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TRANSCRIPT
May 2020
Impact of the COVID-19 pandemic on fee-paying schools in England
Impact of the COVID-19 pandemic on fee-paying schools in England
1EY-Parthenon |
Overview
The fee-paying school sector has weathered several economic crises while maintaining overall enrollment and feel levels …
• ►Overall fee-paying school enrollments followed an upward trajectory until the mid 2000s. Demand has since remained robust despite tuition fees increasing at a faster rate than increases in average household income
• ►Enrollments declined modestly in the last two major economic recessions — 1990s and the financial crisis. Supported by favorable domestic demographics and an increasing number of international students, the 2008 financial recession had a smaller impact on enrollments (–1% peak to trough decline) compared to the 1990s recession (–2% peak to trough decline)
… however it has not yet faced declining affordability with a concurrent fall in international demand
• ►In the forthcoming recession, travel restrictions are likely to limit the number of international students entering the UK K-12 school market
• ►After a decade of increases, tuition fees are a higher proportion of household income than in previous recessions (20% in 2008 recession vs. 26% currently). An increase in unemployment/a fall in household income could impact affordability more than previously
• ►Further more, while domestic demographic trends will continue to be favorable, the rate of growth is expected to slow, especially for primary age groups, further impacting the enrollment potential of fee-paying schools
The COVID-19 pandemic could have a larger impact on fee-paying enrollments (3–7% decline peak to trough) than previous recessions (1–2% decline)
• ►Enrollments could decline by 3% (from a peak AY20 to a trough in AY24). This is based on a scenario where domestic demand falls at the same rate observed in the last recession and where there is 40% drop in new international student intake
• ►In case of a more severe recession and a 60% fall in new international student intake, enrollments could decline by 5% (AY20–24)
• ►In the case of a more prolonged economic downturn leading to a severe recession, and where both new and existing international student enrollments fall sharply, enrollments could decline by 7% (AY20–24)
• Overall impact is likely to vary by catchment e.g., London and South-East may be more resilient but Central London is likely a little more exposed to the international student movement
170–180 schools could be at risk of closure, falling below a minimum viable capacity utilization (<40%)
• ►Corresponding to the demand contraction, there are 170–180 schools that could fall below 40% capacity utilization. It is highly likely that these schools will be unable to sustain themselves in the long-run and either look to embark on a distressed sale or be forced to close. Fee-paying school capacity could shrink by 1% were these schools to close — some of the existing pupils may transfer to other fee-paying schools vs. a state school
• ►For the overall sector, capacity utilization could fall from the current 85% to 80%–81% under the different scenarios
• ►As ever, tier-1 schools are likely to be less impacted than tier-2 and tier-3 schools
Source: DFE; ISC annual surveys
Impact of the COVID-19 pandemic on fee-paying schools in England
2 | EY-Parthenon
There are 2.3k fee-paying schools in England accounting for ~7% of total K-12 enrollmentK-12 school enrollment, England, AY04–20
0.0mAY04 AY05 AY06 AY07 AY08 AY09 AY10 AY11 AY12 AY13 AY14 AY15 AY16 AY17 AY18 AY19 AY20
1.0m
2.0m
3.0m
4.0m
5.0m
6.0m
7.0m
8.0m
9.0m
7.79m
8.38m
0.58m
7.71m
8.29m
0.58m
7.59m
8.17m
0.58m
7.51m
8.09m
0.58m
7.55m
8.12m
0.58m
7.67m
8.25m
0.58m
7.86m
8.44m
0.58m
8.09m
8.67m
0.58m
8.24m
8.82m
0.58m
7.76m
8.35m
0.59m
7.65m
8.23m
0.58m
7.54m
8.12m
