those with certain health conditions.

To stay in business, airlines must:

  • Maintain a reasonably safe environment and
  • Make people believe the environment is safe.

Both are important. It’s not enough that the airports and planes are safe. Travelers must feel safe. That’s hard when you look across the aisle and see this…

Photo: Ian Bremmer.

The MAGA-hatted person using a mask as a blindfold may be owning the libs, but he’s also hurting the economy. He is telling everyone, “You should stay home because people like me make travelling dangerous.” 

This is an unsolvable problem.

Airlines can require masks, and most do, but how are they supposed to enforce it? Have the police drag people out of their seats? Land the plane every time someone decides to unmask during a flight? That’s just not possible. Nor is it possible for everyone else on the plane to escape the perceived threat.

Buying a plane ticket means you could be trapped next to a reckless person. Airlines can’t control this risk, and it is both inevitable and unacceptable to many consumers.

That means fewer people want to fly, which makes the hotels, restaurants, and other businesses they would have visited lose revenue.

No going back

The pandemic has also decimated the once-vaunted “sharing economy.” Staying in a stranger’s home is the last thing most people want to do now. This is a problem for the vacation rental business. 

Airbnb co-founder and CEO Brian Chesky told Axios that global travel may never fully recover from this. 

I will go on the record to say that travel will never, ever go back to the way it was pre-COVID; it just won't…There are sometimes months when decades of transformation happen.

People are not getting on airplanes, they're not crossing borders, they're not meaningfully traveling to cities, they're not traveling for business.

Chesky doesn’t think people will stop travelling, but how they travel will change. He believes “mass tourism” to well-known landmarks will become less popular. People will still go on vacation, but they’ll disperse to less-crowded places, closer to home.

He also thinks business and convention travel will keep hurting. These stay-home months taught us how to have meetings and conduct business remotely. That genie isn’t going back in the bottle.

This will affect airlines that depend on business travel, along with the luxury hotels, high-end restaurants, and other related services.

But it doesn’t end there.

Photo: Flickr.

Viral debt

Most business travel isn’t “travel” at all, but commuting. People wake up in their own homes, go to an office for work, then come back home at night.

Companies need less office space when most of their people work from home, as they have been recently. And in many cases, it’s looking like a permanent change. Bad news for commercial real estate.

That’s on top of the many retail stores and restaurants that have either closed, or are unable to pay anything like the rent they once did.

Real estate is a highly leveraged industry. When landlords suffer, lenders suffer, too. And the loans are often bonds held by banks, mutual funds, and pension plans.

Like a virus, a credit crisis can grow exponentially. You may think this isn’t your problem. I suggest you think again.

*Patrick Watson is senior economic analyst at Mauldin Economics. This article is from a regular Mauldin Economics series called Connecting the Dots It first appeared here and is used by with permission.

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Forest Gump said it -"Stupid is as Stupid does" (in reference to the photo). Private aircraft owners will be the only ones who will be able to travel with minimal risk. Note that it won't be without risk, but just a lot less than the rest.

Funny you say that...

I'm currently exploring the merits of chartering a flight for a family of 5 to and from Queenstown, rather than being manhandled by Air NZ monopolistic prices over the school holidays. At least it could help some of the unemployed pilots, who want to keep up their flying hours.


Good to all of the above. Has been ruining what NZ used to be for the benefit of the few.

Easy to say until you realise how much of the Government tax revenue it provides. I'd happily ditch international tourism permanently but I have no appetite to fill the tax gap, personally. We must learn to live within our means.


Tourism provides much Government tax revenue BUT it relies on low-wage temporary migrants who benefit little from the tax they pay (although they do benefit from the income they recieve). If they were permanent residents the tax they pay wouldn't support the social and physical infrastructure they would demand and thus, fiscally and socially it would be unsustainable. Its a quandary, but I'd rather refocus our economy on more productive ventures (high value tourism included) that benefits the citizens of Aotearoa. Living within our means is a good place to start.

Sure Tourism employs a low wage work force but there is also a large percentage of professionals on incomes over 80 to 150K. Its not all about backpackers and students.

It is mostly about it unfortunately. Still remember my experience with Juicy, literally all employees were Europeans in working holiday visas, who in the words of the manager I spoke with would just be working there for a couple of months. There are very poor working conditions in the tourism industry and a lot of greed if I'm allowed to say, now many that used to rip wealthy tourists off may struggle when they'd need to adjust their prices to local tourism.

