The PIE: Where does international education and student housing sit during this pandemic?
Samuel Vetrak: For our sector, mobility is essential and when it was suddenly restricted, there was a big impact. Unfortunately, the ongoing pandemic and related economic difficulties have hit the industry at the most critical time, prior to summer and just before the start of the new school year.
It was a sad and hard hit that nobody could prepare for. Adaptation is taking the best out of all of us, but it needs to be done properly and quickly as otherwise, this will hurt us all for a long time. On the other hand, the student sector has more solid long-term prospects than other sectors – student mobility has increased after every downturn in the last decades.
The PIE: Given your global perspective, what do you think we can expect going forward?
SV: There are two options. Some expect this to take max three months. They believe the market will go back up as rapidly as it went down; a sort of V-shaped crisis. This seems to be unlikely in the globalised world, where it will take time to restore the right health and economic conditions on an international level, as well as enough confidence among consumers for them to spend on services related to mobility.
What seems more realistic is that it will take five-to-six months, with a more moderate and incremental increase, a sort of U-shaped scenario, from the start of the upcoming school year.
The PIE: How does the situation look for English language training?
SV: ELT is the hardest hit and has moved online. How many summer centres will be up and running this year is questionable, too. The schools will most likely have no bookings or ability to deliver, at least it seems that way for July. Most of those we talk to are now working hard to expand their capacity in August instead. Some ELT providers are selling ahead for courses to be run later in 2020 or summer 2021 to achieve some revenues now.
“How many summer centres will be up and running this year is questionable, too”
The PIE: Are schools in a position to start thinking about long-term planning?
SV: As most ELT schools are dealing with the immediate impact on next term’s enrolments, they’re busy converting to online delivery and dealing with cancellations.
But providers are thinking long-term too. For most ELT schools, a reasonable time-limited hibernation at leaner operating levels, together with sourcing credit or government subsidies, and sales where possible, seems to be the best way forward in the short-term.
The PIE: What are your thoughts regarding international high schools?
SV: The high school sector is slightly less affected as some international students were allowed to stay in their study destination. There are less cancellations even though many students are returning.
What we are hearing directly from them or their associations is that some new bookings are coming in for September intakes. Hence, there is less impact and a bit more of a positive outlook in the high school sector.
The PIE: Is the situation the same in higher education?
SV: In higher education, as another academic sector, students have been allowed to stay in most destinations. They are returning even less than the high school students, and new bookings for September intakes are incoming.
The general expectation for the autumn term of 2020 is that fewer students will arrive and take fewer lessons, if necessary, postponing some of their subjects, credits and exams for later semesters in 2021.
“We will definitely see more digitalisation thanks to current patterns and 5G coming at the same time”
The PIE: And what about student accommodation?
SV: Student housing is among the best performers – not only across all student sectors- but also across all real estate asset classes, such as retail, office or hotels, all of which went down rapidly. Student housing premises are still accommodating international students. There is a certain dip, but business is still being done.
As operators collected summer 2020 semester fees earlier, some of them are dealing with cancellations, and a few are allowing full cancellations, or deferring the payments by regarding them as deposits for the next semester.
The PIE: To what extent is student housing impacted, then?
SV: We are currently seeing a certain downturn, but it depends. Some providers have seen only a small dip, around 2%, but some are looking at around the 40% range. It varies by property, university and city/destination in general.
When it comes to bookings for autumn 2020, they are still coming in. It’s not like for the ELT or other short-term programmes. Student housing usually caters for long-term students, and they still plan to come in reasonable numbers for the upcoming semester.
The PIE: How are schools dealing with their financial situation?
SV: Reactions differ. Many are trying to access government support or credit, be it by taking out new loans or selling shares. In terms of human resources, education providers are either offering salary cuts or considering job cuts (or furlough where possible).
In terms of offer, they are trying to keep up their income through online offers, deferred payments or flexible conditions, such as flexible start dates, no or online exams, no deposits, new discounts, vouchers or no cancellation fees. We may see some operations considering exit, in the form of either sale or closure, as a direct consequence of the difficult market situation.
The PIE: Institutions are pivoting towards online delivery – what are you hearing about market reaction?
SV: As mentioned, most educators have moved to online delivery for those students who are already at their destination. However, online delivery doesn’t seem to be a sustainable long-term solution. Agencies stress that international students are paying the fees not only to study abroad, but also to immerse themselves and interact with the local people and culture. It’s about an overall experience that online delivery does not necessarily offer.
