Even as Congress was close to passing the Democrat inspired Inflation Reduction Act, financial experts were still not prepared to label the current economy as being in a recession. With its possible repercussions politically, economists are extremely cautious not to prematurely proclaim a recession. The closest label was from a prominent financial media that called the current fiscal mess a “near-recession.” But as unstable as the economy is, largely due to inflation, some well known brands were making news, especially when they released their second quarter earnings. One big surprise for the better was Uber Technologies which had experienced several years of losses. The ride-sharing company particularly suffered during Covid as it found it hard to find drivers and many passengers shied away.
Remarkably the company recently announced that its revenues grew by 105% to over $8 billion in the quarter ending in June. Despite inflation and higher fares, passengers seem to be sticking with the convenient service. Inflation it seems is a double-edged sword for Uber. The current economic state seems to be a major factor in the Uber resurgence and its path to profitability. It appears that inflation is biting many people to the point where they are seeking extra income just to be able to pay bills, hence the many people who are turning to Uber as drivers to supplement household income. The good news was not only reserved for Uber but also for competitors like Lyft and other ride-sharing services.
Another tourism related company Airbnb also seems to have rebounded from the Covid doldrums. Many people feared using Airbnb during the pandemic. But now, the company is not only reporting a strong second quarter, $2.1 billion in revenues, but projects record sales for the summer as tourism picks up after the pandemic. Airbnb had suffered huge losses during the pandemic and tourism experts are amazed at their remarkable recovery.
The optimism for the tourism industry is shared by Marriott International. “We are not seeing any signs of any demand pullback at this point,” said Lenny Oberg, the finance chief of the company. “People want to get out there and travel.” The company reported a second quarter surge of 70% and a huge jump from just a year ago. Other well-branded hotels also share the Marriott optimism, with some even saying that they expect to return to 2019 levels. This also bodes well for other related tourism services such as restaurants and tours.
The airlines are not so lucky, going through one of the most turbulent periods in their history. Operational costs are eating into the airlines cash flow and profitability. JetBlue lost money in the second quarter despite its successful bid to expand by acquiring Spirit Airways. Fuel costs have been especially responsible for much of the increased operational costs. Staff shortages and mountains of cancellations have not made things easy for the airline industry. Experts project continued chaos in the short term with losses expected to mount. The airlines which received Federal help to tide them over the pandemic are hoping for more aid from Uncle Sam. Last but not least they will have to deal with the disenchanted flying public.
To deal with the chronic staff shortages which has plagued many industries, some companies were forced to significantly raise wages. To entice people to become baristas, Starbucks raised salaries to $15 an hour which it says cut into its profits in the second quarter of 2022. The company was still dealing with the aftereffects of Covid with such lucrative markets as China having sharply reduced sales. It was a similar story with some of the food chains throughout the world like McDonalds and Burger King. Some of the losses are being blamed on the ongoing strife in Ukraine which has significantly impeded the supply of wheat and of course curtailed sales in those countries.
By contrast to companies that were either recovering or showing strong demand, the oil companies seem to be awash in cash from the high fuel prices. London-based BP reported revenues of $8.5 billion. Many critics of the sharply higher fuel prices have long contended that the high prices are unwarranted and are simply part of a grab for more profits by the oil companies. One economic expert said plainly: “People are readily paying the higher prices at the pump even as it becomes clear that most of the spiked prices at the pump are because of the greed of the oil companies.” The high fuel prices have had a snowball effect on inflation sparking higher costs for consumer goods, foods, and shipping.
If we had to crown winners and call out losers for the second quarter of 2022, the winners would certainly include the oil companies, the recovering travel industry and to a great extent the food industry which seemed to have sustained profit margins and even expanded their convenience services such as sidewalk pickups and dramatically increased delivery. The exception, of course, is the airline industry. Even while travel resumed they have in many respects become a far worse service. Flying has become such a bad experience for most that it has lost favor with a significant part of the public.
Another set of winners could be the drug industry which continues to realize record profits. Companies like J&J, Pfizer, Roche, AbbVie, Novartis, and Merck all reported record profits, some because of the Covid vaccinations and drugs, others from the need for drugs for related illnesses.
While people seemed to be able to cope with their living expenses during Covid, the soaring inflation is forcing many people to make important choices. Many people have exhausted their extended unemployment benefits and the special PPP grants. They are for the first time in a while considering returning to the workplace. Even people who got used to working remotely or in a hybrid model which is partially in the workplace and part remote are considering returning to full time work to bolster their income.
No one knows for sure when the “near recession” will end or whether we will segue into a full recession, but what we do know is that while some companies continue to experience a downturn in their financial condition, others are clearly raking in enormous profits.