I'd be interested to know the businesses that could support the $80 to $150k in the tourism. Suspect the number is way smaller than large.

Having managed low skilled business before, of the 35 workers we had 31 that were close to minimum hourly wage. The business couldn't afford to pay much more when you're competing with equivalent businesses. We did however allow workers to extend their hours beyond 40 per week, and those that took up that offer were rewarded.

Globalisation, in my opinion, has been a race to the bottom; with very few winners. Those countries and businesses that exploit slave wages care not for their citizens or employees, which in the long term is unsustainable. Politicians need to focus on long term objectives, rather than short term objectives to enrich themselves and their mates. They probably have no choice now.

I am hopeful the economic plight upon us will see a change to sustainable long term objectives, as the winner take all neoliberal experiment needs to be put out of its misery.

Actually I do personally have some appetite to fill the tax gap - I'd gladly pay more to live in NZ as it was 30-40 years ago, or at least as I remember it :-)

Many businesses will be holding on hoping for a return to the past but just like the trans tasman bubble it want happen anytime soon.
August/September will be when many decide to throw in the towel but this will not be reported till after election which Labour will hope that singing the song about how great everything is that they will get back in and once they are back in the following 2 years minimum will be very bad and then they will be hoping to have a bounce in year 3 for the next election.

As a side note -

Any body still think that we should have anything to do with the USA?

They can have all the remdesivir, not a particularly useful drug for treating Covid19.

And very very expensive!

It is more the principal that worries me.

The principle of putting themselves first?

They are putting ONLY themselves.

Always have.

You probably overstate its effectiveness. I've given you a thumbs up anyway.

Overall economy should be ready for hibernation as all industries will have domino affect, some direct and some indirect but very sector will be immune to the consequences except may be few like pharmaceuticals and essential commodities / services with boom to technology sector.


It doesn't matter who wins in September, all sides are as hopeless as the rest, as far as any decent leadership is concerned. We have career politicians with very little real world understanding outside of their parliament bubble. They pretend to listen to the voters, but when you hear what they say, you know you've been completely ignored. Our current democratic systems & their participants are long past their use by dates. NZ's politicians are not leaders, they are a huge financial overhead/burden, pretending to govern. A ghost government. I have always advocated for people to vote, as this is our democratic right, & a fragile thing it is too. However, having watched the last 60 odd years unfold with increasing frustration, I find myself at a point in the road where whichever way I look the ways ahead go down the hill, with a couple of them disappearing over cliff tops.
I was born in a time when if you worked hard, you got on & made something of your life. These days you don't have to do anything to look after yourself as the state steps in manages your life for you. If you want to live like that Russia or China may be just the places for you - told what to do, told how much you'll earn (fa) told what not to do & told how to do it.
Ronald Reagan (circa 1976) ''Government is not the solution. Government is the problem.''

I am mad as hell and I cannot take it any more.

find the meaning of life and here is what an ancient Chinese philosopher told us:


To ordain conscience for Heaven and Earth. To secure life and fortune for the people. To continue lost teachings for past sages. To establish peace for all future generations.


Did he have anything to say about shooting unarmed students or the rise of dictatorship ?

Oh dear Xingmo, that one didn't Google translate very well.


"To establish peace for all future generations"

Such as...
freeing Tibet
freeing Hong Kong
freeing Taiwan
Forgiving the debt nooses that hang around the necks of African and Pacific nations
freeing uighur muslims

China is equally as bad as the Nazi regime IMO

LJM, you have summed up our situation perfectly! I chuckle at our media constantly harping on about American politics and how pathetic it is but ours is not much better! Running the country is simply running a very large business and we need people who know how to do this - not a bunch of academic flakes, whom most have never had a REAL job!


Government is the problem. Well, you may take Reagan as your inspiration but I certainly don't. All governments have inefficiencies built in to them and give all of us reason to bemoan their mistakes, but they they sure as hell beat an unrestricted 'free market'.

Those who think like you are in my view utterly selfish. You want to pay little or no tax, run your business the way you want, but you want a good healthcare service, good schools, roads, sewage disposal, clean water, police, fire and ambulance services and all the other attributes of a civilised society. You need governments and a decent taxation system to do these things.

