This week, we witnessed the two events we will always remember of the Covid-19 financial crisis: British Airways’ mass jobs cull and Shell’s slashing of the dividend.
Both will be seen as the moments Britain’s biggest businesses got real about the hit this awful virus will have on their industries.
Forget the Government schemes to delay the pain, to tide us over until the promised bounceback. These are decisions taken by strong companies making the cold, honest recognition that their industries have been fundamentally, perhaps permanently, changed.
After the extend-and-pretend of fundraisers and furloughs that have kept stricken industries anaesthetised from the looming crisis, they come like a bucket of cold water over the head.
Shell cut the divi just two days after BP didn’t, but we know the other supermajors will have to eventually. BP couldn’t because it feared the wrath of shareholders still bearing the financial wounds of the Gulf of Mexico tragedy.
Shell’s excellent track record of delivering for investors means it isn’t scared of anyone.
It cut the dividend because it was the right thing to do. Borrowing money in order to pay shareholders, when oil could stick around $20 for the rest of the year, is irresponsible. It just builds up trouble in the future in an industry where cash flows are vanishing.
The old world for big oil, where Shell was budgeting on $66 a barrel, is gone.
Like BA’s job cuts, this medicine tastes foul, but it will make the body stronger in the long run. Rivals are watching, knowing they need the same prescription.
