The Rhapsody of the Seas cruise ship carrying U.S. citizens leaves the Israeli port of Haifa on October 16, 2023, for evacuation to the Mediterranean island of Cyprus, amid ongoing fighting between Israel and the Palestinian Islamist group Hamas.
Aris Messinis | AFP | Getty Images
Some of the world’s most prominent companies are already seeing how the war between Israel and Hamas affects their operations.
On October 7, the militant group Hamas attacked Israeli cities in a surprise attack, taking more than 200 hostages. More than 7,000 people have been killed in Gaza, according to Palestinian health authorities, while more than 1,400 people have been killed in the country, according to the Israel Defense Forces.
Companies that do business or have operations in the region have already begun to see the war alter their financial outlook as the unrest strains everything from advertising dollars to tourism to supply chains. These early admissions come as world leaders become increasingly concerned that the conflict will continue to worsen and international calls for a ceasefire are rejected.
United Airlines said fourth-quarter performance could vary depending on the length of flight disruptions in Tel Aviv. The updated range for adjusted earnings per share was below analysts’ forecasts.
“We have unparalleled geographic diversity with a large domestic network complemented by the largest international long-distance network, and both are solidly profitable,” CEO Scott Kirby said earlier this month. “While this is a great feature, it does present some short-term risk and volatility, as we are seeing with the temporary margin compression this quarter as a result of the tragedy in Israel.”
Travel changes
United is one of several airlines, including Delta Air Lines and American Airlines, that have rushed to change their schedules in the wake of the conflict. Notably, El Al, the Israeli airline, said it would fly on the Jewish Sabbath for the first time in more than four decades to help bring reservists back into the country from abroad.
Across the travel industry, war is on the minds of business leaders. Airplane maker Boeing said in a regulatory statement that the conflict could potentially affect certain suppliers in addition to airlines.
About 1.5% of Royal Caribbean’s fourth-quarter capacity was scheduled to visit Israel, CEO Jason Liberty said on the cruise line’s earnings call Thursday. Some of the previously expected adjusted sailings have homeports in Haifa, a city in the north of the country.
The company also offered the U.S. government free use of its ship Rhapsody of the Seas to help evacuate Americans from Israel. The company estimated the changed itineraries and use of the ship would affect its earnings by 5 cents per share. The company expects adjusted earnings per share for the year to be between $6.58 and $6.63.
El Al Airlines aircraft will fly in February 2023.
Photo only | Photo only | Getty Images
“I want to recognize… the incredible efforts of our shore teams and crew aboard Rhapsody of the Seas, who worked tirelessly with the U.S. State Department to assist in the safe evacuation of Americans from Israel,” Liberty said. “My heartfelt thanks go to everyone involved.”
Still, Liberty said the cruise line’s customer base is stuck, so it may be more of a question of where they’ll go rather than whether they’ll cancel their plans.
“They will go somewhere with us,” he said. “That’s what we’re focused on, making sure they do.”
“Unpredictable nature”
Tech companies were among those that saw the conflict impact workforces, advertising spending and supply chains.
Snap said in its most recent earnings release that there were pauses in spending on a “large number of primarily brand-focused advertising campaigns” immediately after the start of the war. This has weighed on sales for the quarter so far.
While the company said some of the campaigns that were initially paused have now resumed, the company has also seen others that had not originally stopped advertising now paused. Snap said it would be “unwise” to provide formal guidance on what to expect in the current quarter “due to the unpredictability of war.”
Meta Chief Financial Officer Susan Li said the Facebook and Instagram parent company has seen lower advertising spending so far this quarter, which correlates with the start of the conflict. Li pointed out that this was not necessarily due to a specific event, but that cooler spending in the past has coincided with the start of conflicts such as Russia’s invasion of Ukraine last year.
“This is something we continue to monitor,” Li told analysts during the company’s earnings call on Wednesday. “We have taken into account the latest trends and advertiser responses we have seen in our fourth quarter outlook – which we believe again reflects the greater uncertainty and volatility in the landscape ahead.”
Align Technology expects increasing headwinds from uncertainty and potential supply chain issues related to the conflict, according to Chief Financial Officer John Morici. He said that fourth quarter operating margin, when adjusted to generally accepted accounting principles, is expected to be lower than the previous quarter because in this situation the company is offering severance to adjust for changes in headcount.
Several companies, including Aon and West Pharmaceutical, noted a continued focus on supporting employees and their family members who live and work in the region. Israel is known in part for its vibrant startup and technology scene. Business owners are now wondering how to move forward in the new normal, especially as citizens are called up to serve in reserve units.
ServiceNow CEO William McDermott said during the company’s call with analysts Wednesday that employee Shlomi Sividia was among those murdered at the Supernova Music Festival. He said Sividia was “highly respected, admired and a good friend to many.”
“We stand in solidarity with our team and their families. “Terrorism has caused the unimaginable humanitarian crisis now affecting millions of people in Israel and Gaza,” McDermott said. “Our hearts pray for the innocent on all sides. Although optimism is in short supply, we choose to realize the dream of a peaceful and prosperous future for the Middle East region.”
Defense-focused companies were also on alert as another international conflict broke out.
General Dynamics, the largest U.S. artillery shell maker, had already ramped up artillery production to meet demand amid the Ukraine war, according to Chief Financial Officer Jason Aiken. Now the company is working to increase production from 14,000 to up to 100,000 units per month.
“I think the situation in Israel will only put upward pressure on that demand,” Aiken said during General Dynamics’ earnings call on Wednesday.
— CNBC’s Robert Hum, Morgan Brennan and Leslie Josephs contributed reporting.
Source : www.cnbc.com