“Online delivery doesn’t seem to be a sustainable long-term solution”
As a result, ELT and short-term online programs seek to differentiate from other online provisions available to students, by offering different completion certificates or by augmenting the online course with features simulating wider social interaction, extending the experience beyond classes only.
The online programs of international academic providers are considered slightly differently – they differ from other online offers generally available so it makes more sense for students to commence, continue or complete the course.
The PIE: Reading your research, it looks like consolidation has been gathering pace over the past few years. What is the impact of the pandemic on investments in the sector?
SV: Just before the outbreak, our analysts measured M&A activity for the last five years across all sectors. When it comes to ELT, we found that out of 3,259 English language centres accepting internationally mobile students in the world in 2015, 268 ELT centres have been subjects of M&A, while another 392 centres were closed, most of them – 218 – in the US.
On the other hand, the market has experienced 139 new openings within expansions. As such, about 20% of the industry has consolidated over the last five years.
The PIE: Can we expect that this trend will continue?
SV: Most of the M&As are on hold right now because it’s difficult to visit, to do valuations or sign the deals. It’s not like there won’t be an appetite, as there is still a large amount of capital available, but most investments are being currently postponed.
The PIE: Do you think we will see little-to-no investment in 2020?
SV: Not necessarily. As M&A advisors, we also work with investors seeking opportunities. They see it as a good time to buy for less. We have seen a rise of vertical integration of schools are buying agencies. There are agencies with 40 offices, normally valued at US$20 to $30 million which are now available for less than half that. That is an interesting opportunity for investors and schools with investment capital ready.
The PIE: What will the business landscape look like in the future, do you think?
SV: Naturally, once both the pandemic and the economic difficulties are more under control, we will end up in a new reality – perhaps a bit less demand at the beginning, but increased demand coming later, and most likely with a changed structure, different student preferences and a need for innovation at schools and education providers.
Unfortunately, and certainly, there will be fewer schools and distributors (agencies), which will influence the after-Covid reality as well.
“Most of the M&As are on hold right now because it’s difficult to visit, to do valuations or sign the deals”
The academic sectors with long-term programmes and autumn intake dates in the northern hemisphere will bounce back sooner than language training with short-term programmes.
We will definitely see more digitalisation thanks to current patterns and 5G coming at the same time. That will bring more virtual campus tours to demonstrate schools and accommodation premises. Webinars and video meetings between schools, agents and parents will be the new normal.
Students will continue to study abroad, maybe even more than before the crisis. The question is not whether, but how, we are going to study, or how we are going to book our study.
The PIE: Do you see any commonalities when it comes to price adjustments?
SV: From what we know, there are no plans to make big changes – either to drop or to increase prices. Bookings patterns will change as the bookings will come later and the customer will defer the decision due to weak confidence. There might be fewer bookings at the beginning of a U-shaped recovery, which will bring the need for greater flexibility.
The PIE: You have an office in China. Is business switched back on?
SV: Our experience is that new inquiries for our services are mostly coming for China and Asia as many educators and schools are looking to benefit from the recovering market.
Thanks to our Chinese colleagues’ guanxi and networks, we are in regular touch with dozens of agencies. Most of them have 50:50 online/office availability. There is always at least one person in the office per day, so they can deal with any walk-in inquiries.
The PIE: What is their current focus?
SV: Chinese agencies are now heavily exposed on social media, using WeChat and other digital platforms for marketing. Inquiries are 40% to 60% of what they were pre-COVID-19. Due to limited mobility, agencies are doing a lot of online events either between them and parents, to which they invite schools as well, or there is online B2B trading between schools and agencies in China that we, as a business, also help to organise.
“Chinese agencies are now heavily exposed on social media, using WeChat and other digital platforms for marketing”
The PIE: Have changes been made to how Bonard is operating?
SV: Information is twice as important and relevant these days as it was before, even though our customers may not be in a position to afford it right now. Hence, we provide a lot at no charge, or offer payment terms to help partners get service now and pay in instalments, or when the market picks up again.
As for the service, we empowered our operation in Asia in order to better serve China, Pacific Asia and Australia. Also, we expanded our team in Latin America earlier this year. And while we had previously offered digital marketing advisory and implementation only on an occasional basis, we are now making it a more regular offer to educators to enable them to better reach students in source markets.