0.58m
7.52m
8.10m
0.58m
7.60m
8.18m
0.58m
7.75m
8.33m
0.58m
7.98m
8.56m
0.58m
8.15m
8.74m
0.58m
CAGR ‘13–’20
1.1%
CAGR ‘10–’12
0.2%
CAGR ‘04–’09 –06%
0.0%
+167
+0.2
–0.7%
–0.5%
+59
–0.1
0.3%
0.1%
–101
–0.5
1.2%
# of fee-paying schools
2160 2302 2250 2261 2284 2327 2356 2376 2415 2420 2413 2411 2357 2311 2297 2320 2319
% of overall
7.00% 7.00% 7.00% 7.10% 7.10% 7.20% 7.20% 7.10% 7.10% 7.10% 7.00% 6.90% 6.90% 6.80% 6.70% 6.70% 6.60%
Change
Fee-paying Other schools
Source: DFE; ISC annual surveys
Impact of the COVID-19 pandemic on fee-paying schools in England
3EY-Parthenon |
Enrollments in fee-paying schools declined modestly in the last two major recessions. Demographics were increasing in the financial crisis but falling in the 1990s recession …
Source: DFE
560k
580k
600k
0k
590k
570k
AY -02
AY -19
AY -17
AY -11
AY -93
AY -91
AY -92
AY -94
AY -95
AY -98
AY -96
AY -97
AY -99
AY -20
AY -00
AY -01
AY -09
AY -03
AY -04
AY -13
AY -07
AY -16
AY -15
AY -08
AY -06
AY -12
AY -14
AY -18
AY -05
AY -10
0.0m
11.0m
11.2m
10.2m
10.8m
11.4m
10.4m
10.6m
AY -06
AY -20
AY -18
AY -96
AY -15
AY -04
AY -91
AY -92
AY -94
AY -09
AY -00
AY -02
AY -17
AY -03
AY -05
AY -14
AY -07
AY -97
AY -01
AY -10
AY -11
AY -12
AY -13
AY -98
AY -16
AY -99
AY -19
AY -95
AY -93
AY -08
5.2%
5.5%
0.0%
5.7%
5.4%
5.6%
5.3%
AY -16
AY -01
AY -05
AY -15
AY -07
AY -02
AY -17
AY -19
AY -00
AY -09
AY -91
AY -97
AY -92
AY -93
AY -94
AY -95
AY -96
AY -98
AY -99
AY -03
AY -04
AY -06
AY -11
AY -08
AY -10
AY -12
AY -20
AY -13
AY -14
AY -18
Fee-paying school enrollment (k), England, AY91–20
1990s recession
Financial crisis
3–19 year olds (m), England, AY91–20
% adoption of fee-paying schools, England, AY91–20
Impact of the COVID-19 pandemic on fee-paying schools in England
4 | EY-Parthenon
… and so the financial crisis had a smaller impact on enrolments (–1% peak to trough decline) compared to the 1990s recession (–2% peak to trough decline) …
% totalenrol. 7.4% 7.4% 7.3% 7.1% 7.1% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 7.0% 7.1% 7.0% 7.0% 7.0% 7.1% 7.1% 7.2% 7.2% 7.2% 7.1% 7.1% 7.0% 6.9% 6.9% 6.8% 6.7% 6.7% 6.6%
570k
560k
590k
575k
580k
0k
595k
585k
555k
565k
557
567
582
560
AY-
93
AY-
91
559
581
577
556
587
AY-
99
566
AY-
03
AY-
92
AY-
06
AY-
01
AY-
94
AY-
95
AY-
96
575
559
AY-
02
AY-
97
568
577
AY-
98
AY-
04
572A
Y-00
586
AY-
09
595
AY-
05
580
AY-
07
582
AY-
10
AY-
11
AY-
08
AY-
12
577
AY-
13
580
AY-
14
579
AY-
15
583
AY-
16
576
AY-
17
583
AY-
18
582
AY-
19
581
AY-
20
583
578
583
Drop due to change inmethodology-City techcolleges were includedbefore AY-03
Fee-paying school enrollment, England, AY91–20
Drop in demand= 11k (–2%)
Drop in demand= 6k (–1%)
Source: DFE
Impact of the COVID-19 pandemic on fee-paying schools in England
5EY-Parthenon |
… however, during the financial crisis international students grew at 7% CAGR, which partly offset the impact of declining domestic enrollment (2.2% peak to trough decline)Fee-paying school enrollment, Domestic vs. International England, AY09–12
% international 4.2% 4.6% 4.8%
CAGR CAGR CAGR(‘10-’11) (‘11-’12) (‘10-’12)
-0.5% -1.1% -0.8%
-0.9% -1.4% -1.1%
8.1% 5.4% 6.7%
493k 489k 482k
0k
100k
200k
300k
400k
500k
600k
22k
515k
AY1123k
AY10
512k
25kAY12
507k
Peak to trough decline for domestic students for ISC schools was 2.2%
Source: ISC
Note: International-domestic split is available for ISC member schools only
Impact of the COVID-19 pandemic on fee-paying schools in England
6 | EY-Parthenon
Up until the mid-2000s there had been a long-term upward trend in overall fee-paying school enrollments; enrollment demand has remained robust over the last decade …Fee-paying school enrollment (k), England, AY82–20
Fee-paying schools have weathered a number of crises while maintaining overall enrollment. They have been able to ensure utilization at the highest possible fee point through a combination of demographics and domestic and international student mix.
