With so much negativity out there about the coronavirus, I will try my best to keep things positive. When things are down, I can tell you that one thing I do right away is to plan a strategy to anticipate the changes that can occur.
With travel coming almost to a halt for at least the short term, the question of what my strategy should be going forward has been on my mind non-stop over the past few weeks. I touched on this topic a couple of day ago when I tried to answer the question about whether it makes more sense to switch to a cash back portfolio when it comes to earning rewards. I would like to dig a little deeper into this topic.
Industry Runs in Cycles
You probably heard this saying multiple times, the market goes up and down. It runs in cycles. So let’s go back 15 years or so. From 2005-2008, the market is hot, until the 2008 crisis. Then the market went down for a couple of years before heating back up. It’s been on a strong run until 2020. Now we are in for another downturn. Which means, at some point, things will pick back up right?
But who will be left standing?
The question I have on my mind is who will be left standing. Chances are, the banks will still be hanging around, as their business model is probably not hit as badly as say, airlines and hotels. So bank specific loyalty programs, retail and cash back should remain largely in-tact. However, their partnerships with frequent flyer programs and hotel chains are a question mark.
So then, which airlines and hotel chains will still be around if this pandemic continues to drag on. Airlines are expecting to layoff employees as a precautionary measure:
- WestJet to lay off employees as Canadian airlines expect even bigger hit from Ottawa’s travel restrictions
- British Airways ‘survival’ mode means groundings and layoffs
- World Airlines Contemplate Layoffs as COVID-19 Crisis Deepens
I have so many questions. Aren’t most airline and hotel employees paid on shift work rather than salary? So if they do not fly, they do not get paid right? So why would they need to be laid off if they are not getting paid anyway? Can’t be that expensive to keep an employee on the payroll when they are not being paid anything right? Are airlines using this opportunity to shrink their labour force ahead of time, as they anticipate slow travel for the foreseeable future? Surely natural attrition (hiring freeze, people quitting or retiring) should be sufficient? Point is, who knows?
What will happen when the dust settles?
It may take some time before the dust settles, but at some point, it should. The question is what should we do in the meantime? Think about it this way, people are currently stockpiling food and supplies in case of a lock-down. If there was a lock-down, who knows how long it would last. But at the end of the lock-down, we may have a surplus of supplies of things that we may have little use for, which would probably go into storage.
In terms of how this applies to the rewards game and travel industry… I would say, worse case scenario, we lose a few companies. Hopefully some of them will merge with each other so that account members are not affected as badly as a bankruptcy. Best case scenario, the flood gates open and loyalty companies are offering deals to win its customers back.
I feel like this virus is an opportunity to rest the industry. What I mean is, most companies are on equal footing at this point, so companies have an opportunity to take each other’s market share when the demand picks back up.
In light of best and worse case scenarios, what should I do to plan for this ahead of time?
What I plan to do
Normally I recommend earning and burning because I rather not get stuck with something for too long, because who knows how long it would take to liquidate it. With that logic, maybe cash back credit cards make more sense, because the liquidity of cash back remains the same regardless of the market conditions. I have broken down my strategy into my plan and goal below.
But I also recommend diversifying. So here are some strategies that I plan to implement in the short term:
- Earn more cash back than normal by putting more daily spending (other than meeting spend requirements, see below) with my grandfathered Capital One World Elite Aspire Travel MasterCard.
- Continue signing up for new credit cards with generous sign up bonuses to stockpile my accounts.
- Pay closer attention to store specific multiplier and spending bonuses if I need to stockpile food and supplies at home.
- Keep an open mind.
- Protect a good portion of my rewards portfolio with cash back, to have some predictability so that I can sleep better at night.
- Still have some options if the market opens back up with strong deals.
- Be flexible and ready to change my strategy at a moment’s notice when I see another shift in the industry.
What do you plan to do with your portfolio during this time out? Please let us know in the comment section below!