Citigroup CEO sat next to trump 3m ago and said "This is not a financial crisis.
I said "Yet"
As the defaults start and cannot be bailed out, the financial crisis will start.
October most likely and for 2 years following that.

2 years? I wish I was as optimistic as you.


We are toast. The global economy requires banks inflating assets and creating leverage and govt surpluses so inflation doesn't occur potentially causes issues with banks working capital. And mass immigration to grow the economy so people can service their massive mortgages.

International business travel will never return to its previous per-capita levels.

"I will go on the record to say that travel will never, ever go back to the way it was pre-COVID; it just won't…"

That's a very shortsighted opinion. I'm happy to go on record to state the opposite, travel will recover in full and then some. You see it's not about the virus, it's about people's wants and mankind will always find a way (granted it will take time)

I hope you are right, and this is distinctly possible. Yes, most of what you are saying is likely true, but it may well take years before this happens.
Moreover, there are other clouds in the horizon: climate change, isolationist policies of nutters like Trump, the shambolic state of the US economy etc. I have the gut feeling that yes there will be a significant recovery of international tourism (in due time), but I don't honestly think that we will ever see again the "golden age" of international tourism as we have seen in the recent past, with its growth rates that very few found sustainable in the longer term, even before Covid-19.

Air NZ should rename themselves "Experience New Zealand" and shift to mainly providing top of the range VR experiences. The types that only premium tourists could afford to do in person.

I agree

People said the same after 911 but in fact international travel continued to go gangbusters

People have short memories

Our species love travel so much that we have risked life and limb to do it since the dawn of time. People risked death regularly on treacherous sea voyages for millennia and the silk road trade survived the Black Death. Of course International Travel will return. We will adapt. It might take time to build back up again and when it does the culture might very well have changed, maybe a decade of change and reduced appetite. Perhaps there will even be new technologies in response, but there is no way that International Travel has peaked.

gn - look up Limits to Growth. If you want to be more specific, the World3 graph. Still tracking true, 50 years on. More accurate than ANY economists predictions.

Than see if you can make that statement still

Dream on. The abnormal days of cheap travel areover.

I traveled when interest rates where 8-9% and it was fairly expensive. I traveled a lot more when interest rates were 6% and travel was cheaper. I will travel again when interest rates are 2-3% and it will be fairly expensive for plane ticket, but with all accommodation built around cheap air travel in the past, I am thinking those rates will plummet, so it will even out fairly good.

Yes and No. For the under 50's covid isnt a big deal, most people get little to no symptoms, and its less deadly than the flu. These people wont change their behaviour. For the over 65's the virus can kill them, and they may indeed decide to not fly to places, preferring instead to drive. However the forward bookings on the cruise lines suggests there are plenty of people prepared to get on floating virus incubators and take their chances. So who knows?

I think you've just asked, then answered your question in one single post

If I was a high risk group I wouldn't go on a cruise if you paid me. If I was under 40 without health conditions? I would cruise myself up a storm. The main issue must surely be travel insurance? ie who will cover you, how much will it cost during a pandemic and will it cover you if you are forced to stay on the boat (or in any location) because of local covid legislations or quarantine rules. I was planning a 6 week EU/UK trip for this December and its not so much the risk of getting the virus that troubles me but more that the future just looks so uncertain and insuring for that is equally murky. We could get stranded somewhere, the pandemic could be worse by then again and flights could be cancelled again. It's impossible to plan right now.

Quite few motelier in this country rely in business travel to keep the ball rolling. I spent on average 12 weeks away from home locally. We managed pretty well without the travel over covid, it saved us a heap of money, we will probably halve our local costs this year, and into the future..
Internationally 2 - 3 conferences a year, not happening now, and dont miss it at all.
Wife is a travel broker, high end clients, we are planning for a zero year and then a 50% of what it was. I dont think it will come back for years.

Things have changed forever .

The virus is spreading like a wildfire, and like a wildfire it will burn out. A natural process, yes absolutely devastating for the families of people with poor health. But it will not stop modern day folks wanting what they want, when they want. Did you see the line up in LA the other day to see the new Tesla Pickup. One person had a down payment on two, his and hers! He should be building a bunker and getting the cyanide ready, but he isn't. The explosion in new cases in the US partly due to the extensive testing. How many people in NZ have had this virus? We have no idea - we didn't even test the people leaving quarantine. Don't believe the BS, this is not the end of the world!