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020400k
450k
500k
600k
550k
Enrolment
Source: DFE
Impact of the COVID-19 pandemic on fee-paying schools in England
7EY-Parthenon |
… and this was despite tuition fees increasing at a faster rate than increases in average household incomeAnnual change in day fee levels, fee-paying schools 2011–20F
Fee-paying schools have weathered a number of crises while maintaining overall enrollment. They have been able to ensure utilization at the highest possible fee point through a combination of demographics and domestic and international student mix.
Annual fees (£k)
8.7 9.2 9.7 10.1 10.6 11.1 11.5 12.0 12.4 12.9 13.3 13.8 14.3
6.0%5.8%
6.0%
4.1%
4.7% 4.6%
4.0% 4.0%3.7% 3.6% 3.6% 3.5%
3.8%
0
1
2
3
4
5
0
1
2
3
4
5
6
AY12 AY18AY08 AY19AY10AY09 AY15AY14AY11 AY16AY13 AY17 AY20
YOY HH Income growth
Fee increase
Source: DFE; ISCNote: International-domestic split is available for ISC member schools only
Impact of the COVID-19 pandemic on fee-paying schools in England
8 | EY-Parthenon
What could be different about the forthcoming recession?
Domestic demographic growth is slowing, especially for primary age groups
Tuition fees are a higher proportion of average household income, impacting affordability more than previously
Travel restrictions will limit the number of international students coming to the UK
Growth in total population aged 3–19, primary vs. secondary group, AY08–24E
Tuition fees as a % of average HH income, England AY08 vs. AY20
• Travel restrictions and difficulties with visa applications are expected to translate into a decline in the number of international students
• Parents are likely to be concerned with the health and safety of their children, especially younger children, and may chose to defer study plans
• The impact is likely to be more pronounced on new student intake (~40% of all international enrollment at fee-paying schools in UK)
• Existing students who have committed to an international education may choose to complete their education
• Schools charge and generate higher revenue per international student compared to a UK student and so may need to recruit 1.5 to 2 domestic students for the loss of 1 international student
21%
26%
0%
5%
10%
15%
20%
25%
30%
AY08 AY20
0.6%
1.7%
–0.5%
–0.2%
–0.4%
2.2%
0.3%
0.8% 0.7%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
AY08–AY12 AY12–AY20 AY20–24E
Primary (3–11) Secondary (11–19) Total
QS survey of intl HE students indicates a potential 55% drop in first year students
QS
Source: DFE; ONS; ISC Annual surveys; QS Survey March 2020
Impact of the COVID-19 pandemic on fee-paying schools in England
9EY-Parthenon |
We have considered different time periods and scenarios to estimate the impact of the COVID-19 pandemic on fee-paying school enrollment
Market development:
• ►Many fee-paying schools are offering discounts ranging from 10 to 50% for the summer term
• ►Schools are also offering rebates for meals, transport, boarding and extracurricular activities
• ►Schools that have not reduced fees are facing increasing pressure from parents for refunds and discounts
Historical trends:
• ►Given the nature of K-12 education, it is expected that parents will not switch schools in an academic year
• ►During the last recession, there was a lag between the onset of economic downturn in 2008 and the decline in fee-paying school enrollments starting in 2009
Domestic (% enrollment CAGR)
International (% students who will drop out)
Overall market between AY22–24
Scenario 1 • Decline in domestic enrollment based on last recession, adjusted for demographics
–0.7% • ~40% drop in new international students entering the UK market
–15% • Market to decline AY21 to AY22 based on the trends observed in the last recession
