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In this week's Commercial Awareness Update, we discuss the rise of the National Living Wage, EasyJet's shares diving, Lyft's share prices soaring and the future of WeWork.
As of this week, around two million workers across the UK currently on minimum wage will receive a 4.9% pay rise. Workers aged 25 and above who are currently earning the National Living Wage will now be paid £8.21 an hour rather than the current £7.83. For people aged 18-20, there has been a rise from £5.90 to £6.15. Bryan Sanderson, who chairs the Low Pay Commission, stated that this is an above-inflation pay rise. In the 20 years since minimum wage has been introduced, that wage has risen much faster than average pay. Minimum wages in the UK are among the highest compared to typical pay in advanced economies of the world, ahead of the US and Germany.
Nevertheless, the Trade Union Congress (TUC) has stated that the minimum wage is still too low and wants all workers over 21 to receive £10 an hour, arguing that bills are not getting any cheaper and that they have to make ends meet. This rise in the National Living Wage comes at a time where a variety of household bills have also increased, including gas and electricity prices which are typically going up by £117 each year. Other bill rises have included council tax, prescription charges and TV licence fees.
Questions to ask yourself: Should the government be doing more to increase the minimum wage? Should the minimum wage differ in different areas based on cost of living?
Companies to Watch
Budget airline, EasyJet has warned that the customer demand for ticket sales over the next six months is unexpectedly weak. EasyJet asserted that uncertainty over the global economy and Brexit has spooked potential customers from purchasing flights, and consequently the airline is now more cautious about its plans for the next six months. The company stated that it already expects to make a £275m loss for the first half of the year. After EasyJet released its trading update, which was originally due to be released on Friday, the company’s shares fell almost 8% falling from £11.20 to a low of £10.24.
Despite blaming Brexit for uncertainty, along with potential travel impact regulations and currency markets, Johan Lundgren - the chief executive - stated that the airline was “operationally well prepared for Brexit” and that “whatever happens, we’ll be flying as usual”. However, there may be disruption if Britain was to crash out of the EU with no-deal - travelling into other country's airspace is governed by a number of international agreements and airlines in the UK have EU operating licenses, which would technically be invalid if no-deal occured.
Ride hailing company, Lyft, publically traded on the market for the first time (known as an Initial Public Office or IPO) last week with a $27bn valuation. Shares in the company rose 9% from $72 each to finish the day at $78.29, with the firm’s shares initially surging 21% to $87 in early trading. Lyft’s IPO had a strong demand as it sold 12% of stocks, raising more than $2bn, making it the biggest US tech IPO since Snap Inc. in 2017. The money raised is intended to be used for operational costs, along with investments in technology and acquisition.
Lyft’s model is built on the premise that having a car is expensive and with more people settling in urban areas, they are relying on the service to get around. Despite this success, Lyft is yet to make a profit, reporting losses of $911m last year, along with $668m the year before. Uber, the company’s larger rival, is planning its own IPO later this year.
Questions to ask - will Lyft be able to compete with Uber after their IPO?
Office space, WeWork’s bond prices fell last week as investors anticipated a heightened risk. WeWork offers freelancers, startups and entrepreneurs shared office space and has grown significantly with 400,000 members in 27 countries. However, there is a risk element to the company’s business model as it has to sign long leases on its properties in order to be able to rent out space to customers on a month-by-month basis.
This generates risk, as if there is an economic downturn, it is very easy for customers to cut office costs - with global economic concerns growing, it appears to have spooked investors. Financial, WeWork isn't in a secure position as costs are increasing - in 2018 it brought in $1.8 billion, double the revenue of 2017, but it also doubled its losses to $1.9 billion.
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