Axel Hefer , CEO of travel-search companyTrivago , said an economic downturn was "for sure" coming.- Hefer said the next four to eight weeks would determine how bad it will be.
Axel Hefer, who runs the travel-search company Trivago, always trusts his gut on financial matters. And right now, to him, the US
An economic downturn is "for sure" coming, the Trivago CEO said. And the next four to eight weeks will determine how bad it will be, he added.
Hefer learned to listen to his instincts after weathering two major economic storms. During the 2001 economic crisis, he was a consultant at McKinsey focused on corporate finance. And during the Great Recession, which began in 2007, he was a partner at a private-equity firm.
"It feels like 2001," Hefer told Insider, referring to the end of the dot-com bubble, when many internet startups fetched gratuitous valuations on Wall Street despite having flimsy business models and scant chances of turning a profit.
"Everything is overheated," he said. "Planes don't depart on time because there's not enough stewards. There's not enough ground handlers. Restaurants can't open because there's not enough workers."
Indeed, the Federal Reserve also believes the US economy is running hot. Rising prices and a tight job market have pushed the central bank to raise short-term interest rates off historic lows — increasing the cost of borrowing — to cool the economy. The Fed's goal is to pull off a difficult maneuver, what Wall Street refers to as a soft landing: slowing the economy without overcorrecting and causing a
America's labor shortage, in particular, does not feel right, Hefer said. "Something has to be structurally wrong," he said. He added that he thinks a downturn will start in the US and spread to Europe because the two economies are so intertwined.
Many workers left the labor force during the darkest days of the pandemic or looked for other work outside areas like retail, restaurants, and travel, which underwent massive layoffs when stay-at-home orders went into effect. Some of these workers — like airline pilots — took early retirement. That's left airlines scrambling to match a big rebound in consumer demand for travel.
Hefer said he was unsure whether the downturn he forecast would be a blip or something bigger. He also doesn't expect the travel industry to face a downturn tomorrow, he said.
"The summer will be strong. Everybody wants a break. We've run research on it. Everybody is very much looking forward to the summer, coming out of lockdowns, depending on where you are based," Hefer said. "We'll see things get worse in autumn."
Fall is when some sort of market downturn, combined with waning travel demand, will hit the industry, he said.
Economists and market analysts are, as always, debating the future of the economy. A Bank of America economist said there's a 40% chance that the US would slip into a recession.
Treasury Secretary Janet Yellen, for her part, said a recession "isn't inevitable" but that inflation was "unacceptably high." That's worrisome because high inflation plus low unemployment, a combination the US is experiencing now, has triggered past downturns. And Ben Bernanke, a former Fed chair, said a recession was possible, though he believed the Fed could steer the economy around a recession or through a mild one if policymakers could bring inflation to heel.
How to prepare for a crisis
At the end of 2021, analysts from the likes of JPMorgan and Bank of America predicted the S&P 500, the broad index linked to many workers' retirement accounts, would gain 4 or 5% in 2022. Halfway through the year, however, the benchmark index is down 21.5%. Hefer said it's time to embrace the realities of labor shortages, supply-chain issues, and inflation at a 40-year high as warning signs.
"Demand is outpacing supply of people for jobs. That doesn't feel right to me, in the same way it didn't feel right when AOL bought Time Warner," Hefer said, referring to a colossal and ill-fated 2001 deal in which America Online purchased the parent company of Time magazine, CNN, and HBO. The maneuver was meant to pave the way for the internet company to take over the media world but came to be regarded as a massive failure.
In case a new crisis does arrive, Hefer suggested coming up with a plan now and tuning out the noise as it approaches.
"You'll have panic. You'll have sentiment moving from left to right. You just have to ignore that," he said. "Come up with a plan. Otherwise, you're pushed by moving sentiment. You have no chance of navigating crisis that way."
For COVID-19's initial hit to the world economy in early 2020, Hefer and his team developed a three-stage plan on the fly. The first stage accounted for what the company would do during a total shutdown. The second accounted for when domestic travel would resume. And the third stage accounted for when things were relatively back to normal. While he didn't know the timing of when one stage would transition into the next, having a three-stage plan "absolutely" helped reduce panic at the company.
"Do what you need to do," he said. "Then focus on the positives. How can you come out of this crisis? How can you turn your weaknesses into strengths? How can you move faster than everybody else? How can you adapt faster to the changing business environment than anybody else?"