• From AY22–24, market will continue to fall albeit at a slower rate (similar in shape to the last two recessions). Some signs of recovery starting AY24
Scenario 2 • More severe economic downturn compared to last recession, adjusted for demographics
–1.1% • ~60% drop in new international students entering the UK market
–25%
Scenario 3 • Prolonged economic downturn leading to severe recession (similar to 1990s fall in enrollments), adjusted for demographics
–1.6% • ~70% drop in new international students entering the UK market alongside drop in existing enrolled students
–30%
Summer term Long-term (AY22–24)Next academic year (AY21)
Source: EY-Parthenon analysis
Impact of the COVID-19 pandemic on fee-paying schools in England
10 | EY-Parthenon
Enrollments could decline by 3% in a scenario based on the last recession. A more severe recession with fewer international students, enrollments could decline by 5–7%
Scenario 1 Scenario 2 Scenario 3
Domestic: Enrolment decline @ –0.7% CAGR based on last recession (adjusted for demographics)
International: 40% drop in new international students
Domestic: Enrolment decline @ –1.1% CAGR in case of more severe recession (adjusted for demographics)
International: 60% drop in new international students
Domestic: Enrolment decline @ –1.6% CAGR in case of prolonged recession
International: 70% drop in new international students and drop in existing enrolled students
570k
580k
565k
585k
560k
575k
0k
590k
AY22E
562k
AY21E
581k
563k
AY24E
572k
AY20 AY23E
566k
–1.5%
–1.2%
–0.5%–0.2%
AY23E
550k
AY20 AY21E AY22E AY24E
554k
567k
558k
581k
–2.4%
–1.6%
–0.9%
–0.6%
551k
563k
AY24E
538k
AY20 AY21E AY22E
581k
544k
AY23E
–3.1%
–2.1%
–1.4%
–1.1%
Enrollment decline (’20–’24E) –19.1K % fall in demand –3.30%
Enrollment decline (’20–’24E) –30.5K % fall in demand –5.30%
Enrollment decline (’20–’24E) –43.0K % fall in demand –7.40%
Source: EY-Parthenon analysis
Fee-paying school enrollment, England, 2019–23E Fee-paying school enrollment, England, 2019–23E Fee-paying school enrollment, England, 2019–23E
Impact of the COVID-19 pandemic on fee-paying schools in England
11EY-Parthenon |
Lower affordability and slowing demographic growth will likely impact domestic enrollment more than in previous recessions
99
96
0
97
9495
98
100101
Year 4Year 1 Year 3Year 0 Year 2
1990 Recession
Scenario 1Scenario 2Scenario 3
2008 Recession
100
0
98
94
96
92
Year 0 Year 1 Year 2 Year 3 Year 4
-0.17 ppt-0.12 ppt
-0.26 ppt-0.33 ppt
-0.42 ppt
Peak to trough fall
-1.1%-1.6%-2.5%
-4.0%
-5.9%
Peak to trough fall
101
100
103
0
102
Year 4Year 1 Year 3Year 0 Year 2
CAGR over 4 years+0.7%
+0.3%
+0.2%
Source: EY-Parthenon analysis
Indexed Domestic Fee-paying school enrolment (k), England
Indexed 3-19 year olds (m), England
Indexed Domestic Fee-paying implied school adoption (k), England
Impact of the COVID-19 pandemic on fee-paying schools in England
12 | EY-Parthenon
Adoption for fee-paying schools fell by 0.1–0.2 ppt in the previous recessions; under the different scenarios, domestic adoption of fees-paying schools could decline by 0.3–0.4ppt
-0.17 ppt
-0.12 ppt
-0.26 ppt
-0.33 ppt
-0.42 ppt
-0.5%
-0.4%
-0.3%
-0.2%
-0.1%
0.0%
Scenario 3Scenario 11990 Recession 2008 Recession Scenario 2
Change in adoption
2008 Recession
Scenario 1
Scenario 3
Scenario 2
1990 Recession
Change in implied adoption of fee-paying schools, Domestic students, Historical vs. Forecast (Peak to trough)
Adoption in AY24
4.6% 4.4%4.5%
Source: EY-Parthenon analysis
Impact of the COVID-19 pandemic on fee-paying schools in England
13EY-Parthenon |
Declining domestic affordability with a concurrent fall in international demand will likely impact overall enrollment more than previous recessions
93
0
94
95
96
97
92
99
1
100
101
98
Year 0 Year 1 Year 2 Year 3 Year 4
Peak to trough fall
-1.1%
-1.7%
-3.3%
-5.3%
-7.4%
2008 Recession
Scenario 1
Scenario 3
Scenario 2
1990 Recession
Indexed total fee-paying school enrollment (k), England
Source: EY-Parthenon analysis
Impact of the COVID-19 pandemic on fee-paying schools in England
14 | EY-Parthenon
Corresponding to the demand contraction, supply could shrink by 1% under the different scenarios; 170–180 schools could be at risk of closure
Scenario 1 Scenario 2 Scenario 3
Impact per school (Impact per school has been distributed in-line with their current share of enrollment)
Impact per school (Impact per school has been distributed in-line with their current share of enrollment)
Impact per school (Impact per school has been distributed in-line with their current share of enrollment)
At-risk schools: below 40% capacity utilization (Based on financially viable benchmarks)
At-risk schools: below 40% capacity utilization (Based on financially viable benchmarks)
At-risk schools: below 40% capacity utilization (Based on financially viable benchmarks)
Enrollment decline Enrollment decline Enrollment decline–19.1K (–3.3%)
–30.5K (–5.3%)
–43.0K (–7.4%)
= = =
# of schools # of schools # of schools2.3k 2.3k 2.3k= = =
Enrollment at-risk schools
Enrollment at-risk schools
Enrollment at-risk schools
7.0k 7.3k 7.7k= = =
# of at-risk schools # of at-risk schools # of at-risk schools167 173 182= = =
Supply contraction Supply contraction Supply contraction1.2% 1.2% 1.3%= = =
Source: Edubase; DFE; ISC; EY-Parthenon analysis
Impact of the COVID-19 pandemic on fee-paying schools in England
15EY-Parthenon |
Capacity utilization for fee-paying schools could fall by 4–6 ppt under the different scenarios
85%81%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
-
85%81%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
86%
80%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
-3.7 ppt - -4.5 ppt - -6.4 ppt
85%81%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
-
85%81%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
86%
80%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
-3.7 ppt - -4.5 ppt - -6.4 ppt
85%81%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
-
85%81%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
86%
80%
0
20
40
60
80
100
Old(AY20)
New(AY24E)
-3.7 ppt - -4.5 ppt - -6.4 ppt
Scenario 1 Scenario 2 Scenario 3
Capacity utilization*, Fee-paying schools, AY20–24E
N=1641
Capacity utilization*, Fee-paying schools, AY20–24E
N=1636
Capacity utilization*, Fee-paying schools, AY20–24E
N=1629
Note: *For like to like comparison, schools that do not fall below <40% capacity utilisation have been taken in each scenario. Source: Edubase; DFE; ISC; EY-Parthenon analysis
The capacity utilisation is pre-closure of the 170 schools. It is likely that once the 170 schools shut, some of the students will move to other fee paying schools, improving the capacity utilisation of the remaining sector.
Impact of the COVID-19 pandemic on fee-paying schools in England
16 | EY-Parthenon
Contacts
Matt RobbPartner EY-Parthenon Ernst & Young LLP
+44 7791 349 228 [email protected]
Anna GrotbergAssociate Partner EY-Parthenon Ernst & Young LLP
+44 7393 759 061 [email protected]
Derrick BettsAssociate Partner EY-Parthenon Ernst & Young LLP
+44 20 7201 0456 [email protected]
Corey ThomixAssociate Partner EY-Parthenon Ernst & Young LLP
+44 20 7201 0473 [email protected]
Aashima JainManager EY-Parthenon Ernst & Young LLP
+44 20 7760 8130 [email protected]
Raunaq SabharwalDirector EY-Parthenon Ernst & Young LLP
+44 20 7783 0021 [email protected]
For more information on the EY-Parthenon Education sector of the EY network, please visit parthenon.ey.com.
Impact of the COVID-19 pandemic on fee-paying schools in England
17EY-Parthenon |
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